UNFAIR COMPETITION 
 
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 UNFAIR 
 COMPETITION 
 
 A Study of Certain Practices 
 
 With Some Reference to the Trust Problem 
 IN THE United States of America 
 
 By 
 
 WILLIAM H. S. STEVENS, PH.D. 
 
 Sometime Professor of Business Management in the 
 Tulane University of Louisiana 
 
 Editor, Industrial Combinations and Trusts 
 
 THE UNIVERSITY OF CHICAGO PRESS 
 CHICAGO, ILLINOIS
 
 Copyright 1917 By 
 The Ukiveesity of Chicago 
 
 All Rights Reserved 
 
 Published March 1917 
 Second Impression December 1919 
 
 Composed and Printed By 
 
 The University of Chicago Press 
 
 Chicago, Illinois, U.S.A.
 
 ,^ 
 
 
 TO 
 
 Professor James C. Egbert 
 
 OF 
 
 Columbia University 
 
 with pleasant recollections of my experience in 
 administrative work as his subordinate
 
 PREFACE 
 
 This little volume owes its inception to Pro- 
 "^ fessor E. S. Mead, of the University of Pennsyl- 
 ^ vania. During the academic year 1911-12, 
 ^ while teaching and studying at the Wharton 
 ' School, it was my privilege to be one of the 
 ^ two students in a seminar on trusts and com- 
 ^ binations conducted by Professor Mead. One 
 of the topics assigned to me in the course of the 
 y year was unfair competition, and a number 
 f_ of antitrust petitions contained in Professor 
 ;j Mead's personal Ubrary, together with some 
 ^ two or three records in antitrust suits, sup- 
 'O pHed the data for my report. During the latter 
 part of the same academic year, in connection 
 with the editing of my Industrial Combinations 
 and Trusts, I collected further material illus- 
 trating unfair competitive practices, some 
 examples of which I embodied in that volume 
 in the chapter on trust methods. 
 
 For something over a year I did nothing 
 
 further in connection with the subject of unfair 
 
 competition except occasionally to add to the 
 
 data which I aheady po«;sessed relating to this 
 
 vi!
 
 viii Preface 
 
 topic. Impressed with the necessity of the 
 prohibition and elimination of these methods 
 and practices, however, I began, in the fall of 
 1 9 13, a study of this subject, which was com- 
 pleted early in the year 1914. This study, 
 decHned by one economic periodical, was finally 
 published by the Political Science Quarterly, 
 having been divided into two articles, of which 
 the first appeared in June and the second in 
 September, 19 14. In these two articles I 
 pleaded the necessity of the prohibition of 
 unfair competition and expressed the view that 
 no satisfactory solution of the trust problem 
 could be arrived at without the elimination of 
 practices of this character. 
 
 These two articles, appearing at about the 
 time that the unfair-competition section of the 
 Trade Commission Act was under discussion, 
 figured somewhat in the congressional debates 
 and, I am glad to say, seem to have been of 
 some slight assistance in causing the retention 
 of that section in the law which was ultimately 
 passed. 
 
 Within the months following the publica- 
 tion of these articles by the Political Science 
 Quarterly I obtained a considerable amount 
 of material which I had been unable previously 
 to secure. This led to a decision to revise and
 
 Preface ix 
 
 enlarge the articles and to publish the same in 
 book form, on the theory that a more or less 
 complete discussion of the entire subject from 
 an economic point of view might prove valuable 
 to many persons if it were available outside 
 the economic periodicals. In the course of the 
 revision the major portion of the original 
 articles was entirely rewritten, and numerous 
 additions were made, so that in its present 
 form the study is more than twice its original 
 size. It may, I hope, justify itself by proving 
 of both interest and value to a number of 
 readers. 
 
 Certain points, however, should be held in 
 mind in perusing the volume. So far as pos- 
 sible the work has utilized actual testimony 
 in illustrating various methods. A consider- 
 able proportion of this testimony is from court 
 proceedings and was given under oath. At 
 the same time it should be remembered that 
 even sworn testimony must be utilized with 
 discrimination and that in some cases it may 
 not be entirely accurate. Whenever possible 
 the writer has noted other testimony tending 
 to prove either the truth or the reverse of the 
 testimony quoted or cited. All statements 
 based upon petitions, indictments, briefs, etc. 
 (except when reproducing testimony, exhibits,
 
 X Preface 
 
 or other data), are necessarily founded merely 
 upon allegations. 
 
 I wish to acknowledge the courtesy of the 
 Political Science Quarterly in permitting the 
 utilization in this volume of my original articles 
 on this subject. The same acknowledgment 
 is due to The Annals for the privilege of using 
 material from an article entitled "Unfair 
 Methods of Competition and Their Preven- 
 tion," which appeared in January, 1916. I 
 also wish to express the obHgation I am under 
 to Mr. O. J. Field, former chief clerk of the 
 Department of Justice, and especially to Mr. 
 C. E. Stewart, the present chief clerk, for their 
 courtesy in assisting me in every possible way. 
 Both of these gentlemen have given much time 
 to the answering of my numerous requests 
 for information during the last four or five years 
 and have placed at my disposal material which 
 it would have been next to impossible otherwise 
 to have obtained. 
 
 I also desire to express my sense of obliga- 
 tion to William T. Chantland, M. Q. Mac- 
 donald, A. F. Busick, Frank Jones, and H. V. 
 Amberg, of the staff of the Federal Trade 
 Commission. While the views herein expressed 
 are entirely personal ones, and are not neces- 
 sarily in agreement with those of any or all of
 
 Preface xi 
 
 these gentlemen, the fact remains that each of 
 them has given me many valuable suggestions, 
 and their contributions to the volume both 
 directly and indirectly have been considerable. 
 Finally, I am greatly indebted to my dear 
 friend Professor W. W. Pierson, of the Uni- 
 versity of North Carolina, formerly my col- 
 league at Columbia. Professor Pierson read 
 the original typewritten manuscript and radi- 
 cally revised considerable portions thereof, in 
 addition to making a number of most valuable 
 suggestions. The volume owes much to him, 
 and the assistance of his discriminating and 
 critical mind has been invaluable. It is, of 
 course, needless to add that Professor Pierson 
 is in no sense of the word responsible for any 
 of the errors or omissions of the volume. 
 
 W. H. S. Stevens 
 
 New Orleans, La. 
 June I, 1916
 
 CONTENTS 
 
 PAGE 
 
 Introduction i 
 
 CHAPTER 
 
 I. Local Price-Cutting lo 
 
 II. Operation of Bogus "Independent" Con- 
 cerns 19 
 
 III. Fighting Instruments 40 
 
 IV. Conditional Requirements ("Tying" 
 
 Clauses) 54 
 
 V. Exclusive Arrangements 77 
 
 VI. Black Lists, Boycotts, White Lists, etc. . 97 
 
 VII. Rebates and Preferential Arrangements 113 
 
 VIII. Engrossing Machinery or Goods Used in 
 
 THE Manufacturing Process . . . . 139 
 
 IX. Espionage 154 
 
 X. Coercion, Threats, Intimidation, etc. . . 166 
 
 XI. Interference 195 
 
 XII. Manipulation 214 
 
 XIII. Conclusion 217 
 
 Index 245 
 
 xm
 
 INTRODUCTION 
 
 Section V of the Federal Trade Commission 
 Act reads as follows: 
 
 That unfair methods of competition in commerce 
 are hereby declared unlawful. 
 
 The Commission is hereby empowered and directed 
 to prevent persons, partnerships, or corporations, ex- 
 cept banks, and common carriers, subject to the acts 
 to regulate commerce, from using unfair methods of 
 competition in commerce. 
 
 Around this section centered much of the 
 debate on the trust legislation of the Wilson 
 administration. This was not unnatural. The 
 term "unfair competition" is very difficult to 
 define, and it is scarcely less difficult to explain. 
 Congressmen and senators were no more clear 
 as to its meaning than were outside individuals. 
 Several legislators favored the enumeration 
 and prohibition of certain specific practices. 
 These in consequence opposed the general 
 inclusive prohibition of unfair methods of com- 
 petition as lacking definiteness. The subject 
 was canvassed pro and con, but ultimately the 
 supporters of the general prohibition won and 
 the disputed section remained in the Trade
 
 2 Unfair Competition 
 
 Commission Act as finally passed by the Senate 
 and the House.' 
 
 In endeavoring to determine the meaning and 
 significance of unfair competition it is perhaps 
 best to consider, first, what may be designated 
 as the older signification of the term. For 
 many years the words "unfair competition" 
 have been frequently used by the courts and 
 have had a fairly well-established meaning 
 in the law. In addition there have appeared 
 several legal treatises entitled Unfair Competi- 
 tion. But it is to be noted that, until com- 
 paratively recent years, both the courts and the 
 legal profession have given to this term a 
 relatively narrow construction. To realize this 
 fact it is only necessary for one to consult the 
 definitions of unfair competition to be found 
 in the* legal encyclopedias and dictionaries. 
 Thus in the Cyclopedia of Law and Procedure 
 we find the term defined as — 
 
 passing off or attempting to pass off, upon the public, 
 the goods or business of one person as and for the goods 
 or business of another. It consists essentially in the 
 conduct of a trade or business in such a manner that 
 there is either an express or implied representation to 
 
 ' For an analysis and criticism of the Wilson trust legislation, 
 together with a brief sketch of legislative history of the two laws, 
 cf. W. H. S. Stevens, "The Federal Trade Commission Act," 
 American Economic Review, IV (December, 1914), 840, and "The 
 Clayton Act," ibid., V (March, 1915), 38.
 
 Introduction 3 
 
 that effect The basic principle is that no one 
 
 has a right to dress up his goods or otherwise represent 
 them in such a manner as to deceive an intending 
 purchaser and induce him to beheve he is buying the 
 goods of another/ 
 
 Similarly, the legal text writers will be found 
 to devote their attention almost wholly to 
 practices either of this or of a like character. 
 
 Until recent years, therefore, the term 
 "unfair competition" has referred primarily 
 to the marketing of goods by methods involving 
 fraud, misrepresentation, etc' 
 
 ' Cyclopedia of Law and Procedure, xxxviii, 756-58. 
 
 ^ Specific exceptions to this rule may of course be found in the 
 cases. Thus the courts have sometimes upheld or enjoined other 
 practices than those which would be comprehended in the forego- 
 ing definition (cf. Report of the Commissioner of Corporations, Trust 
 Laws, and Unfair Competition, chaps, vii, viii). In some such cases 
 these methods have been specifically declared to be either unfair 
 or fair competition, but in many instances the decision which has 
 been rendered has been based, not upon the fairness or unfair- 
 ness of the method involved, but upon some other question, such 
 as whether the practice involved or constituted restraint of trade, 
 or monopoly. A fairly good illustration of this point is Whitwell 
 V. Continental Tobacco Company, where the court decHned to 
 hold void under the Sherman Act a rebating scheme designed to 
 secure exclusive selling (cf. infra, chap. vii). It ought perhaps 
 to be added that it does not follow because of this decision that 
 such an arrangement is not unfair competition, nor that it will 
 not be so regarded under the provisions of the new law. Some 
 of the later legal text writers also consider unfair competition from 
 a broader standpoint than that of the definition above. Thus 
 Nims {Unfair Business Competition) devotes considerable space 
 to a discussion of interference with competitors, contracts, etc. 
 (cf. itifra, chap. xi). Giving due weight to these specific excep- 
 tions, however, the writer is inclined to beUeve that it is none the
 
 4 Unfair Competition 
 
 Now, it is by no means unlikely that the 
 term "unfair methods of competition" as used 
 in the Trade Commission Act may and will be 
 so construed as to embrace unfair competition 
 in the older signification which has been dis- 
 cussed. But it can scarcely be said that it was 
 primarily for the purpose of preventing such acts 
 that section 5 of the Trade Commission Law 
 was enacted. All the practices embraced 
 within the meaning of unfair competition in 
 the older sense have been repeatedly before 
 the courts. For years, almost centuries, equity, 
 both in England and in the United States, 
 has stepped in to enjoin these methods, so that 
 the law of unfair competition in the older 
 legal sense of the term is fairly well established. 
 To prevent such practices, therefore, legisla- 
 tion was scarcely necessary. At the same 
 time there exist mmierous methods which, 
 while not usually involving fraud, misrepre- 
 sentation, etc.,"" are none the less a most serious 
 economic evil. Primarily it may be said that 
 the unfair-competition section of the Trade 
 , Commission Act was directed against these prac- 
 tices. It was intended to prohibit and prevent 
 
 less correct to say that up to a comparatively recent date the 
 meaning of the term "unfair competition" was that of "passing 
 off," or "misrepresentation," as stated in the definition above. 
 ' Except perhaps in the case of bogus independent concerns.
 
 Introduction 5 
 
 those classes of acts which, for want of a better 
 term, may be described as economically unfair. 
 To miderstand clearly the nature of such 
 practices, it is necessary for one to compre- 
 hend what is involved in economically fair 
 competition. In an economic sense fair com- 
 petition signifies a competition of economic or 
 productive efficiency. In other words, an 
 organization is entitled to remain in business 
 as long as its production and/or selling costs 
 enable it to compete in a free and open market. 
 As the productive and selling efficiency of one 
 or more competing concerns in any line of 
 business increases beyond that of others, the 
 price of the goods sold tends correspondingly 
 to dechne. The more efficient organizations 
 reduce the price in an endeavor to increase their 
 volume of sales, expecting more than to com- 
 pensate for the decreased profit per unit by 
 the larger number of units sold. Generally, 
 marginal concerns will gradually lose their 
 market. Ultimately, if unable to reduce or hold 
 their costs below the market price, they will 
 be compelled to discontinue business.'' 
 
 ' This is the theory of fair competition upon which has been 
 constructed what may be termed the competition theory of 
 monopoly. In its essence this theory is that the logical result 
 of the competitive process is the concentration of the business in 
 the hands of one organization, or, at most, a very few. The 
 soundness of this theory will be discussed later in detail.
 
 6 Unfair Competition 
 
 To the individual organization which chances 
 thus to be eHminated the result of the process 
 undoubtedly appears extremely harsh. Yet as 
 long as competition continues to be regarded 
 as an economically sound principle, as long at 
 society accepts and countenances it, there can 
 scarcely be said to be either unfairness or in- 
 justice involved in the results which it logically 
 brings to pass, i.e., the elimination of inefficient 
 organizations. The justification of the prin- 
 ciple of competition must always be found in 
 the benefits which its operation confers upon 
 society. The interests of society He in the 
 highest possible utility at the lowest possible 
 cost.'' In essence this simply means that 
 society is interested in procuring at the lowest 
 possible prices those goods best adapted to the 
 satisfaction of its wants, since, generally speak- 
 ing, the lower the price the less the total labor- 
 pain cost of acquisition and the larger the total 
 surplus of satisfactions which society obtains. 
 To secure this result it is necessary that efficient 
 units of organization shall be preserved; and 
 it is equally desirable that inefficient units shall 
 be destroyed. The latter constitute an unne- 
 
 ' Cf. Robert Liefmann, "Monopoly or Competition as the 
 Basis of a Government Trust Policy," Quarterly Journal oj 
 Economics, XXIX (February, 1915), 311.
 
 Introduction 7 
 
 cessary burden to society, and no economic 
 justification for their existence can be found. 
 Economically fair competition brings to pass 
 both results. Under its operation every organi- 
 zation has an opportmiity to survive and con- 
 tinue in business which is conditioned solely 
 upon productive and/or selHng efficiency, and 
 only those units which are lacking in these 
 qualities are eliminated. 
 
 Unfortunately competition has not always 
 been so conducted that the logical results of the 
 competitive process have appeared. Efficient 
 concerns have by no means always survived. 
 All too frequently they have been destroyed, 
 not by superior efficiency, but by methods 
 against which their own efficiency afforded 
 little or no protection. Again and again 
 methods and practices have been employed 
 which destroy the freedom of the market, which 
 restrict and hamper the efficiency of other 
 units, and which prevent potential competitors 
 from becoming actual rivals. Such artificial 
 arrangements are clearly unjustifiable from an 
 economic standpoint. As already indicated, 
 the essence of fair competition is the preserva- 
 tion of the efficient and the destruction of the 
 inefficient. Where unfair methods are used, 
 the normal consequences of the operation of
 
 8 Unfair Competition 
 
 the principle of competition may be reversed. 
 The efl&cient are frequently destroyed and the 
 inefficient not infrequently preserved. The use 
 of such practices has therefore no economic 
 justification, and, in consequence, all methods 
 of this character must be regarded as unfair. 
 In other words, so far as competitive business 
 is concerned, the final test of the fairness of a 
 given method should be whether or not it 
 restricts actually, or potentially, the normal 
 operation of the law of competition with the 
 A^ resulting survival of efficiency. Any method 
 used in competition which hinders or prevents 
 the normal results ensuing from the free opera- 
 tion of the competitive principle must be ad- 
 judged unfair.^ 
 
 Occasional instances of the use of economi- 
 cally unfair competition are found in the history 
 of small and relatively unimportant organiza- 
 tions. But it is at once interesting and sig- 
 nificant that in perhaps the majority of cases 
 the greatest development and diversification 
 of such methods have been attained by the 
 most highly monopohstic organizations. While 
 
 ^The reader should clearly understand that this discussion 
 has no reference to the legality or illegality of various metliods of 
 competition. That is a matter for the decision of the Trade 
 Commission and the courts. This volume attempts merely to 
 show the economic basis for regarding certain methods as unfair.
 
 Introduction 9 
 
 such methods are not always easy of classifi- 
 cation, it is still possible, by selecting what 
 appear to be their most fundamental charac- 
 teristics, to distinguish the following twelve 
 classes of "unfair methods of competition": 
 
 I. Local price-cutting. 
 ^ n. Operation of bogus independent concerns. 
 
 III. Fighting instruments. 
 
 IV. Conditional requirements. 
 /' V. Exclusive arrangements. 
 
 . VI. Black lists, boycotts, white lists, etc. 
 VII. Rebates and preferential arrangements. 
 VIII. Engrossing machinery, or goods used in the 
 manufacturing process. 
 IX. Espionage. 
 
 X. Coercion, threats, intimidation, etc. 
 XI. Interference. 
 XII. Manipulation.' 
 
 ' These twelve forms of competition are not always so clearly 
 distinguishable one from another that exact differentiation is 
 possible. Occasionally one method so overlaps another, or one 
 so supplements another, that it could be discussed equally well 
 under either of two classes. When this occurs, the difificulty 
 of accurate classification is increased. The writer's allocation, 
 therefore, may not always be regarded as satisfactory. It has 
 been attempted, however, in all cases to describe each form of 
 competition in such a manner as to show the close connection 
 which sometimes subsists between a given method and practices 
 elsewhere treated.
 
 CHAPTER I 
 LOCAL PRICE-CUTTING 
 
 Local price-cutting has been a frequent and 
 familiar weapon of certain trusts. As here 
 used, the term refers to the practice pursued by 
 some organizations of cutting the prices of their 
 products to a point below the cost of production 
 in one or more of those localities in which com- 
 petition exists. The loss entailed is usually 
 recouped by the profits derived through the 
 high prices charged in those regions where 
 competition is either insignificant or non- 
 existent.^ This method has been utilized 
 repeatedly by large and powerful organizations. 
 The ultunate outcome* in such cases, with but 
 
 ' A sectional discrimination of this character may some- 
 times be regarded as unfair even though prices are not cut to 
 a point below the cost of production. 
 
 ' A story related by Clark illustrates admirably the situation 
 under local price-cutting: "A producer .... once called on 
 the manager of the trust that was driving him to the wall, and was 
 received with a brusque admonition that he had 'better get out 
 of business.' 'But, do you not see,* said the independent pro- 
 ducer, ' that, in my territory, I can produce more cheaply than 
 you can?' 'Do you not see,' was the reply, 'that, if we lose 
 money in the twenty cities where you are operating, and make 
 money in two hundred other cities where we are operating, we 
 come out ahead?'"— J. B. and J. M. Clark, The Control of 
 Trusts, pp. 34-35-
 
 Local Price-Cutting ii 
 
 few exceptions, has been the destruction and 
 elimination of competition in those regions 
 where this practice has been employed. 
 
 Probably the best examples of the operation 
 and effects of local price-cutting are to be found 
 in the histories of the old Oil and Powder 
 trusts. In the case of the former organization, 
 the prices charged in various locahties appear 
 to have been governed rather definitely by the 
 percentage of competition to be met in each 
 section. Wilhoit testified in the Missouri 
 Standard Oil case that in his experience the 
 Waters-Pierce Oil Company or Standard Oil 
 Company based "their prices in a locaHty on 
 their nearest competitor, or upon the presence 
 or absence of competition. When there was 
 competition prices would be lower, and increase 
 with the distance from competition."^ An ex- 
 amination of the tables of prices, profits, and 
 percentages of competition presented in the brief 
 for the United States in the suit against the 
 Standard Oil Company confirms this testimony 
 and indicates that the prices and profits on oil 
 as between various locahties were roughly high 
 or low according as the percentages of competi- 
 tion were low or high. On October 15, 1904, 
 
 ' Abstract of testimony of E. M. Wilhoit, State ex. inf. Hadley, 
 Attorney-General v. Standard Oil Company, 218 Mo. i; cf. 129.
 
 12 
 
 Unfair Competition 
 
 the Standard Oil Company's profits and losses 
 on water-white illuminating oil ranged from as 
 high as 6.48 cents per gallon profit in Albu- 
 querque, New Mexico, with 7 per cent of com- 
 petition,^ and 6.1 cents per gallon profit in 
 Spokane, with no competition, to as low as 
 
 ' The following table indicates these variations more fully. 
 It is made up by selecting a considerable number of cities from 
 the tables in the brief for the United States in Standard Oil Cotn- 
 pany v. United States, Supreme Court of the United States, Vol. 
 II, pp. 432-36. (These tables are reproduced in full in W. H. S. 
 Stevens, Industrial Combinations and Trusts). It is to be noted, 
 however, that this table shows a somewhat closer relationship 
 between prices and profits on the one hand and competition on 
 the other than would appear in case the complete tables were 
 reproduced. 
 
 City 
 
 State 
 
 Price 
 
 Margin 
 
 in Cents 
 
 in Cents 
 
 Per Gallon 
 
 Per Gallon 
 
 23 
 
 6.48 
 
 21-5 
 
 6.10 
 
 20 
 
 4.09 
 
 iSS 
 
 417 
 
 13s 
 
 2.10 
 
 13 
 
 2-4S 
 
 13 
 
 2.27 
 
 12 
 
 2. II 
 
 11-5 
 
 2.34 
 
 II 
 
 2.32 
 
 10.98 
 
 2.31 
 
 10. 5 
 
 2.47 
 
 10 
 
 0.41 
 
 10 
 
 0.48 
 
 95 
 
 1.72 
 
 OS 
 
 -1-35 
 
 8.S 
 
 0.87 
 
 8.5 
 
 0.56 
 
 8.S 
 
 -0.88 
 
 8-5 
 
 -0.38 
 
 8 
 
 -0.27 
 
 7 
 
 -3.16 
 
 7 
 
 — 1.09 
 
 Percentage 
 of Com- 
 petition 
 
 Albuquerque . . 
 
 Spokane 
 
 Salt Lake City 
 
 Seattle. 
 
 Fargo 
 
 Sacramento . . . 
 
 Columbia 
 
 Nashville 
 
 Portland 
 
 Boston 
 
 New York . . . . 
 Harrisburg . . . . 
 
 Omaha 
 
 Wichita 
 
 Columbus .... 
 New Orleans . . 
 Pittsburgh . . . . 
 
 Chicago 
 
 Duluth 
 
 Louisville 
 
 Richmond . . . . 
 Los Angeles. . . 
 Cincinnati. . . . 
 
 New Mexico 
 
 Washington 
 
 Utah 
 
 Washington 
 
 North Dakota 
 
 California 
 
 South Carolina 
 
 Tennessee 
 
 Maine 
 
 Massachusetts 
 
 New York 
 
 Pennsylvania 
 
 Nebraska 
 
 Kansas 
 
 Ohio 
 
 Louisiana 
 
 Pennsylvania 
 
 Illinois 
 
 Minnesota 
 
 Kentucky 
 
 Virginia 
 
 California 
 
 Ohio 
 
 7 
 o 
 0.8 
 
 II 3 
 
 8.6 
 
 10 3 
 
 21.7 
 
 32.1 
 
 2.3 
 
 SI. 2 
 
 328 
 
 12.7 
 
 9.9 
 
 16. 1 
 
 12.0 
 
 For scores of specific instances of local price-cutting by the 
 old Standard Oil Company cf . brief cit. supra, Vol. II, pp. 428-500.
 
 Local Price-CuUing 13 
 
 3 . 16 cents per gallon loss in Los Angeles with 
 33.4 per cent of competition and 1.35 cents 
 per gallon loss in New Orleans with 51.2 per 
 cent of competition. 
 
 The history of the development of the various 
 combinations in the explosives business is in 
 some respects merely a record of local price- 
 cutting and its results. Each campaign of this 
 character which was undertaken was speedily 
 followed by the acquisition of the concerns 
 attacked and by new articles of association 
 whereby such organizations became parties to 
 the new combination.^ In many, if not the 
 majority of, cases, a new company producing 
 explosives was given practically no chance 
 whatever of surviving. In the contest against 
 the King's Great Western Powder Company, 
 for example, instructions were given by the 
 Hazard Powder Company to its agents to 
 cut the price with the guaranty to consumers 
 that the cut price would he ten cents lower than 
 any price which the King^s Company would 
 make to them. As a result the price of rifle 
 powder in Cincinnati, where the King's Com- 
 pany was located, declined to $2.25 per keg, 
 with some sales at $2.15 and $2.10, although 
 
 'Cf. W. H. S. Stevens, "The Powder Trust," Quarterly 
 Journal of Economics, XXVI (May, 19 12), pp. 447 fif.
 
 14 Unfair Competition 
 
 in the New England states, the eastern sea- 
 board, and the extreme western states it sold 
 at the full list price of $6.25 per keg. Simi- 
 larly, the price of blasting powder receded from 
 $2.75 or $2.85 to 80 cents per keg in carload 
 lots, though prices were fully maintained in the 
 non-contested districts.^ 
 
 In its operations against the Birmingham 
 Powder Company a few years later, the Powder 
 Trust set a price of 70 cents per keg on powder 
 f.o.b. Birmingham, and added to this price the 
 freight rates from that point to the markets 
 which it wished to reach. The results were not 
 long delayed. As one of the persons associated 
 with this operation laconically remarked, "It 
 was perhaps a year until they died."^ 
 
 The National Cash Register Company, as 
 well as these two pioneers in local price-cutting, 
 appears to have appreciated at an early date the 
 advantages of this method of competition. The 
 following is a quotation from the record in 
 the suit brought against this organization by 
 the state of Michigan: 
 
 Mr. Clark: Page 429 of the Exhibit is as follows: 
 It is dated at the top of the page October i, 1897. 
 
 ' R. S. Waddell, quoted in brief for the United States, 
 United States v. E. I. du Pont de Nemours 6* Company, U.S.C.C. 
 for the District of Delaware, Vol. II, pp. 18-19. 
 
 'Ibid., pp. 129-30. According to the same testimony the 
 price of 70 cents was about 5 cents below cost.
 
 Local Price-Cutting 15 
 
 "THE N.C.R. 
 
 "Losses on opposite side of the Globe made up by 
 gains here, while all the rest of the Company's offices 
 are making a profit." 
 
 Mr. Clark: Underneath that is a circle; in the 
 center of the circle is another circle marked "N.C.R. 
 Co.." the circle has around its border a number of 
 crosses with an arrow pointing, one at the top of the 
 circle to figure 2, an arrow pointing to a cross at the 
 bottom of the circle with a number i, following which 
 is reading matter as follows: 
 
 "Temporary losses here on account of competition." 
 
 "This circle represents the earth. The small 
 crosses represent the several offices of The National 
 Cash Register Company in every civilized country. 
 Suppose competition springs up in territory pointed 
 out by arrow No. i. The National Cash Register 
 Company can afford to do business here at a loss if 
 necessary to meet the competition, because the profit 
 made at the office marked with arrow No. 2 will make 
 up for the loss, while all the other offices of the Com- 
 pany all over the civilized globe will make a profit and 
 keep up the income of the Company to its normal 
 amount."' 
 
 ' Record, John E. Bird, Attorney-General, in Behalf of the 
 People of the State of Michigan, ex rel. Henry F. James v. National 
 Cash Register Company, Supreme Court, state of Michigan, Vol. 
 II, p. 985. It is probably true that the losses referred to in this 
 case included competition costs other than the expense of local 
 price-cutting. So far as local price-cutting occurs in the case of 
 the Cash Register Company, it is primarily a development of the 
 use of "knocker machines" discussed in chap, iii infra. For 
 other alleged examples of local price-cutting, cf. petition in
 
 1 6 Unfair Competition 
 
 From the consumer's standpoint it may be 
 desirable that a concern shall sell its products 
 at as low a price as possible; but this fact does 
 not justify local price-cutting. Any gain to the 
 consumer under this method, in addition per- 
 haps to causing a corresponding loss to some 
 other consumer/ is usually of a temporary char- 
 acter. Wlien the organizations against which 
 a campaign of local price-cutting is directed are 
 driven from the field, their business is absorbed 
 by the price-cutting concern. Prices then re- 
 sume a level at least as high as under fair com- 
 petition, and frequently they reach an even 
 higher one. 
 
 Efficient or inefficient, no organization can 
 long survive a program of local price-cutting. 
 In the case of the ineflScient, the unfairness is of 
 little moment. Sooner or later such an organ- 
 ization is doomed to succumb to the efi&ciency 
 of other concerns. The important economic 
 unfairness of the method, therefore, Hes in the 
 destruction of efi&cient organizations. If the 
 price charged for a given commodity were based 
 
 equity, United States v. American Coal Product^ Company, for 
 the Southern District of New York, p. 30; original petition, 
 United States v. American Sugar Refining Company, U.S.C.C. 
 for the Southern District of New York, pp. 98-99. 
 
 ' Through the fact that higher prices may be charged con- 
 sumers in non-competitive territory.
 
 Local Price-Cutting 17 
 
 upon production and selling costs, every organ- 
 ization capable of attaining a certain degree of 
 productive efficiency could compete, and each 
 would have at least a reasonable opportunity 
 of surviving. The inefficient only, under such 
 circumstances, would be ehminated. Under 
 the conditions of local price-cutting, on the 
 contrary, the prices made by the price-cutting 
 organization bear no relation to production 
 costs. Productive efficiency is therefore no 
 defense to competitors against an attack of this 
 character. This quahty alone will not enable 
 them to survive. Possibly it may prolong the 
 struggle, yet even this may be doubted. It is 
 not unlikely that the greater the productive 
 efficiency of competitors the more strenuous 
 will be the warfare waged against them. 
 
 It may be argued with considerable force 
 that an organization ought not to be deprived 
 of the use of local price-cutting. Assume that 
 a large trust discovers that it is losing business 
 in a given locahty to concern A. Because of its 
 efficiency, A has been able to reduce its prices 
 even below those of the trust. Ought not the 
 latter then to be allowed to cut its prices in A's 
 locality in order to regain its lost business ? To 
 answer this question in the affirmative is to 
 overlook the serious general consequences of the
 
 1 8 Unfair Competition 
 
 use of this method. Price-cutting in selected 
 localities is too dangerous a weapon to be per- 
 mitted to any organization. If allowed under 
 extenuating circumstances such as those above, 
 there is not and cannot be any guaranty that 
 it will not be employed to destroy all competi- 
 tion. In the foregoing illustration the only 
 method by which the trust should be permitted 
 to regain the business lost to A is by a general 
 instead of a local price-cut. Then if it cuts 
 prices below the cost of production in A's terri- 
 tory, it must do the same throughout the 
 country. In such a situation every dollar lost 
 by A in retaining its business woiild mean a 
 thousand lost by the trust. A has a reasonable 
 chance of surviving. Strong probabihty exists 
 that it can endure this state of affairs for as long 
 a period as the trust. If the trust's efficiency 
 so increases that without loss it is able to reduce 
 its prices throughout the country to a level 
 below that of A's cost of production, then A 
 may be forced to the wall. But such an elimi- 
 nation would not be unfair, since it is based 
 upon the survival of the efficient.
 
 CHAPTER II 
 
 OPERATION OF BOGUS "INDEPENDENT" 
 CONCERNS 
 
 ^ The operation of bogus independent concerns 
 is a method of unfair competition which has also 
 been extensively employed. In fact, it is per- 
 haps more commonly utilized than any other 
 method. A bogus independent concern may 
 be defined as an organization, nominally or 
 apparently independent, which in reality is 
 secretly controlled and operated by another 
 concern in order to destroy independent com- 
 petition. Two bogus concerns of the former 
 Powder Trust were termed "yellow dog com- 
 panies" by Mr. T. C. du Pont. An account 
 of their operations adequately illustrates this 
 method of competition : 
 
 Q. What do you know about the yellow dog com- 
 panies, if anything ? 
 
 A. May I ask you a question ? 
 Q. Yes. 
 
 A. If the president of the company told me, am 
 I permitted to answer ? 
 
 19
 
 20 Unfair Competition 
 
 Q. Yes. That is my judgment, unless the gentle- 
 men differ with me. 
 
 A. During the conversation with Mr. T. C. 
 du Pont, the president, in which he was endeavoring 
 to explain to me the objects of the trust, he told me 
 that .... it was necessary for him, .... just Uke 
 a little boy, to have a dog, to which he could whistle 
 and call. 
 
 Q. What kind of a dog ? 
 
 A. He termed it "a yellow dog," and he explained 
 to me that after I had exhausted all my resources, and 
 those of the traveling men under my office, that if I 
 was not able to regain the trade, that I was to whistle 
 by writing a letter, and that they would then send on 
 a little yellow dog, which, at that time, in the high 
 explosives business, was known as the Climax Powder 
 Manufacturing Company, of Emporium, and the New 
 York Powder Company, of New York 
 
 Q. Had you occasion to whistle for the little yellow 
 dog? 
 
 A. Yes, sir. 
 
 Q. Did you do so ? 
 
 A. Yes, sir. 
 
 Q. What occurred, [sic] State what you did ? [sic] 
 
 A. If we met the prices, that meant the lowering 
 of our prices on our brands; but the little yellow dog 
 would come in, and we would say that we didn't recog- 
 nize them at all, that their goods were of no account, 
 and were of low grade, and all that kind of thing; so 
 we didn't have to lower our prices to the adjoining 
 trade; but the yellow dog got the business.
 
 Bogus ^^ Independent^ Concerns 21 
 
 Q. To whom did they belong to, [sic] if you know, 
 that is, the CUmax Powder Company and the New 
 York Company? 
 
 A. To the trust. 
 
 Q. To the trust? 
 
 A. Yes, sir. 
 
 Q. Was that the E. I. du Pont de Nemours Powder 
 Co.? 
 
 A. Yes, sir.' 
 
 It has been alleged that as early as 1897 the 
 members of the Electric Lamp Combination 
 organized a bogus independent, known as the 
 "Royal Incandescent Lamp Company." In 
 reality this concern was a selling agency for the 
 purpose of marketing the lamps of the combi- 
 nation under the brand name "Regal." These 
 lamps, so it is claimed, were sold at prices 
 intended to deprive independent companies of 
 their customers and trade. The Royal Com- 
 pany was financed by contributions made from 
 time to time by the members of the combination 
 in order to meet the expenses of the scheme.' 
 
 It has been claimed that effective use of such 
 concerns was likewise made by the old Standard 
 Oil Company. In the dissolution suit brought 
 against that organization the government's 
 
 ' Pet. rec. testimony, United States v. E. I. du Pont de Nemours 
 6* Company, cit. supra. Vol. II, pp. 686 ff. 
 
 ' In equity, United States v. General Electric Company, U.S.C.C. 
 for the Northern District of Ohio, p. 34.
 
 22 Unfair Competition 
 
 brief gave a list of sixty-odd concerns which 
 were said to have been operated at various 
 times as independents in different parts of the 
 country. Some of these were individuals, a 
 few of them were actual corporations, while 
 still others had company names/ 
 
 The old American Tobacco Company is also 
 said to have employed numerous organizations 
 of this kind. In the dissolution suit against that 
 corporation the brief for the United States in 
 the lower court showed nineteen different 
 organizations secretly operated after 1899 by 
 the various tobacco companies belonging to 
 the combination.^ Some of these secretly con- 
 trolled companies were directly subsidized by 
 paying them two cents a pound on their output. 
 Still others were suppHed with funds and were 
 run at a heavy loss. Considerable care was 
 often taken to give some of these organizations 
 the appearance of being independent. Thus 
 a price hst of the R. A. Patterson Tobacco 
 Company (issued in 1905 when the American 
 Tobacco Company owned all of its stock) con- 
 tained the following statement : 
 
 ' Brief for the United States, Standard Oil Co. v. United States, 
 cit. supra, Vol. II, pp. 520 fif, 
 
 "Brief for the United States, United States v. American 
 Tobacco Company, U.S.C.C. for the Southern District of New 
 York, pp. 101-2.
 
 Bogus " Indepefident" Concerns 23 
 
 Notice. 
 
 Our plant is strictly and emphatically independent 
 of all Trusts and Combines. It is useless to suggest 
 to any thoughtful merchant how necessary it is for 
 him to have more than one source from which to secure 
 his goods, and therefore it is to his interest to encour- 
 age and support competition in those Hues he has to 
 buy.^ 
 
 Similarly, the Wells-Whitehead Tobacco 
 Company, when operating as a bogus concern, 
 said, in advertising certain of its cigarettes, 
 "These are Independent, Anti-Trust, Union- 
 made Cigarettes.'"" 
 
 An interesting example of co-operation 
 between a bogus concern and an openly con- 
 trolled company for the purpose of eliminating 
 competition appears in the scrap tobacco 
 business in Cincinnati. In 1903 the American 
 Tobacco Company sent a man by the name of 
 Galbraith to that city, where he organized the 
 Queen City Tobacco Company, with funds 
 which were furnished him by the American. 
 The Queen City Company engaged in the 
 manufacture of scrap tobacco and began a 
 campaign of extensive advertising, at the same 
 time marketing its product at destructive 
 
 ' Exhibit 64, record, ibid., Vol. V, p. 500. 
 
 ' Exhibit 66, ibid., p. 506.
 
 24 Unfair Competition 
 
 prices. It was run at a very heavy loss and, 
 at the same time, all connection with the 
 American Tobacco Company was loudly denied. 
 
 As the independent scrap concerns were not 
 readily forced out of business, another move 
 became expedient. At that time the Luhrman 
 & Wilbem Tobacco Company was manufactur- 
 ing scrap at Middletown, Ohio, and was openly 
 controlled by the American Tobacco Company. 
 Beginning about January, 1906, the former 
 concern rapidly bid up the price of tobacco 
 cuttings^ from 11 to 21 cents per pound, the 
 latter price being more than the normal net 
 price of the manufactured product. The inde- 
 pendents at Cincinnati, with the Queen City 
 Company demorahzing the price of the finished 
 product, and Luhrman & Wilbem bidding up 
 the price of the raw material, found themselves 
 between two fires. Their situation speedily 
 became hopeless, and they were shortly after 
 acquired by the American.* 
 
 The National Cash Register Company also 
 seems to have made some use of bogus concerns. 
 Late in 1905, or early in 1906, Edgar E. Park 
 purchased the Weiler Cash Register Company 
 
 ' Raw material for scrap tobacco. 
 
 ' Brief for the United States, United Stales v. American 
 Tobacco Company, cit. supra, pp. 105-6.
 
 Bogus "Independent" Concerns 25 
 
 and conducted it for a time as an independent 
 organization, acting throughout this trans- 
 action as the agent of the National. President 
 Patterson first encountered Park at Hot Springs 
 and employed him about 1903 or 1904. His 
 salary varied from twelve thousand to eighteen 
 thousand dollars a year, and he was constantly 
 in the employ of the company for a period 
 of several years. ^ His connection with the 
 National, however, was kept entirely secret. 
 It was not known outside that organization nor 
 generally even in its own offices where it was 
 arranged that he should report especially either 
 to Chalmers** or to President Patterson. 
 
 On the suggestion of Park the Universal 
 Cash Register Company was organized for the 
 purpose of providing him with a vehicle for 
 his operations. 3 As the representative of the 
 Universal, another independent, Park ap- 
 proached the competitors of the National on 
 a friendly basis. He usually appears to have 
 stated that he was in the cash-register business 
 on a large scale and that he desired to organize 
 
 *Lee Counselman, record, Stale v. National Cash Register 
 Company, cit. supra, Vol. I, pp. 593-94. 
 
 'At that time Chalmers was the general manager of the 
 National. 
 
 3 Hugh Chalmers, record, Patterson v. United States, U.S.C.C. 
 of Appeals, Sixth Circuit, Vol. I, pp. 469-70.
 
 26 Unfair Competition 
 
 a big concern by combining five or six of the 
 independent cash-register companies in order 
 to compete with the National. 
 
 Park worked for several months on the Weiler 
 proposition and finally made the purchase with 
 fimds supplied by the National. During the 
 negotiation Carl G. Heyne, openly representing 
 the National interests, was constantly calling 
 upon Mr. Weiler and using his best efforts to 
 prevent that gentleman from suspecting any 
 connection between Park and that company. 
 As previously indicated, it was not made known 
 that the National had any interest in the Weiler 
 concern either at the time of the purchase or for 
 many months thereafter. The Weiler registers 
 were sold through jobbers and as independent 
 machines in apparent competition with those 
 of the National Company. Park operated the 
 concern and made reports to Chalmers.^ 
 
 The Union Computing Machine Company of 
 Trenton, New Jersey, was also purchased by 
 the National and operated as an independent 
 under the name of the Union Cash Register 
 Company. Park officiated in this transaction, 
 and the history of the purchase is rather inter- 
 
 ' Hugh Chalmers, record, Patterson v. United States, cit. 
 supra, Vol. I, pp. 477-78; Carl G. Heyne, record, State v. National 
 Cash Register Company, cit. supra, Vol. II, pp. 955-56.
 
 Bogus "Independent" Concerns 27 
 
 esting. During the summer of 1906 Rush 
 Taggart, the head of the Union Company, met 
 a man by the name of Park, who had an office 
 in Nassau Street. This gentleman occasionally 
 talked to Taggart in regard to the cash registers 
 which he claimed to be turning out at his plant 
 in Detroit. He also spoke of a high-grade 
 French machine which he proposed to form a 
 company to market. Several weeks elapsed 
 before he spoke to Taggart of purchasing the 
 Union. In September or October, however, he 
 stated that he wished to secure a hne of ma- 
 chines of medium price which would fit in 
 between the low-priced machines which he was 
 manufacturing at Detroit and his high-grade 
 French machines, thus completing a general 
 line. Taggart finally agreed to his proposition, 
 and the Union was purchased by Park with 
 funds supphed by the National.* No one knew 
 of this purchase at the time except persons 
 connected with the head offices of the National, 
 and the Union Company was conducted as an 
 independent for about a year, and its registers 
 were sold by the Union agents.' 
 
 ' Rush Taggart, record, Patterson v. United States, cit. supra, 
 Vol. I, pp. 516-17. 
 
 ' Hugh Chalmers, ibid., p. 470. It is doubtful if the operations 
 of Park and the Universal Cash Register Company, so far as 
 they relate only to the purchase of independents, can be regarded
 
 28 Unfair Competition 
 
 In meeting competition in second-hand 
 machines the National Cash Register Company 
 made frequent use of bogus concerns. All told, 
 there have been a number of second-hand cash- 
 register concerns operating in the United 
 States at one time and another. Some of them 
 became very prosperous, and, as a result, gave 
 the National's agents a considerable amount of 
 trouble. In order to deal with this competition, 
 a series of second-hand stores was estabHshed by 
 the National, and Mr. T. J. Watson was assigned 
 to take charge of the second-hand situation.^ 
 The Watson Cash Register Company was 
 organized with National money and established 
 itself first in Chicago close to Tuckhorn & Com- 
 pany and the Chicago Cash Register Exchange, 
 both independent dealers. About the same 
 time a branch was opened in Philadelphia and 
 
 as unfair unless it be through the fact that in this way it was 
 possible to acquire information under false or misleading pre- 
 tenses in regard to the business of competitors (cf. infray 
 chap. x). Some may be inclined to feel that the purchase of in- 
 dependents through the false representations involved in Park's 
 operations was unfair since it might have been impossible for the 
 National to have acquired such concerns openly. At the same 
 time it must be recognized that there is nothing unfair per se 
 in the purchase of one organization by another. This leads to 
 the conclusion that the actual purchases through Park, though 
 perhaps sharp business practice, were not unfair. 
 
 ' Joseph E. Warren, record. Stale v. National Cash Register 
 Company, cit. supra, Vol. I, p. 436.
 
 Bogus "Independent" Concerns 29 
 
 one in St. Louis, besides. Watson also bought 
 out Fred Brainin, the New York Cash Register 
 Exchange, of Fourteenth Street, New York 
 City, a leading second-hand dealer, which gave 
 him still another agency. In the South the 
 Southern Cash Register Company was a most 
 troublesome second-hand competitor. To as- 
 sist in the fight against this organization, Wat- 
 son bought out another second-hand concern, 
 the Atlanta Cash Register Company. '^ 
 
 All these branches appear to have been 
 operated as independents. In most cases the 
 contests thus inaugurated resulted in the 
 absorption of the competing organizations. 
 It seems to have been impossible for the inde- 
 pendents to cope with the situation, and they 
 finally gave up the struggle in the majority of 
 cases. 
 
 Yet another interesting example of bogus con- 
 cerns may be given. The Royal Baking Powder 
 Company is a large consumer of starch, and, 
 in February, 1908, it acquired control of the 
 Western Glucose Company. The latter was 
 originally organized for the purpose of manu- 
 facturing glucose and other corn products, and 
 
 ' Carl G. Heyne, ibid., Vol. II, pp. 916-40. According to 
 testimony, Watson also operated at one time or another in both 
 Cleveland and Baltimore.
 
 30 Unfair Competition 
 
 erected a plant at Roby, Indiana. After the 
 purchase its name was changed to the American 
 Maize Products Company, it being the inten- 
 tion of the Baking Powder Company that it 
 should engage in the manufacture of glucose, 
 starch, and other corn products. To this 
 the Corn Products Refining Company ob- 
 jected,' and an agreement was finally reached 
 whereby the American Maize Products Com- 
 pany arranged to sell its surplus, over the 
 requirements of the Baking Powder Company, 
 to the Corn Products Refining Company. 
 Thereupon, as alleged by the government, the 
 Corn Products Refining Company employed 
 Stein, Hirsh & Company of New York^ to sell 
 the products purchased from the American 
 Maize Products Company in competition with 
 independent glucose manufacturers. Stein, 
 Hirsh & Company, in pursuance of this plan, 
 announced that they had just completed a new 
 
 ' The grounds of the objection of the Corn Products Company- 
 lay, of course, in the fact that it was engaged in manufacturing 
 a hne similar to that of the Western Glucose Company and was 
 not desirous of other competition than it already had. The 
 objections according to the allegations took the form of threats 
 to embark in the baking-powder business and led to a compromise. 
 Cf. infra, chap. x. 
 
 ' This firm is alleged to have been engaged in the business of 
 packing and selling starch, dextrines, and the like, and to have 
 acted as brokers in the sale of corn products.
 
 Bogus ^^Independent" Concerns 31 
 
 glucose factory, and that they were prepared to 
 offer various com products at low prices. It is 
 also asserted that they held themselves out as 
 independent manufacturers seeking a market 
 for their goods, although the glucose was in 
 fact that sold by the American Maize Products 
 Company to the Corn Products Company. 
 The same firm, it is claimed, was directed to 
 confine its sales to the customers of independent 
 manufacturers, being strictly forbidden to sell 
 the customers of the Com Products Company. 
 In order that customers and manufacturers 
 might not learn the source of supply, all ship- 
 ments from the American Maize Products Com- 
 pany were made under fictitious names.^ 
 
 The American Can Company is another 
 example of a concern using bogus independents. 
 In 191 5 this organization acquired the American 
 Stopper Company, which had been organized 
 in 1 90 1, and which manufactured decorated tin 
 boxes. After the acquisition, as shown by a 
 letter introduced in the Can record, the sta- 
 tionery of the American Stopper Company 
 carried beneath the name of the company the 
 
 ' Petition in equity, United States v. Corn Products Refining 
 Company, U.S.D.C. for the Southern District of New York, 
 pp. 22-24. Cf. also allegations of bogus concerns in original 
 petition. United States v. Sugar Refining Company, cit. supra, 
 p. 148.
 
