of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the article, will be upheld by the courts. The fact that the conditions in the contracts keep up the monopoly or fix prices does not render them illegal."

The contention had been made that the contracts did not affect interstate commerce. But, said the Court, the contracts plainly looked not only to the manufacture of these harrows in Michigan, but to their sale throughout the United States; in fact, they determined the price at which the article was to be sold throughout the country. Interstate commerce being involved, were the contracts illegal? The Court answered in the negative. "It is true," it said, "that it has been held by this court that the act included any restraint of commerce, whether reasonable or unreasonable. . . . But that statute clearly does not refer to that kind of a restraint of interstate commerce which may arise from reasonable and legal conditions imposed upon the assignee or licensee of a patent by the owner thereof, restricting the terms upon which the article may be used and the price to be demanded therefor. Such a construction of the act we have no doubt was never contemplated by its framers."

The Supreme Court threw out an implication that its decision might have been different were it established that there was a general combination among the dealers in patented harrows to regulate the sale and price of such harrows. Inasmuch, however, as no such combination had been established, its decision was based on the legality of the specific contracts presented to it for its consideration.

NORTHERN SECURITIES COMPANY v. UNITED STATES

2

The Northern Securities Company was incorporated in New Jersey in November, 1901, to bring under a common control the Northern Pacific Railway and the Great Northern Railway, two parallel and competing lines in the Northwest. The Northern Securities Company was to be a holding company; and it shortly acquired, by giving its own stock in exchange, more than 1 Cf. 226 U. S. 48. U. S. 197-411 (March 14, 1904).

2

193

nine-tenths of the stock of the Northern Pacific and more than three-fourths of the stock of the Great Northern. The natural effect of this arrangement undoubtedly would have been to end. the competition between these two railroads; the former stockholders in the two roads, as common stockholders in the holding company, would have been interested in preventing competition, and they would have chosen as directors men who would carry out their wishes in this matter. The government, therefore, instituted a suit in equity (March 10, 1902) to have the Northern Securities Company dissolved as a combination in restraint of interstate commerce, and the railway stocks held by it returned. It charged that if this combination were not declared illegal, the efforts of the national government to preserve to the people the benefits of free competition among interstate railways would prove unavailing; in fact, that all the railroads of the country might be consolidated into one system.

The Supreme Court by a vote of 5 to 4 sustained the decree of the lower court ordering the Northern Securities Company dissolved. It said, "No scheme or device could more certainly come within the words of the act-combination in the form of a trust or otherwise . . . in restraint of commerce among the several States or with foreign nation,'-or could more effectively and certainly suppress free competition between the constituent companies. This combination is, within the meaning of the act, a 'trust'; but if not, it is a combination in restraint of interstate and international commerce; and that is enough to bring it under the condemnation of the act."

The Court in this connection took occasion to summarize the earlier cases arising under the anti-trust act which had received consideration at its hands. It pointed out that from these earlier decisions certain propositions bearing on the present case were plainly deducible. These propositions, stating in a nutshell the meaning of the Sherman Act as interpreted up to that time, were:

"That although the act of Congress known as the Anti-Trust 1 The minority filed a long dissenting opinion, written in part by Justice White and in part by Justice Holmes. 193 U. S. 364-411.

Act has no reference to the mere manufacture or production of articles or commodities within the limits of the several States, it does embrace and declare to be illegal every contract, combination or conspiracy, in whatever form, of whatever nature, and whoever may be parties to it, which directly or necessarily operates in restraint of trade or commerce among the several States or with foreign nations;

That the act is not limited to restraints of interstate and international trade or commerce that are unreasonable in their nature, but embraces all direct restraints imposed by any combiし nation, conspiracy or monopoly upon such trade or commerce; "That railroad carriers engaged in interstate or international trade or commerce are embraced by the act;

"That combinations even among private manufacturers or dealers whereby interstate or international commerce is restrained are equally embraced by the act;

"That Congress has the power to establish rules by which interstate and international commerce shall be governed, and, by the Anti-Trust Act, has prescribed the rule of free competition among those engaged in such commerce;

"That every combination or conspiracy which would extinguish competition between otherwise competing railroads engaged in interstate trade or commerce, and which would in that way restrain such trade or commerce, is made illegal by the act;

"That the natural effect of competition is to increase commerce, and an agreement whose direct effect is to prevent this play of competition restrains instead of promotes trade and commerce;

"That to vitiate a combination, such as the act of Congress condemns, it need not be shown that the combination, in fact, results or will result in a total suppression of trade or in a complete monopoly, but it is only essential to show that by its necessary operation it tends to restrain interstate or international trade or commerce or tends to create a monopoly in such trade or commerce and to deprive the public of the advantages that flow from free competition;

"That the constitutional guarantee of liberty of contract does

not prevent Congress from prescribing the rule of free competition for those engaged in interstate and international commerce.

The recognition of these principles, said the Court, must lead us to grant the relief asked for by the government unless the special objections raised by the defendants to the application of the Sherman Act to the present case are substantial. These objections in part were: the Northern Securities Company was a state corporation authorized to acquire stock, and the enforcement of the Sherman Act against it would be an unauthorized interference by the national government with the internal commerce of the states creating it and its subsidiary railway companies; that so far as the power of Congress was concerned, citizens or state corporations might dispose of their property and invest their money in any way they chose; and that the enforcement of the act would lead to business disaster, and widespread financial ruin. All these objections were considered and dismissed by the Court. The Anti-trust Act, it said, has been construed as forbidding any combination which by its necessary operation destroys or restricts free competition among those engaged in interstate commerce; in other words, that to destroy or restrict free competition in interstate commerce was to restrain such commerce. Simply because a state allows consolidation, it does 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. "No State can, by merely creating a corporation, or in any other mode, project its authority into other States, and across the continent, so as to prevent Congress from exerting the power it possesses under the Constitution over interstate and international commerce, or so as to exempt its corporation engaged in interstate commerce from obedience to any rule lawfully established by Congress for such Every corporation created by a State is nec1193 U. S. 331-332. Italics are the Court's.

commerce.

essarily subject to the supreme law of the land; . and "the court may make any order necessary to bring about the dissolution or suppression of an illegal combination that restrains interstate commerce. ." The affirmance of the judgment below will mean that no device, "however skilfully such device may have been contrived, and no combination, by whomsoever formed, is beyond the reach of the supreme law of the land, if such device or combination by its operation directly restrains commerce among the States or with foreign nations in violation of the act of Congress."

The Supreme Court therefore sustained the decree of the lower court. The Northern Securities Company was enjoined from voting the stock of the Northern Pacific Railway Company and the Great Northern Railway Company, and the railroad companies were enjoined from paying any dividends on such stock to the Northern Securities Company. But the Northern Securities Company might return to the Northern Pacific and the Great Northern, respectively, the stock of these roads held by it; or it might transfer the stocks of these railroad companies to its own shareholders.1

This decision was of capital importance in the interpretation of the Sherman Act, since it was the first instance in which a holding company was attacked as a combination in restraint of trade. But it was of equal importance in its influence upon economic conditions. It gave a decided set-back to the use of the holding company device in the organization of trusts; and it greatly encouraged the federal government in instituting proceedings against them.

This was a bill in equity against Swift and Company, Armour and Company, Cudahy Packing Company, Nelson Morris and Company, Schwarzchild and Sulzberger, Hammond Packing

1 For a later decision of the Supreme Court approving the plan of dissolution agreed upon, see Harriman v. Northern Securities Company, 197 U. S. 244-299.

2196 U. S. 375-402 (January 30, 1905).