complete merger, i. e., in which all the properties brought under a common control were owned directly by one corporation. The most important instance of a partial merger was the American Tobacco Co., and the opinion of the court in this case is referred to below. Another important partial merger was that of the du Pont Powder Co. The final judicial decision in this instance was rendered in a circuit court, and the opinion in this case also is referred to below. The clearest case of a merger was decided in a district court (United States v. International Harvester Co.), which is also noted below. This case has been appealed to the Supreme Court and is now pending.

UNITED STATES v. AMERICAN TOBACCO Co. (221 U. S., 106), SUPREME COURT. 1911.-The American Tobacco Co., formed in 1890, was originally a combination of competing cigarette manufacturers having about 95 per cent of the total production of the United States, who transferred their manufacturing property and business to the American Tobacco Co. in exchange for its stock. This corporation then expanded its business into plug tobacco by purchasing the businesses of several manufacturers, who agreed not to reengage therein. Other more important plug makers were invited to join the combination, and on their refusal a price-cutting competitive policy was adopted which was ended by the purchase of some of them. The combination, with certain other plug manufacturers, organized the Continental Tobacco Co. in 1898, and conveyed to it the property and business pertaining to the plug branch of the business, taking in exchange most of the stock of the company; part of the stock of the Continental Tobacco Co., together with cash, was given in exchange for most of the stock of another important tobacco manufacturing concern-the P. Lorillard Co. From 1900 to 1902 two companies were organized which acquired dominating positions in the snuff and licorice businesses, respectively, while less important combinations were formed in the cigar and stogie branches, all of these being controlled through stock ownership by the combination. Further, in 1901 a few of the leading shareholders of the American Tobacco Co., and a few other large capitalists, organized the Consolidated Tobacco Co., a financial company merely, which acquired most of the common stock of the American Tobacco Co. in exchange for its bonds. In 1904 the American, Continental, and Consolidated Tobacco companies were all merged into a new corporation called the American Tobacco Co., this merger continuing to hold also the stocks of various other tobacco companies. The few capitalists who controlled the Consolidated Tobacco Co. thus became the dominating shareholders in this merger. Throughout the period from 1899 to the time of the suit, 1907, many millions were expended by the combination in buying out competing tobacco companies and closing down their plants, while their former owners agreed not to reenter their respective lines of business.

The court held that the combination was an attempt to monopolize and a monopolization of the tobacco trade, contrary to the Sherman Act, and said in part (pp. 181–183):

Considering then the undisputed facts which we have previously stated, it remains only to determine whether they establish that the acts, contracts, agreements, combinations, etc., which were assailed were of such an unusual and wrongful character as to bring them within the prohibitions of the law. That they were, in our opinion, so overwhelmingly results from the undisputed facts that it seems only necessary to refer to the facts as we have stated them to demonstrate the correctness of this conclusion. Indeed, the history of the combination is so replete with the doing of acts which it was the obvious purpose of the statute to forbid, so demonstrative of the existence from the beginning of a purpose to acquire dominion and control of the tobacco trade, not by the mere exertion of the ordinary right to contract and to trade, but by methods devised in order to monopolize the trade by driving competitors out of business, which were ruthlessly carried out upon the assumption that to work upon the fears or play upon the cupidity of competitors would make success possible. We say these conclusions are inevitable, not because of the vast amount of property aggregated by the combination, not because alone of the many corporations which the proof shows were united by resort to one device or another. Again, not alone because of the dominion and control over the tobacco trade which actually exists, but because we think the conclusion of wrongful purpose and illegal combination is overwhelmingly established by the following considerations:

(a) By the fact that the very first organization or combination was impelled by a previously existing fierce trade war, evidently inspired by one or more of the minds which brought about and became parties to that combination.

(b) Because, immediately after that combination and the increase of capital which followed, the acts which ensued justify the inference that the intention existed to use the power of the combination as a vantage ground to further monopolize the trade in tobacco by means of trade conflicts designed to injure others, either by driving competitors out of the business or compelling them to become parties to a combinationa purpose whose execution was illustrated by the plug war which ensued and its results, by the snuff war which followed and its results, and by the conflict which immediately followed the entry of the combination in England and the division of the world's business by the two foreign contracts which ensued.