 32 Unfair Competition 
 
 following statement: "The Largest Maker of 
 Tin Boxes Outside of the Trust. "^ 
 
 Conrad Diesel testified that in 1906 the Union 
 Stock Yards Can Company was taken over 
 by the American Can Company. Diesel was 
 at that time the assistant general manager of the 
 former organization and was made its vice- 
 president and general manager by the American 
 Company following the acquisition. He further 
 testified that the Stock Yards Can Company 
 was operated as an independent company and 
 that he was instructed to keep secret the fact 
 that it was owned by the American Can 
 Company.* 
 
 Similarly, it was charged in the suit against 
 the Central West PubHshing Company, Ameri- 
 can Press Association, and others that the 
 American Press Association maintained for 
 many years, in various cities of the country, 
 houses known under different names which were 
 understood by newspapers generally to be inde- 
 pendent organizations. When the American 
 Press Association did not desire to sell to a 
 particular customer at a certain price, or if it 
 lost such a customer on account of the prices 
 
 ' Record, Unite<l Stales v. American Can Company, U.S.D.C. 
 for the District of Maryland, Vol. XII, p. 5647. 
 
 » Conrad Diesel, ibid., Vol. VIII, pp. 3805-3806.
 
 Bogus "Independent" Concerns 33 
 
 which it made, one of these houses would be 
 instructed to get the business at such a price as 
 might be necessary to obtain it.^ 
 
 In the fertihzer industry a very large number 
 of supposedly independent concerns have been 
 operated. It is worth noting that in the great 
 majority of cases these concerns have been 
 employed by the larger manufacturers. Some 
 thirteen of the latter have controlled forty-odd 
 manufacturing subsidiaries, fifty-odd selling 
 subsidiaries, and seventy-odd affiliated manu- 
 facturing companies, all of which were operated 
 without disclosing their identity. Two of the 
 larger organizations. Swift & Company and 
 Baugh & Sons, have not controlled any uniden- 
 tified company." 
 
 The operation of bogus concerns has also 
 been alleged in the case of at least one common 
 
 ' Petition in equity, United States v. Central West Puhlishing 
 Company, U.S.D.C. for the Northern District of Illinois, pp. 16-17. 
 
 * Federal Trade Commission, Report on Fertilizer Industry, 
 chap. viii. In this mdustry it has been asserted that "the 
 main purpose" of the use of secretly controlled companies " has 
 been to secure the services of a larger number of local dealers 
 for the sale of goods in a given locality. Where there are several 
 dealers in a town each one desires to handle a Une of goods not 
 handled by the others. If all of the business of a fertilizer 
 company were done in its own name, it would have, generally 
 speaking, only one representative in a town, while by means of 
 subsidiaries it may have all the dealers as representatives. It is 
 claimed that several representatives, each pushing particular
 
 34 Unfair Competition 
 
 carrier. The Enterprise Transportation Com- 
 pany was incorporated in Massachusetts about 
 1905, and from that time until 1908 it operated 
 steamers between New York and Providence, 
 Newport, Fall River, and Narragansett Pier. 
 It had connections with the trolley lines which 
 radiated from these points, thus possessing 
 through routes to and from New York City. 
 It was asserted that, for the purpose of suppress- 
 ing this competition, the New York, New 
 Haven & Hartford Railroad Company caused 
 the incorporation in the state of Connecticut of 
 the United States Transportation Company. 
 This organization purchased two steamers, the 
 "Rhode Island" and the "Connecticut," which 
 boats were placed in operation between New 
 York City and Fall River as an independent 
 line known as the Neptune Line. 
 
 brands, secure more business than one representative handling 
 all the brands of a company" {ibid., pp. 179-80). 
 
 The soundness of this claim is open to some question. There 
 is nothing to prevent a manufacturer from allotting his various 
 brands one to each dealer in a particular locality so that each 
 dealer will be handling a line different from that of any other 
 even though it does not bear the name of a different company. 
 The value of brands and good-will also need not necessarily be 
 lost if the name of the controlling company is published merely 
 as a successor company, the brand and name of the original com- 
 pany being retained on the packages. 
 
 It should be noted that as a result of a series of conferences 
 with the Federal Trade Commission the majority of the fertilizer 
 companies have voluntarily agreed to identify their subsidiary 
 and affiliated companies,
 
 Bogus '^Independent" Concerns 35 
 
 Furthermore, in 1905 the Joy Line, which 
 was operating from New York to Providence 
 and Boston, was secretly purchased by the New 
 Haven through the New England Navigation 
 Company. During the succeeding two years 
 this control was continued and the Joy Line 
 also was operated ostensibly as an independent 
 company in competition with the Enterprise 
 Transportation Company.^ 
 
 An examination of this method of competition 
 shows that there are two important points of 
 difference between the method of bogus con- 
 cerns and the method of local price-cutting. In 
 the first place, the former offers facihties for 
 obtaining information, which are not afforded 
 by the latter. Disclaiming all connection with 
 a trust, a bogus organization is frequently 
 placed in a favorable position to learn the names 
 of the customers of independent competitors 
 and to secure valuable information regarding 
 their manufacturing methods, trade secrets, 
 and business generally. The information thus 
 acquired is transmitted to the parent organ- 
 ization, thus contributing to further its efforts 
 to destroy independent business. 
 
 ' Original petition, United States v. New York, New Haven 
 &* Hartford Railroad Company, U.S.D.C. for the Southern Dis- 
 trict of New York, pp. 70-74.
 
 36 Unfair Competition 
 
 A very good illustration of what may be 
 expected of a bogus concern in this way can be 
 cited from the history of the old American 
 Tobacco Company. The Wells-Whitehead 
 Tobacco Company, claiming to be an inde- 
 pendent concern, though in fact owned by the 
 Trust, manufactured cigarettes at Wilson, 
 North Carolina. At the same place the Ware- 
 Kramer Company, a genuine independent, was 
 endeavoring to build up a business. A letter 
 to W. M. Carter, an officer of the Wells- 
 Whitehead Tobacco Company, from the vice- 
 president of the American Tobacco Company, 
 and the accompanying testimony, is as follows: 
 
 Dear Sir: 
 
 We are advised that a car-load of cigarettes has 
 been exported to China by the Ware- Kramer Tobacco 
 Company. If possible I wish you would ascertain to 
 what port these goods were shipped and the name of 
 the consignee. If you cannot learn the name, perhaps 
 you can find out the markings on the cases, as well as 
 the point in this country from which the goods were 
 shipped by steamer. 
 
 Yours very truly, * * * 
 
 In writing with a pen, this : 
 
 A car-load means to us about five million cigarettes. 
 If we get this information I think we can shut oflF their 
 market. You wrote and sent this letter ?
 
 Bogus ^^Independent" Concerns 37 
 
 A . Yes. We were interested in the British Ameri- 
 can and any information we can give them we are going 
 to do it. We are hired to look after our business and 
 that is what we are going to do if we can.^ 
 
 A second point of difference between the 
 method of local price-cutting and the method 
 of bogus concerns lies in the fact that the for- 
 mer is geographically limited while the latter is 
 not so restricted. Occasionally a bogus inde- 
 pendent concern operates for a given period 
 within such a relatively small area that its 
 price-cutting is essentially local in character. 
 For example, several of the bogus organizations 
 operated by the old Standard Oil Company were 
 merely peddling concerns. On the other hand, 
 this is not always or even usually the situation. 
 The bogus concern may sell over such a wide ter- 
 ritory that its operations can in no sense be 
 regarded as local in character, as is clearly illus- 
 trated by the case of the bogus concern oper- 
 ated by the Corn Products Refining Company. 
 
 From another point of view, however, local 
 price-cutting and bogus concerns are closely 
 analogous to one another. Where either 
 method is used, prices are made practically 
 without reference to cost and are governed 
 solely by the competition which must be met. 
 
 ' Brief for the United States, United States v. American Tobacco 
 Company, cit. supra, pp. 104-5.
 
 38 Unfair Competition 
 
 When the competition to be suppressed is 
 essentially local in character, the method of 
 bogus concerns would appear to be superior to 
 local price-cutting. A concern operating a 
 bogus independent need not, and generally does 
 not, cut its own prices. Although this is the 
 case, the trust may be able, through the good- 
 will which it has developed, to retain at least a 
 considerable proportion of its established trade. 
 Perhaps in exceptional cases it may retain 
 practically all of it. The latter situation is 
 especially likely to occur when the bogus organ- 
 ization is instructed, as is sometimes the case, 
 to make no attempt to sell anyone except the 
 customers of independents, or when, as in the 
 Corn Products Refining Company case cited 
 above, it is forbidden to sell to the trade of 
 the trust under any circumstances. Under the 
 method of bogus independent concerns, there- 
 fore, the trust sustains no loss upon the business 
 which it retains but only upon that which it 
 secures through the bogus concern from the 
 customers of bona fide independents. On the 
 other hand, when the method of local price- 
 cutting is used, the trust is compelled to sustain 
 a loss, not only upon the business obtained from 
 the customers of independents, but also upon 
 that of its old customers as well. Practically
 
 Bogus "Independent" Concerns 39 
 
 all of the latter it is certain to retain in view of 
 its lower prices. 
 
 The unfairness of competition conducted by 
 means of bogus concerns is evident. Since 
 prices are determined wath reference to destroy- 
 ing competition and not with reference to costs, 
 productive and selling efficiency is a no more 
 efficacious protection than it is under local 
 price-cutting. These qualities alone will not 
 enable an organization to survive. In addition, 
 a further unfairness is to be found in this method 
 in that it affords opportunities for acquiring 
 information in regard to the business of com- 
 petitors which do not exist in case of local price- 
 cutting.
 
 CHAPTER III 
 FIGHTING INSTRUMENTS 
 
 ' Closely related to local price-cutting on the 
 one hand and the operation of bogus concerns 
 on the other are "fighting instruments." Cer- 
 tain ships, articles, and goods at one time and 
 another have been utilized for the purpose of 
 destroying competition through destructive 
 price-cutting. While fighting ships or brands 
 of goods are thus pushed by the organizations 
 using them in competition with independent 
 ships or goods, yet as a general rule such con- 
 cerns at the same time fully maintain their 
 prices or charges except in the case of the fight- 
 ing instrument. 
 
 Prominent among these devices are the 
 so-called "fighting ships" employed by the 
 various steamship conferences.^ The "fighting 
 ship" is usually caUed into service when com- 
 petition is inaugurated in a trade nominally con- 
 trolled by conference lines. As soon as the new 
 competitor announces a sailing date, the con- 
 ference issues a circular to shippers advertismg 
 
 ' For explanation of the steamship conference, see infra, 
 chap. vii. 
 
 40
 
 Fighting Instruments 41 
 
 a steamer to sail upon or about the same date. 
 The conference circular usually offers a rate 
 which is intended to prevent the new line from 
 securing a cargo. ^ 
 
 An interesting development of fighting ships 
 was found in the Syndikats-Rhederei. This 
 organization was a vessel-owning corporation 
 with a capital of $1,428,000, through which were 
 operated the fighting ships of the six largest 
 Hamburg steamship companies engaged in the 
 extra-European trade. Nominally the com- 
 pany was engaged in commercial transportation 
 enterprises, but primarily it was a defensive 
 corporation, the capital stock of which was 
 owned in the following proportions by the 
 various companies: Hamburg-American Line, 
 $785,400; Hamburg-South American Line, 
 $166,600; German Steamship Company, $154,- 
 700; C. Woerman, $119,000; German- Austra- 
 Kan Steamship Company, $130,900; and the 
 German East Africa Company, $71,400. The 
 proportion of shares held was determined 
 according to the tonnage of each line. Four 
 relatively small and inexpensive ships were pur- 
 chased by the corporation. These with others 
 
 ' Proceedings of the Committee on the Merchant Marine and 
 Fisheries in the Investigation of Shipping Combinations, pp. 265, 
 1252-54, 1257. Numerous specific illustrations of this practice 
 will be found scattered through the same report.
 
 42 Unfair Competition 
 
 chartered when the need arose were "hired 
 out" to the six owners to meet competition 
 and to make it unprofitable. When not en- 
 gaged in a "fight," these steamers found 
 employment upon regular time charters." 
 
 The operation of fighting ships, however, 
 seems not to have been confined to foreign 
 trade. In 19 14, the Manhattan Navigation 
 Company filed a bill of complaint against the 
 Hudson River Navigation Company. In that 
 document the claim is set up that for four 
 years the latter company operated two steam- 
 boats between New York and Albany charging 
 rates of transportation for both freight and 
 passengers which were much less than cost. 
 These steamers, it is asserted, were advertised to 
 sail and did sail at or about the same hours as 
 the steamers of the Manhattan Company, the 
 intention being to bring about the financial 
 destruction of that organization.' 
 
 Easily the most notorious instance of the use 
 of fighting brands was in the case of the plug- 
 
 » Report of Robert P. Skinner, consul-general at Hamburg, 
 Germany, Special Diplomatic atid Consular Reports for the Use 
 of the Committee on the Merchant Marine and Fisheries, Dealing 
 with Methods aitd Practices of Steamship Lines Engaged in the 
 Foreign Carrying Trade of the United States, pp. 53-54. 
 
 * Complaint, Manhattan Navigation Company v. Hudson River 
 Navigation Company, U.S.D.C. for the Southern District of New 
 York, p. 8.
 
 Fighting Instruments 43 
 
 tobacco war which continued roughly from 
 1894 to 1898. In the years immediately follow- 
 ing its organization the old American Tobacco 
 Company controlled a relatively small propor- 
 tion of the plug-tobacco output of the United 
 States. In 1894 its total production was only 
 8,974,118 pounds, and at least three companies 
 were annually producing a much greater amount 
 than this. As early as 1890 Liggett & Myers 
 claimed to be manufacturing over twenty- 
 seven million pounds annually. Next to Lig- 
 gett & Myers ranked the LoriUard Company; 
 and in 1893 the claimed output of the Drum- 
 mond Tobacco Company of fourteen million 
 pounds was far in excess of the American's. 
 
 The principal brand which was selected by 
 the American Tobacco Company for the attack 
 upon its competitors was known as "Battle 
 Axe." In 1 89 1 this tobacco sold at retail for 
 fifty cents a pound. In 1894 consumers pur- 
 chased it for thirty cents and in the succeeding 
 year for a time the price to jobbers was as low 
 as thirteen cents. As the internal revenue tax 
 at that time was six cents a pound, this price 
 left only seven cents a pound to pay for the leaf 
 and the cost of manufacturing and distributing. 
 
 As noted above, the American sold less than 
 nine million pounds of plug in 1894. Under the
 
 44 Unfair Competition 
 
 price-cutting attack of 1895 it enlarged its sales 
 to twenty-one million pounds, an increase of, 
 roughly, 130 per cent. Two years later, in 
 1897, its sales amounted to thirty-eight million 
 pounds, an increase of 80 per cent over its out- 
 put in 1895, and of more than 320 per cent over 
 that of 1894. In the four years from 1894 to 
 1897 inclusive the proportion of the plug- 
 tobacco output of the United States controlled 
 by the American increased from 5,6 to 20.9 
 per cent. In the same period the profits of 
 that organization declined heavily. In 1894 
 its net earnings were approximately five miUion. 
 In the next year, with an increase of twelve 
 miUion pounds in sales of plug tobacco, the 
 earnings were approximately one million dollars 
 less. The accounts of the company show that 
 the loss on the manufacture and sale of plug 
 tobacco in 1896 amounted to over one milhon 
 dollars in the face of a sales increase over 1894 
 of about twenty-two miUion pounds. Although 
 in 1897 the American Tobacco Company sold 
 nearly thirty million pounds more of plug 
 than in 1894, its earnings were approximately 
 $800,000 less; while in 1898 the loss on the 
 plug- tobacco business alone was over $800,000.* 
 
 ' Report of the Commissioner of Corporations on the Tobacco 
 Industry, Part I, pp. 95-98.
 
 Fighting Instruments 45 
 
 The "knocker machines" of the National 
 Cash Register are a most interesting example of 
 fighting instruments. A "knocker" "was a 
 machine that was devised and built and con- 
 structed for the purpose of meeting competition 
 and placed on the price Hst under the head of 
 miscellaneous and was only used in cases of 
 extreme competition; it was also understood 
 that we were not allowed to sell this register 
 only in case of extreme competition; that is, 
 the National agents."* 
 
 Hugh Chalmers, formerly vice-president and 
 general manager of the National Cash Register 
 Company, gave further details regarding 
 "knocker " machines : 
 
 We had a great many different kinds of machines, 
 and when a competing machine was placed upon the 
 market, we would discuss which one of those machines, 
 if we had one, would be best suited to meet that com- 
 petition. If we did not have any machine to meet 
 it, we would build one in the inventions department. 
 The way we would meet competition in the field was 
 that if a man was offering an Ideal register or a Hall- 
 wood register, or a register of any other make, our 
 salesman would have one that would have all the 
 functions that that machine would have, that he would 
 offer to sell for less price than the other machine was 
 offered. In the parlance of the National Cash Register 
 
 ' Henry F. James, record, State v. National Cash Register 
 Company, cit. supra, Vol. I, p. 56.
 
 46 Unfair Competition 
 
 Company such a machine was called by a number. It 
 did not have any other name or designation when I was 
 there. I have heard the term "knocker" used. As I 
 understand it that term was a name given to machines 
 by our competitors that were used against them in 
 competition. These machines that I say were given 
 numbers were machines of that character. The price 
 of that machine that we would send out in compe- 
 tition was fixed at what we wanted to sell it for. 
 Our price was always based on the price of the 
 competition machine and never upon the cost of 
 manufacture. 
 
 When I say that we built machines as nearly like 
 the competitive machine as possible, I mean in appear- 
 ance and in the function that the machine performed. 
 .... Our idea was to build a machine to meet that 
 competition. I do not necessarily mean that we copied 
 
 the mechanism of that machine I mean that 
 
 we would build a machine that had the same function, 
 the same features on it that this other machine had, 
 that would do the same thing, whether in the same way 
 or not.* 
 
 The United States government has alleged 
 that the Thread Combination has made use of 
 "fighting brands" of thread. It was charged 
 that when an independent thread manufacturer 
 had succeeded in developing an appreciable 
 business, the agents of the combination revived 
 
 ' Hugh Chalmers, record, Patterson v. United States, cit. supra, 
 Vol. I, pp. 457-59.
 
 Fighting Instruments 47 
 
 one or more of those brands whose use had been 
 discontinued. These revived brands were 
 known as "fighting brands" and they were sold 
 at prices below the cost of production solely to 
 the customers of independent organizations. 
 Regular salesmen seldom handled them. 
 Instead they were marketed by special sales 
 forces known as "flying squadrons" which were 
 sent on the road by the combination. Inde- 
 pendent jobbers who refused to deal with the 
 combination were asserted to have been at- 
 tacked in a similar fashion.^ 
 
 The Eastman Kodak Company and aUied 
 concerns appear likewise to have made exten- 
 sive use of fighting brands at one time 
 and another. As early as 1898 or 1899 the 
 Rives and Steinbach papers which were 
 produced by the General Paper Company 
 were probably the most suitable raw papers 
 in existence for the gelatine printing-out 
 process.^ 
 
 In the original exclusive contract for han- 
 dling these papers in the United States which 
 was obtained by the Eastman Kodak Company 
 
 ' Petition in equity, United States v. American Thread Com- 
 pany et al., U.S.D.C. for the District of New Jersey, p. 14. These 
 practices were enjoined by the decree of the court entered June 2, 
 1914. 
 
 ^ For an explanation of this fact cf. infra, chap. viii.
 
 48 Unfair Competition 
 
 there appeared the following clause, known as 
 the fighting-brand clause: 
 
 In case any printing-out paper sensitized on other 
 raw paper than that furnished by the General Paper 
 Co. should make it [sic] appearance in said territory, 
 and in order to drive it out of the market it becomes 
 necessary for the Kodak Co. to reduce the prices 
 of its paper, then the General Paper Co. shall, 
 during not more than six months, allow to the Kodak 
 Co. a proportionate rebate on the price of its 
 plain and baryta-coated papers used in the manu- 
 facture of the printing-out paper sold at such reduced 
 price." 
 
 The year after the above contract was made 
 Eastman wrote to Paul Puttman, at one time 
 representing Steinbach & Company and later 
 the General Paper Company, suggesting that 
 the General Aristo Company' maintain three 
 fighting brands of photographic paper: one 
 for gelatine paper, one for collodion paper, and 
 one for gelatine developing paper. Eastman 
 
 ' General Paper Company, Steinbadi & Company, Blanche! 
 Freres & Kleber, and Eastman Kodak Company, terms of sale, 
 October 20, 1898, re Raw-Paper Government Exhibit 14, record, 
 United States v. Eastman Kodak Company, U.S.D.C. for the 
 Western District of New York, Vol. V, p. 2048. For further 
 details in regard to this contract cf. infra, chap. viii. 
 
 ' The General Aristo Company was the branch of the Photo- 
 graphic-SuppUes Combination which at that time marketed 
 paper.
 
 Fighting Instruments 49 
 
 testified that he was not sure "whether we 
 adopted them in each of the three hues, but we 
 did adopt them in some of the Hnes at any 
 rate."" 
 
 Klresko paper marketed by the Eastman 
 Kodak Company appears to have been used 
 as a fighting brand about 1900. In a letter to 
 the Morrison Photographic Supply Company we 
 find the following paragraph: 
 
 Would state that Kresko paper in [sic] not to be sold 
 over the counter indiscriminately, but is to be sold by 
 you only to professional photographers located in 
 Pittsburg, and to such other photographers as we have 
 given you special authorization to sell to. The under- 
 standing is that we desire to limit the sale of Kresko 
 paper as much as possible; consequently you should 
 not sell same to anyone not located in territory men- 
 tioned in our special authorization letter of May 17, 
 1900, unless you have informed us that such photog- 
 rapher is using paper other than that of General 
 Aristo Company manufacture, and for this reason it 
 becomes necessary to sell Kresko to them in order to 
 hold their patronage. It would manifestly be a mis- 
 take to sell Kresko to a photographer who is regularly 
 using Solio paper.^ 
 
 ' George Eastman, record, United States v. Eastman Kodak 
 Company, cit. supra, Vol. Ill, pp. 1286-87. 
 
 'The Eastman Kodak Company to Morrison Photographic 
 Supply Company, April 23, 1901, Government Exhibit, 270, 
 record, ibid., Vol. VI, p. 3208.
 
 5© Unfair Competition 
 
 The "statement of claim for loss on sales of 
 'fighting brand' papers" which was annexed to 
 the 1 910 contract between the General Paper 
 Company and the Eastman Kodak Company 
 was certified by Price, Waterhouse & Company 
 and showed a total loss for the three years 
 1907, 1908, and 1909 of $327,596.40.^ 
 
 There are points of close resemblance in the 
 use of fighting instruments on the one hand 
 and in the employment of both local price- 
 cutting and bogus independent concerns on the 
 other. Comparing first, for example, the 
 method of local price-cutting with the method 
 of fighting instruments, it is clear that the two 
 are invariably alike in that prices are made or 
 determined, not with reference to production 
 and selling costs, but solely in order to destroy 
 competition. Secondly, it is also evident that 
 in frequent instances the use of fighting devices 
 may be confined to a particular locahty or 
 localities. Thirdly, fighting instruments may, 
 if desired, be offered to anyone within the 
 locahty regardless of whether the purchaser is 
 a customer of the concern marketing the 
 particular device or of an independent com- 
 
 ' General Paper Company, Steinbach & Company, and East- 
 man Kodak Company, June 30, 1910, Government Exhibit 139, 
 record, United States v. Eastman Kodak Company, cit. supra, 
 Vol. V, p. 241 1.
 
 Fighting Instruments 51 
 
 peting organization. Whenever a concern sells 
 under these three conditions, there is no essen- 
 tial distinction between local price-cutting and 
 fighting instruments. In such cases, therefore, 
 the latter method must be condemned as unfair 
 upon the same grounds as the former. 
 
 Fighting instruments, however, are not 
 always or perhaps even usually restricted to 
 local use. As is shown by the Thread and 
 Tobacco cases above, they may be, and have 
 been, used practically without territorial restric- 
 tion. It is also unnecessary that a fighting 
 instrument should be offered to the trade gen- 
 erally, as is usually the case under local price- 
 cutting. Instead it may be presented for sale 
 to customers of independent competing organ- 
 izations only, as in the arrangements of the 
 Thread Combination. In the latter case the 
 manner of compensating the losses incurred 
 differs somewhat from that under local price- 
 cutting. In the use of the latter method the 
 loss sustained may be made up by the higher 
 prices charged in non-competitive or nearly 
 non-competitive locahties. In the use of fight- 
 ing brands the loss may conceivably be com- 
 pensated by the prices exacted on similar 
 lines sold to regular customers who do not pur- 
 chase of competitors and to whom fighting
 
 52 Unfair Competition 
 
 brands are not usually offered. Or again, the 
 loss may be offset by the prices charged for 
 other manufactured Hnes upon which no price- 
 cutting campaign is being conducted.^ 
 
 The differences which may exist between 
 local price-cutting and fighting instruments, 
 however, in no sense render the latter practice 
 fair. An efl&cient organization may be in little 
 or no better position to survive an extensive 
 fighting-brand campaign than to outlive a severe 
 attack of local price-cutting. Measured by the 
 criterion of efficiency which has been laid down, 
 therefore, fighting brands are open to equal 
 condenmation with local price-cutting. 
 
 The resemblance between the method of 
 bogus independent concerns and the method of 
 fighting instruments may likewise be a close 
 one. As was indicated in the preceding chap- 
 ter, the Royal Incandescent Lamp Company, 
 acting as an independent, marketed the Regal 
 lamp, the members of the combination paying 
 the requisite expenses. Clearly the Royal 
 Incandescent Lamp Company was a bogus 
 independent concern, and it is equally evident 
 that the Regal lamp should be regarded as a 
 fighting brand. By virtue of the usual purpose 
 
 ^ It is of course obvious that the losses on fighting instruments 
 may not always be fully compensated.
 
 Fighting Instruments 53 
 
 of a bogus concern, goods marketed by it may 
 generally be regarded as fighting brands. As a 
 rule, where either bogus concerns or fighting 
 brands are used prices are made without refer- 
 ence to costs and goods are sold solely for the 
 purpose of suppressing and destroying compe- 
 tition/ It is, in consequence, necessary to re- 
 gard as an integral part of the operation of the 
 bogus concerns brands pushed through such an 
 agency at cut prices in order to destroy com- 
 petition. 
 
 From whatever angle they may be viewed, 
 therefore, fighting instruments must be regarded 
 as unfair competition. Their use nullifies the 
 productive and selling efiiciency of other organ- 
 izations and makes possible their destruction 
 in spite of these quaUties. 
 
 ' Some few exceptions may be found in the case of bogus 
 concerns. Cf. preceding chapter regarding fertilizer business 
 where a different purpose seems to have been involved.
 
 CHAPTER IV 
 
 CONDITIONAL REQUIREMENTS ("TYING" 
 CLAUSES) 
 
 Upon the processes of producing and market- 
 ing commodities many organizations have, with 
 varying degrees of success, imposed certain 
 conditional requirements. Such arrangements 
 appear in considerable variety, and they are 
 perhaps the most interesting of any of the 
 methods of unfair competition. A concern 
 may require : 
 
 A. The purchase of commodities for which the 
 patents have expired as a condition of purchasing 
 patented commodities. 
 
 B. The use of commodities for which the patents 
 have expired as a condition of the lease or use of 
 patented commodities. 
 
 C. The use of unpatented commodities as a condi- 
 tion of the lease or use of patented commodities. 
 
 D. The leasing and use of one or more patented 
 commodities as a condition of the lease and use of other 
 patented commodities. 
 
 E. The handhng of new Unes of commodities as 
 a condition of continuing to handle old Hnes. 
 
 F. The purchase of certain commodities as a con- 
 dition of the purchase of other commodities. 
 
 54
 
 Conditional Requirements 55 
 
 G. The use of certain patented commodities as 
 a condition of the lease of certain other unpatented 
 commodities. 
 
 It will probably be evident to the reader that 
 these seven classes of conditional requirements 
 by no means exhaust the possibilities of such 
 arrangements. Clearly an almost indefinite 
 number of such conditions might be devised, 
 each being designed to meet the exigencies of 
 a particular situation. The seven enumerated, 
 however, are probably sufficient to illustrate 
 satisfactorily the unfairness of practically all 
 such arrangements. 
 
 For purposes of discussion they may be 
 divided into three groups determined with refer- 
 ence to the factor which enables an organ- 
 ization to impose such restrictions. 
 
 I. Conditions A, B, and C are based on the 
 fact that in each case the concern imposing the 
 restriction possesses a patent monopoly in a 
 single article. 
 
 II. Condition D is based upon the fact that 
 the concern making the requirement possesses 
 a patent monopoly in two or more articles. 
 
 III. Conditions E, F, and G are based upon 
 the fact that the concern making them possesses 
 an extensive or predominant control of certain 
 articles. 
 
 V
 
 56 Unfair Competition 
 
 I 
 
 A. By a series of contracts made in 1906 and 
 1909 with foreign parties the Electric Lamp 
 Combination acquired the exclusive rights for 
 the United States to the use of the inventions, 
 patents, and applications covering tungsten- 
 and tantalum-filament lamps. The advantages 
 of lamps of these types — economy in the cost of 
 service, etc. — ^are too well known to require 
 enumeration. Necessarily they compete with 
 carbon-filament lamps, and in order to meet the 
 demands of the trade, jobbers and dealers were 
 practically compelled to carry stocks of all three 
 types of lamps. The combination then offered 
 a contract to the trade which provided for the 
 sale of tungsten- and tantalum-filament lamps 
 to such dealers and jobbers as would also pur- 
 chase from it and its subsidiaries all of the 
 carbon-filament lamps which they required. 
 The patents upon carbon-filament lamps had 
 expired in 1894. The contract, therefore, ap- 
 pears unquestionably to have been an attempt 
 to compel dealers and jobbers to purchase 
 solely from the combination certain articles 
 which might otherwise have been secured 
 from outside organizations.^ 
 
 ' Petition, United States v. General Electric Company, cit. 
 supra, pp. lo-ii, 27-32. It should be noted that the final decree 
 of the court in this case forbade the continuation of this practice.
 
 Conditional Requirements 57 
 
 B. The leases of the United Shoe Machinery 
 Company have quite generally contained what 
 are known as "tying" clauses. Such clauses 
 require that certain machines shall be used only 
 in connection or in conjunction with certain 
 other designated machines. Sometimes, as will 
 appear later, they have tied together two 
 patented machines, making their simultaneous 
 leasing and utilization necessary. In certain 
 other cases the leases in question have tied to 
 patented machines others upon which the 
 patents have expired.^ The effect of the latter 
 type of condition is well described by Mr. Jones : 
 
 In 1900, at the time of the original controversy over 
 these leases, most of the machines were protected by 
 
 ' The following is an illustration of a Shoe Machinery tying 
 clause: "The leased machinery shall be used only in the manu- 
 facture of boots, shoes and other footwear made by the lessee 
 known in the trade as ' Goodyear welts,' which have been or are 
 to be welted wholly by Goodyear welt and turn shoe machines 
 or Goodyear universal inseam sewing machines held by the 
 lessee under lease from the lessor, and the soles of which have 
 been or are attached to their welts wholly by Goodyear outsole 
 rapid lockstitch machines held by the lessee under lease from 
 the lessor, or in the manufacture of boots, shoes, or other foot- 
 wear made by the lessee known in the trade as ' Goodyear turns,' 
 the soles of which have been or are to be attached to their uppers 
 wholly by Goodyear welt and turn shoe machines or Goodyear 
 universal inseam sewing machines held by the lessee under lease 
 from the lessor Lease and hcense No. 5196 K." — (Good- 
 year Department) Sewing and Stitching Machines between the 
 United Shoe Machinery Company and R. H. Long Shoe Manu- 
 facturing Company in Hearings before the House Committee 
 on the Judiciary, Trust Legislation Serial No. 2, Patent Legis- 
 lation Serial No. i, 1912, p. 140.
 
 58 Unfair Competition 
 
 valid patents, and we were advised by our counsel that 
 if we desired to use their patented machines we should 
 probably have to do so on whatever terms they saw 
 fit to impose; but these important patents were near- 
 ing the day of their expiration, and at the present time 
 (1912) a very large proportion of the important basic 
 patents have expired, and but for the restrictions 
 imposed upon us by their leasing system we should 
 today be exercising our undoubted right to use, without 
 royalty, a large part of the machinery now employed.' 
 
 The Crown Cork and Seal Company, of Balti- 
 more, manufactures more tin caps for bottles 
 than does any other concern in the United 
 States, and probably more than any other con- 
 cern in the world.' The same company also 
 controls patents upon a certain device known 
 as the Jumbo capping machine, which is used to 
 put the caps on bottles. None of the machines 
 are sold, but they are leased to brewing and 
 bottling establishments under agreements which 
 provide, among other conditions, that the "said 
 machine shall be used only in connection with 
 crown corks purchased by the lessee directly 
 from the lessor."^ As the patents upon the 
 
 ' Charles H. Jones, Hearings before the House Committee 
 on the Judiciary, Trust Legislation Serial No. 2, Patent Legisla- 
 tion Serial No. i, 1912, p. 65. 
 
 ' Alexander Whiteside, ibid., pp. 163-64. 
 
 * Lease and license agreement, ibid., p. 164. Reprinted in the 
 writer's Industrial Combinations and Trusts, pp. 266 ff.
 
 Conditional Requirements 59 
 
 caps expired years ago, the lease attempts to 
 compel bottlers to purchase all caps from the 
 Crown Cork and Seal Company. 
 
 C. In the nineties the Heaton Peninsular 
 Button Fastener Company controlled letters 
 patent granted for improvements in button- 
 fastening machines. These machines were sold 
 outright with the condition attached that 
 they should be used only with button fasteners 
 made and sold by that company and known as 
 "Peninsular Fasteners." This condition was 
 to be found upon the bUl of sale and also upon 
 tags and caution plates which were attached 
 to the machine. In 1890 a man by the name of 
 Dick began the manufacture of a new metaUic 
 fastener capable of and intended for use upon 
 the Peninsular machines. By soHcitation and 
 advertisement he secured many customers and 
 began to build up a considerable business; but 
 the Button Fastener Company quickly brought 
 suit against him and secured an injunction re- 
 straining the marketing of the device.^ 
 
 In considering the reasons for regarding the 
 conditions of the first group as unfair those of 
 types A and B maybe distinguished from type C."* 
 
 ^ Heat'on Peninsular Button Fastener Company v. Dick, 55 
 Fed. 23. 
 
 ' It is also true that on grounds of legality A on the one hand 
 may be distinguished from B and C on the other. In the decree
 
 6o Unfair Competition 
 
 The two former apply to articles upon which the 
 patents have expired; the latter to articles un- 
 patentable and unpatented. While both are 
 unfair, the reasons for so regarding them are not 
 identical. As regards A and B, the theory 
 which underhes the grant of monopoly in a 
 patent is, of course, that human progess is pro- 
 moted by the gift to inventors for a term of 
 years of the exclusive property in their inven- 
 tions. At the end of this period, however, it 
 is intended that the inventions shall become 
 the property of the pubHc. For this reason 
 
 against the Electric Lamp Combination (A above) the defendants 
 were "perpetually enjoined and restrained from making or 
 enforcing any contracts, arrangements, agreements or require- 
 ments with dealers, jobbers and consumers, who buy .... 
 either tantalum filament, tungsten filament, metalized carbon 
 filament or ordinary carbon filament lamps, or any of them, by 
 which such dealers, jobbers and consumers are compelled to 
 purchase all their ordinary carbon filament lamps .... as a 
 condition to obtaining such other types of lamps, or any of them" 
 (final decree. United States v. General Electric Company, cit. supra, 
 p. 7). On the other hand, the Shoe Machinery, Crown Cork, and 
 Button Fastener conditions (B and C above) are probably all three 
 legal under the decision in the Button Fastener case (55 Fed. 23) 
 and the later decision in Henry v. Dick (224 U.S. i), being but 
 valid use restrictions imposed upon patented articles. There is no 
 inconsistency in these two divergent legal views. Restrictions 
 upon the martoer in which a patented article may be used have 
 been repeatedly held valid, and this is the prevailing legal view. 
 It is evident that in the Electric Lamp case no use restrictions 
 existed. Consequently the condition in that case could not be 
 upheld upon the same legal ground as the conditions imposed by 
 these other organizations.
 
 Conditional Requirements 6i 
 
 inventors are required to give their specifica- 
 tions to the patent office. When the term of 
 the patent expires, the community thereupon 
 receives the benefit of the invention through a 
 complete knowledge of all its details. For the 
 term of his patent the inventor receives the 
 profits from sales or royalties from leases or 
 similar arrangements. At its expiration he 
 ceases to be entitled to further emoluments. 
 The community then reaps the advantages of 
 the device free from any further burden arising 
 from the right and property of the inventor in 
 his invention. 
 
 Theoretically anyone may begin the pro- 
 duction of an article previously patented as 
 soon as the term of the patent expires. Ac- 
 tually, however, no one may be able to do so. 
 Conditional requirements may so destroy the 
 market that even if the goods were produced 
 there would be no customers to purchase. 
 This precise situation seems to have developed 
 through the "tying" clauses of the Shoe 
 Machinery Company applying to released 
 patents. Upon this point the following bit of 
 testimony is worth quotation : 
 
 Mr. Rucker: Was there anything to prevent other 
 manufacturers from manufacturing each one of those 
 machines that they designate "essential"?
 
 62 Unfair Competition 
 
 Mr. Jones: Such machines as embody the expired 
 patents have not been manufactured, for the reason 
 that in this country no one could be found to purchase 
 them * 
 
 A manufacturer who has begun the pro- 
 duction of goods upon which the patents have 
 expired ought, under previous assumptions, to 
 have a free and open market for those goods. 
 If this is denied him, the competition is no less 
 unfair than if the market is entirely closed, as 
 in the Shoe Machinery case. If the market is 
 not a free and open one, the manufacturer's 
 productive efficiency, however great it may be, 
 is of no advantage to him. His sales are and 
 wiU continue to be restricted, even though the 
 same article produced by his competitors is both 
 more costly and of a poorer quality. As a re- 
 sult he may be compelled to discontinue busi- 
 ness, either because of its lack of profit or 
 through the prospect of bankruptcy. 
 
 The conditional requirements of both the 
 Electric Lamp Company and the Crown Cork 
 and Seal Company deny an open market to 
 competitors manufacturing goods for which the 
 patents have expired. This fact is weU sho-wn 
 by the testimony of Mr. Whiteside of the 
 
 * Hearings before the House Committee on the Judiciary, 
 Trust Legislation Serial No. 2, Patent Legislation Serial No i, 
 191 2, p. 71. Italics are the writer's.
 
 Conditional Requirements 63 
 
 United Cork and Seal Company, an organ- 
 ization which manufactures bottle caps prac- 
 tically identical with those of the Crown Cork 
 and Seal Company. 
 
 Mr. WmxESmE: We do not object to their selling, 
 leasing, or licensing their Jumbo capping machines. 
 That is the only practical capping machine on the 
 market that is fitted for use in large estabHshments 
 where a good deal of bottling is done. We do not 
 mind their marketing that in any fair way they want 
 to and getting a good, big profit, but we do object to 
 their marketing it and saying that a brewer who takes 
 it cannot use on it any caps except those manufactured 
 and sold by the Crown Cork & Seal Co. 
 
 Mr. Floyd: Which is not a patented cap ? 
 
 Mr. Whiteside: Which is not a patented cap. 
 . . . . It^ will be decided so that the Crown Cork and 
 
 Seal Co can sell their Jumbo capping machine 
 
 and prevent the use of any caps but theirs on it; 
 and it is perfectly easy to see that the risks which a 
 brewer who has one of those Jumbo capping machines 
 incurs in buying caps from us or anybody else who use 
 them on that machine are so great that, practically 
 speaking, he will not buy, if* you can find a brewer who 
 is wilHng to disregard the obHgation of the contract 
 which by force or otherwise he has entered into. Some 
 brewers have sufficiently high moral standards to say, 
 "We have made this contract, and whether we like 
 
 ' Refers to Dick case. See infra. 
 
 " This is probably either a misprint or careless statement. 
 It should read "unless." The jumbled wording is as in the 
 original.
 
 64 Unfair Competition 
 
 it or not we will stick to it"; but even if they have not 
 as high moral standards as that, practically they won't 
 buy any great quantities from us or anybody else.' 
 
 In his dissenting opinion in the case of Henry 
 V. Dick, Chief Justice White had occasion to 
 discuss a condition requiring the use of un- 
 patented articles — ink stencils, etc., made by 
 the A. B. Dick Company as a condition of the 
 use of that company's stencil dupHcating ma- 
 chines.^ His succinct statement, in the writer's 
 opinion, clearly established the basis for re- 
 garding all conditions of the class C type as 
 unfair: 
 
 The patent was solely upon the mechanism which 
 when operated was capable of producing certain 
 results. A patent for this mechanism was not con- 
 nected in any way with the materials to be used in oper- 
 ating the machine, and certainly the right protected 
 by the patent was not a right to use the mechanism 
 
 with any particular .... operative materials 
 
 It cannot be said that the restriction concerning the 
 use of the materials was a restriction upon the use of the 
 
 ' Hearings before the House Committee on the Judiciary, 
 Trust Legislation Serial No. 2, Patent Legislation Serial No. i, 
 1912, pp. 170-71. 
 
 ' The only difference between the bottle-cap case on the one 
 hand and the Dick and Button Fastener cases on the other is 
 that in the former case the use restriction is applied to articles 
 once patented upon which the patents had expired, while in 
 the two latter cases it related to unpatented and unpatentable 
 articles.
 
 Conditional Requirements 65 
 
 machine protected by the patent law. When I say 
 it cannot be said, I mean that it cannot be so done in 
 reason, since the inevitable result of so doing would 
 be to declare that the patent protected a use which it 
 did not embrace.' 
 
 Since the accepted theory of monopoly in 
 a patent does not and should not embrace 
 a monopoly of unpatented and unpatentable 
 articles, it follows that conditions designed to 
 effect this result are inconsistent with fair com- 
 petition. Their effect upon both actual and 
 potential competition tends to be precisely the 
 same as that of conditions applying to articles 
 upon which the patents have expired (A and B, 
 above). The results of restrictions of this latter 
 type were well described above in the testimony 
 of Mr. Jones and Mr. Whiteside, and the state- 
 ments of these gentlemen are equally apphcable 
 for illustrating the effect of conditions involv- 
 ing articles which are unpatented and impat- 
 entable. 
 
 The Button Fastener and Dick decisions 
 may be regarded as authority for the legality 
 of use conditions without reference to whether 
 they involve articles upon which the patents 
 have expired or articles unpatented or unpatent- 
 able. From an economic standpoint a decision 
 
 '224 U.S. I. Cf. 52-53.
 
 66 Unfair Competition 
 
 upholding these unfair conditions cannot be 
 regarded as sound no matter how consistent 
 with judicial precedents it may be. As the 
 ^vriter remarked in his original study of unfair 
 competition, one might well doubt that these 
 cases would stand the test of time. Certainly 
 it was reasonable to suppose that if a change 
 was not made through new judicial interpre- 
 tation it would sooner or later occur by way 
 of new legislation.^ 
 
 n 
 
 D. As previously stated, the "tying" clauses 
 of the Shoe Machinery Company have another 
 aspect than the one just discussed. They may 
 require that a given patented machine must be 
 leased and used in conjunction with the lease 
 and use of another patented machine. 
 
 The theory of patents presumes that an 
 inventor deserves a reward for the benefits 
 which he is supposed to have conferred upon 
 society. It is assumed that during the Hfe of 
 the patent the inventor will derive sufficient 
 returns to compensate him for his service. He 
 
 ' Section s of the Trade Commission Act and section 3 of the 
 Clayton Act would appear to have overruled these decisions. 
 The Trade Commission has, since this was first written, brought 
 a complaint against the Dick Mimeograph Company under the 
 latter.
 
 Conditional Requirements 67 
 
 may secure his remuneration in a variety of 
 ways. He may, for example, manufacture his 
 patented device and lease or sell it. He may 
 dispose of his patent outright for a definite 
 sum or may sell it in return for a fixed royalty 
 per unit manufactured. But whatever method 
 he may employ, the essential point is that he 
 is entitled to secure such profit from his inven- 
 tion as may be obtainable. 
 
 Yet the right to derive profit from an inven- 
 tion is in no sense an absolute right. Another 
 individual may invent a patentable de\dce to 
 perform the same work as the device of the 
 first inventor. In this case the only economic 
 right which the prior inventor has to profits is 
 such as is based upon the free competition of 
 the two articles. Society in the granting of the 
 patents has adjudged that each inventor is 
 deserving of reward. The second inventor is 
 entitled to derive profit from his device as well 
 as is the first from his. Is it not clear that if 
 the first inventor uses any method to close or 
 restrict the market of the second such an 
 arrangement must be regarded as unfair ? 
 
 The application of these generalizations to 
 the case in point is evident. Assume that, in 
 place of one of the "tied" machines of the 
 United Shoe Machinery Company, a new piece
 
 68 Unfair Competition 
 
 of mechanism is invented by an individual 
 "X." Assume that the new machine consti- 
 tutes no infringement of the United's patents, is 
 patentable, and is patented. Assume, thirdly, 
 that the efficiency of the new machine is twice 
 that of the United's machine, the work of which 
 it is designed to perform. As patentee, X is 
 entitled on the basis of the previous assumptions 
 to such profits as his device may earn in free 
 and open competition with the similar machine 
 of the Shoe Machinery Company. In such 
 a situation the relative productive efficiency of 
 the two machines should determine to a nicety 
 the reward belonging to each patentee. But 
 in the presence of the Shoe Machinery "tying" 
 clause no such just distribution is possible. 
 From whence then is X to derive those rewards 
 of which society has judged him worthy? If 
 he manufactures his device, who will buy or 
 lease it ? If he desires to sell his patent, who 
 will purchase it ? 
 
 In the case under discussion the patent law 
 and its construction by the courts have pro- 
 tected one patentee or his assignors in the 
 enjoyment of profits, and prevented another 
 patentee from deriving a legitimate reward for 
 his services. That such a situation is unfair 
 to the second inventor or his assignors is beyond
 
 Conditional Requirements 69 
 
 dispute. The market for later inventions is 
 closed by the "tying" clause and there is no 
 opportunity for competition to develop. At 
 the same time a deadening effect upon inventive 
 capacity results ; for few will spend their efforts 
 in invention when legitimate reward is denied 
 or when their remuneration rests within the 
 discretion of a single corporation. 
 
 The unsoundness of conditional requirements 
 based upon patents was recognized by the 
 English law of 1907 declaring certain of such 
 restrictions to be in restraint of trade and con- 
 trary to public policy.^ 
 
 ' "It shall not be lawful in any contract made after the pass- 
 ing of this act in relation to the sale or lease of, or license to use 
 or work, any article or process protected by a patent to insert 
 a condition the effect of which will be — 
 
 "a. to prohibit or restrict the purchaser, lessee, or licensee 
 from using any article or class of articles, whether patented or 
 not, or any patented process, suppHed or owned by any person 
 other than the seller, lessor, or licensor, or his nominees; or 
 
 "b. to require the purchaser, lessee, or licensee to acquire 
 from the seller, lessor, or licensor, or his nominees, any article or 
 class of articles not protected by the patent; and any such condi- 
 tion shall be null and void, as being in restraint of trade and con- 
 trary to pubUc pohcy: Provided that this subsection shall not 
 apply if — 
 
 " (i) The seller, lessor, or licensor proves that at the time the 
 contract was entered into the purchaser, lessee, or Ucensee had 
 the option of purchasing the article or obtaining a lease or license 
 on reasonable terms without such conditions as aforesaid; and 
 
 "(ii) The contract entitled the purchaser, lessee, or Ucensee 
 to relieve himself of his hablHty to observe any such condition
 
 70 Unfair Competition 
 
 III 
 
 E. The Commissioner of Corporations in his 
 report on the International Harvester Com- 
 pany used the term "full-line forcing" to 
 describe "the practice of requiring dealers to 
 order new lines^ .... as a condition to re- 
 taining the agency for some brand of the com- 
 pany's harvesting machines."* 
 
 on giving the other party three months' notice in writing and on 
 payment in compensation for such relief in the case of a purchase 
 of such sum, or in the case of a lease or license of such rent or 
 royalty for the residue of the time of the contract as may be 
 fixed by the arbitrator appointed by the Board of Trade." — 
 7 Edw. VII, ch. 28, p. 126, ch. 29, p. 153. Cf. Sarason v. Frenay, 
 L.R. (1914) 2, ch. 474. All italics are the writer's. 
 
 AustraUa and New Zealand have simUar provisions against 
 "tying" clauses. A careful examination of the patent laws of 
 these countries will reveal how far behind the United States is 
 in affording protection to the public against unreasonableness on 
 the part of patentees. 
 
 ' By the gradual acquisition of various concerns in the years 
 subsequent to organization the International secured certain 
 new lines. Among these concerns were plants for the manufacture 
 of farm wagons, manure spreaders, and plows. In addition it 
 began the production of gasoline engines in 1904, cream separators 
 in 1905, and tractors in 1909. 
 
 ' Report of the Commissioner of Corporations on the Inter- 
 national Harvester Company, p. 306. The report states that 
 complaint of this practice came to the Bureau from a number of 
 independent dealers and manufacturers. It is supported by the 
 extracts drawn from the' record in the case of the United States 
 V. International Harvester Company and cited in the government's 
 brief. For example, Claypool, general agent, wrote Perrot, one 
 of the blockmen, February 3, 1912, regarding the approval of two 
 commission agency contracts sent in by the latter: "How about
 
 Conditional Requirements 71 
 
 F. A restriction of similar character was 
 alleged by the government to have been enforced 
 by the American Coal Products and Barrett 
 Manufacturing companies. These concerns are 
 supposed to have a very substantial control 
 of the supply of pitch made from coal tar. 
 Some purchasers and users of roofing materials 
 have been required to buy one ton of felt for 
 every two tons of pitch. Naturally such indi- 
 viduals would be unlikely to purchase tarred felt^ 
 
 manure spreaders, wagons, cream harvesters [sic], engines, tillage 
 implements, etc. ? .... If these two dealers will not take hold 
 of our other lines, it will be necessary, for our own protection, to 
 make other arrangements." Cf. brief for the United States, 
 United States v. International Harvester Company, U.S.D.C. 
 for the District of Minnesota, p. 124; cf. also ibid., pp. 123 
 and 125. In justice to the Harvester Company it should be 
 said that it introduced a good deal of testimony, all tending 
 to_prove that the charge of fuU-line forcing was untrue. Cf. 
 appendix to defendant's brief, evidence as to certain points 
 abstracted and topically arranged, United States v. International 
 Harvester Company, cit. supra, pp. 382 ff. But it is also true that 
 the assistant general manager of the International admitted 
 that "full-line forcing" had been used (Report of the Commissioner 
 of Corporations on the International Harvester Company, cit. supra, 
 p. 309), though claiming that it was not to be regarded as a policy 
 of the company but rather as an imauthorized act of salesmen 
 with a view to increasing sales. 
 
 ' Petition, United States v. American Coal Products Company 
 cit. supra, p. 30. It should be noted that this practice was 
 enjoined by Judge Holt in a decree entered March 14, 1913, on 
 the consent of the defendants to reform their organization. As 
 the defendants denied this and other violations of the Sherman 
 Act set forth in the complainant's bill, the charge mentioned 
 should be regarded simply as an allegation.
 
 72 Unfair Competition 
 
 elsewhere for those operations in which such 
 pitch was used. 
 
 G. The manufacturer's Kcense agreement of 
 the Motion Picture Patents Company contains 
 the following clause : 
 
 The Licensor' hereby grants to the Licensee* .... 
 the right and license .... to manufacture, print and 
 produce positive motion pictures .... upon condition 
 that they be used solely in exhibiting or projecting ma- 
 chines containing the inventions, or some of them of said 
 letters patent .... and licensed by the Licensor. . . .^ 
 
 It is probably clear that in this case the 
 Motion Picture Patents Company, by virtue 
 of its film control, has endeavored to compel 
 the use of motion-picture machines containing 
 one or more of the patents which it controls. 
 
 The purpose and effect of all conditions in the 
 third group are readily seen. To a greater or less 
 
 ' Motion Picture Patents Company. 
 ' Biograph Company. 
 
 3 License agreement under the camera and film patents 
 between Motion Picture Patents Company and Biograph Com- 
 pany, December i8, 1908, section (/), clause i. Original peti- 
 tion, United States v. Motion Picture Patents Company, U.S.D.C. 
 for the Eastern District of Pennsylvania, Exhibit 3, p. 55. Agree- 
 ments with other manufacturers contained the same clause. 
 From its phrasing it might appear that the restriction in question 
 was based upon a patent. As a matter of fact such is only 
 nominally the case. The basic patent of the Motion Picture 
 Patents Company (Revised Letters Patent 12192) relates only 
 to the negative film. The positive films which are printed and 
 developed from the negative films and sometimes copyrighted
 
 Conditional Requirements 73 
 
 degree all restrict the market of either actual or 
 prospective competitors, or both. Consider for 
 a moment the tendency of "full-Hne forcing." 
 A dealer who is compelled to take a new line 
 in this fashion may and frequently does give 
 up his agency for an independent line of the 
 same goods which he has been carrying in the 
 past. It has been claimed, moreover, that in ad- 
 dition to requiring the handling of other prod- 
 ucts as a condition of handling those desired 
 by a dealer. Harvester Company salesmen have 
 endeavored to overload the dealer, thereby ren- 
 dering it impracticable that he order similar 
 goods from other makers. The effect of this 
 practice upon the trade of other manufacturers 
 would be similar to that which occurs when 
 dealers are compelled to handle one line 
 exclusively.^ 
 
 are those used for exhibition purposes. The weight of judicial 
 decision is to the effect that the control of a patentee does not 
 extend to the product of a patented article "unless new in a 
 patentable sense." There is therefore no distinction in principle 
 between this condition and E and F above. The Motion Picture 
 Patents Company has endeavored by virtue of its large control of 
 films to compel the use of its exhibiting machines, instead of those 
 of its competitors. The fact that the Patents Company hap- 
 pened to control certain patents upon motion-picture machines 
 is merely incidental. The basis of the restriction is a large con- 
 trol of the film business, precisely as the basis of E above is the 
 large control of harvesting machinery, or F above the large 
 control of the pitch business. 
 
 ' Cf. next chapter. /
 
 74 Unfair Competition 
 
 While there is theoretically no sound reason 
 why anyone should not undertake the manu- 
 facture of tarred felt for roofing purposes, one 
 who does so is not long in discovering that the 
 market is not a free and open one. If, as 
 alleged, the Coal Products and Barrett people, 
 controlling a considerable proportion of the 
 output of pitch, require that one ton of felt 
 must be purchased from them for each two 
 tons of pitch, the manufacturer of tarred 
 felt will be limited in his sales to such 
 parties as purchase from independent pitch 
 producers. 
 
 Theoretically the inventor of a new motion- 
 picture machine should derive large returns 
 therefrom, considering the vast extent of the 
 motion-picture business. Actually his reward 
 might be insignificant, since a free and open 
 market is denied him through the fact that 
 would-be purchasers of his machine are re- 
 strained from obtaining films from the licensed 
 manufacturers unless they are to be used upon 
 machines embodying the patents controlled by 
 the Motion Picture Patents Company.* 
 
 ' At the time the suit was brought by the United States 
 against the Motion Picture Patents Company the licensee manu- 
 facturers of that organization were alleged to produce between 
 70 and 80 per cent of the motion-picture films annually manu- 
 factured in the United States.
 
 Conditional Requirements 75 
 
 Economically fair competition would seem 
 to demand that no dealer or organization should 
 be required to handle a line of goods unless 
 desiring to do so; that none should be com- 
 pelled to purchase goods from one organization 
 if preferring to purchase them from another; 
 and that no person should be forced to use one 
 make of a machine if he prefers to use another. 
 The only methods that should be open to a 
 concern in marketing its products are the 
 economically fair methods. If salesmanship, 
 prices, and quality of goods or similar bases of 
 sale then fail to secure results for a given 
 manufacturer, there is every reason to suppose 
 that competing organizations possess equal or 
 superior efi&ciency in some one or more of these 
 respects. It follows, therefore, that any 
 conditional requirements which attempt to 
 check or destroy this latter competition are 
 unfair to these presumably efficient manu- 
 facturers. The fact that a manufacturer may 
 produce a better article or may sell it at 
 a lower price may be of little advantage to 
 him when conditional requirements are used. 
 In spite of these things, he may be prevented 
 from developing liis business to the extent to 
 which his economic efficiency entitles him, 
 from securing that business which would
 
 76 Unfair Competition 
 
 undoubtedly be his under conditions of eco- 
 nomically fair competition. Nor should the 
 effect of such restrictions upon potential com- 
 petitors be overlooked. It is difficult to 
 believe that capital will readily enter a field of 
 business where conditional requirements exist, 
 if aware in advance of restrictions which either 
 partially or entirely close the market to the 
 products of the projected undertaking.
 
 CHAPTER V 
 
 EXCLUSIVE ARRANGEMENTS' 
 
 Exclusive arrangements may be defined as 
 arrangements which require that certain deal- 
 ings or transactions shall be confined exclusively 
 to a specified organization or organizations/ 
 
 ' Exclusive arrangements exist in the deferred-rebate plans of 
 various steamship conferences. It has been deemed advisable, 
 however, to consider such arrangements in connection with a 
 discussion of rebates, which is to foUow. 
 
 ' A clear line of demarkation does not exist between exclusive 
 arrangements and the conditional requirements discussed in the 
 preceding chapter. It will be readily understood that condi- 
 tional requirements are often necessarily exclusive in their char- 
 acter. For example, the contract offered by the Electric Lamp 
 Combination provided that tungsten- and tantalum-filament 
 lamps would be supplied to jobbers agreeing to purchase all their 
 carbon-filament lamps from the combination. Clearly this is an 
 arrangement requiring organizations to purchase exclusively. On 
 the other hand, a conditional requirement is not inevitably 
 exclusive. Thus the alleged Barrett restriction requiring every 
 purchaser of two tons of pitch to purchase also one ton of tarred 
 roofing felt is not by its terms exclusive. It does not require 
 purchasers of pitch to purchase all their roofing felt of the 
 Barrett concern, and, so far as the words of the arrangement 
 are concerned, there is nothing to prevent an organization from 
 purchasing roofing felt elsewhere. While it is necessary to 
 admit that the actual effect of such an arrangement might be 
 to cause buyers of pitch to confine their purchases exclusively to 
 the Barrett Company, yet in terms there is nothing requiring 
 such action, and under a variety of circumstances conditional 
 requirements might conceivably be non-exclusive. 
 
 77
 
 78 Unfair Competition 
 
 As commonly used they may be divided into 
 three classes:^ 
 
 A. Arrangements which require that organizations 
 shall use exclusively. 
 
 B. Arrangements which require that organizations 
 shall sell exclusively. 
 
 C. Arrangements which require that organizations 
 shall purchase exclusively. 
 
 The purpose of all restrictions of this tj^e 
 is substantially the same, i.e., to obtain as much 
 business as is possible for those concerns im- 
 posing them. 
 
 A. Arrangements of the first class are fre- 
 quently required by the licensor of a patented 
 device from his licensee. The best illustration 
 is the United Shoe Machinery Company. This 
 corporation in its leases has used two types of 
 clauses of this character which have been 
 denominated the "exclusive-use" clause and 
 the "prohibitive" clause respectively. Both 
 have been designed to restrict manufacturers 
 to the use of the machines leased from the 
 United Shoe Machinery Company. 
 
 The "exclusive-use" clause for lasting and 
 tacking macliines runs as follows : 
 
 (c) If at any time the lessee shall fail or cease to use 
 exclusively lasting machinery held by him under lease 
 
 ' It is presumably clear that other exclusive arrangements 
 might also be made, such as exclusive leasing, etc.
 
 Exclusive Arrangements 79 
 
 from the lessor for lasting all boots, shoes, and other 
 footwear made by or for him, which are lasted by the 
 aid of machinery, or shall fail or cease to use exclusively 
 tacking mechanisms and appliances held by him under 
 lease from the lessor, for doing all work in the manu- 
 facture of all boots, shoes, and other footwear made 
 by or for him which is done by the aid of tacking 
 mechanism and appHances, the lessor, although it may 
 have waived or ignored prior instances of such failure 
 or cessation, may at its option terminate forthwith 
 by notice in writing any or all leases or Hcenses of last- 
 ing machines, lasting machinery, lasting mechanisms, 
 or lasting devices, then existing between the lessor and 
 the lessee, whether as a result of assignment to the 
 lessor or otherwise; and the possession of and full 
 right to and control of all lasting machines, lasting 
 machinery, lasting mechanisms, and lasting devices, 
 the lease or Hcense of which is so terminated shall 
 thereupon revest in the lessor free from all claims and 
 demands whatsoever.^ 
 
 The "prohibitive" clause reads that: 
 (d) The leased machinery shall not nor shall any 
 part thereof be used in the manufacture or preparation 
 of any welted boots, shoes, or other footwear or por- 
 tions thereof which have been or shall be welted in 
 whole or in part, or the soles in whole or in part stitched 
 by the aid of any welt-sewing or sole-stitching machin- 
 ery not held by the lessee under lease from the lessor, 
 or in the manufacture or preparation of any turned 
 
 ' Exhibit 21, lease for No. 5 lasting machine, record, United 
 States V. United Shoe Machinery Company, U.S.D.C., District 
 of Massachusetts, Vol. IX, pp, 187-88. Quoted in government's 
 brief, pp. 72-73. Italics are the writer's.
 
 8o Unfair Competition 
 
 boots, shoes, or other footwear or portions thereof the 
 soles of which have been or shall be in whole or in part 
 attached to their uppers by the aid of any turn-sewing 
 machinery not held by the lessee under lease from the 
 lessor, or in the manufacture of any boots, shoes, or 
 other footwear which have been or shall be in whole or 
 in part pulled over, slugged, heel seat nailed, or other- 
 wise partly made by the aid of any pulling-over or 
 "metalhc" machinery not held by the lessee under 
 lease from the lessor.^ 
 
 The "exclusive-use" clause appears in twenty- 
 two lease forms of the United Shoe Machinery 
 Company and the "prohibitive" clause in 
 twenty-seven." Their restrictive effect is shown 
 in the experience of Mr. Alexander Stone, of 
 the Atlas Works of Leipzig, Germany, who 
 came to this country to make an attempt to 
 instal machines manufactured by his company. 
 He remained here nearly six weeks and suc- 
 ceeded in selling only two machines, both of 
 which were used for putting on wooden heels. 
 According to his testimony Jackson Roberts, 
 of Roberts, Johnson & Rand, said to him: 
 
 My boy, I know all about it, about the machines 
 you are producing in Germany and what kind of 
 
 'Exhibit 21, lease for No. 5 lasting machine, record, United 
 States V. United Shoe Machinery Company, U.S.D.C., District of 
 Massachusetts, Vol. IX, p. 185, quoted in government's brief, p. 73. 
 
 " R6sum6 of leases in brief for the United States, ibid.^ 
 pp. 138-46.
 
 Exclusive Arrangements 8i 
 
 machines can be made in Germany or in Europe; but 
 as it is, you know, if you bring over a machine 
 which is constructed in such a way that we drive 
 a cow into it, and on one side the ready-made shoes 
 come out, and on the other side the ready-made 
 sausages, and you want to sell it to us for ten cents, 
 then we are not allowed to install it or make any 
 use of it,' 
 
 B and C. That in some cases an exclusive 
 purchasing and in others an exclusive selling 
 arrangement is resorted to may in all probability 
 be ascribed primarily to differences in marketing 
 methods. When a given organization sells its 
 products to intermediaries who in turn resell 
 to the consumer, it seems to be immaterial 
 whether an exclusive purchasing or an exclusive 
 selling arrangement is used. If a dealer is 
 compelled to sell exclusively the products of 
 one organization, he must ob\dously make his 
 purchases exclusively from the said organiza- 
 tion also. Conversely, if a dealer is forced to 
 purchase certain products from one organization 
 exclusively, it is equally evident that he must 
 also sell the products of that organization 
 exclusively. On the other hand, if an organ- 
 ization sells its products direct to the consumer, 
 
 ' Alex. Stone, record, ibid., Vol. IV, p. 1674, quoted in govei-n- 
 ment's brief, p. 190. He further testified that statements to a 
 similar effect were made by other manufacturers.
 
 82 Unfair Competition 
 
 there can be no possible advantage in demand- 
 ing an arrangement for exclusive selling, since 
 the consumer has no intention of reselling 
 the goods. Exclusive purchasing arrangements 
 alone, therefore, will very likely be found in 
 a majority of cases where organizations sell 
 their products directly to the consumers 
 thereof. 
 
 Many factors' agreements, possibly the 
 larger proportion of them, contain a clause 
 requiring either exclusive purchasing or exclu- 
 sive selling.' For this reason, more than for 
 any other, such arrangements have been 
 denounced as destroyers of competition and 
 agents of monopoly. Thus the factors' agree- 
 ment of the American Tobacco Company, 
 dated October i, 1895, contained the following 
 clause : 
 
 Eleventh. Upon your acceptance in writing of the 
 terms and conditions of this agreement, you understand 
 and agree that you will handle our cigarettes exclu- 
 sively ^ 
 
 ' The fact should not be lost sight of that these clauses are 
 merely written manifestations of the arrangements themselves. 
 They are in no sense necessary to exclusive selling or purchasing, 
 for these things can be secured without any written contract. 
 
 " Report and proceedings of the joint committee of the Senate 
 and Assembly appointed to investigate trusts, state of New York, 
 Senate Document No. 40, 1897, p. 881.
 
 Exclusive Arrangements 83 
 
 Later the Continental Tobacco Company 
 enforced contracts requiring dealers not to sell 
 or purchase the goods of competitors/ 
 
 Another exclusive clause not of recent origin 
 may be quoted from the factors' agreement of 
 the National Wall Paper Company : 
 
 3. The purchaser exclusively guarantee [sic] and 
 agree [sic] that between September i, 1896, and June 
 30, 1897, will not purchase or acquire any wall paper 
 or hangings the product of any person or corporation 
 other than the company ^ 
 
 At a subsequent date the Continental Wall 
 Paper Company required all wholesalers and 
 jobbers to sign an agreement containing a clause 
 which read as follows : 
 
 It is agreed .... That the company will sell 
 .... and the jobber will purchase, the entire require- 
 ments of the jobber in his business of selling wall paper 
 for the business year ending July i, 1899.^ 
 
 In past years the Photographic-Supplies 
 Combination has also enforced exclusive sales 
 arrangements. The government claimed that 
 even at the time its suit was brought the East- 
 man Kodak Company of New York would not 
 
 ' Cf. chap, vii, infra. 
 
 * New York Senate Document No. 40, 1897, cit. supra, 
 pp. 804-5. 
 
 J Up to a certain specified amount. Continental Wall Paper 
 Company v. Lewis Voighl &• Sons Co., 148 Fed. 939; cf. 945.
 
 84 Unfair Competition 
 
 sell any of its line of goods, patented or unpat- 
 ented, to any independent retail dealer who 
 handled a line of goods manufactured and 
 marketed by its competitors.' The following 
 quotation indicates the conditions formerly 
 prevailing in this industry : 
 
 Q. [By Mr. Clarke.] Now, suppose that a dealer 
 handling Mr. Carbutt's paper wanted some other 
 article — say a camera, for example — from the East- 
 man Kodak Company; could that dealer procure it? 
 
 A. Why, I doubt whether the Eastman Kodak 
 Company would sell that dealer unless he were han- 
 dling their whole Hne exclusively. I do not think they 
 would care to seU him unless he would confine his 
 energies to their line.* 
 
 The Pottery Association of 1904 by a clause 
 in its contract offered inducements^ to dealers 
 to comply with certain conditions among which 
 
 ' Petition, United States v. Eastman Kodak Company, cU. 
 supra, p. 34. The Eastman Kodak Company of New York con- 
 ducts the business of manufacturing, selling, and shipping articles 
 used in the photographic-supply business. Its capital stock is 
 owned by the Eastman Kodak Company of New Jersey, a 
 stockholding corporation organized in 1901, which also holds 
 the stock of Kodak, Ltd., of London, England, and Cana- 
 dian Kodak Company, Ltd., a corporation of the Dominion of 
 Canada. 
 
 » C. S. Abbott, Report of the United States Industrial Commis- 
 sion on Trusts and Industrial Combinations (second volume on 
 this subject). Vol, XIII, p. 198. 
 
 3 Cf. next chapter.
 
 Exclusive Arrangements 85 
 
 was one providing that "purchases or receipts 
 of all domestic premium wares^ .... during 
 the year 1904 must be confined to members of 
 the Pottery Association." This organization 
 embraced upward of 80 per cent of the pottery 
 manufacturers in the United States.^ 
 
 Until 1905 the commission-agency contracts 
 of the International Harvester Company con- 
 tained a clause which required a dealer under 
 penalty to handle exclusively the harvesting 
 machinery of that organization.^ In that year, 
 however, these clauses were eliminated. At 
 the time anti-trust proceedings against the 
 
 ■ Defined by another article as including only dinner and 
 toilet ware. 
 
 " Morony Hardware Company v. Goodwin Pottery Company, 
 120 S.W. 1088. Cf. pp. 1089-90. 
 
 3 The following is a typical clause of this character: "Such 
 agent especially agrees not to accept the agency for or to be inter- 
 ested in the sale of any grain binder, header, com binder, husker 
 and shredder, reaper, mower, stacker, sweep rake, hay rake, or 
 hay tedder, other than those manufactured by the International 
 Harvester Company, either directly or indirectly, nor to permit 
 anyone acting for him as employee, agent or partner, so to do 
 while acting as agent for the said company under this contract, 
 and said agent agrees to pay such company on demand as liqui- 
 dated damages, twenty-five dollars for each grain binder, header, 
 or com binder; fifty dollars for each husker and shredder; ten 
 dollars for each mower, reaper or stacker; five dollars for each 
 sweep rake, hay rake, or hay tedder sold in violation of 
 this paragraph of this contract." — Report of the Commis- 
 sioner of Corporations on the International Harvester Company 
 p. 304.
 
 86 Unfair Competition 
 
 company were pending in several states. In 
 the state of Texas the clauses were dispensed 
 with three years earlier. In no case have they 
 been restored.'^ The Harvester Company em- 
 phatically denied in its brief that it had ever 
 attempted to compel dealers to handle its goods 
 exclusively. To prove this point it secured the 
 testimony of a large number of witnesses.* 
 Against this evidence one must, however, 
 weigh the following extract from a circular 
 letter of instruction written on November ii, 
 1904, by R. C. Haskins, the then head of its 
 domestic-sales division : 
 
 There has been some discussion lately on the sub- 
 ject of the exclusive feature of our commission con- 
 tract, and we desire at this time to state the principle 
 that will govern in this matter. Where we furnish 
 goods to an agent for sale on a commission or consign- 
 ment contract, our interests demand that such articles he 
 handled solely on an exclusive basis.^ 
 
 A very recent case of an exclusive arrange- 
 ment is to be found in the so-called "jobbers' 
 
 ' Report of the Commissioner of Corporations on the Inter- 
 national Harvester Company, p. 304. 
 
 * Statement, brief, and argument for defendants. United 
 States V. International Harvester Company, cii. supra, pp. 102 ff., 
 and also appendix to defendants' brief, ibid., pp. 382 ff. 
 
 'Brief for the United States, ibid., pp. 127-28. Italics are 
 the writer's.
 
 Exclusive Arrangements 87 
 
 license agreement"^ of the recently dissolved 
 Bathtub Trust. This document contained the 
 following clause: 
 
 10. The Purchaser* also agrees during the life of 
 this contract not to purchase, sell, advertise, solicit 
 orders for, or in any way handle or deal in Sanitary 
 Enameled Iron Ware of any manufacturer not licensed 
 .... except with the express written permission of 
 the Licensor.* 
 
 The Keystone Watch Case Company did not 
 apparently follow the policy of requiring job- 
 bers to sign agreements providing for exclusive 
 purchase or sale. None the less it seems to have 
 been the policy of this organization to insist 
 that these distributors conduct their business 
 on an exclusive basis. On January 15, 1910, 
 there was mailed a delicately worded letter to 
 
 'The term "license agreement" is rather a misnomer as 
 implying the permission to manufacture or sell a patented article. 
 The agreement in question, in addition to the exclusive-sales 
 arrangement, provided for the maintenance of prices upon sani- 
 tary enameled ironware, which was absolutely unpatentable in 
 itself, although in its manufacture a patented tool was used. 
 The contention of the combination was that the protection of the 
 use of the patent constituted sufficient ground for the creation 
 of the combination and of its various agreements. As this 
 view was denied by the court the term "Ucense agreement" is 
 inappropriate in this connection. Cf. 226 U.S. 20. Cf. 48-49. 
 
 * The jobber. 
 
 * Record, United Stales v. Standard Sanitary Manufacturing 
 Company, U.S.D.C. for the District of Maryland, Vol. II, p. 37. 
 Italics are the writer's.
 
 88 Unfair Competition 
 
 the jobbing trade intimating the wishes of the 
 company in this and other matters. The sec- 
 tion of this letter relating to exclusive arrange- 
 ments reads as follows : 
 
 Fourth. And further, we desire that the jobbers 
 to whom we sell our goods bearing the following trade- 
 marks, to wit, Howard, Boss, Crescent, Planet, Crown, 
 Silveroid, and Excelsior shall not deal in any watch 
 cases other than those manufactured by us.^ 
 
 The Cleveland Stone Company is alleged 
 to produce and sell from 80 to 90 per cent of the 
 domestic production of grindstones. As not 
 more than 12 to 15 per cent of the total num- 
 ber of grindstones sold in this country are 
 imported from abroad, this organization sells 
 in consequence about 75 per cent of our total 
 consumption of grindstones. All sales are 
 made to jobbers and to jobbers only. The 
 company requires that each jobber handling its 
 goods shall enter into an agreement with it 
 not to handle the goods of any other concern. 
 It also refuses to deal with jobbers who handle 
 to any extent the products of one or more of its 
 competitors.' 
 
 ' Petition in equity, United States v. Keystone Watch Case 
 Company, U.S.C.C. for the Eastern District of Pennsylvania, 
 p. 15. For further details cf. infra, chap. x. 
 
 * Petition in equity. United States v. Cleveland Stone Company 
 U.S.D.C. for the Northern District of Ohio, pp. 19-20.
 
 Exclusive Arrangements 89 
 
 The consequences which flow from the 
 enforcement of arrangements of the character 
 described may be well illustrated by the cases 
 of the Bathtub and Photographic- Supplies 
 combinations. It was estimated by Mr. Way- 
 man that 80 per cent of the total furnace 
 capacity of the country was controlled by the 
 sanitary enameled ironware manufacturers who 
 joined the former combination.^ At the same 
 time all the jobbing trade except about 12 per 
 cent" signed the "jobbers' Hcense agreement" 
 containing the exclusive clause previously 
 quoted. In consequence the market of 20 per 
 cent of the production of the country, based 
 on furnace capacity, was limited to 12 per cent 
 of the total number of jobbers, for jobbers who 
 signed the agreement were obligated to purchase 
 exclusively from licensed manufacturers.^ All of 
 
 * Edwin L. Wayman, record, United States v. Sanitary Manu- 
 facturing Company, cit. supra, Vol. I, p. 69. 
 
 * All the principal jobbers of plumbing supplies in the United 
 States are listed in the "Blue Book" of the plumbing trade, 
 known officially as "List of Jobbers of Plumbing Supplies in the 
 United States," and dated July, 19 10. Only 49 out of the 387 
 jobbers on this list, or about 12 per cent, refused to sign the 
 agreement. Forty-eight jobbers not mentioned in the "Blue 
 Book" also signed. Assuming the ratio of signers to non-signers 
 to be the same among jobbers not listed in the "Blue Book" as 
 among those who were, the percentage of the total number of 
 jobbers who failed to sign would be about that stated. 
 
 ' Licensed manufacturers were those who signed the agree- 
 ment which was the basis of the combination.
 
 go Unfair Competition 
 
 them, therefore, who kept this condition of 
 the agreement must in consequence cease to 
 purchase from such independents as refused 
 to join the combination and thus become 
 licensed manufacturers. The testimony given 
 by John A. Kelly illustrates this point admir- 
 ably. Mr. Kelly was a manufacturer who, 
 beheving the Bathtub Combination to be il- 
 legal, emphatically refused to join it, although 
 strongly urged to do so. 
 
 Q. Did some of the jobbers who had bought goods 
 of you prior to June 6 decline to buy thereafter ? 
 
 A. Yes, sir. 
 
 Q. Did they assign any reason ? 
 
 A. Yes, sir. 
 
 Q. What was the reason ? 
 
 A . Because we did not sign the license agreement.* 
 
 The operation and effect of the exclusive 
 selling clause contained in the contracts of the 
 Photographic-Supplies Combination is indi- 
 cated in the testimony of W. B. Dailey. Mr. 
 Dailey was a manufacturer of photographic 
 paper in competition with the combination. 
 After relating instances where dealers were 
 cut off by the combination for failure to sell 
 
 ' John A. Kelly, record, United States v. Sanitary Manu- 
 facturing Company, cit. supra, Vol. I, p. 231.
 
 Exclusive Arrangements 91 
 
 exclusively, he said, referring to one of these 
 dealers : 
 
 .... He put up about as game a fight as anybody- 
 could for nearly a year. But, finally, it was the same 
 thing with him. He said to himself, "I am losing 
 money; there is no use talking; I have fought it hard 
 this year, but I cannot get the goods to sell; the paper 
 alone is not enough." So he had to give in, and so it 
 has gone in a number of cases. 
 
 Later Mr. Dailey remarked that the only 
 way it was possible for himself and other manu- 
 facturers to compete was by selling direct to 
 the consumer.^ 
 
 It would seem to be a cardinal principle of 
 fair competition that every organization should 
 be allowed to market its goods freely upon the 
 basis of their quality and its own productive 
 and selling efficiency. If under such conditions 
 a business does not expand or if it loses ground, 
 the reasons therefor must be sought within the 
 organization itself. They must be looked for 
 in the quality of the goods, in their prices, or 
 in the organization and management of the 
 various departments of the concern. On the 
 other hand, if exclusive arrangements are insisted 
 upon and enforced, it would appear that a 
 
 ' Report of Industrial Commission, Vol. XIII, cit. supra, 
 pp. 184-85.
 
 92 Unfair Competition 
 
 competing business might fail to develop or 
 might be unable to hold its own without being 
 in any way responsible therefor. It is also clear 
 that the wide extension of such arrangements by 
 some organizations would, as in the case of con- 
 ditional requirements, constitute a powerful 
 deterrent to prospective competition. 
 
 Many arguments have been advanced to 
 prove the necessity of exclusive arrangements, 
 and some of them have found a too ready 
 acceptance. It is asserted, for example, that 
 it is necessary to compel the dealer to sell exclu- 
 sively in order to insure that goods v/ill be prop- 
 erly pushed by him. Such a view would seem in 
 itself a confession of weakness. It would 
 
 • 
 
 appear to be an acknowledgment of the fact 
 that there may be equally good or better com- 
 modities of the same character upon the market 
 at an equivalent or lower price. If such a 
 situation exists, it would seem that the exclusive 
 arrangement violates the principle of fair com- 
 petition between these commodities. If an 
 organization is so efficient that it manufactures 
 articles of a quality equal to or better than 
 those of another organization and markets them 
 at a price equally as low or lower than those of 
 the other, it does not require exclusive arrange- 
 ments to insure that its goods will find a market.
 
 Exclusive Arrangements 93 
 
 In consequence no organization should be 
 allowed to enforce this kind of an arrangement 
 which may, as indicated, hinder an efficient 
 organization from obtaining a market for its 
 commodities. 
 
 Still another view of the necessity of exclusive 
 arrangements is expressed by a well-known 
 business man who wrote to President Wilson 
 as follows: "If a new concern cannot grant to 
 one party or store in a certain territory an 
 exclusive agency for its goods with a distinct 
 understanding that the same will not handle 
 any competing goods, the goods of a new con- 
 cern in most lines of business will never stand 
 a ghost of a show."^ Although this is the state- 
 ment of a business man of long experience, his 
 conclusion may be doubted. In the first place, 
 there has been a tendency to confuse exclusive 
 purchasing, selling, and similar arrangements on 
 the one hand with what may be termed exclusive 
 territorial arrangements on the other. The two 
 are not the same. A purely exclusive terri- 
 torial arrangement merely gives to a dealer or 
 agent the right to sell the goods of a given organ- 
 ization within a certain territory without com- 
 petition from other dealers or agents of the 
 
 ' Copy of the letter of D. E. Felt to President Wilson, dated 
 May 30, 1914. Mr. Felt was kind enough to supply the present 
 writer with a copy.
 
 94 Unfair Competition 
 
 same organization. This is a very different 
 thing from requiring that the said dealer or 
 agent shall purchase or sell only the goods of 
 the organization in question. In other words, 
 the two arrangements are entirely distinct, 
 although they may be coupled with each other.^ 
 It is very doubtful if the allotment of exclu- 
 sive territory is not entirely sufficient to permit 
 the introduction of new commodities. It is 
 equally doubtful if an exclusive selling or pur- 
 chasing arrangement is necessary to secure this 
 result, as Mr. Felt would have us believe. 
 Even if this were not the case, exclusive arrange- 
 ments might none the less be regarded as 
 economically unjustifiable. As this section has 
 attempted to demonstrate by citing actual in- 
 stances, such arrangements not only handicap 
 existing competitors, but also deter prospec- 
 tive competitors. The possible disadvantages 
 arising from the use of these arrangements,"* 
 as indicated by the cases of the Shoe Machinery, 
 
 ' Cf. Federal Trade Commission Conference Rulings Bull. No. i, 
 various decisions relating to exclusive territorial arrangements. 
 
 'The writer is of the opinion that such exclusive arrange- 
 ments as operate unfairly are within the scope of section 5 of the 
 Trade Commission Act. In addition, section 3 of the Clayton 
 Act specifically declares unlawful certain classes of exclusive con- 
 ditions "where the effect .... may be to substantially lessen 
 competition or tend to create a monopoly in any line of 
 commerce."
 
 Exclusive Arrangements 95 
 
 Kodak, and Bathtub combinations, might 
 conceivably outweigh the possible economic 
 advantages to the introduction of new lines. 
 To permit an organization introducing a new 
 line to use exclusive purchasing and selling 
 arrangements is equivalent to granting to it 
 permission to handicap and restrict other 
 organizations attempting to compete with it 
 at any future time, and such a proposal 
 should be regarded as economically unsound.' 
 The offer of exclusive territory by a manu- 
 facturer is ordinarily quite sufficient to secure 
 him adequate channels of distribution. It is 
 doubtful if he would obtain either more numer- 
 ous or better agents by imposing exclusive 
 arrangements upon them. On the contrary, 
 it is not unreasonable to assume that insistence 
 upon such arrangements would in some cases 
 prevent the manufacturer from procuring the 
 best agents. 
 
 Another not uncommon argument made in 
 favor of exclusive arrangements is that if such 
 requirements were abolished or prohibited, 
 
 " Another situation ought not to be overlooked. In many 
 cases it might be impossible for an organization manufacturing 
 a new competing article to enforce exclusive arrangements 
 because of the fact that it does not manufacture an entire line of 
 articles or goods but only some one or other of the commodities 
 comprising the line. Cf. the statement of Mt. Dailey, above, 
 regarding the situation in photographic paper.
 
 96 Unfair Competition 
 
 purchasers could not protect themselves against 
 the fluctuations of the market by means of 
 long-term contracts. One who makes this 
 contention however overlooks the fact that a 
 long-term contract of purchase is not neces- 
 sarily exclusive in character. In the past, 
 concerns could usually be found which would 
 agree to supply purchasers under long-term 
 contracts containing no such features. Condi- 
 tions of this type therefore are not an essential 
 part of such contracts and it may be doubted 
 that they add anything to the protection of the 
 customer thereunder. In other words, if exclu- 
 sive arrangements generally were abolished 
 there would be but little reason for assuming 
 that purchasers would be unable adequately to 
 protect themselves against market fluctuations. 
 In view of these facts, there is seldom, if ever, 
 any economic necessity that long-term contracts 
 should be exclusive.
 
 CHAPTER VI 
 BLACK LISTS, BOYCOTTS, WHITE LISTS, ETC. 
 
 The title of this chapter conveys so adequately 
 the meaning of the practices discussed that no 
 definition of them is required. In some cases 
 lists of dealers to whom goods should not be 
 sold have been circulated generally through the 
 trade. In others, lists of dealers who might be 
 sold have been similarly distributed. In yet 
 other instances manufacturers appear to have 
 blackHsted certain organizations, since these 
 have been consistently refused suppHes of goods. 
 
 Most of the cases of blacklisting and boy- 
 cotting which the writer has been able to dis- 
 cover are in connection with the operations of 
 various wholesale and retail trade organizations. 
 In these cases such methods usually develop out 
 of the practice known as classification, a term 
 which requires some explanation. As indicated 
 by the writer elsewhere,' there has appeared for 
 some years past a noticeable trend toward the 
 creation of a presumably more economic 
 system in the distribution of commodities. 
 This tendency has manifested itself in the 
 
 ' American Economic Review, III (September, 1913), 555- 
 97
 
 98 Unfair Competition 
 
 increasingly large number of articles which are 
 disposed of without the assistance of middle- 
 men, either the wholesaler or the retaUer, or 
 both, being dispensed with. It has also been 
 accompanied by the rise of the chain store 
 and mail-order establishment. As a result of 
 these developments the interests of the whole- 
 salers or jobbers and the retailers are to a cer- 
 tain extent in harmony, in that they both desire 
 to prevent shipments directly from the manu- 
 facturer to the consumer. In addition, the 
 retailer may generally be said to be interested 
 in preventing any shipments from the whole- 
 saler or jobber to the consumer,^ while in some 
 cases the wholesaler or jobber is equally inter- 
 ested in preventing shipments from the manu- 
 facturer to the retailer. In addition, the rise 
 
 ' This situation is indicated in tUe following quotation taken 
 from the Boston agreement of the lumber trade associations: 
 "Second. That the National Wholesale Lumber Dealers' Asso- 
 ciation take up and consider the pronounced and recognized evils 
 from which both branches ['both branches' means wholesale 
 and retail] are suffering, viz: 
 
 "i. Sales by manufacturers and wholesalers to consumers. 
 
 "2. Sales by brokers, agents, and commission men to con- 
 sumers. 
 
 "3. Sales and quotations by the so-called retail dealers to 
 consumers, through agents, and by methods used by the whole- 
 saler in soliciting trade from retailers." 
 
 Cf. original petition. United States v. Eastern States Retail 
 Lumber Dealers' Association, U.S.C.C. for the Southern District 
 of New York, Exhibit F, p. 81.
 
 Black Lists, Boycotts, White Lists 99 
 
 of the mail-order houses, co-operative associa- 
 tions, and similar organizations by means of 
 which the middlemen's charges are eliminated, 
 has interested certain associations in prevent- 
 ing shipments to these types of organization 
 either entirely or except at prices higher than 
 those made to ordinary retailers. 
 
 Classification may be said to be one of the 
 steps in the attempt to confine trade to what 
 the various wholesale and retail associations 
 regard as its legitimate channels, i.e., from 
 manufacturer to wholesaler, to retailer, to con- 
 sumer; and measures have been taken and 
 rules formulated to classify the trade into these 
 four groups: manufacturers, wholesalers, retail- 
 ers, and consumers.^ The usual method is the 
 use of more or less arbitrary definitions of each 
 one of these terms ,^ and the standing of any con- 
 cern in the trade is based upon the classifica- 
 tion adopted. Mail-order houses, co-operative 
 associations, and other large direct sellers are 
 usually classed as consumers and, regardless 
 
 ' Sometimes there may be another group, as brokers and com- 
 mission men, who are usually separately classified and have a 
 definite standing. 
 
 'On classification compare the following proceedings: Bill 
 of complaint, United States v. Colorado and Wyoming Lumber 
 Dealers^ Association, U.S.C.C. for the District of Colorado, 
 Eighth Judicial Circuit, pp. loff.; original petition, United
 
 loo Unfair Competition 
 
 of the quantity purchased, are entitled only to 
 consumer prices. 
 
 Let us examine briefly the manner in which 
 this classification is apphed. In the first place, 
 several trade associations pubhsh trade lists 
 known by various titles as "Red Books," 
 "Green Books," or "Blue Books." In these 
 lists are published the names of all individuals, 
 firms, and corporations regarded by the trade 
 (in accordance with the rules of classification 
 mentioned) either as wholesalers or retailers, 
 as the case may be. Such a list of retailers 
 would indicate to manufacturers or wholesalers 
 those concerns which were regarded by the 
 trade as the legitimate customers of either or 
 both. A hst of wholesalers or jobbers would 
 give a similar indication to the manufacturer. 
 Only those individuals and concerns appearing 
 in such lists (or in separate classification sheets 
 issued by some organizations) are usually 
 entitled to obtain goods at the trade discounts 
 which are allowed the different classes. Ob- 
 
 States V. Edward E. Harlwick, U.S.C.C. for the Eastern District 
 of Michigan, Southern Division, pp. 1 1 ff . ; decree of injunction, 
 United States v. Southern Wholesale Grocers' Association, U.S.C.C. 
 for the Northern District of Alabama, pp. 4fif.; petition in 
 equity, United States v. Pacific Coast Plumbing Supply Asso- 
 ciation, U.S.C.C. for the Southern District of California, pp. 12 fif.; 
 petition. United States v. Eastern States Retail Lumber Dealers' 
 Association, cit. supra, pp. 18-56.
 
 Black Lists, Boycotts, White Lists loi 
 
 viously the "Red," "Blue," and "Green" 
 books operate as a fair list. Concerns not 
 listed are of two classes: first, those which 
 are not regarded by the trade as legitimate 
 wholesalers or jobbers on the one hand, or as 
 legitimate retailers on the other, including 
 usually mail-order houses and all other direct- 
 selling organizations; second, those concerns 
 ordinarily entitled to be classified but whose 
 names may have been removed from the Hst 
 because of some violation of so-called trade 
 ethics. 
 
 A second way in which a trade association 
 may work out its intention to confine trade to 
 certain channels is by the use of recommended 
 hsts. Thus a retail association might issue 
 Hsts of wholesalers or of wholesalers and manu- 
 facturers from whom its members might buy. 
 Shipments made directly to consumers by such 
 concerns would, when discovered, be reported 
 to members of the association; and the impli- 
 cation drawn from such reports would be that 
 association members should cease trading with 
 the offending concerns. Such reports also 
 have often contained a Hst of previous offenders 
 who have been restored to good favor. Gen- 
 erally speaking, this restoration has been condi- 
 tional upon the payment of a fine by the
 
 I02 Unfair Competition 
 
 offending member. An illustration of this 
 practice is shown in the following circular : 
 
 Official Report of the Eastern States Retail 
 Lumber Dealers' Association, i8 Broad- 
 way, New York, N.Y. 
 
 Statement to members, April, igog. — You are re- 
 minded that it is because you are members of our 
 association and have an interest in common with your 
 fellow members in the information contained in this 
 statement, that they communicate it to you, and that 
 they communicate it to you in the strictest confidence 
 and with the understanding that you are to receive it 
 and treat it in the same way. 
 
 The following are reported as having solicited, 
 quoted, or as having sold direct to the consumers: 
 
 [Here follow the names of several score concerns.] 
 
 REMOVED since LAST REPORT 
 
 [Here follow the names of fifteen concerns.] 
 Members upon learning of any instance of persons 
 soliciting, quoting, or selling direct to consumers 
 should at once report same, and in so doing should, 
 if possible, supply the following information: The 
 number and initials of car, the name of consumer to 
 whom car is consigned, the initials or name of shipper, 
 the date of arrival of car, the place of deUvery, the 
 point of origin.^ 
 
 ' Original petition, United States v. Eastern Stales Retail 
 Lumber Dealers' Association, cit. supra, Exhibit U, pp. 98-100. 
 A number of similar circulars and letters might be qtioted. In 
 this connection and on this general subject cf. petition, United
 
 Black Lists, Boycotts, White Lists 103 
 
 It is submitted that these acts on the part 
 of trade associations must be regarded as 
 /0 unfair competition. Economically fair compe- 
 tition demands that no manufacturer or dealer 
 shall be arbitrarily restricted as to his cus- 
 tomers at the dictation of some group, since the 
 efficiency of competitors of the concerns com- 
 posing such a group is thereby hampered and 
 restricted. It may well be true that various 
 trade associations deserve at least some meas- 
 ure of protection against so-called illegitimate 
 trading. Indeed, the day may conceivably 
 come when it will be recognized that some form 
 of classification is economically sound, but it is 
 certain if it does that such classification must 
 be regulated, controlled, and supervised by 
 some governmental authority. Under no cir- 
 cumstances should an association or similar 
 organized group be permitted arbitrarily to 
 
 States V. Eastern States Retail Lumber Dealers' Association, cit. 
 supra, Exhibits J, K, L, O, S, T, W, X, Y, and Z, pp. 88fif.; 
 petition, United States v. Willard G. Hollis, U.S.C.C. for the 
 District of Minnesota, Exhibit A, p. 69; decree of injunction. 
 United Stales v. Southern Grocers' Association, cit. supra p. 5; peti- 
 tion, United States v. Plumbing Association, cit. supra, pp. 12-14; 
 petition in equity, United States v. Master Horseshoers' National 
 Protective Association of America, U.S.D.C. for the Eastern Dis- 
 trict of Michigan, Southern Division, pp. 18 ff.; petition in 
 equity, United States v. Philadelphia Jobbing Confectioners' 
 Association, U.S.D.C. for the Eastern District of Pennsylvania, 
 PP- S-9-
 
 104 Unfair Competition 
 
 blacklist and boycott concerns because the 
 latter sell to competitors of its members. 
 
 Another side of this question is, of course, 
 the fact that the development of the methods 
 here discussed has, to a considerable degree, 
 been due to the growth of larger units of selling 
 organization: the large retailer; the chain 
 store; the department store; the mail-order 
 house, and also the co-operative association. 
 To a considerable extent the object of such 
 methods has been to prevent the economic efi&- 
 ciency of these larger units from obtaining full 
 play. Hence the economic soundness of classi- 
 fication even imder government supervision 
 as suggested is open to dispute. Many persons 
 undoubtedly beUeve that the present system 
 of distribution is uneconomic and that the 
 development of the larger units of organization 
 is a necessary and desirable step in the direction 
 of greater distributive economy. Their theory 
 is that the enormous increase in the number of 
 middlemen and persons engaged in marketing^ 
 is largely responsible for the high cost of Hving. 
 If the economic efficiency of the larger units 
 is allowed to operate freely, many of these 
 middlemen will be eHminated. They hold, 
 therefore, that the imposition of artificial 
 
 ' Cf. Harry Tipper, The New Business, pp. 88 ff.
 
 Black Lists, Boycotts, White Lists 105 
 
 restrictions upon the efficiency of these units 
 (even though by governmental authority) would 
 be not only unfair to the organizations them- 
 selves but would assist in the perpetuation of 
 the present uneconomic system whereby an 
 ever-increasing army of middlemen distributes 
 goods to the consumer at an ever-increasing 
 expense. 
 
 Another of the uses of the principle of boy- 
 cotting is in connection with the enforcement 
 of the exclusive arrangements which have been 
 discussed in the preceding section. 
 
 The abihty to secure exclusive use, purchas- 
 ing, or seUing, etc., depends primarily upon 
 either one or both of two factors : 
 
 A, Rebates. 
 
 B. The right of refusing to supply goods or of 
 supplying only at discriminatory prices. 
 
 While the more common method of the two 
 is perhaps the rebate,^ yet in the last analysis 
 the enforcement of all such arrangements rests 
 upon the power of boycotting organizations or 
 persons refusing exclusively to use, purchase, 
 sell, etc., certain goods or commodities. 
 