(c) By the ever-present manifestation which is exhibited of a conscious wrongdoing by the form in which the various transactions were embodied from the beginning, ever changing but ever in substance the same. Now the organization of a new company, now the control exerted by the taking of stock in one or another or in several, so as to obscure the result actually attained, nevertheless uniform, in their manifestations of the purpose to restrain others and to monopolize and retain power in the hands of the few who, it would seem, from the beginning contemplated the mastery of the trade which practically followed.

(d) By the gradual absorption of control over all the elements essential to the successful manufacture of tobacco products, and placing such control in the hands of seemingly independent corporations serving as perpetual barriers to the entry of others into the tobacco trade.

(e) By persistent expenditure of millions upon millions of dollars in buying out plants, not for the purpose of utilizing them, but in order to close them up and render them useless for the purposes of trade.

(f) By the constantly recurring stipulations, whose legality, isolatedly viewed, we are not considering, by which numbers of persons, whether manufacturers, stockholders or employees, were required to bind themselves, generally for long periods, not to compete in the future. Indeed, when the results of the undisputed proof which

we have stated are fully apprehended, and the wrongful acts which they exhibit are considered, there comes inevitably to the mind the conviction that it was the danger which it was deemed would arise to individual liberty and the public well-being from acts like those which this record exhibits, which led the legislative mind to conceive and to enact the Antitrust Act, considerations which also serve to clearly demonstrate that the combination here assailed is within the law as to leave no doubt that it is our plain duty to apply its prohibitions.

Considering the form of remedy and the difficulties attendant thereon, the court said with reference to the extensive merger of ownership (pp. 185–186):

Because in this case it is obvious that a mere decree forbidding stock ownership by one part of the combination in another part or entity thereof, would afford no adequate measure of relief, since different ingredients of the combination would remain unaffected, and by the very nature and character of their organization would be able to continue the wrongful situation which it is our duty to destroy.

In connection with this decision it should be pointed out that the form of dissolution which was finally accepted by the court provided for an extensive splitting up into companies, specially created for this purpose, not only of the American Tobacco Co. but also of some of the chief subsidiary companies, such as the snuff company and the licorice company. (See pp. 18-21.) In other words, where a merger of property and business had been accomplished, the court provided that it should be divided among several independent companies in order to reestablish conditions in harmony with the law.

UNITED STATES v. E. I. DU PONT DE NEMOURS & Co. (188 Fed., 127), CIRCUIT COURT, 1911.-The United States brought suit to procure the dissolution of a combination of powder manufacturers. The facts and the decision in this case are shown in the following excerpt from the opinion of the court (pp. 151–152):

The record of the case now before us shows that from 1872 to 1902, a period of 30 years, the purpose of the trade associations had been to dominate the powder and explosives trade in the United States, by fixing prices, not according to any law of supply and demand, for they arbitrarily limited the output of each member, but according to the will of their managers. It appears, further, that although these associations were not always strong enough to control absolutely the prices of explosives, their purpose to do so was never abandoned. Under the last of the trade association agreements— the one dated July 1, 1896, and which was in force until June 30, 1904-the control of the combination was firmer than it had before been. Succeeding the death of Eugene du Pont in January, 1902, and the advent of Thomas Coleman du Pont and Pierre S. du Pont, the attempt was made to continue the restraint upon interstate commerce and the monopoly then existing by vesting, in a few corporations, the title to the assets of all the corporations affiliated with the trade association, then dissolving the corporations whose assets had been so acquired, and binding the few corporations owning the operating plants in one holding company, which should be able to prescribe policies and control the business of all the subsidiaries without the uncertainties attendant upon a combination in the nature of a trade association. That attempt. resulted in complete success.

Much the larger part of the trade in black and smokeless powder and dynamite in the United States is now under the control of the combination supported by the

28 defendants above named. That combination is the successor of the combination in existence from 1896 to June 30, 1904. It is a significant fact that the trade association, organized under the agreement of July 1, 1896, was not dissolved until June 30, 1904. It had been utilized until that date by Thomas Coleman du Pont, Pierre S. du Pont, and Alfred I. du Pont in suppressing competition and thereby building up a monopoly. Between February, 1902, and June, 1904, the combination had been so completely transmuted into a corporate form that the trade association was no longer necessary. Consequently the trade association was dissolved, and the process of dissolving the corporations whose capital stocks had been acquired, and concentrating their physical assets in one great corporation, was begun. Before the plan had been fully carried out this suit was commenced. The proofs satisfy us that the present form of the combination is no less obnoxious to the law than was the combination under the trade association agreement, which was dissolved on June 30, 1904. The 28 defendants are associated in a combination which, whether the individual defendants were aware of the fact or not, has violated and still plans to violate both section 1 and section 2 of the antitrust act. We conclude that it is our plain duty to grant such a decree as will prevent and restrain further violations of the act.