 A good illustration of this point is found in 
 the so-called "violation tickler" of the Eastman 
 Kodak Company. This tickler seems to have 
 
 ' For a discussion of this aspect of rebates see the next chapter.
 
 io6 Unfair Competition 
 
 been used for the purpose of recording infor- 
 mation in regard to dealers and others violating 
 the Kodak terms of sale together with the 
 action taken in such cases. As previously 
 indicated, these terms of sale contained exclu- 
 sive arrangements/ and some of the reports 
 of the tickler deal with violations of such pro- 
 visions. For illustrative purposes we shall, 
 for reasons which will appear later, confine our 
 extracts from this document to the action taken 
 in case of the sale or use of "Artura," a pho- 
 tographic paper manufactured by the Artura 
 Photographic Paper Company. 
 
 VIOLATION 
 
 J. Bourgholtzer, photographer, Washington, Ind. 
 Classed E.K."B." 
 
 7/14/8. Goehn called upon the above party and 
 found him using Artura in his professional work. 
 
 8/9/8. Campbell called and confirmed preceding 
 report. He explained our terms of sale and Bourg- 
 holtzer claimed he had never known it was a violation 
 of same to use other products. Promised to comply 
 faithfully in the future and use E. K. paper only. 
 
 No further action at present. c. F. A. 
 
 E. 
 
 VIOLATION 
 
 W. N. Bullington, photographer, Greenville, Ala. 
 E. K. F. dealer. 
 
 ' Cf. preceding chapter.
 
 Black Lists, Boycotts, White Lists 107 
 
 11/23/08. W. G. Richardson, paper demonstrator, 
 reported this dealer to be using Artura. Mr. Bulling- 
 ton claimed he did not understand that there were 
 objections to his doing so. The matter was fully 
 explained by the demonstrator, and the dealer said 
 he would make no further purchases, discontinuing the 
 use of Artura as soon as his present stock, a part of 
 a gross, was exhausted. 
 
 6/1/09. Wrote Mr. Gazley to ascertain if this dealer 
 was now using our papers exclusively; if not, to place 
 the line with some desirable druggist or other local 
 merchant, advising Mr. BuUington that we would be 
 unable to extend him trade rates in the future. 
 
 6/10/09, E. W. Gazley writes as follows: "I found 
 Mr. BuUington using Artura paper. Succeeded in 
 getting into his dark room and found one gross and 
 two parts of gross packages, so did not solicit an order. 
 Think we will have no trouble in placing the line with 
 C. C. Stewart a little later." 
 
 Remove name from dealers' list. Wrote Gazley, 
 inquiring if he notified dealer that we would be unable 
 to extend discounts in the future. 
 
 Settled. C. F. A. 
 
 N. D. 
 
 SECOND VIOLATION 
 
 Harry L. Plummer, photographer, Lewiston, Me. 
 Exceptional "E. K. A." dealer. 
 
 8/29/8. Simonds reports on Form 105-B using 
 Artura paper. 
 
 9/10/8. Wrote Newhall to investigate. 
 
 C. F. A. 
 N. D.
 
 io8 Unfair Competition 
 
 Oct. 8th. Newhall called and reports he saw Mr. 
 Plummer and had a long talk with him. Mr. Plummer 
 admitted he was using some Artura and stated his 
 studio business amounted more to him than the sale 
 of amateur supplies. He is very favorably impressed 
 with Artura and would not consider discontinuing its 
 use. Mr. Newhall explained to him we could not 
 continue allowing him discounts unless he was willing 
 to comply strictly and literally with our terms 
 of sale. 
 
 Oct. 14th. Removed from list. 
 
 Settled. 
 
 C. F. A. 
 
 VIOLATION 
 
 E. A. Walcott, photographer, Barton, Vt. Classed 
 as an ''E. K. F." dealer. 
 
 Reported by Simonds as using Artura paper. 
 Wrote Newhall to investigate. 
 
 7/22/8. NewhaU reports called on above as in- 
 structed and found he was still using Artura. Would 
 not listen to any proposition to comply with our terms 
 of sale, as he could not get the results on our paper 
 that he can on Artura. States when an E. K. demon- 
 strator can show him equal quality in E. K. goods he 
 will then use them. NewhaU states the town is very 
 small and this party is the only one who would be apt 
 to handle the goods — one or two of the other mer- 
 chants have had them in the past and been unsuc- 
 cessful. He also states in all probability should 
 we take him off Ust that our dealer at Barton 
 

 
 Black Lists, Boycotts, White Lists 109 
 
 Landing would be able to take care of the Barton 
 trade. 
 
 Remove name from list. 
 
 Settled. C. F. A.^ 
 
 E. 
 
 The uneconomic character of arrangements 
 thus restricting or attempting to restrict the 
 sales of competitors' goods may be well illus- 
 trated by considering the facts with reference 
 to Artura paper. 
 
 The Artura Photographic Paper Company 
 began operations about 1901. With the change 
 from printing-out to gas-Hght papers came some 
 reHef from the difficulty independent manufac- 
 turers had had in securing satisfactory raw- 
 paper stock.^ Under the gas-light method it 
 became possible to utilize a raw stock of a 
 lower quality than that required for printing- 
 out purposes, as the emulsions in gas-light 
 
 ' Government Exhibit 221, violation tickler of Eastman 
 Kodak Co., record, United States v. Eastman Kodak Company, 
 cit. supra, Vol. VI, pp. 2713-2714, 2723, 2900, 2959. The New 
 York Trust Investigation of 1897 contains a list of a large number 
 of concerns whose consignment contracts with the American 
 Tobacco Company were revoked because they had handled 
 opposition goods. That this has been a not uncommon practice 
 there seems little reason to doubt. 
 
 ^ To understand the situation which existed in regard to 
 raw-paper stock in the years immediately following 1898, cf. 
 in chap, viii the Eastman arrangements with the foreign raw- 
 paper manufacturers.
 
 no Unfair Competition 
 
 papers were not as readily affected by metallic 
 impurities. 
 
 The rapid rise of Artura paper is indicated 
 by the increase in its volume of sales. 
 
 1901 $ 2,921.31 
 
 1902 8,644.41 
 
 1903 14,327-20 
 
 1904 24,572 .92 
 
 1905 46,695.34 
 
 1906 98,890 . 36 
 
 1907 228,979.79 
 
 1908 353,516.49 
 
 1909 (9 months) 329,272 .44* 
 
 In the gas-light papers great difficulty 
 appears to have been experienced in securing 
 the proper correlation between the paper and 
 the emulsion. Eastman quite frankly admitted 
 that his company was unable to secure the 
 results that the Artura people obtained when 
 he stated that "We could not make paper of the 
 type of Artura paper."* This, moreover, was 
 in the face of the fact that the General Paper 
 Company had experimented for two years 
 
 ' Early, Yauck, Colfax, and Eastman agreement, October 
 18, 1909, re Artura Photographic Paper Company, Government 
 Exhibit 25, record. United States v. Eastman Kodak Company, cit. 
 supra, Vol. V, p. 2073. 
 
 ' George Eastman, ibid., Vol. Ill, p. 1344.
 
 Black Lists, Boycotts, White Lists iii 
 
 endeavoring to develop a paper suitable for 
 use with the Artura type of emulsion. "The 
 General Paper Company's paper," however, 
 "blistered, among other things and would not 
 lie flat in the big pictures."^ 
 
 Can it be regarded as economically justifiable 
 in the face of these facts to permit the marketing 
 of Artura paper to be hampered by the exclu- 
 sive arrangements of the Kodak Company 
 and by the cutting off of the supplies of 
 dealers when they refused to comply there- 
 with? As Mr. Dailey testified, the dealer 
 soon found that "the paper alone is not 
 enough. ""^ It was necessary for him to have 
 other photographic supphes to sell and to 
 make a profit on if he was to continue in 
 business. 
 
 It is the accepted theory that a private busi- 
 ness has the right to select its own customers. 
 In the past, therefore, if a dealer or other per- 
 son has not sold, purchased, or used exclusively 
 its goods, an organization has possessed the 
 right of ceasing to supply him. In so far 
 as exclusive arrangements are unfair, how- 
 ever, the cutting off of dealers who refuse 
 to comply with such arrangements, or the 
 
 ' George Eastman, ibid. 
 ' Cf . preceding chapter.
 
 112 Unfair Competition 
 
 refusal to sell to them except on disadvan- 
 tageous terms, ought also to be regarded as 
 unfair.^ 
 
 3 Australia and New Zealand perhaps have gone farthest in 
 the direction of the Umitation of the right to select customers. 
 The latter's laws declare that: "Every person commits an 
 offense who, either as principal or agent, refuses, either abso- 
 lutely or except upon disadvantageous or relatively disadvan- 
 tageous conditions, to sell or supply to any other person, or to 
 purchase from any other person, any goods for the reason that 
 the latter person — 
 
 " (a) Deals or has dealt or will deal, or intends to deal, or has 
 not undertaken or will not undertake not to deal with any person 
 or class of persons, either in relation to any particular goods or 
 generally; or 
 
 " (c) Does not act or has not acted or will not act, or does not 
 intend to act, or has not undertaken or will not undertake to act, 
 in obedience to or in conformity with the determinations, direc- 
 tions, suggestions, or requests of any commercial trust with 
 respect to the sale, purchase, or supply of any goods." — Acts for 
 the Repression of MonopoUes in Trade or Commerce, New Zea- 
 land Stats. I, Geo. V, 1910, No. 32, Sec. 4; quoted in N. B. 
 Williams, Laws on Trusts and Monopolies (ed. 19 14), pp. 464-65. 
 
 The Australian law is similar. 
 
 It is the view of the writer that a refusal to sell on account 
 of a failure to conform to exclusive arrangements would amount 
 to a violation of section 5 of the Trade Commission Act in so far 
 as the exclusive arrangements were themselves unfair. As has 
 been previously pointed out, section 3 of the Clayton Act also 
 declares unlawful certain exclusive arrangements "where the 
 effect .... may be to substantially lessen competition or tend 
 to create a monopoly." Refusals to sell, therefore, if based on 
 nonconformance with the exclusive conditions forbidden by 
 this section, may perhaps also be regarded as violating the 
 Clayton Act.
 
 CHAPTER VII 
 
 REBATES AND PREFERENTIAL ARRANGE- 
 MENTS 
 
 Discriminations in the form of rebates and 
 preferential contracts are made by two classes 
 of organizations : 
 
 A. Manufacturing and trading companies. 
 
 B. Transportation companies. 
 
 A. One of the most common methods of 
 maintaining exclusive arrangements is the use 
 of a rebate. The factors' agreements of the 
 American Tobacco Company from which the 
 exclusive selhng clause was quoted in chap, v 
 also contained the following provision : 
 
 Eighth. If, however, you handle cigarettes of our 
 manufacture exclusively, and do not sell or distribute, 
 or in any v/ay aid in the sale, or distribution of, cigar- 
 ettes of other manufacture, and if you, in all respects, 
 fully comply with the terms and conditions of this 
 agreement, we will pay you an additional commission 
 of seven and one-half (7I) per cent, on the amount 
 realized by you from the sale of the cigarettes which 
 we may consign to you.^ 
 
 ■ Report and proceedings of the joint committee of the 
 Senate and Assembly appointed to investigate trusts, state of 
 New York, Senate Document No. 40, 1897, p. 880. 
 
 113
 
 114 Unfair Competition 
 
 The exclusive sales contract for photographic 
 paper in effect May i, 1901, contained this 
 clause : 
 
 On or about the 20th of each month a memorandum 
 showing amount of previous month's net paper pur- 
 chases will be sent to each dealer from each factory. 
 If this memorandum is returned at the time indicated 
 thereon, properly signed and verified to the satis- 
 faction of this company, a credit amounting to 12 per 
 cent on the net purchases will be made to the dealer 
 so returning same. 
 
 Fifteen per cent represents the full trade discount 
 on paper but an extra credit, as stated above., is offered 
 as a special consideration for advantages accruing 
 .... through having our specialties sold in original 
 packages and at a price that affords the dealer a profit 
 large enough to warrant his energetically and exclu- 
 sively pushing their sale.^ 
 
 Of like nature is a provision drawn from the 
 "jobbers' license agreement" of the recently 
 dissolved Bathtub Trust, which reads: 
 
 7. If aU the conditions of this agreement have been 
 complied with and you have confined your purchases to 
 Licensed Manufacturers, we will pay you rebates on 
 
 ' Italics are the writer's. Quotation is taken from the terms 
 of sale supplied by W. S. HubbeU, counsel for the General Aristo 
 Company, Report of the United States Industrial Commission on 
 Trusts and Industrial Combinations (second volume on this sub- 
 ject), Vol. XIII, p. 192. At that time the Eastman Kodak 
 Company was the trade agent to market all the goods of the 
 General Aristo Company.
 
 Rebates and Preferential Arrangements 115 
 
 such purchases as you have made from us ... . 
 [schedule of discount follows].* 
 
 •' An interesting rebate arrangement designed 
 to secure exclusive purchasing and selling was 
 utilized by the Continental Tobacco Company 
 in 1902. This concern assigned to an intending 
 purchaser a certain amount of its goods, which 
 amount he was required to purchase during 
 each subsequent period of four months. The 
 allotment thus made was a great deal in excess 
 of the amount which the purchaser would be 
 able to dispose of during that period; and, more- 
 over, the prices charged therefor were so high 
 that if the customer paid them, the buying and 
 selling would not be profitable . Each purchaser 
 was required to refrain from dealing in plug 
 chewing tobacco made by independent and 
 competing manufacturers, and if he complied 
 with this restriction, his allotment was inva- 
 riably reduced to the amount he was able to 
 sell. At the same time he was rebated such 
 a percentage of the aggregate price of the goods 
 acquired that the handling of these commodities 
 was, by reason of this rebate, made profitable 
 to him.' 
 
 ' Record, United States v. Standard Sanitary Manufacturing 
 Company, cit. supra, Vol. II, pp. 34-35. Italics are the writer's. 
 Cf. diap. V, supra. 
 
 * Whitewell v. Continental Tobacco Company, 125 Fed. 454.
 
 ii6 Unfair Competition 
 
 The discounts made by the Continental Wall 
 Paper Company to the jobbing trade depended 
 upon conformance with the exclusive-purchasing 
 arrangements cited in a preceding chapter.' 
 The same was true of the agreements of the 
 jobbing trade with the Pottery Association.^ 
 Similarly, so it is alleged, the Cleveland Stone 
 Company secured the exclusive handling of its 
 grindstones, offering a rebate of 12 J per cent 
 on purchases made by jobbers in the period of 
 the preceding six months provided they had 
 purchased exclusively from it.'* 
 
 Differing somewhat from these rebate ar- 
 rangements was the plan of the Corn Products 
 Refining Company. In November, 1906, just 
 prior to the period when the first independent 
 glucose company placed its products upon the 
 market, this organization was alleged to have 
 offered to the trade a profit-sharing or rebate 
 plan, the purpose of which was to secure 
 exclusive purchasing. The Corn Products Re- 
 fining Company and its subsidiaries agreed to 
 set aside for payment to their customers, out 
 
 ' Continental Wall Paper Company v. Lewis Voight 6* Sons 
 Company, 148 Fed. 939. Cf. chap, v, supra. 
 
 'Morony Hardware Company v. Goodwin Pottery Company, 
 120 S.W. 1088. Cf. chap. V, supra. 
 
 ^ Petition, United States v. Cleveland Stone Company, cit. 
 supra, p. 20. Cf. chap, v, supra.
 
 Rebates and Preferential Arrangements 117 
 
 of the profits of the last six months of 1906, 
 a sum equal to ten cents per hundred pounds 
 upon all sales of glucose and grape sugar, the 
 payment to be made on December 31, 1907, on 
 the condition that customers should purchase 
 exclusively from the company during the 
 balance of the year 1906, and all of the year igoy. 
 It was charged that this plan was continued 
 until 1910.^ 
 
 If exclusive contracts and arrangements are 
 unfair, it would appear to follow that all rebates 
 offered for the purpose of effecting such arrange- 
 ments are likewise unfair. As indicated in the 
 preceding chapter, the ability to secure exclusive 
 arrangements usually depends either upon 
 rebates or upon the power to refuse to supply 
 goods, the latter either absolutely or except 
 under disadvantageous conditions. If these 
 two things* were eliminated, no person or 
 organization need use, sell, or purchase, etc., 
 exclusively except as a matter of choice and 
 
 ' Petition, United States v. Corn Products Refining Company, 
 U.S.D.C. for the Southern District of New York, pp. 20-21. 
 
 ^ Australia and New Zealand appear to have prohibited both 
 practices in such connection. In the preceding chapter there 
 were quoted the provisions of her laws forbidding the refusal of 
 goods under certain conditions (cf. footnote, p. 112). The same 
 law also declares: "Every person commits an offense who, either 
 as principal or agent, in respect of dealings in any goods, gives, 
 offers, or agrees to give to any other person any rebate, refund,
 
 ii8 Unfair Competition 
 
 upon the basis of the quaHty and prices of the 
 goods offered. And at any time he or it would 
 be perfectly free to introduce or deal in goods 
 of an equally satisfactory or better quality or 
 of an equivalent or lower price.^ 
 
 discount, concession, allowance, reward, or other valuable con- 
 sideration for the reason or upon the express or impHed condition 
 that the latter person — 
 
 " (a) Deals or has dealt or will deal, or intends or undertakes 
 or has undertaken or will undertake to deal, exclusively or 
 principally, or to such an extent as amounts to exclusive or 
 principal dealing, with any person or class of persons either in 
 relation to any particular goods or generally; or 
 
 "(6) Does not deal or has not dealt or will not deal, or 
 intends or undertakes or has undertaken or will undertake not 
 to deal, with any person or class of persons, either in relation to 
 any particular goods or generally; or 
 
 " (c) Restricts or has restricted or will restrict, or intends or 
 undertakes or has undertaken or will undertake to restrict, his 
 dealing with any person or class of persons, either in relation 
 to any particular goods or generally; or 
 
 " (e) Acts or has acted or will act, or intends or undertakes or 
 has undertaken or will undertake to act, in obedience to or in 
 conformity with the determinations, directions, suggestions, or 
 requests of any commercial trust with respect to the sale, pur- 
 chase, or supply of any goods." — Acts for the Repression of 
 MonopoUes in Trade or Commerce, New Zealand .Stats, i, Geo. 
 V, 1910, No. 32, Sec. 3; quoted in N. B. Williams, Laws on 
 Trusts and MonopoUes, p. 464. Australia similarly limits the 
 right to select customers. 
 
 ' The writer is inclined to consider that rebates and prefer- 
 ences used to procure conformance with exclusive arrangements 
 constitute violations of section 5 of the Trade Commission Act 
 in so far as the exclusive conditions are themselves unfair. In 
 addition, section 3 of the Clayton Act declares unlawful rebates 
 and discounts used to maintain exclusive arrangements "where 
 the effect .... may be to substantially lessen competition or 
 tend to create a monopoly."
 
 Rebates and Preferential Arrangements 119 
 
 The rebate is probably a more effective in- 
 strument for enforcing exclusive arrangements 
 than is the right of refusing goods. This fact 
 perhaps accounts for the preference given it 
 in connection with such arrangements. The 
 rebate plan makes a strong appeal to the 
 cupidity of the purchaser or dealer, and it does 
 not usually appear compulsory in its nature.^ 
 The bald statement that goods must be used, 
 sold, or purchased exclusively, together with 
 a declaration that goods will be otherwise 
 refused, is not unlikely to arouse antagonism. 
 The hostility thus developed may result in a 
 refusal by certain organizations to enter into 
 an exclusive arrangement in the first instance 
 or, once having done so, to abide by its terms. 
 Furthermore, it should be thoroughly appre- 
 ciated that the mere fact that rebates are given 
 in no way lessens the power of the manufacturer 
 to refuse goods. It would be a most erroneous 
 interpretation to assimie that, because rebate 
 allowances are made, the only penalty for failure 
 to conform to exclusive conditions would be the 
 loss of the rebate. Undoubtedly this allow- 
 ance would be sacrificed, but there might be 
 withdrawn in addition the privilege of obtaining 
 
 ' In this connection note the wording of the rebate clauses 
 which have been quoted in this chapter.
 
 I20 Unfair Competition 
 
 further supplies of goods or commodities. It 
 is scarcely conceivable that a manufacturer 
 or seller will for any continued length of time 
 merely refuse the rebate and continue to sell 
 organizations declining to comply with the 
 exclusive arrangement. No better proof of 
 this can be cited than a bit of evidence from 
 the Eastman Kodak case. It will be recalled 
 that the conditional credit system of the Kodak 
 Combination gave a 15 per cent discount to 
 the dealer plus an additional 12 per cent upon 
 his certif)dng that he had compHed with the 
 rules, including the requirement of exclusively 
 pushing the sale of Eastman products.^ 
 Although by the terms of the offer any dealer 
 could apparently buy the goods at the regular 
 trade discount of 15 per cent, if he desired to 
 handle competing goods, the instructions to ad- 
 justers which were dated March 29, 1900, read: 
 
 If, for instance, a dealer says to you that he is wilHng 
 to forfeit the rebate but intends to continue handhng 
 our goods, then you should tell him that we could not 
 
 afiford to consent to that "If a dealer will not 
 
 comply with our terms of sale, the probabilities are 
 that it is not to our interests to sell him."" 
 
 ' Cf . supra, p. 1 14. 
 
 ' Government Exhibit 31, record, United States v. Eastman 
 Kodak Company, cit. supra, Vol. V, p. 2095.
 
 Rebates and Preferential Arrangements 121 
 
 Mr. Alexander, a Philadelphia dealer, who 
 had handled Velox papers before the company 
 manufacturing them sold out, was visited by 
 a Mr. Parmalee of the Eastman Kodak Com- 
 pany, who found competing paper on his 
 shelves. Mr. Alexander said that he was will- 
 ing to continue to do business on the 15 per 
 cent basis but wished to continue to handle 
 competing goods. Mr. Parmalee stated that 
 "anyone handhng other products besides theirs 
 would not be allowed to handle them," and 
 he further stated that he could not accept any 
 orders. Thereafter Mr. Alexander's orders were 
 decHned.^ 
 
 Two decidedly interesting contracts are those 
 of the Electric Lamp Combination and the 
 American Can Company. The government 
 charged the Electric Lamp Combination with 
 entering into preferential contracts with the 
 Libby Glass Company, the Fostoria Bulb and 
 Bottle Company, the Phoenix Glass Company, 
 and the Corning Glass Works — "substantially 
 the only manufacturers" of glass bulbs and 
 tubing in the United States. On condition 
 that these concerns should sell to independent 
 lamp manufacturers only at higher prices than 
 it was itself compelled to pay, the combination 
 
 ' Record, ibid., Vol. II, pp. 812-13.
 
 122 Unfair Competition 
 
 agreed to purchase from them its entire supply 
 of these materials. A contract of a similar 
 nature was also made with the Providence 
 Gas Burner Company, "the only base manu- 
 facturer in the United States."^ 
 
 The minutes of the United States Steel Cor- 
 poration of April 17, 1902, contain the record 
 of a vote agreeing to a preferential contract 
 upon tin plate to be supphed to the American 
 Can Company. This contract was to and did 
 run for five years. It was followed by a second 
 five-year contract, dated December i, 1908, 
 and a third contract for six years, dated April 
 28, 1913. By the terms of the contract of 
 December i, 1908, the American Can Com- 
 pany agreed to buy 99 . 9 per cent of its domestic 
 requirements from the American Sheet and 
 Tin Plate Company,'' the latter in return agree- 
 ing to allow the American Can Company a 
 scale of preferentials from their net selling 
 schedule, as follows: 
 
 Preferential 
 
 $3 . 85 or higher per base box. . 22^ cents per base box 
 
 3 . 80 per base box 2if " " " " 
 
 3.75 « « « 2of " " " " 
 
 * Petition, United States v. General Electric Company, cit. 
 supra, pp. 35-36. 
 
 ' A subsidiary of the United States Steel Corporation formed 
 by the consolidation of the American Sheet Steel and American 
 Tin Plate companies.
 
 i8f 
 
 i7i 
 
 i6| 
 
 i6i 
 
 i5l 
 
 IS 
 
 14I 
 
 i3f 
 
 i3i 
 
 12^ 
 
 III 
 III 
 
 Rebates and Preferential Arrangements 123 
 
 Preferential 
 
 3 . 70 per base box 19! cents per base box 
 
 365 ' 
 3.60 ' 
 
 3-55 ' 
 
 350 ' 
 
 345 ' 
 
 3 40 ' 
 
 3-35 ' 
 
 330 ' 
 
 325 ' 
 
 3.20 ' 
 
 3-iS ' 
 
 3.10 ' 
 
 3.05 ' 
 
 3.00 " " « lot 
 
 2.95 or lower per base box. . . 10 
 On black plate, black and galvanized sheets 
 
 15 cents per 100 lbs. 
 On galvanized wasters $1 . 00 a net ton* 
 
 In the exclusive arrangements of manufac- 
 turing and trading companies, and in discrimi- 
 nations used to secure their adoption the 
 unfairness which usually results is one toward 
 the competitors of the organization using 
 these conditions. The manufacturer's exclusive 
 arrangements and rebates for compliance there- 
 mth tend to close the channels of distribution 
 to the goods of his competitors. In the case 
 
 ' Petitioner's Exhibit No. 22, record, United States v. American 
 Can Company, cit. supra, Vol. I, pp. 215-17. 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 a 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 It 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u 
 
 u
 
 124 Unfair Competition 
 
 of preferential arrangements like those of the 
 American Can Company with the American 
 Sheet and Tin Plate Company, however, a 
 double unfairness may exist. According to the 
 theory submitted in the chapter on exclusive 
 contracts and arrangements, such a contract 
 is unfair to the competitors of the American 
 Sheet and Tin Plate Company in practically 
 prohibiting the American Can Company from 
 purchasing from them. In addition, however, 
 it is most emphatically unfair to the competi- 
 tors of the American Can Company. The 
 latter point appears more clearly when the 
 following clause of the contract of December i, 
 1908, is considered: 
 
 American Sheet and Tin Plate Company agrees 
 that if it should at any time during the term of this 
 contract give or allow a preferential off its net prevail- 
 ing prices on coke plates for domestic use to any other 
 customer in the United States, that thereupon an 
 additional preferential shall be given of the same 
 amount per box on the same number or [sic] boxes to 
 American Can Company.* 
 
 By no possibility therefore in the face of this 
 provision could competing can manufacturers 
 secure a price which would place them upon 
 
 ' Petitioner's Exhibit No. 22, record, United Stales v. Ameri- 
 can Can Company, cit. supra, Vol. I, p. 216.
 
 Rebates and Preferential Arrangements 125 
 
 an equal footing with the Can Company even 
 though they were Hkewise to agree to purchase 
 all their plate requirements of the Amercan 
 Sheet and Tin Plate Company. In themselves 
 these preferentials as shown above do not appear 
 very large, and it is only by considering the 
 large quantities of plate purchased that one 
 realizes the full significance of this contract 
 both to actual and possible competitors of the 
 Can Company and to the Can Company itself. 
 As shown by Table I, in the period from 1902 
 
 TABLE I 
 
 Ratio of Tin-Plate Rebates to the Net Profits of the 
 American Can Company* 
 
 Report for Year 
 Ending 
 
 Profits (Net)t 
 
 Calendar 
 
 Year 
 
 Rebates 
 
 Percentage 
 of Rebate to 
 Net Profits 
 
 March 31, 1903. . . 
 March 31, 1904. . . 
 March 31, 1905. . . 
 December 31, 1905 
 
 (9 mos.) 
 
 December 31, 1906 
 December 31, 1907 
 December 31, 1908 
 December 31, 1909 
 December 31, 1910 
 December 31, 1911 
 December 31, 1912 
 
 $ 886,710.76 
 2,394,510.11 
 2,896,917.51 
 
 2,311,417.01 
 2,113,421.17 
 
 2,652,392.32 
 2,706,263.54 
 2,736,151 20 
 2,822,972,48 
 2,916,339.27 
 6.539.046-26 
 
 1902 
 1903 
 1904 
 
 1905 
 1906 
 1907 
 1908 
 1909 
 1910 
 19H 
 1912 
 
 % 565,872.68 
 766,775.45 
 484 .933 06 
 
 588,923 
 774.679 
 809,318 
 739.872 
 827,234 
 907,506 
 1,053,220 
 1,723.730 
 
 63.8 
 32.0 
 16.7 
 
 Total $30,996,141.63 
 
 $9,242,067.10 
 
 29 6 
 
 * This table was compiled from the figures of Accountant Charles Denman. 
 Tin Plate Rebates Analysis, "Secretary" Account General Ledgers (Petitioner's 
 Exhibit 930, record. United Stales v. American Can Company, cit. supra. Vol. 
 VTII, pp. 3653 ff.) and the Income Accounts of the American Can Company, 
 1903-12 (Petitioner's Exhibits 8-19, ibid.. Vol. II, pp. 491 fit.). It will be noted 
 that the yearly comparison of rebates and profits is not strictly accurate owing 
 to the fact that the calendar year does not, during the first part of the period, 
 coincide with the fiscal year. The writer has during these years used the rebate 
 figures for the calendar year next preceding the fiscal year ending March 31 for 
 which the income figures are taken. 
 
 t After depreciation and occasionally other deductions.
 
 126 Unfair Competition 
 
 to 191 2, the preferentials thus accorded to the 
 American Can Company have amounted to the 
 large smn of $9,242,067.10. 
 
 Year by year the amount of the tin plate 
 rebates has never been equivalent to less than 
 16 per cent of the net profits of the Can Com- 
 pany. In each of six years of this period it 
 has been above 30 per cent and in one year 
 amounted to 63 . 8 per cent. The total amount 
 of rebates, $9,242,067.10, is equivalent to 29 
 per cent of the total profits of $30,996,141.63 
 made by the American Can Company from 
 1902 to 191 2. That such an arrangement is 
 unfair requires no elucidation. It is readily 
 seen how preferences of such a nature might 
 result in the utter destruction of the competi- 
 tors of an organization. 
 
 In the contracts of the Electric Lamp Com- 
 bination there exists the same double unfairness 
 as that just described. Since practically all 
 the manufacturers of glass bulbs, tubing, and 
 bases were parties to these contracts, such 
 arrangements could scarcely be regarded as 
 unfair to any existing manufacturer of such 
 articles. But possible as well as actual compe- 
 tition must be considered, and according to 
 the theory set forth in the discussion of exclu- 
 sive arrangements, such exclusive purchasing
 
 Rebates and Preferential Arrangements 127 
 
 contracts as those of the Electric Lamp Combi- 
 nation with the manufacturers of bulbs, tubing, 
 and bases might have had a tendency to prevent 
 new organizations from embarking in the manu- 
 facture of such articles. In addition, the con- 
 tracts were clearly unfair to competitors of the 
 Electric Lamp Combination since the former 
 were thus placed at a disadvantage as com- 
 pared with the latter in the purchase of 
 materials. 
 
 B. Rebates given by transportation com- 
 panies are sometimes designed to maintain ex- 
 clusive arrangements in the same way as are 
 rebates given by manufacturing companies. 
 Perhaps the best illustration of this method as 
 used by transportation companies is to be 
 found in the deferred-rebate contracts of the 
 various steamship conferences.^ The deferred 
 
 'This term was defined by the "Royal Commission" as 
 follows: "A Shipping 'Ring' or 'Conference' is a combination 
 more or less close of Shipping Companies formed for the purpose 
 of regulating or restricting competition in the carrjdng trade on a 
 given trade route or routes." Cf. Report of the Royal Commission 
 on Shipping Rings with Minutes of Evidence and Appendices, 
 Vol. I, Part II, p. 9. Further quotations from the same report 
 indicate more clearly the nature of the "Conference" or 
 "Ring." "The operations of a Conference are confined to a 
 particular trade route, that is to say, the engagements which 
 the various lines enter into with one another only apply to 
 the trade within certain definite areas or between specific 
 ports. A Steamship Company may be a member of several
 
 128 Unfair Competition 
 
 rebate is explained in the Report of the Royal 
 Commission on Shipping Rings as follows: 
 
 The Companies issue a notice or circular to ship- 
 pers informing them that if at the end of a certain 
 period (usually four or six months) they have not 
 shipped goods by any vessels other than those dis- 
 patched by members of the Conference they will be 
 credited with a sum equivalent to a certain part 
 (usually ID per cent.) of the aggregate freights paid on 
 their shipments during that period, and that this sum 
 will be paid over to them, if at the end of a further 
 period, (usually four or six months), they have con- 
 tinued to confine their shipments to vessels belonging 
 to members of the Conference. The sum so paid is 
 known as a deferred rebate.^ 
 
 As applied to American conditions the 
 deferred rebate has been used at one time or 
 another by "conference" lines sailing to and/or 
 from American ports and South and East 
 Africa, Argentina, Brazil, Central America, 
 
 Conferences, but its engagements in one are independent of those 
 in any other 
 
 "The main objects with which a Conference is formed are 
 two. It is formed primarily to regulate competition between 
 the Companies with a view to maintaining regular rates of 
 freight. This object is achieved by means of an agreement or 
 understanding between the Lines that they will charge the same 
 rates of freight 
 
 "The second object is to concert measures to meet the 
 competition of ship owners outside the Conference." — Report of 
 the Royal Commission on Shipping Rings, etc., cit. supra, Vol. I, 
 Part II, p. 9. 
 
 ' Ibid., p. 9.
 
 Rebates and Preferential Arrangements 129 
 
 Jamaica, Porto Rico, Trinidad, and various 
 ports in the Far East/ 
 
 The chief unfairness of competition under 
 railroad rebates is that it unduly favors certain 
 shippers over the lines of a railroad. One 
 organization is enabled by the preferences 
 afforded it to injure and destroy others perhaps 
 equally efficient but not equally favored. This 
 situation apparently does not result from the 
 deferred-rebate contracts of the steamship 
 conferences, at least so far as American trade 
 is concerned. As a report submitted by the 
 representatives of certain steamship lines to the 
 Committee on the Investigation of Shipping 
 Combinations phrased it : 
 
 The system of deferred rebates to loyal shippers 
 has none of the evils of the secret rebate which was 
 formerly employed by railroads. Rebates which exist 
 
 ' Proceedings of the Commiltee on Merchant Marine and Fish- 
 eries in the Investigation of Shipping Combinations, pp. 1 18-19, 
 148, 171-72, 174, 279, 282, 310, 323-25, 418, 429, 527, 879-80, 
 906, 1209, 1222-23. Ill most cases the deferred rebates in these 
 trades are made on a percentage basis, 10 per cent being the most 
 prevalent rate. In some instances, however, the deferred rebates 
 are specific, a definite amount being paid per ton of goods shipped. 
 Sometimes the rebate applies only to certain commodities. In 
 other cases it applies to all the goods shipped. The rebate period 
 is usually six months and the period of deferment is usually six 
 months also. W. H. S. Stevens, "The Administration and En- 
 forcement of Steamship Agreements and Conferences," The 
 Annals, LV [September, 1914], 142-43.
 
 130 Unfair Competition 
 
 in certain trades from distant countries to the United 
 
 States are open and public Any merchant may 
 
 obtain the benefit of this published allowance by complying 
 with the terms of the circulars/ 
 
 If these statements are true,' and so long as 
 they continue to be true, the deferred-rebate 
 contracts of the steamship conferences do not 
 work an unfairness which enables one shipper 
 to injure and destroy a competitor.^ This 
 being the case, it is necessary to seek elsewhere 
 to discover the reason for regarding deferred- 
 rebate contracts as unfair. Suppose a steamer 
 sails with a cargo from port A to port B expect- 
 ing to secure at B shipments of commodities 
 to fill its hold on the return voyage. Assume 
 also that a conference agreement with deferred- 
 rebate contracts is in force in the trade from 
 B to A. Obviously the steamer in question 
 will have small chance of obtaining the antici- 
 
 ' Report submitted to the Committee on Merchant Marine 
 and Fisheries in investigation of shipping combinations, by the 
 committee appointed by the representatives of the steamship 
 lines maintaining established services from New York to foreign 
 coimtries, including Porto Rico and the Philippines, cit. supra, 
 p. 1369. Italics are the writer's. 
 
 ' The evidence seems on the whole to indicate that they are. 
 
 3 It might be asked if a shipper who repeatedly broke his con- 
 tract by sliipping over other than conference Unes would always 
 be allowed on his ajjplication to ship under the terms of the 
 deferred-rebate contract. If not, he would obviously be dig- 
 criminated against as compared with other companies.
 
 Rebates and Preferential Arrangements 131 
 
 pated cargo. If a merchant ships by a steamer 
 which is not a member of the conference, he 
 loses his rebates, not only for the rebate period 
 in which he makes the shipment, but also those 
 for the prior rebate period, payment of which 
 has been deferred. No matter how great a 
 reduction in rates is offered by our hypothetical 
 steamer, it, as a rule, will still be insufficient 
 to secure cargo. The reason is evident. The 
 amount which the shipper would gain by thus 
 violating his contract would seldom, if ever, 
 even approach the total sum of the rebates 
 which he receives by complying therewith. 
 
 Under conditions of true economic compe- 
 tition it is clear that the lowest bidder would 
 secure the freight. The deferred rebate pre- 
 vents this result. Consequently it must be 
 regarded as unfair competition. Its inevitable 
 tendency as well as its acknowledged purpose 
 and intent is to destroy all competition in the 
 carrying trade and place it in the hands of the 
 parties to the conference agreement.' 
 
 ' While believing that deferred-rebate contracts must be 
 regarded as unfair competition, the writer is far from contending 
 that competition in the transoceanic steamship trade is either 
 necessary or desirable. A large part of this traffic may be not 
 unfairly described as monopoHstic in character. A considerable 
 number of commodities require a certain regularity and rapidity 
 in transportation service. The amount of this type of freight 
 is frequently not large enough to afford a profit to more than
 
 132 Unfair Competition 
 
 Somewhat similar to the deferred-rebate 
 contracts of the various steamship conferences 
 were the rebate arrangements formerly em- 
 ployed upon the Great Lakes. As early as the 
 year 1900 the Great Lakes Towing Company 
 inaugurated a system of exclusive arrange- 
 ments whereby large discounts from the regular 
 tariff rates were granted by the Towing Com- 
 pany on the condition that the vessel owners 
 would employ through the entire season the 
 company's tug and wrecking service at all ports 
 covered by its tariffs in so far as the vessel 
 
 a relatively small number of vessels. If unlimited competition 
 is permitted, the tendency would probably be for the necessary 
 regularity and rapidity to disappear. Lines which had main- 
 tained these conditions would be compelled to withdraw, since 
 it would no longer be profitable to have regular sailing dates nor 
 to devote to this service steamers sufficiently large and powerful 
 to supply rapid transportation. 
 
 Important as these considerations are, they cannot alter the 
 conclusion that under present conditions deferred-rebate con- 
 tracts constitute unfair competition. Yet they are significant, 
 since they show that there are fields in which the principle of 
 free competition is in aU probability economically unsound. 
 Possibly, indeed probably, there are other hnes of business 
 besides that of the transoceanic steamship traffic to which this 
 statement would apply with equal force. It certainly seems 
 desirable that some form of regulation should be adopted which 
 will recognize the necessities of ocean steamship traffic. A Una 
 maintaining a regular and rapid service between certain ports 
 would appear entitled to charge a somewhat higher rate for it. 
 Nor does it seem just that its traffic should be at the mercy of 
 any chance tramp steamer that may drop into port to secure a 
 cargo. Yet the difficulty of adequate regulation is great. The
 
 Rebates and Preferential Arrangements 133 
 
 owners had occasion for such service. In 19 10 
 owners were allowed a flat discount of 20 per 
 cent. At no time was the discount less than 
 20 per cent, and in succeeding years it varied 
 with the class of service. No discounts were 
 given except under exclusive contracts, and the 
 vessel owner was, in addition, guaranteed that 
 his contract rates taken together should not 
 exceed the sum of the cut rates made to meet 
 competition.^ 
 
 It is now quite generally the view that 
 railroad rebating is an unfair practice. The 
 
 trade is between different countries. Many objections, therefore, 
 exist to a form of regulation similar to that afforded by the 
 Interstate Commerce Commission. The ideal solution would 
 probably be a commission composed of representatives of the 
 great carrying nations. This body would designate the confer- 
 ence areas, determine the conditions under which steamship 
 lines could become members, and prescribe the circumstances 
 under which "tramps" and similar vessels might compete with 
 the conference Hnes for cargo. The system in vogue at present is 
 designed to and does shut out competition within the conference 
 area. However desirable rapid and regular service may be from 
 the standpoint of the shipper, however necessary to maintain 
 these conditions deferred-rebate contracts may be, they are at 
 present unfair to competing steamers and lines. Under no cir- 
 cumstances except, perhaps, the strictest government regulation 
 and supervision should they be permitted. Since this was 
 written an act of Congress has created a Shipping Board. This 
 measure has declared imlawful deferred rebates, the use of 
 fighting ships, and various kinds of discriminations. An Act to 
 establish a United States Shipping Board, etc. Approved 
 Sept. 7, 1916. 
 
 ' 208 Fed. 738-39.
 
 134 Unfair Competition 
 
 basis of this opinion is to be found in the fact 
 that through such rebates certain shippers are 
 benefited and placed at an advantage as 
 compared with other shippers over the same 
 raUroad who should logically be entitled to 
 receive the same rates for equal shipments 
 of like commodities. This fact is so gener- 
 ally recognized that the subject of railroad 
 discriminations requires Httle examination or 
 discussion.^ A single illustration of such 
 methods will therefore su£&ce — ^the transporta- 
 tion of oil. In its study of this subject the 
 Bureau of Corporations based its investigation 
 principally upon the tariffs and records of the 
 railroads themselves. The Report of the Bureau 
 stated that the "general result of the investi- 
 gation has been to disclose the existence of 
 
 ' The question may perhaps be raised as to why the writer 
 includes railway rebates in a discussion of unfair competition, 
 since the persons who are injured by the said rebates are not in 
 competition with the railroad company. In the writer's esti- 
 mation the answer to this question is that under this situation 
 the action of the raUioad in giving the rebate becomes an integral 
 part of the competition of the organization to which the said 
 rebate is given, and as such the entire transaction should be 
 regarded as an act of unfair competition toward other shippers 
 who are not benefited thereby. This theory may appear to the 
 reader to be rather far-fetched. At the same time the writer 
 considers that the situation is such that to all intents and pur- 
 poses the act of the railroad company in this connection is a com- 
 petitive act, although the railroad, of course, is not in competition 
 with the shippers.
 
 Rebates and Preferential Arrangements 135 
 
 numerous and flagrant discriminations by the 
 railroads." The Bureau further found that 
 discriminations in the transportation of oil 
 embraced a variety of forms, the "more impor- 
 tant of which," so the Summary states, ''may be 
 classed under the following heads: 
 
 "i. Secret and semisecret rates. 
 
 "2. Discriminations in the open arrangement of 
 
 rates. 
 "3. Discriminations in the classification and rules 
 
 of shipment. 
 "4. Discriminations in treatment of private tank 
 
 cars."^ 
 
 It is noteworthy that a number of secret 
 rates and open discriminations disclosed by the 
 investigation of the Bureau of Corporations 
 were abohshed by the railroads shortly after 
 their discovery.^ 
 
 Industrial "tap Hnes" also furnish oppor- 
 tunities for disguised rebates. The Com 
 Products Refining Company owns switching 
 railroads which connect its four principal 
 plants at Pekin, Granite City, Argo, and Daven- 
 port with the trunk lines. Through rates were 
 made by the switching and trunk lines in con- 
 junction with one another. The government 
 
 ' Report of the Commissioner of Corporations on the Transpor- 
 tation of Pelroleiim, p. i. 
 
 ' Ibid., Letter of Submittal, p. xxv.
 
 136 Unfair Competition 
 
 asserts that prior to March, 1910, the share 
 of these rates which was given to the switching 
 lines was excessive as compared with the serv- 
 ice actually performed. This practice was 
 equivalent to a rebate from the railroad com- 
 pany for a part of the freight rates. The 
 practice was finally forbidden by the rulings 
 of the Interstate Commerce Commission.^ 
 
 The situation just outlined does not differ 
 materially from those cases where "tap-line" 
 services — the handling of products from the 
 place of production to the main line of the rail- 
 road — are furnished free of charge. In an 
 opinion on this latter point the Interstate Com- 
 merce Commission expresses the following view: 
 
 What we decide .... is that these practices are 
 unlawful in themselves because they are rebates, in 
 fact and in efifect, and also give undue and unreason- 
 able preferences and advantages to the industries so 
 favored and work undue and unreasonable prejudice 
 and disadvantage to shippers in the same business who 
 do not receive any such allowances or rebates and 
 who do not receive the benefit of any such services. 
 
 In 1900 the owners of all rail elevators in 
 Buffalo, with the exception of the Kellogg 
 elevator, formed a joint-stock association 
 
 ' Petition, United States v. Corn Products Refining Company, 
 cit. supra, p. 28. 
 
 ^ New York Times, January 28, 1914.
 
 Rebates and Preferential Arrangements 137 
 
 known as the Western Elevator Association. 
 This association entered into contracts with the 
 raihroad companies whereby the latter agreed 
 to pay the former one-half cent per bushel for 
 all grain transported by them regardless of 
 whether such grain was handled by the ele- 
 vators of the association or by the Kellogg 
 elevator. To carry out this arrangement the 
 railroads added one-half cent per bushel as 
 elevator charges to all grain carried by them 
 and dehvered the amount accruing to the asso- 
 ciation. In case the owners of the Kellogg 
 elevator insisted upon receiving one-half cent 
 per bushel for elevating grain, that grain was 
 made to pay an elevator charge of one cent 
 a bushel. The result of this situation was, of 
 course, to deter shippers of grain from utilizing 
 the Kellogg elevators.' 
 
 ^t requires but little demonstration to show 
 that preferential arrangements and rebates 
 used by transportation companies for other 
 purposes than to secure exclusive arrangements 
 are unfair. A transportation rate given to 
 one concern lower than to other and competing 
 concerns enables the former to diminish its 
 prices by the difference between the two 
 
 ' Kellogg V. Sowerhy, 93 N.Y. App. Div. Sup. Ct. 124. Kellogg 
 & Company sued and obtained damages.
 
 138 Unfair Competition 
 
 charges, in the same way as when materials 
 which enter into the productive process are 
 sold to one organization at lower prices than 
 to its competitors. In both cases that pro- 
 ductive efficiency which may have enabled 
 marginal concerns to compete is rendered 
 ineffectual; and such organizations, if any 
 there be, will be compelled to discontinue busi- 
 nessA, It is also true that not even the most 
 highly efficient competing organizations will be 
 able to maintain themselves if the differential 
 between either the two prices for transportation 
 or the two prices for materials becomes suffi- 
 ciently great. At the same time the beneficiary 
 of rebates and preferential contracts may be 
 notoriously inefficient — so inefficient that it 
 could not exist for a moment under economi- 
 cally fair competition. Yet in the face of the 
 unfair conditions described little or no competi- 
 tion whatsoever may be able to survive.
 
 CHAPTER VIII 
 
 ENGROSSING MACHINERY OR GOODS USED 
 IN THE MANUFACTURING PROCESS 
 
 In the United States, attempts to acquire 
 control of the machinery necessary to the 
 manufacture of goods apparently date from 
 nearly three decades ago. On or about April 
 30, 1887, the Standard Envelope Company' 
 made a contract with Lester & Wasley, of Nor- 
 wich, Connecticut, to purchase aU the envelope 
 machines which that firm might make or sell 
 during the five succeeding years. At the same 
 time Lester & Wasley on their part agreed not 
 to furnish more than twenty-four machines in 
 any one year.' Whether or not this firm was 
 the sole manufacturer of envelope machinery 
 does not appear. 
 
 ' The Standard Envelope Company was a corporation of 
 Massachusetts organized by, and used as a clearing-house for, 
 a combination of several of the largest envelope manufacturers 
 of the United States. For a brief account of the organization 
 and operation of this combination, cf. an article by the writer 
 in the American Economic Review, III (September, 1913), p. 561. 
 
 ' Report of the Committee on General Laws, on the investi- 
 gation relative to trusts. New York Senate Document No. 50, 
 1888, p. 469. 
 
 139
 
 I40 Unfair Competition 
 
 The thirteenth annual report of the Com- 
 missioner of Labor indicated the very remark- 
 able advantages obtained by manufacturing 
 cigarettes by machinery instead of by hand. 
 The labor cost of a certain cigarette made by 
 hand in 1876 was 96.5 cents per thousand, 
 while the same cigarette made by machinery 
 in 1895 cost only 8.1 cents per thousand 
 for labor. Similar savings in labor cost were 
 effected on other classes of cigarettes. 
 Although the Hook cigarette machine was 
 invented in 1872, it was not until about ten 
 years later that the use of cigarette machines 
 became practically successful. By 1884, how- 
 ever, the daily output of a single Bonsack 
 machine was 120,000 cigarettes, or about fifty 
 times as many as a rapid cigarette-roller could 
 produce by hand. 
 
 In 1890, when fully 90 per cent of the total 
 cigarette production of the United States was 
 in the hands of five concerns,^ the best machines 
 in use were the Bonsack and the Allison. As 
 only a limited number of organizations besides 
 these five were using those machines, there is 
 some ground for the view that the possibility 
 
 ' W. Duke Sons & Company, Allen & Ginter, Goodwin & 
 Company, Kinney Tobacco Company, and William S. Kimball 
 & Company.
 
 Engrossing Machinery 141 
 
 of securing an exclusive control over cigarette 
 machinery was one of the reasons leading to the 
 organization of the American Tobacco Com- 
 pany/ This combination acquired, with the 
 Kinney and Kimball branches both parties to 
 its organization, the Allison cigarette machines 
 which these branches had been using. One 
 of the members of the Kinney Company had 
 owned the patents for this machine, and the 
 AlHson Machine Company had been incorpo- 
 rated in New Jersey in 1889 by the same men 
 who afterward organized the American Tobacco 
 Company. Charles G. Emery, the first treas- 
 urer of the American, was also the inventor of 
 the Emery cigarette machine which Goodwin 
 & Company had used. At its inception, there- 
 fore, the American acquired control of these 
 two machines. Soon after, it also made a con- 
 tract with the Bonsack Machine Company for 
 the privilege of the exclusive use and control 
 in the United States of the Bonsack machine. 
 The American had the right to cancel the con- 
 tract if the Bonsack Company failed to secure 
 for it the exclusive use of this type of machine 
 prior to March i, 1891. It might also exercise 
 the same right whenever as many as one 
 
 ' Report of the Commissiotier of Corporations on the Tobacco 
 Industry, Part I, pp. 63-64.
 
 142 Unfair Competition 
 
 hundred million cigarettes were manufactured 
 in this country within a period of twelve 
 consecutive months by factories or concerns 
 outside the combination, or on machines not 
 controlled by the Bonsack Company. In 
 conformity with this agreement the Bonsack 
 Machine Company terminated its contracts in 
 force with outside manufacturers, and the 
 American continued the use of the machine 
 under this contract until the year 1895.' 
 ^ Still another early example of this method 
 of competition may be given. At the time of 
 the organization of the Continental Wall Paper 
 Company in the later nineties John Waldron 
 & Son and the Kaukauna Machine Company 
 were the only manufacturers in the United 
 States producing wall-paper manufacturing 
 machines. Each concern had one factory 
 where it carried on its business, the former at 
 New Brunswick, New Jersey, the latter at 
 Kaukauna, Wisconsin. These two machinery 
 manufacturers entered into contracts wdth the 
 Continental Wall Paper Company whereby 
 
 ' Adverse judicial decision lost the Bonsack Company the 
 exclusive right to use the most important parts of its machine. 
 On January 2, 1896, therefore, the American ceased to pay 
 royalties and to have the exclusive right to the use of the Bon- 
 sack machine {Report of the Commissioner of Corporations on the 
 Tobacco Industry, Part I, pp. 66-67).
 
 Engrossing Machinery 143 
 
 they agreed that they would sell wall-paper 
 manufacturing machines to the Continental 
 Company only.^ 
 
 More recent instances of the use of the 
 method under discussion are numerous. 
 According to the government, the only com- 
 panies in the United States which formerly 
 manufactured suitable and efficient electric- 
 lamp-making machinery were the York Electric 
 and Machine Company and Elmer F. Dwyer, 
 the latter trading as the Dwyer Machine Com- 
 pany. By the terms of certain agreements 
 the Electric Lamp Combination, through the 
 National Electric Lamp Company, acquired 
 all the patents, applications, and machinery 
 on hand which these organizations possessed. 
 In addition, the York and Dwyer companies 
 agreed to refrain from producing lamp-making 
 machinery, except for sale to the members of 
 the combination.^ 
 
 The American Can Company, at or about 
 the time of its formation, acquired control of 
 the businesses or the output of several con- 
 cerns engaged in the manufacture of automatic 
 body-makers, these being the most important 
 
 » Continental Wall Paper Company v. Lewis Voight 6* Sons 
 Company, 148 Fed. 939, cf. p. 952. 
 
 ' Petition, United States v. General Electric Company, cit. 
 supra, pp. 34-35.
 
 144 Unfair Competition 
 
 machines in the manufacture of packers' cans. 
 It also acquired at the same time control of 
 most of the leading concerns engaged in manu- 
 facturing automatic side-seamers, headers, 
 floaters, and end-seamers, all of these likewise 
 being important machines. Among the lead- 
 ing can machinery plants and businesses 
 acquired by the American Can Company by 
 the purchase of their assets were Crosby & 
 Company, Norton Brothers, and the Sprague 
 Canning Machinery Company of Chicago, the 
 Robbins Press Works of San Francisco, and 
 the Sleeper Machine Company. By contract 
 it also acquired control of the output of the 
 E. W. Bliss Company of Brooklyn, the Adri- 
 ance Machine Company, and the Ferracute 
 Machine Company. In addition, it secured a 
 considerable proportion of all of the commer- 
 cially valuable patents for the manufacture of 
 ordinary can machinery. 
 
 By the terms of the contract with the E. W. 
 Bhss Company the American Can Company 
 agreed to pay $100,000 a year to the Bliss 
 Company for a period of six years. The Bliss 
 Company agreed "that during and through- 
 out the aforesaid term and period hereof 
 it will not devise, construct, manufacture 
 or deliver any automatic can-making tools
 
 Engrossing Machinery 145 
 
 or machinery except for and to the first 
 party, except for export elsewhere than to 
 Canada."^ 
 
 During the six years while this contract 
 was in force only $117,954 . 76 worth of machin- 
 ery was delivered to the American Can Com- 
 pany, so that from a practical standpoint 
 it appears that the American Can Company 
 paid close to half a million dollars in order 
 to prevent the BHss Company from supply- 
 ing independents with automatic machinery. 
 Similarly, the six-year contract with the Ferra- 
 cute Machine Company, running from 1901 
 to 1907, provided that the American Can 
 Company should pay to that organization 
 $10,000 a year, although the Can Company's 
 purchases did not exceed $5,000^ during this 
 entire period. 
 
 The almost complete control over auto- 
 matic can-making machinery which was ac- 
 quired by the American Can Company at 
 the time of its formation was not of extended 
 duration. Within a comparatively few years 
 a number of concerns equipped themselves to 
 manufacture machinery of this character. The 
 
 ' Petitioner's Exhibit 923, record, United Slates v. American 
 Can Company, cit. supra, Vol. VII, p. 3532. 
 
 'Ibid., record, Vol. VII, pp. 3350-51, and VIII, p. 3629.
 
 146 Unfair Competition 
 
 Max Ams Machine Company, for example, 
 became the owner of patents for machinery for 
 making and seahng open-top or sanitary cans, 
 as they are sometimes called. Originally the 
 open-top can had been of small importance 
 when compared with the hole-top can, but the 
 competition of the former t^-pe of can soon 
 became substantial, and as a result the Ameri- 
 can acquired the Sanitary Can Company, the 
 largest concern making and marketing such 
 cans. In addition, the American and Sanitary'' 
 companies then entered into a contract with 
 the Max Ams Company, the principal manu- 
 facturer of open-top can machinery, whereby 
 the latter organization granted an exclusive 
 license to the American and Sanitary com- 
 panies to use any can-making machinery 
 manufactured under any patent owned by it 
 or thereafter issued to it. The Max Ams 
 Company also bound itself for a period of five 
 years not to sell any such machinery to any 
 person in the United States, Canada, or Hawaii 
 except one concern in Maine and certain of its 
 old customers — ^packers who required cans for 
 their own use. Upon their part the American 
 and Sanitary companies agreed to purchase 
 annually from the Max Ams Company a cer- 
 tain specified amount of its patented machines
 
 Engrossing Machinery 147 
 
 for making solderless or the so-called " sanitary " 
 cans.^ 
 
 Another alleged instance of this type of 
 unfair competition came to light in January, 
 1914, in a suit brought by the Graham Wood 
 Company of Brooklyn against the Standard 
 Wood Company and the Greene Manufactur- 
 ing Company. The last-named organization 
 manufactures machines known as "presses," 
 which are useful and to a considerable extent 
 necessary in the production of bundled kindling 
 wood. It appears that the Standard Wood 
 Company entered into a contract with the 
 Greene Company whereby it agreed to pay 
 the latter $5,000 annually, in return for which 
 consideration the Greene Company constituted 
 the Standard Company its exclusive sales agent, 
 and further agreed that it would not sell any 
 press without the consent of the latter. The 
 Graham Company, unable to secure presses to 
 conduct its business, brought a suit for damages 
 against both the Greene and the Standard 
 companies on account of the injury suffered by 
 its business because of the refusal of these 
 two organizations to supply it with machinery.'' 
 
 ' Petitioner's Exhibit 26, record, United States v. American 
 Can Company, cit. supra, Vol. I, pp. 230 S. 
 
 ' Original petition, United States v. Standard Wood Company, 
 U.S.C.C. for the Southern District of New York, p. 14; Graham
 
 148 Unfair Competition 
 
 Somewhat different from the cases just 
 described are those in which articles or mate- 
 rials entering into the manufacturing process 
 are engrossed instead of the machinery of 
 manufacture. 
 
 In the early days of the positive process in 
 photography the method used was to print on 
 a paper in which albumin carried the sensitive 
 salts, and it was customary for each photog- 
 rapher to albuminize and sensitize his o\^ti 
 paper. Tests and experiments with the albu- 
 minizing process for some three or four decades 
 prior to 1899 had shown that two European 
 concerns made the raw paper which was the 
 most satisfactory, and this paper had become 
 the standard throughout the world for photo- 
 graphic purposes. The necessary requirement 
 of such a paper was that it should be abso- 
 lutely free from metallic substances, because 
 metal, such as iron, has a tendency to re- 
 duce the silver and thus to cause the same 
 chemical change as would be effected by the 
 action of light plus the developer. As a result 
 one would get a spot for every place where 
 the silver salt had been reduced to silver. 
 
 Wood Company v. Standard Wood Cojnpany and the Greene Manu- 
 facturing Company, Supreme Court, New York, typewritten copy 
 of motion for judgment, pp. 1-2. This is a further illustration 
 of the results of the unlimited right of selecting customers.
 
 Engrossing Machinery 149 
 
 Two places in Europe had water free from 
 metallic substances — Rives, France, and Mal- 
 medy, Prussia — and it was Blanchet Freres & 
 ELleber of the former place, and Steinbach & 
 Company of the latter, who produced the 
 standard paper for many years. In fact, 
 it was practically axiomatic that no papers 
 suitable for photographic purposes could be 
 made elsewhere, and all the world used their 
 products.^ 
 
 In the spring of 1898 Blanchet Freres 
 & Kleber and Steinbach & Company com- 
 bined to form the General Paper Company of 
 Brussels, and immediately raised the price of 
 raw paper. Negotiations were shortly opened 
 with the combination by George Eastman, 
 and, as a result, a contract was entered into 
 between the General Paper Company and the 
 Eastman interests, making the latter sole agents 
 for the papers of the former for use in the gela- 
 tine printing-out process in the United States, 
 Canada, and Mexico.^ 
 
 ' Brief for the United States, United Stales v. Eastman Kodak 
 Company, cit. supra, pp. 38-39. 
 
 * "The General Paper Co. gives to the said Kodak Co. the 
 exclusive right to purchase and the exclusive sales agency for 
 the United States of America, Canada, and Mexico of the papers 
 described 
 
 "It will not sell any of the said plain or baryta coated papers 
 to anyone else in said territory, and wiU not sell any paper
 
 150 Unfair Competition 
 
 D alley, an Independent manufacturer, testi- 
 fied before the Industrial Commission as fol- 
 lows regarding the results of this arrange- 
 ment: 
 
 Some of the American manufacturers had contracts 
 with the manufacturers in Germany, so they were pro- 
 tected for a certain length of time; and these which 
 were thus protected the General Aristo Company pur- 
 chased as far as possible But I had no con- 
 tract at that time, and consequently I was shut off 
 from a supply of raw paper almost completely, although 
 I was able to get some of certain kinds/ 
 
 In view of this contract it is easily under- 
 standable that the Eastman interests sold 
 approximately 98 per cent of the photographic 
 paper in the United States during the year 1901, 
 and that as late as 1904, after independent 
 
 elsewhere to be baryta coated to go into such territory to be 
 used for the above purpose. [With one exception.] .... 
 
 "It will use every practicable means of preventing any of its 
 plain or coated papers being imported into said territory to be 
 used for said purposes by, among other things, compelling its 
 customers to sign an agreement that they will not sell the paper 
 unsensitized to anybody in said territory; and the General Paper 
 Co. further agrees that it wUl not supply its papers to customers 
 who do not keep this agreement." — Government Exliibit 141, 
 General Paper Co., Steinbach & Co., Blanchet Freres & Kleber, 
 and Eastman Kodak Company, terms of sale, October 20, 1898, 
 re raw paper, record. United States v. Eastman Kodak Company, 
 cit. supra, Vol. V, pp. 2047-48. 
 
 ' W. B. Dailey, Report of the Industrial Commission, etc., cit 
 supra, Vol. XIII, p. 183.
 
 Engrossing Machinery 151 
 
 foreign raw paper was attaining some measure 
 of success, Eastman stated that they were 
 doing "at least 75 per cent of the photographic 
 paper trade and hardly as large as 90 per cent."^ 
 The government has charged the Aluminum 
 Company of America with endeavoring to ob- 
 tain such a control of the bauxite properties 
 of the United States as would prevent anyone 
 but itself from producing metal aluminum.' 
 Prior to 1905 this company possessed valuable 
 bauxite properties, yet it did not control even 
 50 per cent of the total bauxite supply of the 
 United States. In that year, however, it 
 acquired the capital stock of the General 
 Bauxite Company through the General Chemi- 
 cal Company. As part consideration for this 
 purchase the General Chemical Company 
 agreed that it would not use bauxite sold to it 
 by the General Bauxite Company for conversion 
 into metal aluminum,^ nor sell it to any organiza- 
 tion which used it for such a purpose, and fur- 
 ther, that upon proof of any such use it would 
 
 ' Brief for the United States, United Slates v. Eastman Kodak 
 Company, cit. supra, p. 6i. 
 
 ' Metal aluminum is manufactured from bauxite. 
 
 ^ Sections Fourth and Eighth of the contract between the 
 General Chemical Company and the General Bauxite Company, 
 quoted in petition in equity, United States v. Aluminum Company 
 of America, U.S.D.C. for the Western District of Pennsylvania, 
 p. 17.
 
 152 Unfair Competition 
 
 not make any further sales or deliveries to the 
 purchaser thereof. 
 
 In 1909 a contract was made with the Norton 
 Chemical Company for the purchase (with one 
 reservation) of the bauxite properties of the 
 Repubhc Mining and Manufacturing Company, 
 whose capital stock was owned by the Norton 
 Company. Although the Norton Company 
 might mine and use bauxite from a certain 
 forty-acre tract of bauxite land, and might also 
 sell it, it could do so only in case the use was for 
 some other purpose than for the manufacture of 
 aluminum.^ 
 
 The writer submits that arrangements of 
 the character cited are instances of unfair 
 competition.* They are clearly contrary to 
 the principle of a competition of efficiency. In 
 
 ' Sections Tenth and Eighteenth of Norton Chemical Com- 
 pany contract, quoted in United States v. Ahiminum Company 
 oj America, cit. supra, p. 19. In considering these contracts made 
 by the Aluminum Company of America, it should be borne in 
 mind that this organization is alleged to control nearly one-half 
 the stock of the Aluminum Castings Company, 37 per cent of the 
 stock of the Aluminum Goods Manufacturing Company, and to 
 be sole owner of the stock of the Northern Aluminum Company 
 and the United States Aluminum Company, manufacturers of 
 aluminum cooking utensils {ibid., pp. 12-14, 29). 
 
 = This should not be interpreted by the reader to mean that 
 the writer considers that all restrictive covenants are unfair 
 competition. Such a generalization would be altogether too 
 broad and unjustifiable.
 
 Engrossing Machinery 153 
 
 every instance they seriously hamper the 
 operation of efficient competing organizations, 
 and, in extreme cases, they may even force 
 the actual discontinuance of such operations. 
 Moreover, the difficulty or impossibihty of 
 procuring the necessary tools or implements 
 and supplies is most discouraging to prospective 
 competitors. Thus the probability of poten- 
 tial competitors becoming actual competitors 
 is either greatly lessened or practically elimi- 
 nated. The economic efficiency of an organiza- 
 tion may be very great, but without free access 
 to the necessary machinery and materials it 
 either cannot compete at all or else must do so 
 at an enormous disadvantage. Elsewhere' the 
 possible necessity of requiring private busi- 
 nesses to sell upon like terms to all who tender 
 the price has been referred to. If competition 
 is to be maintained, it would appear perhaps 
 to follow that an organization which obtains 
 either an exclusive or a dominant control of the 
 machinery and / or materials used in the manu- 
 facturing process must be compelled to sell to 
 competitors upon terms substantially similar to 
 those which it may itself enjoy through such 
 arrangem^ents as it may have effected. 
 
 ' Chap. vi.
 
 CHAPTER IX 
 ESPIONAGE 
 
 It is a well-known fact that some organ- 
 izations have utilized extremely questionable 
 methods in order to obtain information in re- 
 gard to the business and operations of their 
 competitors. A report of the Commissioner of 
 Corporations on one industry, which appeared 
 in 1907, contained statements to the effect that 
 railway employees were bribed to supply infor- 
 mation in regard to shipments of competitors. 
 A great mass of testimony upon this pomt has 
 also appeared in one of the dissolution suits 
 brought by the government. A few illustrative 
 examples of these practices may be pertinent. 
 
 At one place, according to the testimony, 
 advices were received from railway clerks re- 
 garding shipments by independents in that 
 territory, including both the shipments coming 
 in and those going out. This data was sent 
 by the clerks to a post-ofl5.ce box without any 
 name, which was rented for that purpose alone. 
 The information thus obtained was supplied 
 to the salesmen and agents of the company 
 
 IS4
 
 Espionage 155 
 
 in question with instructions to secure the 
 business, and usually that organization was 
 able to get a man to the customer before the 
 arrival of the shipment. At another place a 
 freight handler was paid $2 . 00 a month to fur- 
 nish information regarding the shipments of an 
 independent. At still another point a foreman 
 or warehouseman of the Pennsylvania Railroad 
 supplied one of the companies with a list 
 of competitive products passing through that 
 warehouse. An employee of this company 
 testified that he secured reports regarding 
 competitive shipments from the employees of 
 the Burlington, Northwestern, Milwaukee, and 
 Union Pacific railroads which covered all 
 independent shipments passing through his 
 district. These reports showed the name of 
 the shipper, name and address of the con- 
 signee, and the size of the shipment. The 
 employees supplying this information received 
 compensation for their services.' 
 
 ' Section 15 of the act creating the Interstate Commerce 
 Commission, as amended, provides that: "It shall be unlawful 
 for any common carrier subject to the provisions of this Act, or 
 any officer, agent, or employee of such common carrier, or for 
 any other person or corporation lawfully authorized by such 
 common carrier to receive information therefrom, knowingly to 
 disclose to or permit to be acquired by any person or corpora- 
 tion other than the shipper or consignee, without the consent of 
 such shipper or consignee, any information concerning the
 
 156 Unfair Competition 
 
 Besides obtaining information in regard to 
 competitors' shipments from railway employees, 
 there is testimony that in this industry spies 
 and detective agencies were employed for the 
 same purpose. 
 
 The testimony is to the effect that the 
 National Cash Register Company employed 
 secret agents who were not known to have any 
 connection with it. Such agents were utilized 
 for various purposes/ and at times obtained 
 information regarding competitive business. 
 During the time when the Foss Novelty Com- 
 pany was operating, one Ellingwood was em- 
 ployed by the National to supply inside 
 information as to where that organization 
 placed machines, the amount of business which 
 it did, etc. At that time Ellingwood was 
 
 nature, kind, quantity, destination, consignee, or routing of any 
 property tendered or delivered to such common carrier for inter- 
 state transportation, which information may be used to the 
 detriment or prejudice of such shipper or consignee, or v/hich 
 may improperly disclose his business transactions to a com- 
 petitor; and it shall also be unlawful for any person or corpora- 
 tion to solicit or knowingly receive any such information which 
 may be so used." An almost identical provision with reference 
 to water carriers is found in section 20 of the act establishing 
 the United States Shipping Board, approved September 7, 1916. 
 
 ' Carl G. Heyne, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. II, p. 909. Edgar E. Park, whose opera- 
 tions were detailed in chap, ii, appears to have been one of these 
 agents.
 
 Espionage 157 
 
 acting as bookkeeper and salesman for the Foss 
 Company. For his services he was paid a 
 salary of $25.00 a week by the National.^ 
 
 J. E. Warren testified that, according to 
 hearsay and what one Gillies himself told him, 
 GilHes was discharged by the Lamson Cash 
 Register Company on the ground that he was 
 a secret agent or spy for the National.' Otto 
 Nelson was employed by the National Cash 
 Register Company as a utHity man to secure 
 information in regard to opposition companies 
 and the business which they were doing. 
 During the fight against the Osbom Cash 
 Register Company Nelson was sent to Detroit 
 to do what he could to enlighten the National 
 in regard to the competition of the former 
 organization and to watch the shipments it 
 was making.3 
 
 At another time Nelson was employed in 
 the fight against the Lamson Cash Register 
 Company. 
 
 Q where was Otto Nelson ? 
 
 A . He was in Boston. 
 
 ' J. E. Warren, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. I, p. 454; Carl G. Heyne, ibid.. Vol. II, 
 P- 915- 
 
 =" J. E. Warren, ibid., Vol. I, p. 508. 
 
 3 Henry F. James, ibid.. Vol. I, pp. 126-29.
 
 158 Unfair Competition 
 
 Q. What was he doing at Boston ? 
 
 A. He was gathering what information he could 
 from competition standpoint and reporting shipments. 
 
 Q. Reporting shipments to whom ? 
 
 A. To dealers or agents. 
 
 Q. Reporting shipments of what ? 
 
 A. The Lamson cash register. 
 
 Q. To whom did he report those shipments ? 
 
 A. To the factory. 
 
 Q. To the National Cash Register Company ? 
 
 A. Yes. 
 
 Q. And do you know how he would learn of those 
 shipments ? 
 
 A. No, I do not. 
 
 Q. Where was he located ? 
 
 A. I only know from what he said; he told me 
 that he rented a room across the street and used a spy- 
 glass to read the addresses. 
 
 Q. That is, used a spyglass to read the addresses 
 of what ? 
 
 A . On boxes. 
 
 Q. What boxes, of the Lamson machine ? 
 
 A. Yes.^ 
 
 Around 1899 or 1900 Ben Knecht was 
 employed in the vicinity of Columbus, Ohio, 
 in reporting the shipments of the Hallwood 
 Cash Register Company. This information he 
 secured by calling at the depots and express 
 offices and by watching the wagons as they 
 
 ' J. E. Warren, record, State National v. Cash Register Com- 
 pany, cit, supra, Vol. I. pp. 414-15.
 
 Espionage 159 
 
 came from the factory/ He3Tie also testi- 
 fied in June, 191 1, that about two years pre- 
 viously he became convinced that the shipments 
 of his organization, the American Cash Register 
 Company, were known to competing agents 
 soon after the goods left the factory. He there- 
 fore engaged detectives to watch his wagons, 
 and they reported that every day in a certain 
 week a man by the name of Knecht was waiting 
 at a certain saloon which the delivery wagons 
 of the American were compelled to pass on 
 their way to the freight depot. When the 
 driver would make a delivery in Columbus, 
 Knecht would make entries in a book, appar- 
 ently copying the addresses upon such shipping 
 boxes as might be seen when the wagon was 
 closely approached. When the driver went 
 to the freight depot, the detectives reported 
 that Knecht would get on an express wagon, 
 apparently kept in waiting for him, and in this 
 manner gain access to the depot. Inside, 
 after the American's driver had entered the 
 freight office, Knecht would again take out his 
 notebook, approach the shipping boxes, and 
 make notes, evidently copying the addresses. 
 The head detective went to the National's 
 office at Columbus and reported to Heyne that 
 
 ' J. E. Warren, ibid., p. 426.
 
 i6o Unfair Competition 
 
 he had asked there for this man Knecht, 
 had met him, and had identified him by 
 having him answer to his name in the sales 
 offices.^ 
 
 Pinkerton detectives were employed by the 
 National Cash Register Company during the 
 Hallwood fight to secure information in regard 
 to the latter organization and its business. 
 From about November or December, 1904, to 
 March or April, 1905, these agents were again 
 employed. Heyne was introduced to the super- 
 intendent of the agency and instructed by the 
 acting general manager of the National to have 
 him supply two operatives to spy upon the affairs 
 of the International Cash Register Company 
 of Columbus.' Warren further testified that 
 during the Hallwood fight Pinkerton detectives 
 were sent to the agents' school which the 
 National maintained, the purpose being to 
 teach them to go out and call on users and pros- 
 pective purchasers and also to make such 
 reports as would be valuable to the National.^ 
 The reports of the various detectives were kept 
 in the vault of the National Cash Register 
 
 ' Carl G. Heyne, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. II, p. 1018-19. 
 
 » Carl G. Heyne, ibid.. Vol. II, pp. 988-89. 
 
 3 J. E. Warren, ibid., Vol. I, p. 560.
 
 Espionage i6i 
 
 Company in a special compartment in charge 
 of Counselman's secretary.' 
 
 In the case of the lumber trade, the govern- 
 ment has alleged that Willard G. HoUis, as 
 secretary of the Northwestern Lmnbermen's 
 Association, employed for a nmnber of years, 
 with the consent of the officers of that organ- 
 ization, a detective bureau under the manage- 
 ment of one Luke W. Boyce. The function of 
 this bureau was to obtain information con- 
 cerning so-called unethical shipments from 
 manufacturers and wholesalers to consumers .'' 
 
 The United Shoe Machinery Company seems 
 also to have attempted to obtain information in 
 a questionable fashion. Frank Morrison, an em- 
 ployee in the shoe factory of George E. Keith, 
 and employed in the plant of Thomas G. Plant, 
 in the year 1910, testified that he was sent to 
 Mr. Willson of the United Shoe Machinery 
 Company by a man by the name of Johnson. 
 The following is an extract from his testi- 
 mony regarding his conversation with Willson: 
 
 36. Int. What did Mr. Willson say to you ? Did 
 he say anything to you about a particular machine ? 
 
 Ans. Well, he was more after about the toe- 
 operating machine and welting. 
 
 'Lee Counselman, ibid., Vol. I, pp. 642-43. 
 
 ' Petition, Utiited States v. Hollis, cit. supra, p. 40. Cf. 
 chap. vi.
 
 1 62 Unfair Competition 
 
 37. Int. Now, what information did he attempt to 
 get about that machine ? 
 
 Ans. Well, one day he told me if I can get a picture 
 taken of a certain machine. I told him I couldn't do 
 that. Well, that was all. I didn't do no work for 
 that. For somebody else I done that work. 
 
 38. Int. What did you do about demonstrating 
 that machine, or distinguishing the difference between 
 that machine and the United's machine ? 
 
 Ans. We got a man to come down — 
 
 39. Int. Who did you get ? 
 
 Ans. The old man that used to work there on the 
 machine. 
 
 40. Int. In Mr. Plant's factory ? 
 Ans. Yes, sir. 
 
 41. Int. What was his name, if you remember ? 
 Ans. His name was J. Tobin. 
 
 42. Int. What is it, Tobin ? 
 
 Ans. J. Tobin; Jack, I guess it was. We got him 
 to come down to Lynn and explain there. I didn't 
 go with them. They took him down to some factory 
 in Lynn.* 
 
 Abram Sochat also testified to the same 
 effect: 
 
 15. Int. At that conference did Mr. Willson say 
 anything about getting information — about you gentle- 
 men getting information for him in regard to the 
 number of shoes put out, and the quahty ? 
 
 Ans. Yes, sir. 
 
 ' Frank Morrison, brief for the United States, United States 
 V. United Shoe Machinery Company, cit. supra, pp. 356-57, 
 quoting record. Vol. IV, p. 1706.
 
 Espionage 163 
 
 16. Int. And who was going in to see the machines ? 
 Ans. Yes, sir. 
 
 17. Int. Did you have any conversation with Mr. 
 Willson at that time about any particular machine 
 used in the Plant factory ? 
 
 Ans. Yes, sir. 
 
 18. Int. What was it ? 
 
 Ans. The toe-lasting machine. 
 
 19. Int. What did Mr. Willson say about that 
 toe-lasting machine ? 
 
 Ans. I tried to explain to him and he couldn't 
 very well understand me, and he told me I should go 
 down and see Mr. Richards — me and Mr. Ross should 
 go down and see Mr. Richards in Lynn. 
 
 20. Int. For what purpose ? 
 
 Ans. To explain the machine to him. 
 
 21. Int. And did you go down to see Mr. Richards ? 
 Ans. We did. 
 
 22. Int. How soon after you had this conference 
 with Mr. Willson ? 
 
 Ans. I believe a day or so. 
 
 23. Int. Whom did you meet there ? 
 
 Ans. To make it sure we took another man along 
 there that worked on the machine. 
 
 24. Int. Who was that ? 
 Ans. J. Tobin. 
 
 25. Int. You say you had first tried to explain to 
 Mr. Willson? 
 
 Ans. Yes. I tried to explain it, and Mr. Willson 
 could not understand it. 
 
 26. Int. Then you took down Mr. Tobin ? 
 Ans. To Mr. Richards in Lynn.
 
 164 Unfair Competition 
 
 27. Int. Did you use the machine then for the 
 purpose of explaining the difference ? 
 
 Ans. I beUeve he took us over to P. J. Harney's 
 shop, I believe it was, and showed us a No. $ machine 
 up there and showed us the old Ideal machine, I 
 believe, and explained the difference between those 
 machines there. 
 
 28 Int. Who explained the difference ? 
 
 Ans. I tried a little. Mr. Tobin tried a Uttle. 
 
 29. Int. Between the Plant machine and those 
 machines ? 
 
 Ans. Yes. 
 
 30. Int. Now, do you know whether or not Mr. 
 Tobin was paid for going down there that day ? 
 
 Ans. Yes, sir. He got $3. 
 
 31. Int. Do you know who paid him the $3 ? 
 Ans. Mr. Richards paid him. Made out a receipt 
 
 and he signed it.' 
 
 ' It is assuredly true that the selling efficiency 
 of an organization is, to a considerable extent, 
 dependent upon its knowledge of the exact 
 state of trade and its own position in that trade 
 with reference to competitors. In the interests 
 of its economic efficiency, therefore, a concern 
 would appear entitled to obtain information in 
 regard to the business of competitors through 
 
 ' Abram Sochat, brief for the United States, United States v. 
 United Shoe Machinery Company, cit. supra, pp. 363-64, quoting 
 record. Vol. IV, pp. 1732-33. In this connection cf. also original 
 petition, United States v. 5. F. Bowser, U.S.D.C. for the District 
 of Indiana, p. 6.
 
 Espionage 165 
 
 all ordinary business channels, such as the 
 reports of salesmen and similar methods. On 
 the other hand, the resort to the use of spies 
 and detectives for the purpose of tracing the 
 business of competitors, the bribing of rail- 
 way and other employees in order to secure 
 such information are practices which should 
 be regarded as acts of unfair competition. 
 All the requirements of productive and selling 
 efficiency under fair competition can be ful- 
 filled by information obtained in the regular 
 course of business and without resort to methods 
 of the character described.]
 
 CHAPTER X 
 COERCION, THREATS, INTIMIDATION, ETC. 
 
 In the course of the competitive struggle in 
 the business world, statements may be made, 
 letters written, and various things done which 
 are either openly or impliedly threatening and 
 which are intended to intimidate and coerce. 
 In some cases the threat is so veiled that it is 
 necessary to examine carefully the surrounding 
 circumstances in order to determine whether 
 coercion or intimidation is intended or results. 
 In other instances there is no concealment. 
 
 Broadly speaking, these methods may be 
 said to have two possible applications. They 
 may be used either as the complement of other 
 unfair practices or in order to suppress and 
 destroy competition generally. In the former 
 case these methods occur only as an aid to 
 other unfair practices; in the latter they have 
 no necessary connection therewith and are 
 used quite independently thereof. 
 
 Considering first the former use, we find, 
 for example, that coercion, threats, and intimi- 
 dation have been used : 
 
 I. To secure compliance with exclusive arrange- 
 ments; 
 
 i66
 
 Coercion, Threats, Intimidation 167 
 
 II. In support of blacklisting, boycotting, white 
 
 lists, etc. 
 III. To obtain conformance with conditional re- 
 quirements. 
 
 It was related by Mr. William B, Dailey 
 that the Photographic-Supplies Combination, 
 in an endeavor to enforce its exclusive selling 
 arrangements discussed in chap, v, had its 
 agents call on dealers personally in reference 
 thereto and did not put in writing any state- 
 ments which could be used against it. Thus 
 Mr. Moreau, of the Eastman Kodak Company, 
 visited some of the dealers in New York. The 
 conversation which took place, as the dealers 
 related it to Mr. Dailey, ran somewhat as 
 follows : 
 
 Now, Mr. So-and-so, of course you understand that 
 
 we must get more money for our goods We 
 
 are giving you the full list price and we protect you 
 and we expect you to stop handling these other men's 
 paper. Of course, we are not making any threat; 
 we do not say you have to do it, you understand, but 
 you know we control cameras and films on which we 
 have patents, and if you could not get these other 
 goods it would be very disagreeable for you.* 
 
 ' W. B. Dailey, Report of the Itidustrial Commission, etc., 
 cit. supra, Vol. XIII, p. 184.
 
 i68 Unfair Competition 
 
 There can be little doubt that in this case 
 we encounter a scarcely veiled threat. Con- 
 sidered in the light of the Kodak combination's 
 poHcy of exclusive selling and the testimony of 
 Mr. Abbott and Mr. Dailey regarding this 
 policy/ the affairs can scarcely be otherwise 
 interpreted. 
 
 In the discussion of exclusive arrangements 
 in a preceding chapter it was pointed out that 
 the Keystone Watch Case Company mailed 
 a letter to the jobbing trade dated January 
 15, 1910, which contained, among other state- 
 ments, the following clause : 
 
 Fourth. And further, we desire that the jobbers 
 to whom we sell our goods bearing the following trade- 
 marks, to wit, Howard, Boss, Crescent, Planet, Crown, 
 Silveroid, and Excelsior shall not deal in any watch 
 cases other than those manufactured by us.* 
 
 In addition, the letter also made this state- 
 ment: 
 
 Whether or not our wishes as hereinafter stated be 
 complied with we shall from time to time exercise our 
 right to select the jobbers to whom we shall sell our 
 goods, and we shall, irrespective of any past dealings, 
 refuse to sell to those jobbers who, in our opinion, handle 
 our goods in a manner detrimental to our interest or 
 
 ' Chap. V, supra. ' Ibid.
 
 Coercion, Threats, Intimidation 169 
 
 whose dealings with us are in any other respects unsatis- 
 factory.^ 
 
 The implied threat to cut off dealers which 
 was contained in this letter was reiterated 
 personally by the representatives of the Key- 
 stone Company, as was testified to by a con- 
 siderable number of jobbers. One of the most 
 interesting bits of testimony is that of Morris 
 Eisenstadt, of the Eisenstadt Manufacturing 
 Company, wholesale jewelers in St, Louis: 
 
 Q. Now, will you state fully in substance, as nearly 
 as you can, the conversation that you had with 
 Mr. Levy* and with Mr. Hyatt,^ or with either of them, 
 at that time relating to the letter of January 15, 1910, 
 and its substance? 
 
 A. They stated in substance that the company 
 meant everything that was implied in that circular 
 letter, and I says to Mr. Levy, "Mr. Levy, don't you 
 consider that a kind of Httle arbitrary?" And he 
 said, "I am not here to discuss that, but am instructed 
 to tell you what the company is going to do." I 
 said, "Won't you give us a little time to consider 
 the thing, as this aflfects the general policy of our 
 business, and I would like to have a little time to think 
 it over, and I will give you an answer within ten days." 
 And he said, "No; I have been instructed to tell you 
 
 ' Petition, United States v. Keystone Watch Case Company, 
 cit. supra, p. 14. 
 
 ' Representing the Keystone Company. 
 * Representing the Keystone Company.
 
 170 Unfair Competition 
 
 that unless you can give us your favorable answer 
 to it we will discontinue shipment and close your 
 account." 
 
 Q. Was there any further conversation in substance 
 than what you have stated between you and Mr. 
 Levy? 
 
 A. Well, we talked for an hour or two, but I 
 cannot recall exactly all that was said, but that was the 
 substance of it. But I further said to Mr. Levy; 
 I said, "You don't. Levy, mean to tell me that our 
 past relations, our volume of business and friendly 
 relations with the officers of the company are not 
 going to cut any figure in this deal ? Are ^'•ou simply 
 going to be arbitrary without any reference to our past 
 relations?" 
 
 Q. And what did he say to that ? 
 
 A . He said, " We certainly will." He said, " Those 
 are my instructions; I have nothing to argue with 
 you. I have simply to give you our instructions, the 
 instructions I received from headquarters," and I said 
 a few things that I do not want to say again. And 
 it is not necessary to print it; it would not look well 
 in print. 
 
 Q. What was the occasion of your saying those 
 things ? 
 
 A . I was pretty hot under the collar. 
 
 Q. And why ? 
 
 A. To think that the concern would treat us that 
 way after all these long years of friendly relations 
 and close connections; we certainly had a great regard 
 for them; always did.
 
 Coercion, Threats, Intimidation 171 
 
 Q. Did you make any reference to it as a "high- 
 handed" proposition ? 
 
 A. I expressed myself pretty fully in that respect. 
 
 Q. Was Mr. Hyatt present during this conver- 
 sation ? 
 
 A. He was. 
 
 Q. Did he take any part in it ? 
 
 A. None at all; he had nothing to say. 
 
 Q. Now, what was the situation when Mr. Levy 
 left — at what point had you reached when Mr. Levy 
 left? 
 
 A . We had not reached any point, because I had 
 given him no definite answer, but he told me — he 
 said, "We will have to have your reply or we will cease 
 shipment," and I said, "Levy, you don't mean to tell 
 me you are going to refuse to fill the orders we have 
 already placed?" and he said, "We certainly will"; 
 and they did, and did not ship us anything until we 
 had complied with the demand. 
 
 Q. Is it a fact that you received no shipment 
 from them from the time of Mr. Levy's visit until you 
 wired them you would come to terms, as you have 
 stated ? 
 
 A. Yes, sir.^ 
 
 Similarly, in the suit against the New 
 Departure Manufacturing Company it was 
 charged that Gales P. Moore, the patent coun- 
 sel of that organization, from time to time 
 sent numerous communications to jobbers and 
 
 ' Morris Eisenstadt, government's evidence, United States 
 V. Keystone Watch Case Company, cit. supra, Vol. II, pp. 221-22.
 
 172 Unfair Competition 
 
 dealers threatening them with damage suits in 
 case they sold or attempted to sell other 
 coaster brakes than those which were manu- 
 factured by the New Departure Company.^ 
 
 II 
 
 > At a meeting in St. Louis in 1902 the Lum- 
 ber Secretaries' Bureau of Information,^ adopted 
 a constitution and by-laws and also a declara- 
 tion of purposes from which the following 
 quotation is taken : 
 
 We recognize the right of the manufacturer and 
 wholesaler to sell in whatever market, to whatever 
 purchaser, and at whatever price they may see fit. 
 
 We claim for ourselves, both individually and col- 
 lectively, the right to buy of such manufacturers or 
 wholesalers or their agents as we may prefer, and to 
 refrain from buying of those who disregard the equities 
 of trade to our injury and the demoralization of the 
 retail lumber business.^ 
 
 On its face this declaration appears to be 
 innocent enough. When examined and con- 
 sidered in the light of the classification methods 
 
 ' Petition in equity, United States v. New Departure Manu- 
 facturing Company, U.S.D.C. for the Western District of New 
 York, p. 15. 
 
 ' The Lumber Secretaries' Bureau of Information was an 
 organization composed of the secretaries of various state asso- 
 ciations of lumber dealers. 
 
 3 Petition, United Slates v. Hollis, cit. supra, p. 44.
 
 Coercion, Threats, Intimidation 173 
 
 utilized by the lumber-trade associations and 
 the boycotting of individuals failing to conform 
 to the standards of ethics which these organiza- 
 tions laid down, its innocent character disap- 
 pears and it becomes a threat to blackHst and 
 boycott concerns which ship directly to con- 
 sumers/ 
 
 III 
 
 In order to obviate some of the "tying" pro- 
 visions in the Shoe Machinery Company's 
 leases which manufacturers found so obnoxious, 
 the legislature of Massachusetts in 1907 enacted 
 a law which provided, among other things, that : 
 
 No person, firm, corporation, or association shall 
 insert in or make it a condition or provision of any 
 sale or lease of any tool, implement, appliance, or 
 machinery that the purchaser or lessee thereof shall 
 not buy, lease, or use machinery, tools, implements 
 [etc.], of any person, firm, corporation, or association 
 other than such vendor or lessor; . . . ." 
 
 In spite of this statute the United Shoe 
 Machinery Company continued to use practi- 
 cally the same contract as had previously been 
 
 ' Cf. chap, vi, supra. 
 
 " Quoted from the law as read into the testimony in Hearings 
 before the House Committee on the Judiciary, Trust Legislation 
 Serial No. 2, Patent Legislation Serial No. i, cit. supra, p. 72. 
 Obviously this applies both to exclusive and to conditional 
 arrangements.
 
 174 Unfair Competition 
 
 employed. To it, however, was attached the 
 foUowmg rider: 
 
 Any and all agreements, stipulations, provisions, 
 and conditions hereinbefore printed in this instrument 
 which are in violation of the provisions of chapter 469 
 of the acts of the General Court of Massachusetts for 
 the year 1907, if there are any such, are hereby stricken 
 out before execution and are not agreed to nor made 
 a part of this contract. 
 
 Independent of and in addition to all other rights 
 hereunder the lessor shall have the right to terminate 
 this lease and license at any time upon jo days^ notice 
 in writing to the lessee.^ 
 
 Is not the last paragraph of this lease a 
 veiled threat to cancel leases for all machines 
 if any concern did that which the law was clearly 
 intended to give it the permission to do? Is 
 not the intent here to coerce, to compel, manu- 
 facturers to use the machines of the United 
 Company, no matter what they had the privi- 
 lege of doing under the law ? Mr. Charles H. 
 Jones, testifying in regard to the last paragraph 
 above quoted, termed it a "joker," and "a 
 'joker' of a very serious nature." 
 
 It reads ''Independently of and in addition." 
 Please observe that their right to terminate upon 30 
 
 ' Hearings before the House Committee on the Judiciary, 
 Trust Legislation Serial No. 2, Patent Legislation Serial No. i, 
 cU. supra, p. 72. Italics are the writer's.
 
 Coercion, Threats, Intimidation 175 
 
 days' notice does not depend upon or is not in conse- 
 quence of any violation on our part. It gives them 
 the arbitrary right to terminate this lease at any time, 
 with or without reason, upon 30 days' notice.^ 
 
 To the extent that threats, coercion, and 
 intimidation are used in order to effectuate 
 other unfair arrangements, it follows that they 
 should always be regarded as unfair. But 
 while thus frequently used in supplementing 
 other unfair competitive practices, the methods 
 discussed in this section are perhaps equally if 
 not more often employed for the purpose of 
 suppressing and destroying competition gener- 
 ally. In some cases they are even found where 
 no other unfair method of competition appears. 
 But more commonly perhaps they are to be 
 discovered in conjunction with other unfair 
 practices.^ At times these methods may be 
 directed primarily to hampering existing compe- 
 tition. In other instances it may be attempted 
 to prevent potential competitors from actually 
 operating, or again both these objects may be 
 sought. An illustration of the first class of 
 cases may be taken from the trade in agricul- 
 tural implements. 
 
 ' Charles H. Jones, ibid., p. 73. 
 
 ^ Though not in the sense of supplementing them, as in the 
 case of the illustrations just discussed.
 
 176 Unfair Competition 
 
 During the season of 1897 Adriance, Piatt 
 & Company marketed about 700 harrows. 
 In the succeeding year its business increased 
 to about 2,000 harrows and the outlook for 
 1899 was even more promising. Before the 
 selling campaign of 1899, however, the Adriance, 
 Piatt Company was in receipt of a notice from 
 the National Harrow Company^ in which the 
 latter organization stated that it beKeved the 
 products of the former constituted an infringe- 
 ment of some of its patents. The Adriance, 
 Piatt Company denied the infringement and 
 requested the Harrow Company to bring suit. 
 The latter refused to do so, however, and 
 asserted that it proposed in its own way to 
 prevent the Adriance, Piatt Company from 
 building harrows. The Harrow Company 
 thereupon proceeded to circularize the cus- 
 tomers of the Adriance, Piatt Company in 
 various sections of the country. One of these 
 circulars contained a picture of the Adriance, 
 Piatt harrow with this description: " 'The 
 Buckeye,' manufactured by Adriance, Piatt 
 & Company, Poughkeepsie, N.Y., and claimed 
 by us to be made in infringement of our 
 patents." The circular went on to caution 
 
 ' The National Harrow Company was not a manufacturer of 
 harrows but was merely the owner of a number of patents which 
 it licensed manufacturers to use under a royalty arrangement.
 
 Coercion, Threats, Intimidation 177 
 
 dealers not to purchase harrows which did not 
 bear the hcense label of the Harrow Company. 
 The circular likewise contained the following 
 statements : " We have yet to find a harrow of 
 recent and modern construction that does not 
 embody one or more of our patents." "We 
 regret that we are obliged to hold the dealers 
 responsible, but this cannot be avoided, as in 
 many cases the manufacturers would not be 
 able to settle our claims." 
 
 According to the opinion in the case, these 
 circulars were "followed up" by letters directed 
 to the same persons and of the same general 
 character. Extracts from two of these letters 
 are given in the decision. One reads as follows : 
 
 We have from time to time written you and mailed 
 you circulars regarding your handling the Adriance, 
 Piatt & Company spring-tooth harrows, which are 
 
 claimed to infringe our patents We are in duty 
 
 bound to protect our licensees, their customers, and 
 ourselves, and shall sue all dealers who persist, after our 
 repeated warnings, in handling infringing goods. We 
 are constantly bringing suits wherever these dealers 
 are found. This we shall continue to do till our rights 
 are fully respected. 
 
 The excerpt from the second letter stated 
 that: 
 
 It is claimed by this company that it is impossible 
 to construct a modem spring-tooth harrow, such as
 
 178 Unfair Competition 
 
 can be sold at the present time, without infringing 
 several of the numerous patents owned by us. We 
 do not deem it necessary to give you further warning 
 notice than this at this time.* 
 
 An equally interesting case of a similar char- 
 acter is that of the Vacuum Cleaner Company, 
 which, it was charged, for some two years sent 
 threatening letters and circulars to the customers 
 of the Electric Renovator Manufacturing Com- 
 pany, which concern, it alleged, was infringing 
 its patents. At the same time it refused to bring 
 suit, in spite of having been requested to do so 
 by the Renovating Company. One of the cir- 
 culars thus sent out around 19 10 was entitled 
 " Warning, " and read : 
 
 Our patents have been acknowledged and settle- 
 ments made, suits have been withdrawn and Ucenses 
 issued by us to the following concerns: McCrum- 
 Howell Company of New York, .... Duntley Manu- 
 facturing Company of Chicago, Keller Manufacturing 
 Company of Philadelphia. Any dealer or user buying 
 apparatus from these firms is within his rights and 
 will not be disturbed. All others may expect trouble 
 until they comply with the laws and obtain proper 
 authority from us under our patents.' 
 
 It is of course right and proper that a patentee 
 give due notice of an infringement. When the 
 
 » 121 Fed. 827. Cf. pp. 828-29. 
 • 189 Fed. 754. Cf. pp. 7S6-S7.
 