UNITED STATES v. INTERNATIONAL HARVESTER Co. (214 Fed., 987), District Court, 1914.-Five of the leading manufacturers of harvesting machinery, who controlled the output of over 80 per cent of the business in the United States, conveyed their properties to the International Harvester Co., a corporation which had been organized for the purpose of taking over and operating the businesses. Subsequently, the plants and good will of several smaller competing factories were purchased and the manufacture of additional kinds of farm machinery was taken up. The Government brought suit against the International Harvester Co. as an illegal combination. The court held that the company from the beginning had been in violation of the Sherman Act.

The court said, in part (p. 991):

No weight is attached therefore to the means by which the combination was formed if a combination within the purview of the statutes was created. That it was a combination of five companies is clear. The fact that this combination took the form of a new corporation is immaterial. United States v. American Tobacco Co., 221 U. S. 106, 31 Sup. Ct. 632, 55 L. Ed. 663; United States v. E. I. Du Pont De Nemours & Co. (C. C.) 188 Fed. 127.

Was this combination in restraint of trade? It substantially suppressed all competition between the five companies, and the restraint of competition between combining companies is as illegal as destruction of competition between them without combining.

Mr. Justice Hook, who concurred in the opinion of the court, filed a separate opinion, in which he said, in part (p. 1001):

I concur in the foregoing opinion. The International Harvester Company is not the result of the normal growth of the fair enterprise of an individual, a partnership or a corporation. On the contrary, it was created by combining five great competing companies which controlled more than 80 per cent, of the trade in necessary farm implements, and it still maintains a substantial dominance. That is the controlling fact; all else is detail.

This case has been appealed and is now pending.

Section 15. Holding companies.

The holding company as a device for combining competitive interests succeeded to the "trust" form of organization, as already described in Chapter I. (See pp. 8-9.) The holding company in its pure form is one which simply owns the stocks of the companies whose property and business are under its control. Most holding companies, however, own and operate directly a part of the property and business under their control. A few years after the enactment of the Sherman Law it became one of the principal methods of combining competitors. No authoritative decision by the Supreme Court was made with regard to its legality until the Northern Securities case was decided in 1904.

NORTHERN SECURITIES Co. v. UNITED STATES (193 U. S., 197), SUPREME COURT, 1904.-The facts in this case are more fully stated. on page 73. More briefly they were as follows: Stockholders in two parallel and competing interstate railroads organized the Northern Securities Co. to acquire and hold the shares of the said railroads, and in consequence most of the shares of the said two railroad companies were so acquired. Most of the shareholders of the railroad companies exchanged their shares for shares of the Northern Securities Co. on an agreed basis. The Government brought suit to prevent the Northern Securities Co. from voting such shares, and to compel it to reexchange them for its own shares, etc.; also to enjoin the carrying out of the scheme of combination. The court held that this combination in the form of a holding company was in restraint of interstate commerce and contrary to the Sherman Act.

Justice Harlan, speaking for himself and three other justices, said in part (p. 338):

But even if the State allowed consolidation it would not follow that the stockholders of two or more State railroad corporations, having competing lines and engaged in interstate commerce, could lawfully combine and form a distinct corporation to hold the stock of the constituent corporations, and, by destroying competition between them, in violation of the act of Congress, restrain commerce among the States and with foreign nations.

Justice Brewer in his concurring opinion said in part (p. 362):

*

There was a combination by several individuals separately owning stock in two competing railroad companies to place the control of both in a single corporation. The purpose to combine and by combination destroy competition existed before the organization of the corporation, the Securities Company * *. A corporation, while by fiction of law recognized for some purposes as a person and for purposes of jurisdiction as a citizen, is not endowed with the inalienable rights of a natural person. It is an artificial person, created and existing only for the convenient transaction of business. In this case it was a mere instrumentality by which separate railroad properties were combined under one control. That combination is as direct a restraint of trade by destroying competition as the appointment of a committee to regulate rates.