 Coercion, Threats, Intimidation 179 
 
 matter of infringement is in doubt, however, 
 and the patentee while refusing to bring suit 
 pursues a poHcy of threatening the actual or 
 prospective customers of another organization, 
 a strong presumption exists that the latter 
 concern is not an infringer and that the alle- 
 gation of infringement is not made in good 
 faith. That threats and intimidation should 
 under such circumstances be regarded as unfair 
 is obvious. They should of a certainty be 
 prevented, since they might injure or destroy 
 the business of an efficient concern not an 
 infringer and therefore entitled to compete. 
 
 Similarly, an organization may attempt in 
 various ways to deter prospective competition. 
 In the discussion of bogus independent con- 
 cerns, in chap, ii, reference was made to the 
 acquisition of the Western Glucose Company' 
 by the Royal Baking Powder Company in 1908. 
 The government has asserted that the purpose 
 of this acquisition on the part of the Baking 
 Powder Company was to have the acquired 
 concern engage in the manufacture of glucose, 
 starch, and other corn products and also to mix 
 table syrups. The government further alleged 
 
 ' The name was changed to American Maize Products Com- 
 pany after the Royal Baking Powder Company obtained con- 
 trol. Cf. supra., chap. ii.
 
 i8o Unfair Competition 
 
 that the Corn Products Refining Company 
 thereupon threatened to engage in the manu- 
 facture of baking powder, and to that end pro- 
 cured certain baking-powder machinery which 
 was afterward sold to the Royal Baking Powder 
 Company/ a compromise having been arrived 
 at between the two concerns.* 
 
 In the study of the subject of unfair com- 
 petition the writer has encountered only one 
 instance of the intimidation of capital. Though 
 occurring in Europe, it was the work of an 
 American company, and it is cited as illus- 
 trative of the possibilities in this direction. 
 
 In the course of his operations as an inde- 
 pendent cash-register manufacturer Edgar Park^ 
 was sent to Europe in connection with the 
 Potin competition. JuHan Potin, of Paris, 
 controlled a French cash register company 
 which built a register named "Frane." Park 
 saw Potin, to whom he introduced himself as 
 an American manufacturer of cash registers 
 backed by a firm in London by the name of 
 Morgan & Company, to which concern Park 
 had his mail addressed while in Europe. He 
 
 ' Petition, United States v. Corn Products Refining Company, 
 cit. supra, pp. 22-23. 
 
 » Cf. chap. ii. 
 
 3 For other instances of Park's activities cf. supra, chap. ii.
 
 Coercion, Threats, Intimidation i8i 
 
 became very friendly with the Frenchman and 
 also with the head mechanic and inventor of 
 the Frane machine, a Mr. Fredemane. Park 
 discussed the Potin model and the strength 
 of the National Company. Potin had been 
 advised that his register infringed the patents 
 of the National, and Park submitted opinions 
 from his patent attorneys apparently corrobo- 
 rating this statement from what Potin regarded 
 as an independent source. Park reported to 
 Heyne that Potin had great hopes of the Ger- 
 man market for his cash register. The man- 
 ager of the National's German house further 
 informed Heyne that StoUwerck, the chocolate 
 manufacturer of Cologne, had become interested 
 in the sale of the French machine. He also 
 told Heyne that he had visited Stollwerck in 
 the effort to dissuade him from becoming con- 
 cerned in the sale of the Frane register finan- 
 cially or otherwise but had been unsuccessful. 
 Having reported to the Dayton office, Heyne 
 was instructed to see Stollwerck himself and 
 did so, accompanied by the German manager. 
 He related the means at the disposal of the 
 National and "the particular line of argument" 
 which he had received from Dayton. This was 
 "to tell them that they would lose their money 
 as surely as other concerns who had invested
 
 1 82 Unfair Competition 
 
 money before them." The next time that 
 Heyne called upon Stollwerck he was told that 
 the latter did not wish to become financially 
 interested in the Frane register.^ 
 
 The measures of intimidation employed by 
 the National Cash Register Company often 
 showed considerable ingenuity and are at all 
 times highly interesting. Probably the most 
 notorious scheme of this organization was the 
 operation of the two display rooms known 
 as the "gloom room" and the "graveyard."^ 
 Both appear to have been used in cases of 
 existing competition as well as potential com- 
 petition. The following testimony indicates 
 the character of these rooms : 
 
 Q. Now, you have referred to a room known as the 
 "gloom room"; just tell us about that "gloom room." 
 
 A. This was a room fixed up especially to show 
 visitors and competitors and people who had models 
 to sell. 
 
 Q. What was kept in that room ? 
 
 A. Models of National cash registers from the 
 early days up to the latest date and models of all com- 
 
 ' Carl G. Heyne, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. II, pp. 948-49, 967-69. 
 
 ' It is not entirely clear from the records in the two cash 
 register cases whether there was one or two of these rooms. As 
 nearly as the writer has been able to determine, however, there 
 were two, although they may have been operated at different 
 periods.
 
 Coercion, Threats, Intimidation 183 
 
 peting machines of any note that had been manu- 
 factured up to the present time, 
 
 Q. And was there anything on the competitive 
 machines that were there to indicate what had become 
 of them or how much money had been lost in them ? 
 
 A. There were cards. 
 
 Q. Showing what ? 
 
 A. When they went in business and what it had 
 cost them to continue in business and when they went 
 out of business.^ 
 
 Q. Now, Mr. Warren, were you famihar with what 
 was known as the "graveyard" at the factory of the 
 National Cash Register Company ? 
 
 A. Yes. 
 
 Q. Just describe what that was, what it consisted of. 
 
 A. It was a place where we displayed the compe- 
 tition machines that we had taken out from time to 
 time. 
 
 Q. And how large a room was it ? 
 
 A. Well, it covered probably half the floor of the 
 main building. 
 
 Q. About how many square feet, approximately, 
 would you think there was in that room ? 
 
 A . When it comes to feet, or anything like that — 
 let's see — it would cover a space at least one hundred 
 feet long by fifty feet wide; about that. 
 
 Q. How were those competitive machines arranged 
 in the "graveyard"? 
 
 ' J. E. Warren, record, Slaie v. National Cash Register Com- 
 pany, cit. supra, Vol. I, p. 552.
 
 184 Unfair Competition 
 
 A. Oh, we arranged the dififerent makes together. 
 
 Q. And how were those competitive machines 
 labeled, if at all? 
 
 A. When they went into business and when they 
 went out; the date; the amount of money the firms 
 lost that tried to manufacture and market those 
 machines. 
 
 Q. About how long was the "graveyard" main- 
 tained, to your knowledge ? 
 
 A. From the beginning of the first competition. 
 
 Q. And were they still maintaining it when you 
 left in 1907 ? 
 
 A. Yes.^ 
 
 Further testimony of Mr. Warren in the 
 federal suit against John H. Patterson is indica- 
 tive of the purposes of these exhibitions: 
 
 When a new concern was considering going into 
 business, we would be glad to have them come to the 
 factory to look over the models we had that would 
 antedate theirs, let them see what we had there and 
 the different models we made. It might prevent them 
 from going into the business, save money to ourselves 
 and them, because they might find something there 
 that was really further advanced than what they 
 could do, I mean the new concern going into the cash- 
 register business. The idea was to prevent you from 
 going into the business of manufacturing cash registers 
 by showing what we had there, our strength, organ- 
 
 ' J. E. Warren, ibid., pp. 461-62.
 
 Coercion, Threats, Intimidation 185 
 
 ization and the line of machines we had, to try to 
 convince you that we had something superior to what 
 you had, and that you would only lose money by going 
 into the business.' 
 
 The testimony of Lee Counselman gives some 
 further conception of the purpose of these dis- 
 play rooms : 
 
 Q. What did you call this process of taking people 
 through who were either in the cash-register business 
 or contemplated going in ? 
 
 A . Well, it was a process of education for the pur- 
 pose of glooming them. 
 
 Q. Wasn't that called the glooming process? 
 
 A. That is what they wanted to accomplish, yes. 
 
 Q. State whether or not that was not a particular 
 system of eliminating competing companies. 
 
 A. It was there for two purposes; one was to show 
 every visitor coming to the National Cash Register 
 Company how strong we were, and how many people 
 had gone out of the business, and the next object was 
 to show the competitor how many people had gone in 
 and out and how much money they had lost, and we 
 tried to make him think the same thing. ^ 
 
 In discouraging or intimidating actual com- 
 petition, besides using the "gloom room" and 
 
 ' J. E. Warren, record, Patterson v. United States, cit. supra, 
 Vol. I, p. 142. 
 
 ' Lee Counselman, record, State v. National Cash Register 
 Company, oil. supra, Vol. I, p. 586. Cf. also Counselman, record, 
 Patterson v. United States, cit. supra. Vol. I, p. 401.
 
 i86 Unfair Competition 
 
 the "graveyard," National "knockers"' for 
 their machines were sometimes shown to com- 
 peting manufacturers and allegations of patent 
 infringement or actual infringement suits called 
 to their attention. Chalmers related some of 
 these cases. He testified that he attempted 
 to persuade Dr. Pierce, manufacturer of the 
 Pierce Ideal register, to come to Dayton. Pierce 
 being unable to do so, he arranged a meeting 
 with him in BujBfalo, to which city he took 
 an Ideal machine and also the machine which 
 the National was using in competition against 
 it. At a second interview Chalmers showed 
 the opinions of the National patent attorneys 
 in which it was claimed that the Ideal in- 
 fringed National patents. At another time the 
 representatives of the MetropoHtan Register 
 Company were induced to come to Dayton. 
 They were shown through the factory, 
 historical room," and inventions room,' and 
 they were also shown the machines which 
 the National could use against them in com- 
 petition. 
 
 ' This term is fully explained in chap, iii, on " Fighting In- 
 struments." 
 
 ' Room showing all models of the National from the first 
 ones made down to the latest. 
 
 3 This appears to have been the correct term for "gloom room," 
 the latter being a slang expression.
 
 Coercion, Threats, Intimidation 187 
 
 One Theobald, and other members of the 
 Board of Directors of the Toledo Scales and 
 Cash Register Company, met certain National 
 ofi&cials in New York. The latter had with 
 tjiem one of the Toledo machines and also one 
 of the machines which had been built to meet 
 it, and it was explained to the Toledo ofi&cials 
 that the National intended to put this machine 
 on the market at a price less than their 
 machine brought. There were also statements 
 to the effect that the machine which the Toledo 
 Company was about to put on the market 
 infringed a patent of the National's. 
 
 Rush Taggart of the Union Cash Register 
 Company, was also invited to Dayton, taken 
 through the historical room, and sho^vn his own 
 machine and the machine which the National 
 had built to parallel it. He was told that the 
 National intended to sell its machine for less 
 money than his.^ 
 
 F. C. Osborn, formerly of the Osborn Cash 
 Register Company, testified that on his visit 
 to Dayton — 
 
 they showed us the plant and also plans for extensions 
 of their plant; they showed us a register which in 
 
 ' Hugh Chalmers, record, Patterson v. United States, cit. 
 stipra, Vol. I, pp. 468-69, 471-74, 476-77. Cf. also Rush Tag- 
 gart, ibid., pp. 513-15-
 
 i88 Unfair Competition 
 
 appearance resembled our register very much, and also 
 the tools for manufacturing this register, stating that 
 they were about ready to put it upon the market at a 
 low price; at one meeting which we had during this 
 stay they exhibited to us in one room all of the models 
 of the different styles of registers, and in the speeches 
 which were made stated that with their organization 
 and the various registers which they made, especially 
 with the low-priced registers which they intended to 
 put on the market, we would not be able to compete.^ 
 
 "Confidential statements" were prepared by 
 the National Cash Register Company against 
 various concerns. They "contained a record 
 of all suits, opinions of patent attorneys, and 
 anything that appeared to be in evidence 
 against that particular company."^ 
 
 In the Michigan case Counselman further 
 explained the purpose of these statements as 
 follows : 
 
 A. Well, the object was to frighten them; those 
 statements were gotten out to dealers and to agents 
 
 ' F. C. Osborn, record, Slate v. National Cash Register Com- 
 pany, cii. supra, Vol. II, p. 864. 
 
 ^ Lee Counselman, record, Patterson v. United States, cit. 
 supra. Vol. I, p. 405. Counselman also testified in the same 
 suit that, except for the first two or three, the confidential state- 
 ments were made under his supervision and that President Pat- 
 terson was the one who first thought of the idea (Counselman, 
 ibid.). Chalmers testified that the first of the confidential state- 
 ments was prepared by Mr. Patterson, Counselman, Morse, 
 and himself and that it was O.K.'d by Sigler as attorney before 
 it was sent out (Hugh Chalmers, ibid., Vol. I, p. 503).
 
 Coercion, Threats, Intimidation 189 
 
 and to district managers; they were gotten out for 
 that purpose, so that it would not look as if they were 
 gotten out for any one competitor, 
 
 Q. And were they sent out as matter for salesmen 
 and agents ? 
 
 A. No. 
 
 Q. To whom were they sent ? 
 
 A. They were sent to the competitor that they 
 were gotten up on. 
 
 Q. But apparently addressed to your agent or 
 salesman ? 
 
 A. Well, it was meant to appear that some agent 
 mailed it in to them.^ 
 
 One of the most troublesome competitors of 
 the National was W. T. McGraw, who was in 
 the cash-register business for many years under 
 various names, manufacturing several dififerent 
 makes of the registers, among which were the 
 Globe, Continental, Illinois, St. Louis, and 
 others. Serious efforts were made by the 
 National in 1904 to persuade McGraw to dis- 
 continue. He was invited by that organ- 
 ization to visit Dayton and finally did so. 
 Upon his arrival he appears to have been 
 "gloomed" in the orthodox manner and later 
 went to lunch at the officers' club with Chalmers, 
 Counselman, and others. President Patter- 
 son dropped in, and McGraw testified that 
 
 'Lee Counselman, record, State v. National Cash Register 
 Company, cit. supra, Vol. I, p. 606.
 
 igo Unfair Competition 
 
 "the general conversation was that no com- 
 pany could succeed against the organization 
 of The National Cash Register Company." 
 McGraw also related the following: 
 
 Just about that time he* picked up a large water 
 bottle; sat it [sic] down; and said that that represented 
 The National Cash Register Company. He then 
 reached around and found a little salt cellar, which was 
 the smallest object on the table, and set it down by 
 the water bottle. He said, "Now, that represents 
 The National Cash Register Company; that salt cellar 
 represents you, and we will wipe you off the face of the 
 earth," to use his exact language.' 
 
 In the early days, the Bensinger Cash Register 
 Company was one of the principal competitors 
 of the National Cash Register Company. Mr. 
 Bensinger, its president, was also the president 
 of the Brunswick-Balke-CoUender Company. 
 James testified that the Bensinger people were 
 advised that if they continued manufacturing 
 their registers the National would go into the 
 
 « President Patterson, 
 
 * William F. McGraw, record, Patterson v. United States, 
 cit. supra, Vol. I, pp. 423-25. Counselman confirmed this testi- 
 mony, though he said, "I do not know about the exact words, 
 about, 'the face of the earth' but they were to that effect" (Lee 
 Counselman, ibid., pp. 401-2). Chahners' testimony regarding 
 the incident was that Patterson told McGraw "that it would 
 be just as impossible for him to succeed with The National Cash 
 Register Company as it would be possible to make that pepper 
 thing as big as that water bottle" (Hugh Chalmers, ibid., p. 479). 
 
 I
 
 Coercion, Threats, Intimidation 191 
 
 billiard-table business or else would represent 
 some billiard-table company. Mr. Bensinger 
 and other members of his organization were 
 acquainted with this fact through representa- 
 tives of the National Company.^ 
 
 In 1905 the Union Lock Stitch Company was 
 developing a so-called straight-needle machine 
 and also a curved-needle machine. Both of 
 
 ^Henry F. James, record, State v. National Cash Register 
 Company, cit. supra, Vol. I, pp. 52, 57-59. 
 
 The Lamson Company was an organization manufacturing 
 cash carriers. It went into the cash-register business but still 
 continued the manufacture of cash carriers. James testified 
 that at a National convention it was stated that the National 
 "had plenty of room to go into the carrier business, and if 
 they didn't quit making cash registers, if they could not get 
 them out of business without, would go into that" (James, ibid. 
 pp. 73-74). Also in the remarks of the president of the National 
 at the District Managers' Convention, July 22 to August 3, 1907, 
 we find the following statement: "We will say the same thing 
 to the adding machine people. 'You stay in your business and 
 let the cash- register business alone.' We do not know whether 
 or not we will go into it. But if they force us into it, we are 
 ready to do so and will go into it with both feet, too" (Exhibit 
 41&, beginning p. C9; minutes of the District Managers' Con- 
 vention, ihid., pp. 201-9). 
 
 In contrast to the Bensinger case above there is nothing in 
 the evidence, so far as the writer can discover, which shows that 
 the statements just referred to in regard to the Lamson and 
 adding machine companies were ever made outside the National 
 Company itself. If not, it would seem possible to question 
 whether they are to be regarded as either intimidating or coer- 
 cive, however much they may show an intention to monopolize 
 the business. For this reason they have been placed in a foot- 
 note.
 
 192 Unfair Competition 
 
 these were being designed and produced for 
 use in connection with the manufacture of 
 shoes but had not at that time been placed 
 upon the market. The following is the testi- 
 mony of Mr. Merrick, president of the Union 
 Lock Stitch Company, with reference to the 
 conversation which he had with President 
 Winslow of the United Shoe Machinery Com- 
 pany at the Hotel Touraine : 
 
 48. Int. Now, will you please be good enough to 
 state the substance of the conversation that you had 
 with Mr, Winslow at that time. 
 
 Ans. We were shown up to Mr. Winslow's room 
 and we were greeted by Mr. Winslow with: "Well, 
 boys, what is your proposition?" I told him that 
 we had no proposition to make. He expressed sur- 
 prise at that, saying that he understood that we had 
 some proposition which we wished to make. I told 
 him no, we understood that he wanted to make a 
 proposition. There seemed to be a mistake all around. 
 And with that Mr. Winslow began to attempt to per- 
 suade us to sell out our business. 
 
 49. Int. Sell out to whom ? 
 
 Ans. Sell out to the United Co. We told Mr. 
 Winslow that we did not care to sell — that the propo- 
 sition was not far enough developed to talk of selling 
 and we preferred to keep it. Mr. Winslow said: 
 "How much money have you got?" I told him 
 I didn't think that was pertinent — it didn't make 
 any difference how much money we had. He said: 
 "We will see that you never make a dollar." I told
 
 Coercion, Threats, Intimidation 193 
 
 Mr. Winslow that if that was the object for which they 
 were in business they might succeed, but I thought it 
 might prove expensive. He says: "Why, Merrick, 
 you can see that we couldn't allow you to make any 
 money." We talked along those lines for quite a while. 
 I remember I asked him how he was going to stop us 
 from making any money. "Well," says he, "we will 
 build your machines." He says: "You know what 
 we did to Parsons in Marlboro. We wanted to buy 
 him out and he wouldn't sell, and we built his machine 
 and you know what became of him." "Well," I said, 
 "Mr. Winslow, unless you change your methods or 
 change your men not in a thousand years will you 
 build a machine that would interest me." So finally 
 we agreed to disagree. 
 
 50. Int. Was that all that was said at that con- 
 ference ? 
 
 Ans. I remember Mr. Winslow said he sat there 
 at the head of the table like a banker, and eventually 
 the wheel in its rotation would stop in front of him with 
 our business, and he would take it.^ 
 
 *yL Little or nothing need be said regarding acts 
 of this character when employed generally 
 against competitors instead of as supplementary 
 to other unfair methods. Only one judgment 
 can be passed upon them. They are unfair. 
 
 ' Frank W. Merrick, brief for the United States, United Stales 
 V. United Shoe Machinery Company, pp. 338-40, quoting record, 
 Vol. Ill, pp. 1146-47. The substance of this testimony was 
 confirmed by C. S. Luitwieler of the Union Lock Stitch Com- 
 pany, who also attended the conference. Cf. also petition. United 
 States V. Bowser, cit. supra, pp. 6-7.
 
 194 Unfair Competition 
 
 Their inevitable tendency as well as their 
 purpose and intent is to prevent competition 
 regardless of efficiency. It may be doubted if 
 anyone will be disposed to deny that it is both 
 necessary and desirable that they should be 
 eliminated from American business practice.
 
 CHAPTER XI 
 
 INTERFERENCE 
 
 The writer has used the term "interference" 
 to designate and comprehend those practices 
 whereby one organization either directly or in- 
 directly molests and obstructs a competitor. 
 The variety of ways in which this may be 
 accomplished is almost infinite, and it is the 
 purpose of this chapter merely to indicate a 
 few of them. 
 
 A. An organization may, for example, inter- 
 fere directly with the salesmen of an organiza- 
 tion endeavoring to make a sale. 
 
 The St. Louis Steel Range Company is 
 engaged in the sale of stoves throughout a con- 
 siderable number of states, and its agents or 
 salesmen, carrying samples or models, travel 
 from the city of St. Louis into and through these 
 states, calling upon farmers and others in their 
 houses soliciting and securing orders. The 
 Wrought Iron Range Company of Missouri is 
 also engaged in the business of selling ranges, 
 and its salesmen carry with them a full-sized 
 stove upon a specially built wagon. It is 
 19s
 
 196 Unfair Competition 
 
 asserted that in or about March, 1914, the 
 latter company inaugurated a campaign of 
 interference against the former, attempting to 
 prevent and to hinder the sale of the goods of 
 the Steel Range Company. According to the 
 allegations made to the court, the Steel Range 
 Company's men were followed by one and 
 sometimes two of the Wrought Iron Company's 
 men, who in some cases were armed. When- 
 ever the employees of the Steel Range Com- 
 pany attempted or undertook to converse with 
 a farmer or other prospective purchaser, the 
 conversation was interrupted by the employees 
 of the Wrought Iron Company, who attempted 
 to dissuade the customer from purchasing the 
 St. Louis Company's goods. The Wrought 
 Iron Company's men insisted that the St. Louis 
 goods were worthless; that the Steel Range 
 Company conducted a fraudulent business; 
 that the farmer or other purchaser would be 
 cheated; that the enamel on the ranges would 
 scale, chip, crack, and fly off, and that the stove 
 would never be delivered, etc. In certain cases 
 when the employees of the Wrought Iron Com- 
 pany had discovered the route which an 
 employee or employees of the St. Louis Com- 
 pany intended to travel the next day, they 
 would precede such employee or employees,
 
 Interference 197 
 
 call upon prospective buyers, and relate similar 
 stories. Tactics of this character, it was 
 alleged in the petition, had been responsible 
 for the elimination of more than thirteen con- 
 cerns from this line of business in the course of 
 a long period of years, beginning as far back as 
 1888/ 
 
 Another example of the same sort of com- 
 petition may be found in the case of. a cer- 
 tain Spaulding, who manufactured buggies 
 and wagons which he was accustomed to sell, 
 through itinerant salesmen, to farmers and 
 others in the state of Washington. A vol- 
 untary association, composed principally of 
 persons dealing in hardware and farming im- 
 plements, was organized in that state for the 
 purpose of persuading farmers and others to 
 limit their trade to intra-state dealers, and this 
 association entered upon a systematic course 
 of interference with the business of Spaulding. 
 It employed one man and frequently two to 
 follow each of his agents. These men stopped 
 at the same hotels as did Spaulding's agents, 
 
 ' Petition, St. Louis Steel Range Company v. Wrought Iron 
 Range Company, U.S.D.C. for the Eastern District of Missouri, 
 Eastern Division, pp. 3-7. Cf. also various other suits for 
 similar practices brought against Wrought Iron Range Company, 
 as follows: 78 N.Y. Supp. 1114, Sup. Ct. App. Div.; 83 S.E. 693; 
 86 Fed. loio, loii.
 
 198 Unfair Competition 
 
 started when they started, and followed them 
 all day to each prospective customer in order 
 to interfere in the conversation and transac- 
 tion. These men took no vehicles with them 
 and usually did not offer any in competition. 
 Their only purpose seemed to be to interfere 
 with and prevent any sales by Spaulding's 
 agents by means of interruptions, reflections on 
 the character of the goods, etc.^ 
 
 B. Another method of interference to which 
 an organization may resort is to induce the 
 breach of contracts, sometimes agreeing to 
 protect violators in case of suit. 
 
 The National Cash Register Company has 
 maintained a "competition department." This 
 department had an active head who was assisted 
 by a competition committee, which consisted 
 of the president of the company, general man- 
 ager, head sales manager, foreign manager, su- 
 perintendent of the factory, and a few others. 
 In addition, the competition committee had at 
 its disposal a force of "competition salesmen," 
 which force varied considerably in number 
 from time to time.* These men were known 
 
 ^Emerson v. Spaulding, 150 Fed. 517. The decision in this 
 case enjoined these practices. 
 
 ' Carl G. Heyne, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. II, pp. 908-9. Heyne testified that when 
 he first became identified with this department there were about
 
 Interference 199 
 
 by various names — "special representatives," 
 "district instructors," "expert men," "com- 
 pany salesmen," "company men," and "knock- 
 out men."* 
 
 They were selected, generally, on account of their 
 ability and long time with the company; usually old 
 men were selected .... because they were more 
 famihar with the Company's methods and under- 
 stood the selling business better.* 
 
 Usually they were entirely distinct from the 
 men who worked under the sales department, 
 and they were also, as a rule, on the pay-roll 
 of the competition department. In some in- 
 stances, however, the special men did work for 
 both the sales and competition departments, 
 in which cases they were paid by both depart- 
 ments.^ 
 
 Many of the duties and acts of special men 
 were entirely legitimate and could not be 
 regarded as in any sense unfair. According 
 to Warren's testimony in the federal suit, "they 
 
 twenty-sLx of these men. Other testimony, however, would lead 
 to the view that this was about a maximum and that the number 
 was very often, if not generally, much smaller than this estimate. 
 
 'Lee Counselman, ihid., Vol. I, p. 571; Robert Patterson, 
 ihid., Vol. Ill, p. 173s; Carl G. Heyne, ibid., Vol. II, p. 909. 
 
 'Robert Patterson, ibid., Vol. Ill, p. 1735. 
 
 3 J. E. Warren, record, Patterson v. United States, cit. supra, 
 Vol. I, pp. 126-27.
 
 200 Unfair Competition 
 
 were merely expert salesmen, who went to 
 assist the regular agents in cases of severe com- 
 petition or where the regular men were expe- 
 riencing difficulty in making a sale."' These 
 men received special instructions on the differ- 
 ent lines of machines and were educated as to 
 their mechanical construction before they were 
 put on such assigned work. They were not 
 necessarily selected for these duties because 
 they possessed more knowledge of the mechan- 
 ism of the machines than the ordinary sales- 
 man, but because they were experts in selling 
 and demonstrating.* 
 
 Notwithstanding their apparent and alleged 
 legitimacy of purpose and character, there is a 
 considerable amount of evidence to show defi- 
 nite interference with the contracts of competi- 
 tors on the part of special men as well as regular 
 salesmen. Heyne gave testimony regarding 
 the situation during the Hallwood fight : 
 
 A . The agents of The National Cash Register Com- 
 pany, regular and special, were instructed to 'nform 
 purchasers and users of the Hallwood registers that 
 the registers they had purchased were defective and 
 infringed The National Cash Register Company's pat- 
 
 ' J. E. Warren, record, Patterson v. United States, cit. supra, 
 Vol. I, pp. 157-58. 
 ^ Ibid., pp. 164-65.
 
 Interference 201 
 
 ents; and that if they were in the merchant's place 
 they would either not accept the register, in the case 
 of purchasers to whom the registers had not been 
 delivered, and in case of users, that they would, if they 
 were in the place of the merchant, return the register 
 to the manufacturer without further payment. 
 
 Q. Do you know whether or not registers were 
 returned . . . . ? 
 
 A. I do not know any registers were returned, but 
 I do know that users of Hallwood registers refused to 
 make further payments on their registers, which resulted 
 in their being sued in several cases. 
 
 Q. Do you know whether or not the National 
 Cash Register Company employed attorneys to defend 
 suits against purchasers of competing machines ? 
 
 A. They did not employ them openly, but they 
 paid them in several cases of which I know. 
 
 Q. Do you recall any particular cases or any par- 
 ticular attorneys that were employed or that were 
 paid by the National Company for that purpose ? 
 
 A. I recall the name of one. 
 
 Q. Who was that ? 
 
 A . A Mr. Mathias of Chicago.* 
 
 Warren testified regarding his work as a 
 special man on the Hallwood competition as 
 follows : 
 
 Q. Did you during that year call on people that 
 had already purchased a competing machine ? 
 A. Yes. 
 
 ' Carl G. Heyne, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. II, pp. 1002-3. All italics are the writer's.
 
 202 Unfair Competition 
 
 Q. You say that you undertook to convince them 
 that they had bought inferior machines ? 
 
 A. Yes. 
 
 Q. Why did you do that ? 
 
 A. Because I wanted to sell them a National. 
 
 Q. Why did you want to sell them a National so 
 long as they already had one of another make ? 
 
 A . Because we wanted their business. 
 
 Q. And supposing that they had contracted to 
 purchase a competing machine and hadn't paid for it 
 yet, what would you do about that ? 
 
 A . Send it back anyway. 
 
 Q. What would you do about the portion of pur- 
 chase price that the purchaser had already paid ? 
 
 A . I gave him credit for it on his purchase of the 
 National.* 
 
 Q. And what would you do about the contract that 
 he had with the other company ? 
 
 • •••••••••••• 
 
 A . It would be left up to him in most cases. 
 
 Q. Was it in all cases ? 
 
 A. No, we protected them in some cases. 
 
 ' In these cases "Services to be rendered" was written on the 
 contract. The term was explained by Counselman: "Well, if 
 a man owned a HaUwood cash register and he had paid $50 on 
 it, and he was sold a National cash register at $200, to keep him 
 from losing that $50 he had paid .... it was considered ' Ser- 
 vices to be Rendered 'and he only had to pay $150 I never 
 
 knew what the services were. It was just a certain way of giving 
 him the benefit of $50, which he had already paid " — Lee Coun- 
 selman, record, Patterson v. United Slates, cit. supra, Vol I, 
 p. 414.
 
 Interference 203 
 
 Q. State whether or not you ever did agree with 
 the purchasers of competing machines to protect them 
 on their contract with the competing company? 
 
 A. We did. 
 
 Q. State whether or not that was with the sanc- 
 tion of the National Cash Register Company, your 
 employers. 
 
 A . It was at the time, that is, until we were later 
 advised by our attorneys to stop doing it.* 
 
 C. The business of competitors may likewise 
 be interfered with and much difficulty and 
 trouble created by lawsuits. In the Michigan 
 suit against the National Cash Register Com- 
 pany Robert Patterson testified that he did 
 not recall that there was ever a cash register 
 made which the National did not allege in- 
 fringed its patents.* Heyne testified : 
 
 It was the estabhshed policy as laid down by 
 the president of The National Cash Register Com- 
 pany, and the statement he made to me, to bring as 
 many suits as possible against the competitors be- 
 cause it would financially embarrass them and their 
 
 ' J. E. Warren, record, State v. National Cash Register Com- 
 pany, cit. supra, Vol. I, pp. 421-22. Cf. also petition United 
 States V. Bowser, cit. supra, pp. 6-7, and petition, United Stales v. 
 Central West Publishing Company, cit. supra, p. 14. Italics are 
 the writer's. 
 
 ' Robert Patterson, record, State v. National Cash Register 
 Company, cit. supra. Vol. Ill, p. 1856.
 
 204 Unfair Competition 
 
 stockholders and if they lost, to appeal; this policy 
 he expressed in his public report which was sent out 
 to stockholders in 1906; it was promiscuously sent to 
 various people; he always expressed it. 
 
 Q. State whether or not it was the policy of the 
 National Company to bring suits against a competitor 
 as a preliminary to buying them out or attempting 
 to buy them out. 
 
 A . Yes, because the dismissal of such a suit could 
 always be made part consideration of the purchase 
 price.^ 
 
 In spite of this last testimony there is much 
 evidence to show that all the National infringe- 
 ment suits were suits brought in good faith. 
 Mr. Muzzy, of the patent department, testified : 
 
 I do not know of any instances where suits were 
 brought without first securing the opinions of the 
 different attorneys employed by the company in regard 
 to such infringement; and I further do not know of 
 any suits being brought where these opinions of the 
 attorneys reported no infringement.* 
 
 However true it may have been in all cases 
 where infringement suits were brought that it 
 was believed that there was actual infringe- 
 ment, this fact would scarcely seem to justify 
 
 ' Carl G. Heyne, record, State v. National Cash Register Com- 
 pany, cit, supra, Vol II, p. 936. 
 
 » W. H. Muzzy, ibid., Vol. Ill, p. 2154.
 
 Interference 205 
 
 the multiplicity of suits which were instituted 
 by the National. In the case of the Hallwood 
 and its successor companies, besides several suits 
 brought by the National for patent infringe- 
 ment, a large number of suits were entered 
 against dealers and users/ F. C. Osborn, at 
 one time of the Osborn Cash Register Com- 
 pany, testified that the National started one 
 suit against that company for patent infringe- 
 ment and about thirty-one or thirty-two suits 
 against users. In this case the courts were 
 asked for an injunction restraining the National 
 from prosecuting the suits against users. The 
 judge intimated in a statement that unless a 
 stipulation or agreement of some sort were 
 entered into by which a stay of proceedings 
 would be had in the prosecution of subsidiary 
 suits until the main suit was decided, he would 
 be inclined to grant the injunction.^ 
 
 There is also some testimony to the effect 
 that the National definitely traded on the 
 infringement suits which it brought. 
 
 Q. Do you know what its policy was relative to 
 the commencement of suits against users of competitive 
 
 ^Ibid., p. 2155. 
 
 ' F. C. Osborn, ibid., Vol. II, pp. 862, 871-72, and also in record, 
 Patterson v. United States, cit. supra. Vol. I, p. 436. Sometimes 
 the initials of Osborn are given as F. C, at other times as F. E.
 
 2o6 Unfair Competition 
 
 machines because of alleged infringements of patents 
 of the National Company ? 
 
 A. We all received notice from the Company to 
 state to a probable purchaser of a competing machine, 
 or those who had already purchased competing ma- 
 chines, either to delay the purchase of the competing 
 machine and put them off thereby, and also to those 
 who had already purchased, stating that they didn't 
 have a clear title and not to meddle with any competing 
 machine — that there was a chance of a lawsuit. 
 
 Q. That is, that was the notice you gave to the 
 purchaser ? 
 
 A. Yes. 
 
 Q. Or an intending purchaser of a competing 
 machine ? 
 
 A. Yes.' 
 
 D. The United Shoe Machmery Company, 
 or rather its agent, appears to have attempted 
 to interfere with the operation of a competitor 
 by fomenting a strike in his plant. 
 
 In May, 19 lo, Thomas G. Plant, having per- 
 fected a Une of machines designed to perform 
 all the processes in the manufacture of shoes, 
 discontinued the use of United machines and 
 installed the Plant machines in place of them. 
 Frank Morrison, at that time employed in the 
 Plant factory, testified that in June the foUow- 
 
 ' Henry F. James, record, State v. National Cash Register 
 Company, cit. supra, Vol I, pp. 224-25.
 
 Interference 207 
 
 ing conversation took place between himself 
 and Mr. Willson of the United Shoe Machinery 
 Company : 
 
 16. Int. State the conversation you had with 
 Mr. Willson, the first conversation. 
 
 Ans. First, I seen him alone. We had some 
 trouble in there and he said: "Why don't you go out 
 on a strike?" He says: "We will back you." I says: 
 "It can't be done, because we give Air. Plant a month 
 of time to fix the matter up with us." Then he 
 said: "Come see me when you are through with it." 
 The month was up and we had one meeting. The 
 day before that somebody told Mr. Plant what was 
 going on. Then the next morning they refused us to 
 go in. Then we went down to see Mr. Willson, us 
 three, Air. Ross and Sochat and I. Then he wanted 
 us to start an organization. 
 
 17. Int. State what took place between you and 
 Mr. Willson and these other gentlemen at the second 
 meeting. Was there any proposition made to you 
 by Mr. Willson ? 
 
 Ans. Yes. Me alone, you mean? Mr. Willson's 
 offer was that if we organize the place and get him all 
 the information we could for so and so machine, we 
 turn him in how many work they do on each machine 
 every day so and so, he will pay us $2,000 cash and 
 pay our expenses and he will see we get a job too. 
 That was between us three. Mr. Willson was the 
 fourth. 
 
 20. Int. Did you unionize the Plant factory ? 
 Ans. Well, we tried to, but we failed later.
 
 2o8 Unfair Competition 
 
 21. Int. You failed? 
 
 Ans. Later on; we didn't have no more money 
 to use. 
 
 22. Int. How many members did you finally get 
 into the union ? 
 
 Ans. I think we had near 300. 
 2^. Int. Three hundred ? 
 
 Ans. Pretty near 300. Mr. Ross he told me it 
 was coming up to 300. He was keeping the books. 
 
 24. Int. Did you make any reports to Mr. Willson 
 about the conditions in the Plant factory ? 
 
 Ans. Two or three times a week; sometimes three 
 of us, sometimes all of us. 
 
 25. Int. Well, what reports did you make to Mr. 
 WiUson? 
 
 Putnam, J. About what ? 
 
 Mr. Gregg. About the conditions in the Plant 
 factory; the progress they were making with the union. 
 
 Ans. Yes. We used to tell him we got so many 
 
 members He says: "Go ahead, keep up" — 
 
 he always told us. 
 
 26. Int. Told you what? 
 
 Ans. Always told us to keep up organizing, do 
 our best to get an organization in there. He says: 
 "It will be better for you by and by." 
 
 34. Int. How many conferences did you have with 
 Mr. Willson in regard to this matter? 
 
 Ans. About organization ? 
 
 35. Int. Yes. 
 
 Ans. Well, we have been there severals of times. 
 Brown, J. How many times ? 
 The Witness. I couldn't tell you.
 
 Interference 209 
 
 Brown, J. To the best of your ability. 
 
 The Witness. Two or three times a week for 
 about two months' time. 
 
 Brown, J. How many times ? 
 
 The Witness. We have been there about two or 
 three times a week. 
 
 Brown, J. For two months ? 
 
 The Witness. For two months.' 
 
 E. A highly original method of interfer- 
 ence has also appeared in the lumber trade. 
 This has consisted of an organized campaign 
 of securing from lumber mail-order houses 
 catalogues and specifications by the wholesale, 
 thereby increasing heavily the overhead ex- 
 penses of such establishments. The manner 
 in which this campaign has been carried on is 
 shown by the publications known as the Black 
 Book and the White Book. The following 
 extract from the Black Book illustrates the 
 system : 
 
 It is beyond doubt that the greatest menace to the 
 lumber business to-day is the competition of the mail- 
 order houses, which has wrought such havoc in the 
 ranks of the small merchants throughout the country. 
 
 ' Brief for the United States, United States v. United Shoe 
 Machinery Company, pp. 353-56, quoting record, Vol. IV, pp. 
 1702 ff. The testimony of both C. G. Ross and Abram Sochat 
 confirmed that of Morrison. Ross brought suit against the 
 United Co. and the Willson estate to recover the amounts 
 expended in accordance with their arrangements with Willson.
 
 2IO Unfair Competition 
 
 In order to successfully compete with them, it is 
 necessary for every dealer to keep in close touch with 
 them and know what prices they are quoting to his 
 customers. To accomplish this, the following line of 
 action should be persistently, faithfully, and syste- 
 matically carried out. 
 
 GET PRICES AND CATALOGUES 
 
 Secure from Gordon Van Tine Company at least 
 two catalogues per week, using your own name and 
 also that of other members of your family, employees, 
 friendly contractors, and merchants, but never use 
 a fictitious name. By using care each name will answer 
 for five communications. 
 
 1. Send for catalog in response to ad. 
 
 2. Send list of material for estimate. 
 
 3. Send letter asking questions requiring special re- 
 ply, remembering that all your letters will be answered 
 by printed replies if the labor of writing a special reply 
 can be avoided. 
 
 4. Send for samples of roojSng. 
 
 5. Send for paint color card.^ 
 
 As to the effect of these campaigns, Vice- 
 President Scott, of the Gordon-Van Tine Com- 
 pany, testified: 
 
 We continued to sell the consumers and were 
 harassed by the dealers generally, and suffered a loss 
 in money which was occasioned by the action of a 
 
 I Brief for the United States, United States v. Eollis, cit. 
 supra, p. 69, quoting record, Vol. VIII, Exhibit 162, p. i. Italics 
 those of brief.
 
 Interference 211 
 
 campaign which was instituted and carried on by the 
 lumber dealers in general. This campaign consisted 
 of a general organized effort on the part of the dealers 
 to get our catalogues by the wholesale. They were 
 expensive; it cost money to mail them. They were 
 counterfeit or phony requests which increased our 
 overhead cost, increased our clerical cost and mail 
 cost, and in 1907 it cost us fully $25,000.^ 
 
 The testimony of Thompson, manager of the 
 building-material department of Montgomery 
 Ward & Company, as to the effect of this 
 scheme is of a similar nature: 
 
 We were interfered with by what I would call 
 fake estimates, increasing the expense of our estimating 
 department. The building material department was 
 flooded with these estimates. This practice was pur- 
 sued during the years 1908, 1909, and 1910.* 
 
 That the direct interference with the sales- 
 men of a competitor, as has been illustrated in 
 this chapter, is imfair, it requires no argument to 
 prove. It is absolutely opposed to a competi- 
 tion of productive and /or selling efficiency. 
 Nor is deliberate interference with the contracts 
 of competitors any less unsound economically. 
 
 ' Brief for United States, United States v. Hollis, cit. supra, 
 p. 70, quoting pet. tes., Vol. II, pp. lo-ii, appendix to brief, 
 p. 94. Italics those of brief. 
 
 ^ Brief, ihid., pp. 70-71, quoting pet. tes., Vol. II, pp. 317-18, 
 appendix to brief, p. 142. Italics those of brief.
 
 212 Unfair Competition 
 
 An interference with the business of competi- 
 tors through harassing lawsuits stands on the 
 same basis as interference with contracts or 
 with competing salesmen. As Judge Quarles 
 well stated in an injunction proceeding growing 
 out of a multiplicity of suits a patentee may : 
 
 bring a multiplicity of suits for the purpose of harass- 
 ing and annoying a rival manufacturer, for the pur- 
 pose of subjecting him to burdensome expense, and 
 to destroy his business by exciting terror among his 
 
 customers Instances are not wanting where 
 
 patentees make iUicit use of the courts as instru- 
 mentalities of oppression; bring a multiplicity of suits, 
 purposely scattered through the circuits, not for the 
 honest purpose of securing an adjudication in support 
 of the patent, but to crush a rival manufacturer by 
 creating a stampede among his customers; alarming 
 them by circulars breathing threats of prosecution, 
 denouncing the product of the rival concern as an 
 infringing device ^ 
 
 A similar sort of judgment must be passed 
 upon such interferences' as those testified to in 
 
 ' District Judge Quarles in Commerical Acetylene Gas Com- 
 pany V. Avery Portable Lamp Company, 152 Fed. 642. 
 
 * It is probably unnecessary to add that numerous other 
 analogous practices may be used. Some of such other methods 
 are alleged in the case of United States v. Bowser (original peti- 
 tion, U.S.D.C. for the District of Indiana, pp. 5-7). S. F. 
 Bowser & Company are engaged, in cormnon with some twenty- 
 five or thirty other organizations, in the manufacture of under- 
 ground storage outfits for the safe storage and handling of 
 gasoline and similar inflammable liquids. The great increase in
 
 Interference 213 
 
 the Shoe Machinery case and related in the 
 illustration from the lumber trade. 
 
 the number of motor-driven vehicles has in many cases resulted 
 in cities and towns requiring proper storage facilities for imflam- 
 mable liquids in order that property and life may be properly 
 safeguarded. 
 
 The ordinary type of underground storage outfit consists 
 of a steel tank placed underground and a pump connected thereto 
 to raise the contents. Certain other outfits of a similar character 
 are also manufactured. 
 
 Among other things the government charged the Bowser 
 Company with: 
 
 "i. Making and causing to be made to customers and pros- 
 pective customers of competition, [sic] and other persons, false 
 representations concerning the standing, financial and otherwise, 
 of said competitors, the quality of the pumps, tanks and outfits 
 manufactured by them, and the ability of such pumps, tanks and 
 outfits to meet the requirements of the National Board of Fire 
 Underwriters. 
 
 "3. Bribing or emplo3dng architects, fire marshals, insurance 
 agents, or municipal officers and other persons to use their influ- 
 ence .... in preventing the sale of the products of competitors. 
 
 "4. Preparing and furnishing to and urging the adoption by 
 municipalities of certain forms of ordinances respecting the 
 storage or handling of inflammable liquids, wherein the use of 
 the pumps, tanks and outfits manufactured by competitors was 
 prohibited, or the sale thereof interfered with. 
 
 "10. Inducing and hiring salesmen, agents and employees 
 of competitors to leave their employment and enter the employ- 
 ment of the defendants." 
 
 Three of these practices, i, 3, and 10, were enjoined in the 
 consent decree of the court. Disparagement and misrepre- 
 sentation have not been dealt with by the writer. For discus- 
 sions of these cases cf. Report of Commissioner of Corporations, 
 Trust Laws, and Unfair Competition, chap. vii.
 
 CHAPTER Xn • 
 
 MANIPULATION 
 
 The word "manipulation" has been used to 
 indicate certain practices and methods which 
 cannot be satisfactorily defined and which do 
 not lend themselves to inclusion under any of 
 the classes already discussed. 
 
 It was asserted that when the Naval Stores 
 Export Company began business and had 
 accumulated a considerable quantity of resin 
 and spirits of turpentine, the formerly existing 
 Naval Stores Combination inaugurated a fierce 
 trade warfare against it. At the time much of 
 the stock of naval stores belonging to the Export 
 Company was hypothecated with the banks. 
 By manipulation the Naval Stores Combination 
 then caused the Savannah market for turpen- 
 tine to decline some 30 per cent within a period 
 of two weeks. The Export Company was 
 requested to furnish additional margins. As 
 it was unable to do so, it was forced to sell out 
 its accumulated supplies at losses which nearly 
 exhausted its capital stock.'' 
 
 ' Petition in equity, United States v. Ajnerican Naval Stores 
 Company, U.S.D.C. for the Eastern Division of the Southern 
 District of Georgia, pp. 11-12. 
 
 214
 
 Manipulation 215 
 
 The case of the Peimsylvania Sugar Refinuig 
 Company is famihar to many. Some years 
 ago Adolph .Segal began the construction of 
 a sugar refinery in the city of Philadelphia. 
 During the process of construction, and while 
 Mr. Segal was hard pressed for cash, he was 
 offered a loan by one Gustav E. Kissel, a broker 
 for an undisclosed principal. The offer was 
 accepted and, in return for the loan, a majority 
 of the stock of the refinery company and aU its 
 bonds were deposited with Kissel. At the 
 same time written authority was given him to 
 exercise the voting power of the stock.^ The 
 undisclosed principal was in fact the American 
 Sugar Refining Company, and a few days after 
 these arrangements were completed. Kissel 
 attended a meeting of the board of directors of 
 the Pennsylvania Refining Company, causing 
 four of the seven directors to resign and himself 
 and three others subject to his control to be 
 elected to fill the vacancies. The majority of 
 the board then adopted and spread upon the 
 minutes of the company the following declara- 
 tion: '^Resolved, That the refinery do not run 
 and that no proceeding looking to the beginning 
 
 ' Cf. agreement between Segal and Kissel, December 30, 1903, 
 Exhibit L, petition, United Stales v. American Sugar Refining 
 Company, cit. supra, pp. 213 ff.
 
 2i6 Unfair Competition 
 
 of operation be taken until the further order 
 of the Board."^ 
 
 It has also been charged that the Aluminum 
 Company of America delayed the forwarding 
 of bills of lading and abruptly ceased shipping 
 aluminum metal to concerns competing in the 
 manufacture of aluminum-finished goods with- 
 out giving any warning of its intention. In 
 this way independents were hampered and 
 prevented from filling their orders.' 
 
 'Quoted from resolution cited in petition, United States 
 V. American Sugar Refining Company, cit. supra, p. 87. Cf. for 
 further details, Hearings on the Investigation of the American 
 Sugar Refining Company, 626. Cong, ist sess., 1910-11, Vol. II, 
 pp. 1276-85. 
 
 ^ Petition, United States v. Aluminum Company of America, 
 cit. supra, p. 23. The Aluminum Company was in the position 
 to do this because of its large control of bauxite fields discussed 
 in chap viii.
 
 CHAPTER Xin 
 CONCLUSION 
 
 This study with its twelvefold classification 
 by no means pretends to comprehend all of the 
 mifair methods which have been and are being 
 employed by various organizations. It has 
 endeavored merely to illustrate and explain 
 a number of these methods and to indicate 
 some of the reasons for regarding them as un- 
 economic and hence as unfair. Such a review 
 naturally renders pertinent some consideration 
 of the relation of these methods to the trust 
 problem in the United States. 
 
 Many reasons have been advanced to account 
 for the phenomenon of trust development. 
 Among these explanations one of the most gen- 
 erally accepted is that which may be termed 
 the competition theory of monopoly. This 
 theory holds, in brief, that the normal and 
 possibly inevitable economic tendency of com- 
 petitive business is the creation of monopoly. 
 The development of large-scale production 
 with its attendant advantages necessarily cre- 
 ates larger and larger business units. These 
 217
 
 2i8 Unfair Competition 
 
 units are capable of supplying a proportion- 
 ately larger number of consumers. Sooner 
 or later they come into conflict with one 
 another; intense competition ensues, and in 
 consequence the margin of profit rapidly nar- 
 rows. Each competing concern strives by 
 increasing its scale of production to effect sub- 
 stantial economies and reductions in unit costs, 
 thus enabling it to sell its increasing volume of 
 output at a lower and lower price, compensating 
 itself for the ever-narrowing margin of profit 
 per unit by an ever-increasing volume of sales. 
 The advocates of this theory assert that under 
 these circumstances one of two results becomes 
 inevitable: either these competing concerns 
 will combine or else marginal concerns will be 
 eliminated until a monopoHstic condition en- 
 sues. In either event the outcome is the same 
 — ^monopoly. 
 
 This theory has been enunciated by several 
 writers and is set forth by the German authority, 
 Professor Liefmann, as follows: 
 
 The conceivable maximum satisfaction of wants 
 will be reached when, in each branch of industry, the 
 cheapest sellers supply the total demand. To bring 
 this about is, after all, a final aim of free compe- 
 tition. It enables new enterprises to be established 
 as soon as someone believes that he can sell cheaper 
 than at least a part of the sellers then in the market.
 
 O-JT 
 
 Conclusion 219 
 
 But since as a rule, a single seUer is the cheapest, or 
 only a very few, who under competition secure differ- 
 ential gains, i.e., enterpriser's profits, competition has 
 the tendency, when pushed to its limit, to destroy itself 
 and to be turned into monopoly. Since the cheapest 
 seller can often lower costs by producing the whole 
 supply, it follows that the maximum satisfaction of 
 wants is obtained when there is only one seller, 
 competition remaining latent in the background, effective 
 only when the seller does not employ the most efficient 
 methods of production, or when as a monopolist he 
 appropriates a profit much above the economic mar- 
 ginal return.^ 
 
 In Professor Liefmann's statement of the 
 competition theory of monopoly two things are 
 at once apparent. In the first place, it takes 
 no cognizance of unfair competition. It pre- 
 supposes fair competition, i.e., that competition 
 is conducted upon the basis of efficiency, the 
 business being obtained by the cheapest seller 
 or sellers. Secondly, Professor Liefmann ex- 
 pressly admits that the competition theory 
 represents only a tendency. 
 
 In regard to the first point, the belief may 
 be expressed that this study has demonstrated 
 that it is most fallacious to assume that business 
 in the United States has been conducted upon 
 
 ' Robert Liefmann, "Monopoly or Competition as the Basis 
 of a Government Trust Policy," Quarterly Journal of Economics, 
 XXIX (February, 1915), 314-15. Italics are those of the writer.
 
 2l8 
 
 2 20 Unfair Competition 
 
 a basis of fair competition. If anything, the 
 contrary has been the case in a large propor- 
 tion of instances. In attempting, therefore, 
 to deal with trusts and monopoKes in the 
 United States, the problem differs from what 
 it might be were unfair methods absent. As 
 it is, unfair competition in this country has so 
 beclouded the issue between fair competition 
 on the one hand and monopoly on the other 
 that it is practically impossible today to deter- 
 mine to what extent monopoHes and trusts are 
 logical and necessary results of the competition 
 theory. We have no means of ascertaining at 
 the present time to what extent large monopo- 
 listic units or organizations are due to superior 
 productive and selling efficiency and to what 
 extent they may have been the result of unfair 
 practices. In many cases competition has not 
 had the opportunity to operate freely in indus- 
 tries in which such organizations exist, and the 
 frequent prevalence of unfair methods in these 
 industries suggests such practices as one of the 
 important causes of the development and con- 
 tinuance of monopolistic concerns. In numer- 
 ous individual instances the more extensive 
 the development or the employment of these 
 methods the more comprehensive and absolute 
 the monopoly. The National Cash Register
 
 Conclusion 221 
 
 Company and the dissolved Oil, Tobacco, and 
 Powder trusts are admirable illustrations of 
 this statement. 
 
 From the point of view of the believers in 
 the competition theory of monopoly we should 
 perhaps be no nearer to controUing trusts and 
 monopoHes by eliminating these imf air methods, 
 since the result would be merely fair compe- 
 tition with gradual elimination until a monopo- 
 Hstic condition resulted. Despite this view of 
 the matter there are reasons for beHeving that, 
 without the use of unfair methods of compe- 
 tition, it would be extraordinarily difficult to 
 erect a monopoly. Further, assuming that a 
 monopoHstic organization is already in exist- 
 ence, there are similar and equally important 
 reasons for believing that it cannot for any 
 considerable length of time maintain its pre- 
 dominant position without the use of such 
 methods. Let us briefly examine the grounds 
 for such a view. 
 
 According to the theory which is under dis- 
 cussion, the inevitable monopoly may occur 
 through either combination or elimination. 
 Considering first the matter of combination, it 
 is scarcely to be believed that public policy in 
 the United States will countenance, either at 
 the present time or in the immediate future, the
 
 222 Unfair Competition 
 
 formation of any consolidation which would 
 thereby obtain a monopolistic position in any- 
 field of industry. If monopolistic combinations 
 are not permitted, it is clear that a monopo- 
 Hstic position cannot in the future, as in 
 the past, be attained through consoHdation. 
 Assuming, therefore, that monopoly does ap- 
 pear in an industry, it must in the absence of 
 unfair methods occur through the elimination 
 of competitors instead of by way of combination 
 and consoHdation. In other words, if monopo- 
 Ustic consoHdation is prevented and unfair 
 methods of competition eliminated, a monopo- 
 Hstic position can result only from superior effi- 
 ciency in a field of industry for a sufficient period 
 of years to enable an organization to obtain 
 predominance by eHminating its competitors. 
 But there is nothing necessarily continuous in 
 efficiency; rather, the contrary. Managements 
 change and the men within the management. 
 The efficiency of organizations fluctuates from 
 period to period with these changes and with 
 alterations in production,' selling, and other 
 methods. It is possible, therefore, to doubt 
 that a given organization can remain the most 
 efficient for a period of sufficient length to 
 
 ' Cf., for example, the case of the Artura Photographic Paper 
 Compaay related supra, chap. vi.
 
 Conclusion 223 
 
 enable it to attain its ascendancy solely through 
 elimination. 
 
 But this is only one side of the question under 
 consideration. Assuming that it is possible 
 for an organization to attain a monopolistic 
 position in the fashion just described, or con- 
 sidering an organization now possessed of pre- 
 dominant strength, what surety is there that 
 this situation will continue? To retain its 
 ascendancy such an organization must (again in 
 the absence of unfair methods of competition) 
 continue to rely upon its efficiency. If it does 
 not lose ground, its efficiency must remain con- 
 tinuously equal or superior to that of competi- 
 tors existing in or entering the field.' 
 
 Both the Steel Corporation and the Inter- 
 national Harvester Company supply some 
 suggestive evidence as to the possibihties of 
 maintaining a monopoHstic position. In the 
 preparation of an earHer study on this subject 
 the writer searched the history of the Steel 
 
 ' Some qualification of these points should probably be made. 
 There may be and perhaps often are other factors than those of 
 purely productive and selling efficiency which tend to maintain 
 the predominance of a monopoUstic organization, such as the 
 momentum of estabhshed reputation, large capital, etc. At the 
 same time it is beUeved that these factors are essentially sub- 
 ordinate to productive and selling efficiency and not of sufficient 
 importance in and of themselves either to obtain or retain monopo- 
 listic predominance for an organization.
 
 224 Unfair Competition 
 
 Corporation in vain for instances of unfair 
 competition. His original conclusion, that this 
 organization had used no such methods/ has 
 since been confirmed by the decision of the lower 
 coiu-t in the dissolution suit against that cor- 
 poration .'' It therefore appears possible to say 
 with authority that the competition of the Steel 
 Corporation has been fair. Yet this organization 
 has lost ground relatively in comparison with 
 its competitors. We find it to be true, quoting 
 the decision in the lower court in the steel suit, 
 "that while the proofs show a very material 
 
 ' Political Science Quarterly, XXIX, (September, 1914), 488. 
 
 ^ The following statement may be quoted from the opinion 
 of Judge Buffington: "And it may be accepted as a fact that 
 where no competitor complains, and much more so where they 
 unite in testifying .... that the business conduct of the Steel 
 Corporation has been fair, we can rest assured there has been 
 neither monopoly nor restraint. Indeed, the significant fact 
 should be noted that no such testimony of acts of oppression is 
 found in this record as was given by the competitors of the 
 Tobacco or Standard companies in the suits against those com- 
 panies. We have carefully examined all the evidence given by 
 the competitors of the Steel Corporation. We have read the 
 testimony of customers who purchased both from it and from its 
 competitors. Its length precludes its recital here, but we may 
 say its volume, its wide range of location from which such wit- 
 nesses came, and their evidently substantial character in their 
 several communities, make an inevitable conclusion that the field 
 .... is as open to and is being as fully filled by the competitors 
 of the Steel Corporation as it is by that company." — Opinions, 
 United States v. United States Steel Corporation et al., U.S.D.C. 
 for the District of New Jersey, p. 22.
 
 Conclusion 
 
 225 
 
 increase of forty-odd per cent in the Steel Cor- 
 poration's business from 1901 to 191 1, yet this 
 very substantial increased percentage of the 
 Steel Corporation's own business was less than 
 that made by each of eight of its great com- 
 petitors : 
 
 Company 
 
 Increase of 
 Production from 
 
 Percentage of 
 Increase 
 
 Bethlehem Steel Co 
 
 Indian* Steel Co 
 
 La Belle 
 
 Jones & Laughlin 
 
 Cambria Steel Co 
 
 Colorado Co 
 
 Republic Iron and Steel. 
 Lackawaima Steel 
 
 1901 to 1913 
 1901 to 1913 
 1901 to 1913 
 1901 to 1912 
 1901 to 1913 
 1901 to 1912 
 igoi to 1912 
 1901 to 1911 
 
 3,779 
 
 1,495 
 
 463 
 
 206 
 
 155 
 
 152 
 
 90 
 
 63 
 
 ♦Probably Indiana Steel. 
 
 "Whereas at its organization in 1901 the 
 Corporation may be fairly said to have con- 
 trolled about 60 per cent of the entire crude 
 steel and j&nished steel business of the country, 
 at the close of 19 10 its percentage was not 
 much over 50 per cent."'' This represents a 
 decline of about 16 per cent in the proportion 
 
 ' Opinions, Untied States v. United States Steel Corporation 
 et al., cit. sttpra, p. ii. 
 
 ' Report of the Commissioner of Corporations on the Steel 
 Industry, Part I, p. 373. For further information in regard to 
 the relative proportion in the steel industry which is occupied 
 by the Steel Corporation consult ibid., chap, ix, pp. 359-77, and 
 opinions. United States v. United States Steel Corporation et al., 
 cit. supra, pp. 8-14.
 
 226 Unfair Competition 
 
 of control in the period of a few years. More- 
 over, it took place in spite of the acquisition 
 by the Steel Corporation of the Tennessee Coal, 
 Iron and Railroad Company and several other 
 concerns. Had it not been for these acquisi- 
 tions, the relative decline must have been con- 
 siderably greater. These facts are worth noting 
 as an indication of the efficiency of competition 
 when artificial and uneconomic restrictions are 
 removed. 
 
 The International Harvester Company sup- 
 phes a somewhat similar example. Though it 
 appears that the Harvester Company has not 
 been entirely guiltless of unfair methods of com- 
 petition, it has not been especially conspicuous 
 therefor. Moreover, it is also true that in more 
 recent years, since about 1906 or 1907, ex- 
 tremely few, if any, instances of such practices 
 mark the history of this organization. The 
 principal harvester lines are binders, mowers, 
 and rakes. In each of these three Hnes the 
 Harvester Company asserts that it has lost 
 ground in relative total output. In 1903 it con- 
 trolled the foUo^ving percentages of the total 
 business of the United States: bmders^, 98.15 
 per cent; mowers, 92.05 per cent; rakes, 
 84.90 per cent. These percentages of control 
 have, it is claimed, declined to the following:
 
 Conclusion 227 
 
 binders, 85 . 04 per cent in 1912 ; mowers, 72 . 98 
 per cent in 191 2 ; rakes, 67 . 79 per cent in 191 1.' 
 If these figures are correct, the Harvester Com- 
 pany in a period of less than a decade has lost 
 approximately the following percentages of the 
 total business in these lines: binders, 13 per 
 cent; mowers, 20 per cent; rakes, 20 per cent. 
 Moreover, it should not be forgotten that it 
 is doubtful whether the competition theory of 
 monopoly represents anything more than a 
 tendency.' Assuming that consoKdation is not 
 permitted and that unfair methods of compe- 
 tition are prevented, it may be questioned 
 whether the results of competition will ever 
 extend to the point of actual monopoly .^ To 
 accept the theory that monopoly would result 
 under these two conditions would seem also an 
 acceptance of the doctrine of continuously 
 greater efficiency on the part of the monopohs- 
 tic organization. If this latter theory is cor- 
 rect, it would appear to follow that the ordinary 
 business monopoly is in fact a natural monopoly. 
 If it is incorrect, the theory represents at best 
 
 ' Statement, brief, and argument for defendants, United 
 States V. International Harvester Company, cit. supra, p. 189. 
 
 » Cf. Liefmann's statement of the theory, supra, p. 219. 
 
 3 Though perhaps occasionally one concern or another might 
 occupy a very strong position.
 
 228 Unfair Competition 
 
 a tendency, and there is a counteracting if not 
 equal tendency in the opposite direction. 
 
 In order that it may obtain and later retain 
 its predominant position, an organization must, 
 as indicated, maintain an efficiency continuously 
 equal to or greater than that of other organi- 
 zations. The moment there is the slightest 
 decline in efficiency there is a tendency for 
 existing competition to forge ahead or for latent 
 competition to become actual and effective. 
 Unless, therefore, we are prepared to accept 
 the doctrine of continuous efficiency, we are 
 faced by the fact that the tendency of monop- 
 oly is to breed competition and that this tend- 
 ency more or less completely offsets any 
 tendency of fair competition to be turned into 
 monopoly. 
 
 Is there any sound economic reason why in- 
 dustrial society cannot exist on a competitive 
 basis under the operation of these two forces ? 
 Will not the elimination of unfair methods of 
 competition and the continuation of the poHcy 
 of preventing consolidation bring about this 
 result? If efficiency is not continuous, there 
 would seem to be no good reason for believing 
 that industry cannot continue indefinitely on 
 this basis in a state of more or less unstable 
 equihbrium in which the waxing and waning
 
 Conclusion 229 
 
 efl&ciency of various organizations serves at 
 once to control and prevent great monopolies 
 and to preserve to society the benefits of 
 competition. 
 
 From the standpoint of society it is probably 
 immaterial whether the goods produced for the 
 satisfaction of its wants are the product of a 
 monopolistic or a competitive system. Other 
 things being equal, society is interested only 
 in seeing that they are produced by that form 
 of industrial organization which is the most 
 eflSicient. As to whether monopoly or com- 
 petition is that form of organization, we have 
 so far had practically no means of determining, 
 though the reports of the Commissioner of 
 Corporations on the Harvester Company and 
 the tobacco industry' contain some interest- 
 ing information regarding this question. From 
 another standpoint, therefore, it becomes of 
 fundamental importance that unfair practices 
 should be eliminated — in order that we may 
 have the opportunity to observe the effects of 
 free and fair competition upon business. Only 
 when competition is freed from the uneconomic 
 restraints to which it has been subjected, and 
 not before, will it become possible really to test 
 its social value. If under these circumstances 
 
 ' Part III of the latter.
 
 230 Unfair Competition 
 
 monopolies thrive and develop, this should be 
 good evidence of the failure of competition 
 and the efficiency of monopolistic industrial 
 organization. It will then perhaps be time 
 to reject once and for all the theory of 
 competition, adopt monopoly, and so regu- 
 late it as to insure that society will reap 
 the benefits of its superior efficiency. But 
 only by eliminating unfair methods of com- 
 petition will it be possible to arrive at 
 any basis for a decree in the case of 
 competitive organization versus monopolistic 
 organization. 
 
 In order to do away with methods of the 
 character discussed in this volume, the Trade 
 Commission Act has declared unlawful unfair 
 methods of competition, while sections 2 and 3 
 of the Clayton Act have specifically prohibited' 
 price discriminations and exclusive and tying 
 arrangements ^^ where the efect .... may he 
 to substantially lessen competition or tend to 
 create a mono poly. ''^^ 
 
 The mechanism provided for eliminating the 
 practices thus declared unlawful appears well 
 adapted for the purpose. Whenever the Com- 
 mission has reason to beheve that there is a 
 
 ' With certain enumerated exceptions. 
 ' Italics are the writer's.
 
 Conclusion 231 
 
 violation of these sections/ it issues and serves 
 a complaint in which the charges are stated and 
 a notice is given of a hearing at least thirty 
 days after service. The party complained 
 against has the right to appear and show cause 
 why an order should not be entered requiring 
 him to desist from the violation of law charged 
 in the complaint. Any party, upon good cause 
 being shown, may be permitted by the Com- 
 mission to intervene and appear. 
 
 If, upon hearing, the Commission is of the 
 opinion that the method of competition in 
 question is prohibited, or sections 2 or 3 of the 
 Clayton Act violated, it makes a report in 
 writing, stating its findings as to the facts, and 
 issues an order to the party complained against, 
 ordering him to desist from the use of the 
 method of competition or violation of law in 
 question. The Commission may modify or set 
 aside its report or order at any time prior to 
 the fifing of the transcript of the record of the 
 hearings with the Circuit Court of Appeals. 
 
 In order to enforce the order of the Com- 
 mission it is provided that if it is not obeyed 
 the Commission may apply to the Circuit 
 
 ' And in addition, in the case of the Trade Commission Act, 
 "and if it shall appear .... that a proceeding in respect thereof 
 would be in the interest of the public."
 
 232 Unfair Competition 
 
 Court of Appeals of any circuit where the 
 method in question was used or where the 
 offending party resides or carries on his busi- 
 ness, at the same time filing a transcript of the 
 record of the proceedings before it, including 
 the testimony and the report and order. 
 The court then takes jurisdiction, notifies the 
 party, and has full power to enter a decree, 
 affirming, modifying, or setting aside the order of 
 the Commission. The findings of the Commis- 
 sion as to the facts are conclusive if supported 
 by testimony. If either party appHes to the 
 court for leave to adduce additional testimony 
 and can show that it is material, and also good 
 reasons why it was not introduced before the 
 Commission, then the court may direct that 
 such additional evidence be taken before that 
 body. The Commission may thereupon modify 
 its findings or make new ones and again file 
 the results with the court, together with any 
 new evidence and with its recommendations, 
 if any, for the modification or setting aside of 
 the original order. The judgment and decree 
 of the Circuit Court of Appeals is made final 
 except that the Supreme Court may review 
 upon certiorari. Moreover, the jurisdiction of 
 the former court is made exclusive and all such 
 proceedings are given precedence over all other
 
 Conclusion 233 
 
 cases. Any party against whom an order is 
 made by the Commission may obtain a review 
 of it by making an application to the Circuit 
 Court of Appeals to have it set aside.' 
 
 Now, the contention can be forcibly advanced 
 that all unfair methods of competition fall 
 within the scope of either the "restraint of 
 trade" or the "monopoly" sections of the Sher- 
 man Anti-Trust Act. In other words, all acts 
 of unfair competition are either contracts, com- 
 binations, or conspiracies in restraint of trade, 
 or else constitute monopolization, attempts to 
 monopohze, or combinations and conspiracies 
 to monopohze. It is indeed true that numerous 
 injunctions in suits brought by the government 
 have flatly forbidden in specific cases the use 
 of many of the practices described in this vol- 
 ume. Such has been true, for example, of the 
 decrees against the American Thread,'' Bur- 
 roughs Adding Machine ,"" Keystone Watch 
 Case, General Electric,'' and American Coal 
 Products,'^ companies, and also of those against 
 the Eastern States Retail Lumber Dealers and 
 Southern Wholesale Grocers^ associations. 
 
 ' Cf. section 5 of the Trade Commission Act and also W. H. S. 
 Stevens, "The Trade Commission Act," American Economic 
 Review, IV (December, 1914), 850-51. 
 
 ' Consent decrees.
 
 234 Unfair Competition 
 
 But it is to be noted that in a considerable 
 proportion of cases these decrees have been 
 "consent decrees" and have not been contested 
 by the companies. In several other cases in- 
 volving the Sherman Act the decisions of the 
 courts have been far from uniform in regard to 
 certain practices. Thus, for example, rebate 
 provisions to enforce exclusive arrangements 
 have been several times before the courts. In 
 the Whitwell case the tobacco rebate plan to 
 secure exclusive dealing, previously described,' 
 was upheld under the Sherman Act. A similar 
 view was entertained in the Greene case^ 
 several years earHer, and among more recent 
 cases the deferred-rebate contracts of the 
 Brazilian Steamship Conference were upheld 
 by the decision in the Prince Line case.' 
 
 On the other hand, the same type of arrange- 
 ments was emphatically condemned by the 
 decree of the court against the Great Lakes 
 Towing Company.'' 
 
 These instances are perhaps sujQ5cient to 
 demonstrate the fact that it might have been 
 most difficult to have prevented unfair methods 
 of competition under the Sherman Act alone. 
 On the other hand, it would appear that the 
 
 ' Supra, chap. vii. * 220 Fed. 230. 
 
 ' 52 Fed. 104. * 208 Fed. 733.
 
 Conclusion 235 
 
 general prohibition of the Trade Act is broad 
 enough to reach any and all methods which 
 fail to satisfy the requirements of a fair com- 
 petition.' 
 
 ' It is certainly open to question as to whether anything was 
 gained by the passage of sections 2 and 3 of the Clayton Act. 
 There is, it is true, considerable force in the argument that, in 
 view of the Dick decision, the Commission could not have reached 
 exclusive and tying arrangements under section 5 (cf. W. H. S. 
 Stevens, "The Clayton Act," American Economic Review, V 
 [March, 1915], pp. 43 fif.). But this is, at least, a debatable point. 
 At the same time it must be also admitted that it is possible so 
 to interpret section 5 as to narrow the jurisdiction of the Commis- 
 sion. Such a result may occur either through the interpretation 
 given to the procedural portion of section 5 of the Trade Act or 
 the construction applied to that section in the light of sections 
 2 and 3 of the Clayton Act. 
 
 In that part of section 5 which outlines the procedure of the 
 Commission in preventing imfair methods and which follows 
 the general declaration that unfair methods of competition are 
 unlawful, we find that the Commission is directed to institute 
 proceedings whenever it "shall have reason to believe that a cor- 
 poration is using an unfair method of competition and if it shall 
 believe .... that a proceeding by it in respect thereof would 
 be in the interest of the public." [Italics the writer's.] 
 
 In a recent treatise on the Federal Trade Comnussion we 
 find the following interpretation given to this clause: 
 
 "It would therefore seem to follow that an indispensable 
 attribute of any and every method of competition which lies 
 within the inhibition of the Trade Law, must be a tendency, or 
 a susceptibiUty of use, to restrain interstate or foreign trade 
 unduly, or to create or perpetuate a monopoly" (Harlan and 
 McCandless, Federal Trade Commission, p. 26). 
 
 Good reasons for refusing to accept any such construction 
 may easily be given. In the first place, the words "in the 
 interest of the public" occur in a procedural portion of section 5 
 and have to do only with the maimer in which the Commission
 
 236 Unfair Competition 
 
 Certain further points may be mentioned 
 which favor the Commission method of deal- 
 ing with unfair methods of competition. 
 
 The Trade Commission has very broad inves- 
 tigatory powers. In virtue of those powers it 
 
 acts. Being procedural in character, it would appear that it is 
 entirelj' unnecessary that the Commission either allege or attempt 
 to prove that there is or is not public interest, on the theory that 
 this is not a justiciable question. In other words, if the Com- 
 mission decides to proceed, that action is conclusive as to the 
 existence of public interest, whereas, if it decides not to proceed, 
 such a determination is equally as conclusive, either as to the 
 non-existence of a reason to believe that an unfair method is 
 being used or that a proceeding would be in the interest of the 
 public. Were the phrase under discussion not in the procedural 
 portion of section 5, perhaps an entirely different view might 
 logically be taken. As the act stands, however, it is believed that 
 there is no necessity for the meaning of the words "in the interest 
 of the public" to become the subject of construction except 
 within the Commission itself, and that, once the Commission has 
 decided to issue or not to issue a complaint, the matter is irrevo- 
 cably settled so far as the phrase in question is concerned. 
 
 Such being the case, it is gravely to be doubted that the Com- 
 mission in considering unfair methods of competition will be bound 
 by any such narrow construction of the phrase "in the interest 
 of the public" as that laid down by Harlan and McCandless. 
 Presumably the Commission wiU be governed by economic and 
 not legal considerations. As the writer has endeavored to 
 indicate, ^'the interest of the public" lies in securing the best goods 
 at the lowest prices or, translated into other terms, in a competition 
 of productive and/or selling efficiency. In other words, the power 
 given to the Trade Commission under section 5 is the power 
 to prevent those methods which do not constitute a competition 
 of productive and /or selling efl&ciency. This is an economic 
 rather than a legal test, and it is submitted fhat it is the most 
 comprehensive one that can be applied. The determination of
 
 Conclusion 237 
 
 can proceed to investigate informally, compel- 
 ling the production of records, etc., to an extent 
 impossible, judicially, except with all publicity 
 incident to a suit at law and possible damage 
 resulting therefrom, if the charges are not 
 
 the fairness or unfairness of a given method should be made from 
 this standpoint, and if it is, it seems clear that the words "in the 
 interest of the public" are mere surplusage, since a competition 
 of productive and selling efficiency is, in the last analysis, practi- 
 cally synonomous with the public interest. 
 
 Under the restraint-of-trade and monopoly interpretation of 
 section s it is not impossible that practices would not be reached 
 which, undoubtedly, must be regarded as imfair under the pro- 
 ductive and /or selling efficiency construction. In addition, the 
 attempt to apply a restraint-of-trade and monopoly test to 
 section 5 would be to run the grave risk that certain methods 
 might be declared lawful if used by a small concern against a 
 monopolistic organization though unfair when used by a pre- 
 dominant corporation against a small concern. This is a contra- 
 dictory and economically unsound proposition. A large, even 
 monopolistic, organization is, under section 5, as much entitled 
 to protection against imfair competitive methods on the part 
 of the small concern as is the latter against such methods when 
 used by the former. Whether the large organization can and 
 wiU always obtain it under the restraint-of-trade and monopoly 
 test would seem at least debatable. Probably we may con- 
 cede that the courts would, in the majority of cases, take an 
 economically correct position in this matter. At the same time 
 the divergence of court opinions on certain methods, previously 
 referred to, leads to the conclusion that such might not always 
 be the case, and this constitutes a sound reason for the rejection 
 of any restraint-of-trade and monopoly interpretation. 
 
 In a somewhat similar fashion the attempt is made to narrow 
 the operation of section 5 of the Trade Act by construing it in the 
 light of sections 2 and 3 of the Clayton Act. As already indi- 
 cated, section 5 declares unlawful unfair methods of competition
 
 238 Unfair Competition 
 
 sustained. The Commission can conduct an 
 examination of methods of competition quietly 
 and without undue publicity, determining 
 whether the situation disclosed demands that 
 a formal complaint shall be brought and open 
 
 in commerce, while sections 2 and 3 of the Clayton Act similarly 
 declare milawful price discriminations and exclusive and tying 
 arrangements "where the effect .... may be substantially 
 to lessen competition or tend to create a monopoly." From this 
 last clause there is developed the following line of reasoning: 
 "The indicia of unlawfulness common to all of the practices for- 
 bidden by sections two, three, seven and eight of the Clayton 
 Law are the eliminating or substantial lessening of competition, 
 the restraining of commerce, and the creating of monopoly. 
 The same indicia must, it would seem, be indispensable to a cotn- 
 petitive trade practice before it can be held to be within the purview 
 of the Trade Law." (Harlan and McCandless, op. cit., p. 28; italics 
 are the writer's.) 
 
 It is obvious that such a construction as this is economically 
 unsound for precisely the same reasons as have just been men- 
 tioned in considering the interpretation of the clause "in the 
 interest of the public." Not only is this true, but there are also 
 other good reasons for rejecting any such interpretation. In the 
 first place, it scarcely needs to be pointed out that if Congress 
 had intended that section 5 should be so construed it would have 
 said so. In the second place, the Clayton Act was passed after 
 the Trade Act, and while it is by no means uncommon to use 
 a prior act in determining the construction to be given to the 
 terms of a later statute, it appears scarcely logical to reverse the 
 method and to interpret a prior act by the terms of a subsequent 
 measure. (This is believed to be true even though the sup- 
 porters of such a construction may say that the two laws should 
 be taken as integral parts of the same legislation.) 
 
 Again, it is difficult to conceive that anyone regards inter- 
 corporate stockholding and interlocking directorates — the things 
 forbidden by sections 7 and 8 of the Clayton Act — as unfair
 
 Conclusion 239 
 
 hearings held. In many cases, as it has already 
 appeared, settlements will be effected infor- 
 mally.' 
 
 On the mere suggestion of the Commission 
 many practices will probably be discontinued, 
 
 methods of competition. Such being the case, it is submitted 
 that it is not sound logic, from either a legal or other standpoint, 
 even to imply that the wording of these sections should deter- 
 mine in any way whatsoever the construction of section s of the 
 Federal Trade Act. 
 
 Thirdly, section s does not in terms declare either price dis- 
 criminations or exclusive and tying arrangements to be unfair 
 methods of competition. Instead, it only declares unlawful un- 
 fair methods of competition generally. Similarly, neither section 
 2 nor section 3 of the Clayton Act contains in terms anything 
 declaring the methods which they prohibit to be methods of 
 unfair competition. Obviously, therefore, it is only by constru- 
 ing or interpreting section 5 that it is possible to assert that 
 that section includes practices which are mentioned in sections 2 
 and 3. "But," say the proponents of the competition-and- 
 monopoly construction, "it is evident from the debates that 
 Congress considered price discriminations and exclusive and 
 tying arrangements to be unfair methods of competition." 
 True, but this by no means settles the question which we 
 are discussing. The debates are merely expressions of the 
 opinions of various individuals. The mind of Congress is to 
 be properly interpreted only in the acts to which it gives expres- 
 sion in the form of measures passed and amendments and addi- 
 tions to those measures. Assuming that Congress really regarded 
 the acts prohibited by sections 2 and 3 as unfair methods of com- 
 petition, it should not be forgotten that neither of these sections 
 
 ' Cf. Federal Trade Commission, Conference Rulings, Bull. 
 No. I. Cf. Report on the Fertilizer Industry, the arrangements 
 made with manufacturers for the discontinuance of the use of 
 bogus names.
 
 240 Unfair Competition 
 
 the concern or concerns involved preferring 
 to do this rather than that a formal complaint 
 should be issued against them. In some cases 
 it will doubtless be true that the suggestion of 
 the Commission will cause the elimination of 
 detrimental business practices even though the 
 Commission might have no power under either 
 the Trade Act or the Clayton Act to take formal 
 
 as originally passed by the House contained the phrase "where 
 the effect may be substantially to lessen competition or tend to 
 create a monopoly," nor words which could be similarly construed. 
 The Senate struck out the price-discrimination section on the 
 theory that the methods thereby prohibited were included in 
 section 5, and passed an exclusive and tying section applying only 
 to patented articles, not "where the effect may be," etc., but 
 declaring all such conditions unlawful and null and void, as being 
 in restraint of trade and contrary to public policy. 
 
 UntU the House and Senate bills went to conference, there- 
 fore, it may be reasonably argued that, so far as Congress regarded 
 exclusive and tying arrangements and price discriminations as 
 unfair competition, it considered them so to be without any 
 reference to the lessening of competition or the creation of monop- 
 oly. It may therefore be doubted that on the return of the Clay- 
 ton Act from conference, with this clause incorporated in sections 
 2 and 3, Congress suddenly reversed its previous conclusions and 
 decided that these methods could be unfair competition only 
 "where the effect .... may be to substantially lessen competi- 
 tion or tend to create a monopoly." A much more reasonable con- 
 struction of congressional action than this would seem to be that 
 price discriminations and exclusive and tying arrangements are 
 per se unlawfid and presumably per se unfair as well under the 
 conditions incorporated in sections 2 and 3 in conference. It is 
 submitted that nothing more than this was intended. In other 
 words, the enactment of section 5 made unlawful price dis- 
 criminations and exclusive and tying arrangements in so far as
 
 Conclusion 241 
 
 action. Much of the work of the Commission, 
 performed quietly in this fashion, will probably 
 never become a matter of public record so far 
 as the names of the parties involved are 
 concerned, but for all that it should not be 
 overlooked that the work will have been accom- 
 phshed and a free, fair, and clean competition 
 promoted. 
 
 these may be used in such a way as to constitute unfair methods 
 of competition. They are not per se unlawful, however, inas- 
 much as it is conceivable that any one of the three may be used 
 in an entirely legitimate fashion. Sections 2 and 3 of the Clayton 
 Act, however, went a step farther than section 5. In effect they 
 declared that, without reference to the question of fairness or 
 unfairness, price discriminations and exclusive and tying arrange- 
 ments were per se unlawful, "where the effect may be substan- 
 tially to lessen competition or tend to create a monopoly," and 
 that imder such conditions it is beyond the power either of the 
 Commission or of the courts to find in favor of such methods. 
 Under section 5 the Commission and the courts may find either 
 for or against any one of these three methods, depending on the 
 manner in which the said method is used. Under sections 2 and 
 3 they must always find against any one of them where the effect 
 .... may be to substantially lessen competition or tend to 
 create a monopoly. 
 
 Against such an interpretation there may perhaps be urged, 
 from the legal standpoint, two common-law rules of statutory 
 construction: (a) that where two statutes relate to the same 
 subject-matter, the subsequent one in point of time works a pro 
 lanto repeal of the prior law; {b) that where two statutes relate 
 to the same subject-matter and one is general and the other spe- 
 cific and enumerative, the latter controls. In reply, however, it 
 may be pointed out that there is also a third rule of statutory 
 construction, that where two laws are in apparent conflict the 
 court should so construe them as to give full effect to each so far
 
 242 Unfair Competition 
 
 Presumably a great portion of the time of the 
 Commission will be devoted to the prevention 
 of unfair methods of competition. That body 
 has at its command a large force of experts, 
 including the very competent staff of the old 
 
 as not inconsistent with the other. Section 5 of the Trade Act 
 is both the prior and the general law. Sections 2 and 3 of the 
 Clayton Act are subsequent and specific, and the methods they 
 prohibit are unlawful only "where the effect .... may be to sub- 
 stantially lessen competition or tend to create a monopoly." (Italics 
 are the writer's.) 
 
 Since section 5 does not contain this qualifying clause, it 
 should follow that section 5 can be repealed or controlled by sec- 
 tions 2 and 3, under the first two rules of statutory construction 
 which have been mentioned, only to the extent that price dis- 
 criminations and exclusive and tying arrangements (the things 
 forbidden by sections 2 and 3) operate in such a manner that the 
 "effect .... may be to substantially lessen competition or 
 tend to create a monopoly," and that as to all other discrimina- 
 tions and exclusive and tying arrangements section 5 remains in 
 full force and effect. 
 
 In the opinion of the writer, therefore, sections 2 and 3 do 
 not in reality limit the scope of section 5, but merely take from 
 the courts and the Commission the po .ver to find lawful these 
 three specific methods "where the effect .... may be to 
 substantially lessen competition or tend to create a monopoly" — 
 nothing more. 
 
 This interpretation, which has, it is submitted, a reasonably 
 sound basis, gives the widest possible construction to the author- 
 ity of the Commission. Under such an interpretation the Com- 
 mission would apparently have the power to proceed against 
 price discriminations and exclusive and tying arrangements 
 under section 5 in those cases where such arrangements were 
 being unfairly used, but when it might be practically impossible 
 to show that the effect might be either to substantially lessen 
 competition or tend to create a monopoly.
 
 Conclusion 243 
 
 Bureau of Corporations, which the Trade Law 
 provided that it should take over. Its constant 
 study of economic and business conditions, 
 assisted by its large economic and legal research 
 staff, should develop a knowledge of competi- 
 tive conditions impossible for any court to 
 acquire. Decisions will be based primarily 
 upon economic considerations and, regardless 
 of whether cases are settled informally or by 
 the issuance of formal complaints, much more 
 rapid and efficacious results ought to be 
 obtained than could be secured through the 
 medium of the courts alone. At the same time 
 in the case of formal complaints the Circuit 
 Court of Appeals may, by its decree, alter or 
 modify the orders of the Commission upon 
 application. This will prevent injustice, while 
 the power given the Commission to make orders 
 ought logically to result in developing an eco- 
 nomic rather than a legal view of unfair compe- 
 tition. 
 
 Bearing all these points in mind, it is difficult 
 to accept the view of some that the new func- 
 tions conferred upon the Trade Commission 
 could have been more satisfactorily performed 
 by the Department of Justice and the courts 
 than by the Trade Commission.^ 
 
 ' Daily Cong. Rec, 64th Cong., ist sess.. Vol. LIII, p. 11566.
 
 244 Unfair Competition 
 
 Until unfair competition is eliminated it is 
 doubtful whether the trust problem will be 
 solved. The legislation of the Wilson admin- 
 istration has attempted to destroy unfair 
 practices, and an apparently good method has 
 been provided for so doing. It is to be hoped, 
 and indeed to be expected, that the results will 
 be important and that the attempt made to 
 prevent unfair competition will prove a for- 
 ward step on the road to the ultimate solution 
 of the trust problem.
 
 INDEX
 
 INDEX 
 
 Abbott, C. S., testimony re 
 Eastman exclusive policy, 
 84. 
 
 Adding Machine Co.'s threats 
 to compete with, 191 n. 
 
 Adriance Machine Co., en- 
 grossing contract with Can 
 Co., 144. 
 
 Adriance, Piatt & Co., threat- 
 ened by National Harrow 
 Co., 176-78. 
 
 Aluminum Co. of America: 
 engrossing bauxite supply, 
 151-52; engrossing contract 
 with General Chemical Co., 
 151-52; acquires stock. 
 Bauxite Co., 151; engross- 
 ing contract with Norton 
 Co., 152; delating bills of 
 lading, ceasing shipments, 
 etc., 216. 
 
 American Can Co., bogus in- 
 dependent concerns, 31-32; 
 preferential contract with 
 Tin Plate Co., 122-23; size 
 of tin-plate rebates, 125-26; 
 engrossing can machinery 
 contracts with Bliss Co., 
 144-45, Adriance Machine 
 Co., 144, Ferracute Machine 
 Co., 144, Max Ams Co., 
 146-47; acquisitions, 144. 
 
 American Cash Register Co., 
 spied on by National, 159- 
 60. 
 
 American Coal Products Co., 
 conditional requirement, 71- 
 72. 
 
 American Maize Products Co. : 
 successor of Western Glu- 
 cose Co., 30; subject of 
 agreement between Com 
 Products and Royal Baking 
 Powder companies, 30; re- 
 lations with Stein, Hirsh & 
 Co., 30-31. 
 
 American Press Association, 
 bogus independent houses, 
 32-33- 
 
 American Stopper Co. See 
 Bogus Independent Con- 
 cerns. 
 
 American Sugar Refining Co., 
 manipulation against Penn- 
 sylvania Sugar Refining Co., 
 215-16. 
 
 American Thread Co. Sei 
 Thread Combination. 
 
 American Tin Plate Co., pref- 
 erential contract with Can 
 Co., 122-23. 
 
 American Tobacco Co.: num- 
 ber of bogus concerns, 22; 
 methods of, 22-23; bogus 
 Queen City Co. operated 
 with Luhrman & Wilbem, 
 23-24; request of, for in- 
 formation regarding inde- 
 pendent shipments, 36; plug- 
 tobacco war, 42-44; fight- 
 ing-brand "Battle Axe," 43; 
 increase of plug control, 43- 
 44; losses on plug, 44; ex- 
 clusive arrangements, 82; 
 rebates supporting exclusive 
 arrangements, 113; engross- 
 ing of cigarette machinery, 
 
 247
 
 248 
 
 Unfair Competition 
 
 140-42; contract with Bon- 
 sack Machine Co., 141-42. 
 
 Anti-trust acts. See Clayton 
 Act, Sherman Anti-trust Act. 
 
 Anti-trust suits, effect on har- 
 vester exclusive policy, 85- 
 86. 
 
 Artura photographic paper: 
 blacklisted, 106-9; develop- 
 ment and rapid rise of, 109- 
 11; and Eastman Kodak 
 paper, iio-ii. 
 
 Associations. See Pottery As- 
 sociations; Trade Associa- 
 tions. 
 
 Atlanta Cash Register Co., 
 bought out by Watson, 29. 
 
 Australia: provisions against 
 tying clauses, 70 n.; law 
 limiting selection of cus- 
 tomers, nan.; laws regard- 
 ing rebates, n. 1 17-18. 
 
 Baking powder. See Royal 
 Baking Powder Co. 
 
 Barrett Mfg. Co. See Ameri- 
 can Coal Products Co. 
 
 Bath Tub Trust: exclusive 
 arrangements, 86-87; effect 
 of exclusive arrangements, 
 89-90; rebates for exclusive 
 dealing, 1 14-15. 
 
 "Battle Axe." See Fighting 
 Brands; Plug Tobacco. 
 
 Baugh & Sons, no bogus con- 
 cerns owned by, 33. 
 
 Bauxite. See Aluminum Co. 
 of America; General Bauxite 
 Co. 
 
 Birmingham Powder Co., local 
 price-cutting against, 14. 
 
 Black Book. See Books. 
 
 Blacklists: general nature, 97; 
 by wholesale and retail 
 trade organizations, 97-105; 
 
 purpose in trade associations, 
 98-99; classification, 99- 
 loi; trade association 
 "recommended lists," 101-2; 
 unfairness of association 
 black list, 103-5; ^^^ ^^- 
 clusive arrangements, 105; 
 Kodak violation tickler on 
 "Artura," 106-9; unfairness 
 with exclusive arrangements, 
 109-12; espionage to assist, 
 161; intimidation in sup- 
 port of lumber, 172-73. 
 See also contents of chap. vi. 
 
 Blanchet Freres & Kleber: and 
 Rives photographic paper, 
 149; combined in General 
 Paper Co., 149. See also 
 General Paper Co. 
 
 Bliss, E. W., Co., engrossing 
 contract with Can Co., 144- 
 45. 
 
 Blue Books. See Books. 
 
 Bogus independent concerns: 
 definition, 19; Powder Trust 
 "yellow dog" companies, 
 19-21; Climax Powder Mfg. 
 Co., 20, 21; New York 
 Powder Co., 20, 21; Royal 
 Co. of Lamp Combination, 
 21; character and number 
 of Standard Oil's, 21-22; 
 number of American Tobac- 
 co's, 22; R. A. Patterson 
 Tobacco Co., 22-23; Wells, 
 Whitehead Tobacco Co., 23, 
 36; Queen City Tobacco 
 Co., 23-24; of National 
 Cash Register Co., 24-29; 
 Weiler Cash Register Co., 
 24-26; Universal Cash Reg- 
 ister Co., 25-26; Union 
 Computing Machine Co., 
 26-27; Watson Co., to 
 meet second-hand register 
 competition, 28-29; Stein, 
 Hirsh & Co., of Com Prod- 
 ucts Co. , 30-3 1 ; of American
 
 Index 
 
 249 
 
 Can Co., 31-32; American 
 Stopper Co., 31-32; Union 
 Stock Yards Can Co., 32; 
 of American Press Asso- 
 ciation, 32-33; extent in 
 fertilizer industry, 33; pur- 
 pose in fertilizer industry, 
 33 n.; of N.Y., N.H. & 
 H. R.R. Co., 34-35; U.S. 
 Transportation Co., 34; 
 Neptune Line, 34; Joy Line, 
 35 ; compared with local 
 price-cutting, 35-39; and 
 information on competitors, 
 35-37; unfairness, 35-39; 
 resemblance to fighting in- 
 struments, 52-53. See also 
 contents of chap. ii. 
 
 Bonsack Machine Co., en- 
 grossing contract with Amer- 
 ican Tobacco Co., 141-42. 
 
 Books: Red, Blue, and Green, 
 in classification, loo-ioi; 
 Black and White of lumber 
 associations, 209. 
 
 Bottle caps. See Crown Cork 
 & Seal Co. 
 
 Boycotts. See Black Lists. 
 
 Brunswick- Balke-Collender 
 Co., threats to compete 
 with, igcr-()i. 
 
 Burlington Railroad. See Chi- 
 cago, Burlington & Quincy 
 R.R. Co. 
 
 Button fasteners. See Hea- 
 ton Peninsular Button Fas- 
 tener Co. 
 
 Can Co. See American Can 
 Co. 
 
 Can machinery. See Ameri- 
 can Can Co. 
 
 Capping machines. See Crown 
 Cork & Seal Co. 
 
 Carter, W. M., letter to, 
 quoted, 36. 
 
 Cash Register Co. See Na- 
 tional Cash Register Co. 
 
 Chain stores, relation to black 
 lists, 98, 104. 
 
 Chalmers, Hugh: general 
 manager of National Cash 
 Register Co., 25; testimony 
 of, re bogus concerns, 26- 
 27; description by, of 
 "knocker" machines, 45- 
 46. 
 
 Chicago Cash Register Ex- 
 change, and bogus Watson 
 Cash Register Co., 28. 
 
 Chicago, Burlington & Quincy 
 R.R. Co., espionage by em- 
 ployees, 155. 
 
 Chicago, Milwaukee & St. 
 Paul R.R. Co., espionage by 
 employees, 155. 
 
 Chicago & Northwestern R.R. 
 
 Co., espionage by employees, 
 
 15s. 
 Cigarette machinery, engrossed 
 
 by American Tobacco Co., 
 
 140-42. 
 
 Cigarettes, manufacture and 
 cost of, 140. See also Cig- 
 arette Machinery. 
 
 Classification, by trade asso- 
 ciations, 99-101. 
 
 Clayton Act: sec. 3 and Dick 
 case, 66 n.; sec. 3 and Dick 
 decision, 66 n.; sec. 3 and 
 refusals to sell, 112 n.; sec. 
 3 and rebates, 118 n.; pur- 
 poses, 230; mechanism of 
 enforcement, 230-33 ; con- 
 struction of sees. 2 and 3, n. 
 235-42. 
 
 Cleveland Stone Co.: char- 
 acter and control of business, 
 88; exclusive arrangements, 
 88; rebates for exclusive 
 dealing, 116.
 
 250 
 
 Unfair Competition 
 
 Climax Powder Mfg. Co. See 
 Bogus Independent Con- 
 cerns. 
 
 Coercion. See Intimidation. 
 
 Combination, result of compe- 
 tition, 221-22. See also 
 Electric Lamp; Kodak; Na- 
 val Stores; Photographic 
 Supplies; Thread. 
 
 Commercial Acetylene Gas 
 Co. V. Avery Portable Lamp 
 Co., 212 n. 
 
 Commissioner of Corporations, 
 Report on Harvester Co. 
 quoted, n. 70-71. 
 
 Competition: monopoly the 
 result of, 217-18, 221-22; 
 and interests of society, 
 229-30. See also Competi- 
 tion Theory of Monopoly; 
 Fair Competition; Second- 
 Hand Cash Register Com- 
 petition; Unfair Competi- 
 tion. 
 
 Competition theory of mo- 
 nopoly: as stated by Lief- 
 mann, 218-19; presupposes 
 fair competition, 219; ar- 
 guments against, 221-29; 
 and combination, 221-22; 
 represents a tendency, 227- 
 28; opposing tendency, 
 228. 
 
 Conditional requirements (ty- 
 ing clauses): nature and 
 classification of, 54-55 ; 
 based on single patented 
 article, 56-66; of Electric 
 Lamp Combination, 56; of 
 Shoe Machinery Co., 57-58, 
 66; on machinery formerly 
 patented, 57-59; effect 
 where patents have expired, 
 57-58; clause of Shoe Ma- 
 chinery Co. quoted, 57 n.; 
 of Crown Cork & Seal Co., 
 58-59; of Button Fastener 
 
 Co., 59 ; unfairness based 
 on a single patent, 59-66; 
 effect of Shoe MachineryCo., 
 61-62; effect of Crown Cork 
 & Seal Co., 63-64; based on 
 two or more patents, 66-69; 
 unfairness based on two 
 patents, 66-69; unsound- 
 ness recognized abroad, n. 
 69-70; based on predomi- 
 nant control, 70-72; full- 
 line forcing of Harvester Co., 
 70; of American Coal Prod- 
 ucts Co., 71-72; of Motion 
 Picture Patents Co., 72; 
 unfairness based on pre- 
 dominant control, 72-76; 
 resemblance to exclusive 
 arrangements, 77 n. See 
 also contents of chap, iv; 
 Exclusive Arrangements, 
 
 Conferences. See Steamship 
 Conferences. 
 
 Confidential statements, used 
 by National Cash Register 
 Co. for intimidation, 188- 
 89. _ 
 
 Consolidation. See Combina- 
 tion. 
 
 Continental Tobacco Co.: ex- 
 clusive arrangements, 83; 
 rebates for exclusive deaUng, 
 115- 
 
 Continental Wall Paper Co.: 
 exclusive arrangements, 83; 
 rebates for exclusive dealing, 
 116; engrossing contracts 
 with Waldron & Son and 
 Kaukauna Co., 142-43. 
 
 Continental Wall Paper Co. v. 
 Lewis Voight & Sons Co., 
 83 n., 116 n., 143 n. 
 
 Contracts, inducing breach of. 
 See Interference. 
 
 Co-operative associations, re- 
 lation to black lists, 99, 
 104,
 
 Index 
 
 251 
 
 Com Products Refining Co.: 
 agreement with Royal 
 Baking Powder Co., 30; 
 operates Stein, Hirsh & Co. 
 as independent, 30-31; re- 
 bates for exclusive dealing, 
 1 1 6-1 7; and returns for 
 switching service, 135-36; 
 threats to engage in compe- 
 tition, 179-80. 
 
 Coming Glass Works, prefer- 
 ential arrangements with 
 Lamp Combination, 121. 
 
 Counselman, Lee: testimony 
 of re Park, 25; testimony 
 of re "gloom room" and 
 "graveyard," 185; testi- 
 mony of re confidential 
 statements, 188-89. 
 
 Crosby & Co., acquired by 
 American Can Co., 144. 
 
 Crown Cork & Seal Co.: 
 business, 58; controls cap- 
 ping-machine patents, 58; 
 conditional requirements, 58- 
 59; effect of conditional 
 requirements, 63-64. 
 
 Cyclopedia of Law and Pro- 
 cedure, definition of "unfair 
 competition," 2-3. 
 
 Dailey, W. B.: testimony of, 
 re exclusive arrangements, 
 91; testimony of , re engross- 
 ing raw paper, 150; testi- 
 mony of, re threats, 167. 
 
 Deferred rebates : explained, 
 128; in American foreign 
 trade, 128-29. See also Re- 
 bates. 
 
 Department stores, relation to 
 black lists, 104. 
 
 Detectives: employed by Na- 
 tional Cash Register Co., 
 160; attended National Cash 
 Register Co. school, 160; 
 
 Lumber Association Bureau, 
 161. 5ee a/50 Espionage. 
 
 Dick Mimeograph Co., com- 
 plaint lodged against by 
 Commission, 66 n. See also 
 Henry v. Dick. 
 
 Discriminations. See Rebates. 
 
 Distribution: confinement to 
 legitimate charmels, 98-104; 
 and classification, 98-101; 
 and recommended lists, loi- 
 2; effect of association 
 methods on, 103-4. 
 
 Dmmmond Tobacco Co., plug 
 output in 1893, 43. 
 
 DuPont de Nemours, E. I., & 
 Co. See Powder Trust. 
 
 DuPont, T. C, reported ex- 
 planation of "yellow dog" 
 companies, 19-21. 
 
 Dwyer Machine Co., engross- 
 ing contract with Lamp 
 Combination, 143. 
 
 Eastern States Retail Lumber 
 Dealers' Association, extract 
 from report quoted, 102. 
 
 Eastman, George : suggested 
 fighting brands, 48; admits 
 fighting brands, 49; testi- 
 mony re Artura paper, iio- 
 II. 
 
 Eastman Kodak Co., fighting 
 brands of paper, 47-50; 
 engrossing contract with 
 General Paper Co., 47, 149, 
 n. 149-50; fighting brands 
 suggested, 48; fighting- 
 brand clause, 48; letter re 
 Kresko paper, 49; losses on 
 fighting brands, 50; exclu- 
 sive arrangements, 83-84; 
 effect of exclusive arrange- 
 ments, 90-91; blacklistmg 
 through violation tickler, 
 105-9; rebates for exclusive 
 dealing, 114; effect of en-
 
 252 
 
 Unfair Competition 
 
 grossing, 150-51; intimida- 
 tion to enforce exclusive ar- 
 rangements, 167-68. 
 Economic competition. See 
 Efficiency; Fair Competi- 
 tion. 
 Efficiency: productive and 
 selling in relation to fair 
 competition, 5-8; as a test 
 of fairness or unfairness, 
 7-8; and price-cutting, 16- 
 18; and bogus concerns, 39; 
 and fighting instruments, 
 52, S3; and conditional re- 
 quirements, 62, 68, 75; and 
 exclusive arrangements, 91- 
 93; and black lists, 104; 
 and rebates, 137-38; and 
 engrossing, 152-53; and espi- 
 onage, 164-65; and intmii- 
 dation, 194; and interfer- 
 ence, 211-12; creation of 
 monopoly through, 222-23; 
 maintenance of monopoly 
 through, 223-27; continuity, 
 222-23, 227-29. See also 
 Fair Competition. 
 E. I. duPont de Nemours & 
 
 Co. See Powder Trust. 
 Eisenstadt, Morris, testimony 
 
 of, re threats, 169-71. 
 Electric Lamp Combination: 
 operates bogus Royal Co., 
 21; conditional require- 
 ments for lamps, 56; prefer- 
 ential arrangements, 121-22; 
 engrossing contracts with 
 Dwyer Machine Co. and 
 York Electric & Machine 
 Co., 143- 
 Electric lamp machinery. See 
 Electric Lamp Combination. 
 Electric Renovator Mfg. Co., 
 threatened with infringe- 
 ment suits, 178. 
 Ellingwood. See Espionage; 
 Spies. 
 
 Emerson v. Spaulding, 198 n. 
 
 England, law against tying 
 
 clauses, 69 n. 
 Engrossing: machineryof man- 
 ufacture, 139-47; goods used 
 in manufacturing proems, 
 148-52; envelope machin- 
 ery by Standard Envelope 
 Co., 139; cigarette machin- 
 ery by American Tobacco 
 Co., 140-42; wall paper 
 machinery by Continental 
 Wall Paper Co., 142-43; 
 lamp machinery by Lamp 
 Combination, 143; can ma- 
 chinery by American Can 
 Co., 143-47; kindling-wood 
 presses by Standard Wood 
 Co., 147; photographic 
 paper by Kodak Co., 148^- 
 49; effect in photographic 
 paper, 150-51; bauxite 
 by Aluminum Co., 151- 
 52; unfairness, 152-53. 
 See also contents of chap, 
 viii. 
 Enterprise Transportation Co., 
 attacked by bogus concerns, 
 34-35- 
 Envelope Co. See Standard 
 
 Envelope Co. 
 Espionage: by railroad em- 
 ployees, 154-56; forbidden 
 by I.C.C. and Shipping 
 Board acts, n. 155-56; by 
 National Cash Register Co., 
 against Foss Novelty Co., 
 156-57, Osborn, 157, Lam- 
 son, 157-58, Hallwood, 158, 
 159, 160, American, 159-60; 
 detectives employed by Na- 
 tional, 160; by lumber 
 trade associations, 161; by 
 Shoe Machinery Co., 161- 
 64; unfairness, 164-65. 
 Sec also contents of chap, ix; 
 Detectives; Spies.
 
 Index 
 
 253 
 
 Exclusive arrangements: de- 
 fined, 77; resemblance to 
 conditional requirements, 
 77 n.; classification, 78; use, 
 78-81; shoe machinery use 
 clause, 78-79; shoe ma- 
 chinery prohibitive clause, 
 79-80; extent of shoe ma- 
 chinery, 80; effect of shoe 
 machinery, 80-81; unfair- 
 ness, 80-81, 89-96; pur- 
 chasing and selling, 81-91; 
 distinctions in selling and 
 purchasing, 81-82; and fac- 
 tors' agreements, 82; Ameri- 
 can Tobacco Co., 82; Conti- 
 nental Tobacco Co., 83; 
 Continental Wall Paper Co., 
 83; National Wall Paper 
 Co., 83; Eastman Kodak 
 Co., 83-84; Pottery Associa- 
 tion, 84-85; Harvester Co., 
 85-86; Bath Tub Trust, 
 86-87; Keystone Watch 
 Case Co., 87-88; Cleveland 
 Stone Co., 88; effect of 
 bath-tub and photographic 
 supplies, 89-91; necessity 
 of, 92-96; distinguished 
 from exclusive territory, 93- 
 94; and new commodities, 
 93-94; and long-term con- 
 tracts, 95-96; blacklisting 
 to enforce, 105-9; black 
 lists supporting imfair, 
 109-12; rebates to in- 
 duce, I 13-2 I, 127-33; in 
 Eastman-General Paper Co , 
 contract, 149, n. 149-50; 
 intimidation to induce 
 167-72. See also con- 
 tents of chap, v; Black 
 Lists; Intimidation; R&- 
 bates. 
 
 Exclusive purchasing. See Ex- 
 clusive Arrangements. 
 
 Exclusive selling. See Exclu- 
 sive Arrangements. 
 
 Exclusive territory, distin- 
 guished from exclusive sell- 
 ing, etc., 93-94. 
 
 Exclusive use. See Exclusive 
 Arrangements. 
 
 Factors' agreements and ex- 
 clusive arrangements, 82. 
 
 Fair competition: relation to 
 unfair competition, 5-8 
 relation to efficiency, 5-8 
 nature and operation of, 5. 
 elimination through, not 
 unfair, 6, 18; justification 
 of, 6; results of, 6-7; tested 
 through eflSciency, 7-8; and 
 conditional requirements, 
 75-76; and exclusive ar- 
 rangements, 91-92; and 
 black Usts, 103; and rebates, 
 131; and espionage, 165; 
 presupposed by competition 
 theory of monopoly, 219. 
 See also Unfair Compe- 
 tition. 
 
 Federal Trade Commission: 
 Report on Fertilizer Indus- 
 try quoted, n. 33-34; secures 
 identification of fertilizer 
 companies, 34 n.; com- 
 plaint lodged against Dick 
 Mimeograph Co., 66 n.; 
 powers and probable advan- 
 tages, 236-44. 
 
 Federal Trade Commission 
 Act: fifth section quoted, i; 
 fifth section in trust legis- 
 lation debates, i; and older 
 signification of unfair com- 
 petition, 2-4; primary pur- 
 pose of, 4-5; sec. s and 
 Dick decision, 66 n.; sec. 
 S and refusals to sell, 112 n.; 
 sec. 5 and rebates, 118 n.; 
 purposes of, 230; enforce- 
 ment of sec. 5, 230-33; 
 construction of sec. 5, n. 
 235-42.
 
 254 
 
 Unfair Competition 
 
 Ferracute Machine Co., en- 
 grossing contract with Amer- 
 ican Can Co., 144. 
 
 Fertilizer Industry. See 
 Bogus Independent Con- 
 cerns; Federal Trade Com- 
 mission. 
 
 Fighting brands: plug- tobacco 
 war, 42-44; "Battle Axe," 
 43; used by Thread Com- 
 bination, 46-47; Eastman 
 Kodak Co., 47-50; clause 
 in Eastman-General Paper 
 contract, 48; suggested by 
 George Eastman, 48; Kresko 
 paper, 49; losses on fighting- 
 brand photographic papers, 
 50. See also Fighting In- 
 struments; Fighting Ships. 
 
 Fighting instruments: nature 
 and purpose of, 40; why un- 
 fair, 50-53; resemblance to 
 local price-cutting, 50-52; 
 resemblance to bogus inde- 
 pendents, 52-53. See also 
 contents of chap. iii; 
 Fighting Brands; Fighting 
 Ships. 
 
 Fighting ships: method of 
 operation, 40-41; of Syndi- 
 kats-Rhederei, 41-42; of 
 Hudson River Navigation 
 Co., 42. See also Fighting 
 Brands; Fighting Instru- 
 ments. 
 
 Flying squadrons, of Thread 
 Combination, 47. 
 
 Foss Novelty Co., spied on by 
 National Cash Register Co., 
 156-57. 
 
 Fostoria Bulb & Bottle Co., 
 preferential arrangements 
 with Lamp Combination, 
 121. 
 
 Full-line forcing. See Condi- 
 tional Requirements; In- 
 ternational Harvester Co. 
 
 Galbraith, organized bogus 
 Queen City Tobacco Co., 23. 
 
 General Aristo Co. See East- 
 man Kodak Co. 
 
 General Bauxite Co., stock 
 acquired by Aluminum Co., 
 151. 
 
 General Chemical Co., en- 
 grossing contract with Alu- 
 minum Co., 151-52. 
 
 General Electric Co. See 
 Electric Lamp Combina- 
 tion. 
 
 General Paper Co. : Rives and 
 Steinbach papers produced 
 by, 47, 149; engrossing con- 
 tract with Kodak interests, 
 47, 149, n. 149-50; fighting- 
 brand clause in contract 
 with Eastman Kodak Co., 
 48; characteristics of paper, 
 148-49; formed, 149. See 
 also Eastman Kodak Co.; 
 Fighting Brands. 
 
 German Australian Steamship 
 Co. See Syndikats-Rhe- 
 derei. 
 
 German East Africa Co. See 
 Syndikats-Rhederei. 
 
 German Steamship Co. See 
 Syndikats-Rhederei. 
 
 Gillies. See Spies. 
 
 "Gloom room." See Intimi- 
 dation. 
 
 Graham Wood Co. v. Standard 
 Wood Co., n. 147-48. 
 
 "Graveyard." See Intimida- 
 tion. 
 
 Great Lakes Towing Co., 
 rebates for exclusive ar- 
 rangements, 132-33. 
 
 Green Books. See Books. 
 
 Greene Mfg. Co., engrossing 
 contract with Wood Co., 
 147.
 
 Index 
 
 255 
 
 Grindstones. 
 Stone Co. 
 
 See Cleveland 
 
 Hallwood Cash Register Co., 
 spied on by Cash Register 
 Co., 158-59, 160. 
 Hamburg-American Line. See 
 
 Syndikats-Rhederei . 
 Hamburg — South American 
 Line. See Syndikats- 
 Rhederei. 
 Harlan and McCandless, con- 
 struction of Trade and Clay- 
 ton acts, n. 235-42. 
 Harrows. See National Har- 
 row Co. 
 Harvester Co. See Interna- 
 tional Harvester Co. 
 Harvesting machinery. See 
 International Harvester Co. 
 Heaton Button Fastener Co., 
 business, 59; conditional 
 requirements, 59. 
 Heaton Peninsular Button Fas- 
 tener Co. V. Dick, 59 n. 
 Henry v. Dick: discussed, 64- 
 66; extract, opinion Ch. Jus- 
 tice White, 64-65; decision 
 apparently overruled, 66 n. 
 Heyne, Carl G. : connection of, 
 with Weiler purchase, 26; 
 testimony of, re purchase 
 and operation of WeUer Co., 
 26; testimony of , re Watson 
 Cash Register Co., 29; 
 Stollwerck intimidated by, 
 181-82; testimony of, re 
 special men, 200-201; testi- 
 mony of, re lawsuits, 203-4. 
 Hudson River Navigation Co., 
 fighting ships of, used 
 against Manhattan Co., 42. 
 
 Infringement. See Patents. 
 Interference: nature of, 195; 
 with Steel Range Co. sales- 
 
 men, 195-97; with Spauld- 
 ing's buggy salesmen, 197- 
 98; breach of contract 
 induced by National Cash 
 Register Co., 200-203; law- 
 suits, 203-6; infringement 
 suits of Cash Register Co., 
 203-6; fomenting strikes by 
 Shoe Machinery Co., 206-9; 
 by spurious inquiries for lum- 
 ber, 209-11; unfairness of, 
 211-13; alleged methods in 
 Bowser case, n. 212-13. 
 See also contents of chap. xi. 
 
 International Harvester Co. : 
 full-line forcing, 70; over- 
 loading, 73; exclusive ar- 
 rangements, 85-86; effect 
 of anti-trust suits on exclu- 
 sive policy, 85-86. 
 
 Intimidation: character and 
 application, 166; purposes 
 of, 166-67; supporting other 
 mifair practices, 167-75; 
 generally, 175-93; to secure 
 exclusive deahng, 167-72; 
 Eastman Kodak Co., 167- 
 68; Keystone Watch Case 
 Co., 168-71; New Depar- 
 ture Mfg. Co., 171-72; by 
 lumber associations in con- 
 nection with black lists, 
 172-73; supporting Shoe 
 Machinery conditional re- 
 quirements, 173-75; un- 
 fair, supplementing other 
 methods, 175; threats of 
 infringement suits, 176-79; 
 National Harrow Co., 176- 
 78; Vacuum Cleaner Co., 
 178; unfairness of threats 
 of infringement suits, 178- 
 79; threats to engage in 
 competition, 179-80, 190- 
 91, 191 n.; Com Products 
 Refining Co., 179-80; of 
 capital, 180-82; Cash 
 Register "gloom room"
 
 256 
 
 Unfair Competition 
 
 and "graveyard," 182-85; 
 "knocker" cash registers, 
 186-88; Cash Register 
 "confidential" statements, 
 188-89; of McGraw at- 
 tempted, 189-90; Cash Reg- 
 ister threats to compete, 
 190-91; Shoe Machinery 
 Co., 192-93; unfairness 
 generally, 193-94. See also 
 contents of chap. x. 
 
 Interstate Commerce Act, 
 espionage forbidden by, n. 
 155-56. 
 
 Inventor, theory of reward, 
 60-61, 66-69. 
 
 James, Henry F.: definition 
 of "knocker" machines by, 
 45; testimony of, re trading 
 on infringement suits, 205-6. 
 
 Jobbers. See Wholesalers. 
 
 Jones, Charles H., testimony 
 of, re effect of Shoe Ma- 
 clunery conditional require- 
 ments, 57-58,62. 
 
 Joy Line. See Bogus Inde- 
 pendent Concerns. 
 
 Kaukaima Machine Co., en- 
 grossing contract with Wall 
 Paper Co., 142-43- 
 
 llellogg elevator, discrimina- 
 tion against, 136-37. 
 
 Kellogg V. Sowerby, 137 n. 
 
 Kelly, John A., testimony of, 
 re effect of Bath Tub Trust, 
 exclusive arrangements, 90. 
 
 Keystone Watch Case Co.: 
 exclusive arrangements, 87- 
 88; intimidation to enforce 
 exclusive dealing, 168-71. 
 
 Kindling-wood machinery. See 
 Standard Wood Co. 
 
 King's Great Western Powder 
 Co., attacked by local price- 
 cutting, 13-14- 
 
 Knecht, Ben, 158-60. See also 
 Espionage; Spies. 
 
 "Knockers": description, 45- 
 46; used by National Cash 
 Register Co. for intimida- 
 tion, 186-88. See also 
 Fighting Brands. 
 
 Kodak Co. See Eastman 
 Kodak Co. 
 
 Kresko paper. See Fighting 
 Brands. 
 
 Lakes Towing Co. See Great 
 Lakes Towing Co. 
 
 Lamp Combination. See Elec- 
 tric Lamp Combination. 
 
 Lamson Cash Register Co.: 
 spied on by National, 157, 
 1 58; threats to compete 
 with, 191 n. 
 
 Lester & Wasley, engrossing 
 contract with Envelope Co., 
 139- 
 
 Libby Glass Co., preferent 
 arrangements with Lamp 
 Combination, 121. 
 
 License agreements, misnomer 
 in Bath Tub Trust arrange- 
 ments, 87 n. 
 
 Liefmann, Robert: reference 
 to article by, 6 n.; quoted, 
 218-19. 
 
 Liggett & Myers, plug output 
 in 1890, 43. 
 
 Local price-cutting: expla- 
 nation, lo-ii; by Standard 
 Oil Co., 11-13; prices and 
 profits compared with per- 
 centages of competition, 
 12 n.; by Powder Trust, 13- 
 14; against King's Great 
 Western Co., 13-14; against 
 Birmingham Co., 14; and 
 National Cash Register Co., 
 14-15; results of, 16; why 
 unfair, 16-17; argument for,
 
 Index 
 
 257 
 
 in certain cases, 17-18; and 
 general price-cutting, 18; 
 compared with bogus con- 
 cerns, 35-39; resemblance 
 to fighting instruments, 50- 
 52. See also contents of 
 chap. i. 
 
 Lorillard Co., importance in 
 plug business, 43. 
 
 Luhrman & Wilbem, operated 
 with bogus Queen City Co., 
 24. 
 
 Lumber, See Black Lists; Es- 
 pionage; Interference; Trade 
 Associations. 
 
 Mail-order houses, relation of, 
 to black lists, 98, 99, 104. 
 
 Malmedy. See Steiabach & 
 Co. 
 
 Manhattan Navigation Co., 
 complaint of, against fight- 
 ing ships, 42. 
 
 Manhattan Navigation Co. v. 
 Hudson River Navigation 
 Co., 42 n. 
 
 Manipulation: Naval Stores 
 Combination, 214-15; 
 American Sugar Refining 
 Co., 215-16; Alimiinum Co. 
 of America, 216. See also 
 contents of chap. xii. 
 
 Max Ams Machine Co., en- 
 grossing contracts with Can 
 Co., 146-47. 
 
 McGraw, W. T.: attempted 
 intimidation of, by Na- 
 tional Cash Register Co., 
 189-90; testimony of, re 
 intimidation, 190. 
 
 Merrick, Frank W., testi- 
 mony of, re intimidation, 
 192-93. 
 
 Metropolitan Cash Register 
 Co., intimidation of, by 
 National, 186. 
 
 Milwaukee Railroad. See Chi- 
 cago, Milwaukee & St. Paul 
 R.R. Co. 
 
 Mimeographs. See Henry v. 
 Dick. 
 
 Monopoly: competition theory 
 of, 217-18; result of com- 
 petition, 217-18; problem 
 in the United States, 220; 
 and unfair competition, 220- 
 21; creation through effi- 
 ciency, 222-23; mainte- 
 nance through efficiency, 
 223-27; opposing tendency 
 227-28; and interests of 
 society, 229-30; in con- 
 struction of Trade Com- 
 mission and Clayton acts, 
 n. 235-42. See also Sher- 
 man Anti-trust Act. 
 
 Morony Hardware Co. v. 
 Goodwin Pottery Co., 85 n., 
 116 n. 
 
 Morrison, Frank : testimony 
 of, re espionage, 161-62; 
 testimony of, re fomenting 
 strikes, 207-9. -^^^ o.l^o 
 Spies. 
 
 Morrison Photographic Supply 
 Co., letter to, re KLresko 
 paper, 49. 
 
 Motion Picture Patents Co., 
 conditional requirements, 72. 
 
 Motion pictures. See Motion 
 Picture Patents Co. 
 
 Muzzy, W. H., testimony of, 
 re National Cash Register 
 Co., infringement suits, 204. 
 
 National Cash Register Co.: 
 and local price-cutting, 14- 
 15; bogus concerns, 24-29; 
 Universal Cash Register Co., 
 organized by, 25; Weiler 
 concern purchased and oper- 
 ated through Park, 26; 
 Union Computing Machine
 
 258 
 
 Unfair Competition 
 
 Co. purchased and operated 
 through Park, 26-27; bogus 
 Watson Co. operated to 
 meet second-hand competi- 
 tion, 28-29; "knocker" ma- 
 chines, 45-46; spying of, on 
 Foss Novelty Co., 156-57, 
 Lamson Co., 157-58, Osbom 
 Co., 157, Hallwood Co., 
 158-59, 160, American Co., 
 159-60; intimidation of 
 capital, 180-82; "gloom 
 room" and "graveyard," 
 182-85; intimidation by 
 "knockers," 186-88; "con- 
 fidential statements" to in- 
 timidate, 188-89; intimida- 
 tion of McGraw attempted 
 by, 189-90; interference by 
 inducing breach of contract, 
 200-203; interference by in- 
 fringement suits, 203-6. 
 
 National Electric Lamp Co. 
 See Electric Lamp Combi- 
 nation. 
 
 National Harrow Co., threats, 
 176-78. 
 
 National Wall Paper Co., ex- 
 clusive arrangements, 83. 
 
 Naval Stores Combination, 
 manipulation of turpentine 
 market, 214-15. 
 
 Naval Stores Export Co., 
 eliminated by manipulation, 
 214-15. 
 
 Nelson, Otto. See Espionage; 
 Spies. 
 
 Neptune Line. See Bogus 
 Independent Concerns. 
 
 New Departure Mfg. Co., 
 intimidation to secure ex- 
 clusive arrangements, 171- 
 72. 
 
 New York Cash Register Ex- 
 change, bought out by 
 Watson, 29. 
 
 New York, New Haven & 
 Hartford R.R. Co., bogus 
 concerns operated by, 34- 
 35- 
 
 New York Powder Co. See 
 Bogus Independent Con- 
 cerns. 
 
 New Zealand: provisions 
 against tying clauses, 70 n.; 
 law limiting selection of cus- 
 tomers, 112 n.; laws regard- 
 ing rebates, n. 11 7-18. 
 
 Nims, H. D., reference to 
 views of, 3 n. 
 
 Northwestern Railroad. See 
 Chicago & Northwestern 
 R.R. Co. 
 
 Norton Bros., acquired by 
 American Can Co., 144. 
 
 Norton Chemical Co., engross- 
 ing contract with Aluminum 
 Co., 152. 
 
 Oil, rebates by transportation 
 companies, 134-35. See also 
 Standard Oil Co. 
 
 Osborn Cash Register Co.: 
 spied on by National Cash 
 Register Co., 157; intimi- 
 dation by National Cash 
 Register Co., 187-88. 
 
 Osbom, F. C, testimony of, 
 re intimidation, 187-88. 
 
 Overloadmg: by Harvester 
 Co., 73; resemblance of, to 
 exclusive dealing, 73. 
 
 Park, Edgar E.: relations of, 
 to National Cash Register 
 Co., 24-25; organization of 
 the Universal suggested by, 
 25; bogus WeUer concern 
 operated by, 26; bogus 
 Union Co., operated by, 26- 
 27; and Potin competition, 
 180-82.
 
 Index 
 
 259 
 
 Patents : on carbon-filament 
 lamps, 56; of Crown Cork 
 & Seal Co., 58-59; theory 
 underlying grant of, 60-61; 
 and Dick decision, 64-66; 
 Ch. Justice White on, in 
 Dick case, 64-65; theory, 
 inventor's reward, 66-69; 
 validity of negative film, 
 n. 72-73; . threats of in- 
 fringement suits, 176-78; 
 unfairness of threats of suit, 
 178-79; Cash Register Co. 
 infringement suits, 203-6; 
 trading on infringement 
 suits, 203-6. 
 
 Patterson, John H., attempt 
 of, to intimidate McGraw, 
 190. 
 
 Patterson (R. A.) Tobacco Co. 
 See Bogus Independent Con- 
 cerns. 
 
 Patterson, Robert, testimony 
 of, re special men, 199. 
 
 Patterson v. U.S., 25 n., 26 n., 
 27 n., 46 n., 185 n., 187 n., 
 188 n., 190 n., 199 n., 200 n. 
 
 Pennsylvania Railroad, espi- 
 onage by employees of, 155. 
 
 Pennsylvania Sugar Refining 
 Co., suppressed by American 
 Sugar Refining Co., 215-16. 
 
 Petroleum. See Oil; Standard 
 
 Oil Co. 
 Phoenix Glass Co., preferences 
 
 to Lamp Combination, i2i- 
 
 22. 
 
 Photographic papers: fighting 
 brands suggested by East- 
 man, 48; instructions re- 
 garding " Kresko," 49; black- 
 listing "Artura," 106-9; 
 gas light, 109; early charac- 
 ter and requirements, 148; 
 Rives and Steinbach papers, 
 149; importance of imported, 
 
 149. See also Artura ; Fight- 
 ing Brands. 
 
 Photographic supplies. See 
 Eastman Kodak Co. 
 
 Pierce, Dr., intimidation of, 
 by National Cash Register 
 Co., 186. 
 
 Pinkerton detectives. See De- 
 tectives. 
 
 Pitch. See American Coal 
 Products Co. 
 
 Plant, Thomas G.: espionage 
 against, 161-64; complete 
 line of shoe machinery per- 
 fected by, 206. 
 
 Plug tobacco: war, 42-44; 
 "Battle Axe," 43; output 
 of various companies, 43; 
 increase of control by Ameri- 
 can Tobacco Co., 43-44; 
 losses by American Tobacco 
 Co., 44. 
 
 Potin, Julian, and operations of 
 Park, 180-82, 
 
 Pottery Association: exclu- 
 sive arrangements, 84-85 ; 
 rebates for exclusive dealing, 
 116. 
 
 Powder Trust: local price- 
 cutting, 13-14; "yellow 
 dog" companies, 19-21. 
 
 Preferential arrangements. See 
 Rebates. 
 
 Price-cutting. See Local Price- 
 Cutting. 
 
 Providence Gas Burner Co., 
 preferential arrangements 
 with Lamp Combination, 
 122. 
 
 Puttman, Paul, fighting brands 
 suggested to, 48. 
 
 Queen City Tobacco Co. See 
 Bogus Independent Con-
 
 26o 
 
 Unfair Competition 
 
 Railroads: tap-line and switch- 
 ing services as rebates, 135- 
 36; espionage by employees, 
 IS4-5S- 
 
 Ranges. See St. Louis Steel 
 Range Co. 
 
 Rebates: to enforce exclusive 
 arrangements, 113-33; by 
 manufacturing and trading 
 companies, 113-27; Ameri- 
 can Tobacco Co., 113; East- 
 man Kodak Co., 114; Bath 
 Tub Trust, 1 14-15; Conti- 
 nental Tobacco Co., ii5;Con- 
 tinentalWaU Paper Co.,ii6; 
 Pottery Association, 116; 
 Cleveland Stone Co., 
 116; Com Products Re- 
 fining Co., 1 16-17; Austra- 
 lian and New Zealand laws, 
 n. 1 1 7-18; and Trade Com- 
 mission Act, 118 n.; and 
 Clayton Act, 118 n.; un- 
 fairness supporting exclusive 
 arrangements, 11 7-21; and 
 refusal to sell, 1 19-21; pref- 
 erential arrangements with 
 Lamp Combination, 121-22; 
 preferential arrangements 
 with American Can Co., 122- 
 23; double unfairness in 
 lamp and can preferential 
 arrangements, 123-27; size 
 of can rebates, 125-26; by 
 transportation companies, 
 127-37; steamship deferred 
 for exclusive arrangements, 
 127-33; unfairness of steam- 
 ship deferred, 1 29-3 1 ; Lakes 
 Towing Co. for exclusive 
 dealing, 132-33; by rail- 
 road companies, 133-37; in 
 oil transportation, 134- 
 35 ; switching and tap-Une 
 services as, 135-36; on 
 grain shipments, 136-37; 
 general unfairness, 137-38. 
 See also contents of chap. 
 
 vii; Exclusive Arrange- 
 ments. 
 
 Rebating. See Rebates. 
 
 Recommended lists, used by 
 trade associations, 101-2. 
 See also Black Lists. 
 
 Red Books. Su Books. 
 
 Refusals to sell: for failure to 
 deal exclusively, 105-12; 
 in Australia and New Zea- 
 land, 112 n.; and Trade 
 Commission Act, 112 n.; 
 and Clayton Act, 112 n.; 
 right not lessened by rebates, 
 119-21. 
 
 Restraint of trade, in con- 
 struction of Trade Com- 
 mission and Clayton acts, 
 n. 235-42. See also Sherman 
 Anti-trust Act. 
 
 Retailers: efforts of, to pro- 
 tect themselves, 97-99; 
 place in distribution, 103- 
 5. See also Trade Associa- 
 tions. 
 
 Rives. See Blanchet Fibres & 
 Kleber. 
 
 Robbins Press Works, ac- 
 quired by American Can Co., 
 144- 
 
 Roberts, Jackson, quoted by 
 Stone on effect of shoe 
 machinery exclusive arrange- 
 ments, 80-81. 
 
 Roofing felt. See American 
 Coal Products Co. 
 
 Royal Baking Powder Co.: 
 Western Glucose Co. ac- 
 quired by, 29-30; agree- 
 ment wili Corn Products 
 Co., 30; threatened with 
 competition, 179-80. 
 
 Royal Incandescent Lamp 
 Co. See Bogus Independent 
 Concerns; Electric Lamp 
 Combination.
 
 Index 
 
 261 
 
 St. Louis Steel Range Co., 
 interfered with by Wrought 
 Iron Range Co., 195-97. 
 
 St. Louis Steel Range Co. v. 
 Wrought Iron Range Co., 
 197 n. 
 
 Sarason v. Fr6nay, 70 n. 
 
 Second-hand cash-register com- 
 petition, 28. 
 
 Sections of Federal Trade Com- 
 mission Act. See Federal 
 Trade Commission Act. 
 
 Selection of cutomers, 111-12; 
 limitation in Australia and 
 New Zealand, 1 1 2 n. 
 
 Services to be rendered, 202 n. 
 
 Sherman Anti-trust Act, and 
 unfair competition, 233-35. 
 
 Shipping. See Steamship Con- 
 ferences. 
 
 Shipping Board Act, espion- 
 age forbidden by, n. 155- 
 56. 
 
 Shipping ring. See Steam- 
 ship Conferences. 
 
 Shoe Machinery Co. See 
 United Shoe Machinery Co. 
 
 Sleeper Machine Co., acquired 
 by Can Co., 144. 
 
 Sochat, Abram: testimony of, 
 re Shoe Machinery espion- 
 age, 162-64. See also Spies. 
 
 Southern Cash Register Co., 
 and Watson Ca^ Register 
 Co., 29. 
 
 Spaulding, buggy salesmen 
 interfered with, 197-98. 
 
 Special men: character and 
 duties, 198-200; inducing 
 breach of contracts, 200- 
 203. 
 
 Spies: railroad employees, 
 154-55; Ellingwood, 156- 
 57; Gillies, 157; Nelson, 
 157-58; Knecht, 158-60; 
 
 detectives, 160-61; Morri- 
 son, 161-62; Sochat, Abram, 
 162-64. See also Espion- 
 age. 
 
 Sprague Canning Machinery 
 Co., acquired by American 
 Can Co., 144. 
 
 Standard Envelope Co., char- 
 acter, 139 n.; engrossing 
 contract with Lester & Was- 
 ley, 139. 
 
 Standard Oil Co., local price- 
 cutting, 11-13; prices, 
 profits, _ and percentages of 
 competition imder local 
 price-cutting, 12 n.; char- 
 acter and number of bogus 
 concerns, 21-22. 
 
 Standard Oil Co. v. U.S., 12 n., 
 22 n. 
 
 Standard Wood Co., engrossing 
 contract with Greene Mfg. 
 Co., 147. 
 
 State V. Standard Oil Co., 11 n. 
 
 State V. National Cash Register 
 Co., 15 n., 25 n., 26 n., 28 n., 
 29 n., 45 n., 156 n., 157 n., 
 158 n., 159 n., 160 n., 161 n., 
 182 n., 183 n., 184 n., 185 n., 
 188 n., 189 n., 191 n., 198 n., 
 199 n., 201 n., 203 n., 204 n., 
 205 n., 206 n. 
 
 Steamship conferences, defini- 
 tion, character, and purposes, 
 n. 127-28. 
 
 Steel Range Co. See St. 
 Louis Steel Range Co. 
 
 Stein, Hirsh & Co. See Bogus 
 Independent Concerns. 
 
 Steinbach & Co. : photographic 
 paper produced by, at Mal- 
 medy, 149; combination to 
 form General Paper Co., 149. 
 See also General Paper Co. 
 
 Stevens, W. H. S., reference 
 to writings of, a n., 12 n.,
 
 262 
 
 Unfair Competition 
 
 13 n., 58 n., 129 n., 139 n-. 
 233 n., 235 n. 
 StoUwerck, intiimdated, 181- 
 
 82. 
 Stone, Alex., Jackson Roberts 
 quoted by, on effect of shoe 
 machinery exclusive ar- 
 rangements, 80-81. 
 Sugar. • See American Sugar 
 
 Refining Co. 
 Swift & Co., no bogus ferti- 
 lizer concerns owned by, 33- 
 Switching services as rebates, 
 
 135-36. 
 Syndikats-Rhederei, character, 
 membership, and purpose, 
 41. See also Fightmg 
 Ships. 
 
 Taggart, Rush: relations with 
 Park, 27; testimony of, re 
 Union purchase, 27. 
 Tap lines, services as rebates, 
 
 135-36. . 
 
 Thread Combination, fightmg 
 brands, 46-47; flying squad- 
 rons, 47- 
 Threats. See Intimidation. 
 Tin plate. See American Tin 
 
 Plate Co. 
 Tobacco: See American To- 
 bacco Co.; Cigarettes; Con- 
 tinental Tobacco Co.; Plug 
 Tobacco. 
 Toledo Scales & Cash Register 
 Co., intimidation by Na- 
 tional, 187. 
 Trade Act. See Federal 
 
 Trade Commission Act. 
 Trade associations, wholesale 
 ;md retail: and distribu- 
 tion, 98-104; purpose of 
 black lists and boycotts, 
 98-99; classification, 99-101; 
 recommended lists, 101-2; 
 
 unfairness of black list,io3-s ; 
 espionage to assist blacklist- 
 ing by lumber, 161 ; intimida- 
 tion by lumber, _ 172-73; 
 spurious inquiries in lumber 
 trade, 209-11. 
 Trade Commission. See Fed- 
 eral Trade Commission. 
 Trade Comission Act. See 
 Federal Trade Commission 
 Act. 
 Trusts. See Bath Tub Trust; 
 
 Powder Trust. 
 Tuckhom & Co., and bogus 
 Watson Cash Register Co., 
 28. 
 Turpentine. See Naval Stores 
 
 Combination. 
 Tying clauses. See Condi- 
 tional Requirements. 
 
 Uneconomic competition. Sec 
 
 Unfair Competition. 
 Unfair competition: declared 
 unlawful, i; difficult to 
 define, i ; defined as passing 
 off, 2-3; older legal signifi- 
 cation, 2-4; older significa- 
 tion and Trade Act,_ 4; 
 purpose of new laws against, 
 4, 230; determined by refer- 
 ence to fair competition, 
 5-9; tested through_ effi- 
 ciency, 7-8; classification of 
 methods, 9; local price- 
 cutting, 16-17; bogus inde- 
 pendent concerns, 35-39; 
 fighting instruments, 50-53; 
 conditional requirements, 59- 
 66, 66-69, 72-76; exclusive 
 arrangements, 80-81, 89-96; 
 black lists, 103-5, 109-12; 
 rebates and preferences, 117- 
 21, 12^-27, 129-31, 137-38; 
 engrossing, 150. ^ 5 2753; 
 espionage, 164-65; mtum- 
 dation, 175, 179. 193-94;
 
 Index 
 
 263 
 
 interference, 211-13; neces- 
 sity of elimination, 220, 
 221, 228, 229-30; and Sher- 
 man Anti-trust Act, 233-35; 
 advantages of preventing 
 by Commission, 236-44; as 
 cause of monopoly, 220-21. 
 See also various chapter 
 headings. 
 
 Unfair methods of competition. 
 See Unfair Competition. 
 
 Unfair practices. See Unfair 
 Competition. 
 
 Union Cash Register Co. See 
 Union Computing Machine 
 Co. 
 
 Union Computing Machine 
 Co., intimidation of, by 
 National Cash Register Co., 
 187. See also Bogus Inde- 
 pendent Concerns. 
 
 Union Lock Stitch Co., in- 
 timidation of owners at- 
 tempted by Shoe Machinery 
 Co., 192-93. 
 
 Union Pacific Railroad, espi- 
 onage by employees, 155. 
 
 Union Stock Yards Can Co. 
 See Bogus Independent 
 Concerns. 
 
 United Shoe Machinery Co., 
 conditional requirements on 
 machines formerly patented 
 and their eflfect, 57-58; 
 typical tying clause quoted, 
 57 n.; effect of conditional 
 requirements, 61-62; condi- 
 tional requirements based 
 on two or more patents, 66- 
 69; exclusive arrangements, 
 78-81; exclusive-use clause, 
 78-79; prohibitive clause, 
 79-80; extent of exclusive 
 arrangements, 80;* effect of 
 exclusive arrangements, 80- 
 81; espionage of Plant fac- 
 tory 161-64; intimidation 
 
 supporting conditional re- 
 quirements, 173-75; intimi- 
 dation, 192-93; interference 
 by fomenting a strike, 206-9. 
 
 United States Steel Corpora- 
 tion, minutes on tin-plate 
 contract, 122. 
 
 United States Transportation 
 Co. See Bogus Independ- 
 ent Concerns. 
 
 U.S. V. Aluminum Co. of 
 America, 151 n., 152 n., 216 n. 
 
 U.S. V. American Can Co., 
 32 n., 123 n., 124 n., 145 n., 
 147 n. 
 
 U.S. V. American Coal Prod- 
 ucts Co., n. 15-16, 71 n. 
 
 U.S. V. American Naval Stores 
 Co., 214 n. 
 
 U.S. V. American Sugar Re- 
 fining Co., 16 n., 31 n., 215 n., 
 216 n. 
 
 U.S. V. American Thread Co., 
 
 47 n. 
 
 U.S. V. American Tobacco Co., 
 22 n., 23 n., 24 n., 37 n. 
 
 U.S. V. S. F. Bowser, 164 n., 
 193 n., 203 n., 212 n. 
 
 U.S. V. Central West Publish- 
 ing Co., 33 n., 203 n. 
 
 U.S. V. Cleveland Stone Co., 
 88 n., 116 n. 
 
 U.S. V. Colorado & Wyoming 
 Lumber Dealers' Association, 
 99 n. 
 
 U.S. V. Corn Products Refining 
 Co.,3in.,ii7n.,i36n.,i8on. 
 
 U.S. V. Eastern States Retail 
 Lumber Dealers' Associa- 
 tion, 98 n., 100 n., 102 n., 
 103 n. 
 
 U.S. V. Eastman Kodak Co., 
 
 48 n., 49 n., so n., 84 n., 
 109 n., no n., Ill n., 120 n., 
 121 n., 149 n., 150 n., 151 n.
 
 264 
 
 Unfair Competition 
 
 U.S. V. E. I. duPont de Ne- 
 mours & Co., 14 n., 21 n. 
 
 U.S. V. General Electric Co., 
 21 n., 56 n., 60 n., 122 n., 
 143 n. 
 
 U. S. V. Edward E. Hartwick, 
 100 n. 
 
 U. S. V. Willard G. Hollis, 
 103 n., 161 n., 171 n., 172 n., 
 210 n., 211 n. 
 
 U.S.D. International Harvester 
 Co., 70 n., 71 n., 86 n., 227 n. 
 
 U.S. V. Keystone Watch Case 
 Co., 88 n., 169 n., 171 n. 
 
 U.S. V. Master Horseshoers' 
 National Protective Asso- 
 ciation of America, 103 n. 
 
 U.S. V. Motion Picture Patents 
 Co., 72 n. 
 
 U.S. V. New Departure Mfg. 
 Co., 172 n. 
 
 U.S. V. New York, New Haven 
 & Hartford Railroad Co., 
 
 35 n- 
 U.S. V. Pacific Coast Plimibing 
 
 Supply Association, 100 n., 
 
 103 n. 
 U.S. V. Philadelphia Jobbing 
 
 Confectioners' Association, 
 
 103 n. 
 U.S. V. Southern Wholesale 
 
 Grocers' Association, 100 n., 
 
 103 n. 
 U.S. V. Standard Sanitary 
 
 Mfg. Co., 87 n., 89 n., 90 n., 
 
 IIS II' 
 U.S. V. Standard Wood Co., 
 
 147 n. 
 U.S. V. United Shoe Machinery 
 
 Co., 79 n., 80 n., 81 n., 161 n., 
 
 164 n., 193 n., 209 n. 
 U.S. p. United States Steel 
 
 Corporation, 224 n., 225 n. 
 Universal Cash Register Co. 
 
 See Bogus Independent 
 
 Concerns. 
 
 Vacuum Cleaner Co., infringe- 
 ment suits threatened by, 
 
 178. 
 
 Waldron, John & Son, en- 
 grossing contract with Wall 
 Paper Co., 142-43. 
 
 WaU paper. See Continental 
 Wall Paper Co.; National 
 Wall Paper Co. 
 
 Wall paper machinery. See 
 Continental Wall Paper Co. 
 
 Ware-Kramer Co., and bogus 
 independents, 36-37. 
 
 Warren, J. E., testimony of, 
 re espionage, 157-58; testi- 
 mony of, re "graveyard" 
 and "gloom room," 182- 
 85; testimony of, re indu- 
 cing breach of contract, 
 201-3. 
 
 Watchc£ises. See Keystone 
 Watch Case Co. 
 
 Waters-Pierce Oil Co., 11. 
 
 Watson Cash Register Co. 
 See Bogus Independent 
 Concerns. 
 
 Watson, T. J., Watson Cash 
 Register Co. organized by, 
 for National, 28; second- 
 hand bogus independents 
 operated by, 28-29; New 
 York Register Exchange and 
 Atlanta Register Co., bought 
 by, 29. 
 
 Weiler Cash Register Co. 
 See Bogus Independent 
 Concerns. 
 
 Wells-Whitehead Tobacco Co., 
 information regarding inde- 
 pendent shipments, 36. See 
 also Bogus Independent 
 Concerns. 
 
 Western Elevator Association, 
 and transportation discrimi- 
 nation, 136-37.
 
 Index 
 
 265 
 
 Western Glucose Co., acquired 
 by Royal Baking Powder 
 Co., 29. See also American 
 Maize Products Co. 
 
 White, Chief Justice, quota- 
 tion from opinion Henry v. 
 Dick, 64-75. 
 
 White Books. See Books. 
 
 White Lists. See Black 
 Lists. 
 
 Whiteside, Alexander, testi- 
 mony of, re effect of Crown 
 Cork & Seal Co., conditional 
 requirements, 63. 
 
 Whitwell V. Continental To- 
 bacco Co.,3n., iisn., 234n. 
 
 Wholesalers: efforts of, to 
 protect themselves, 97-99; 
 
 place in distribution, 103-5. 
 
 See Trade Associations. 
 Wilhoit, E. M., testimony of, 
 
 re local price-cutting by 
 
 Standard Oil Co., 11. 
 Woerman, C. See SjTidikats- 
 
 Rhederei. 
 Wood Co. See Standard 
 
 Wood Co. 
 Wrought Iron Range Co., 
 
 interference of, with Steel 
 
 Range Co. salesmen, 195-97. 
 
 "Yellow Dog" companies. 
 See Powder Trust. 
 
 York Electric & Machine Co., 
 engrossing contract with 
 Lamp Combination, 143.
 
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