UNFAIR COMPETITION 27^3 10 THE UNIVERSITY OF CHICAGO PHESS CHICAGO, ILLINOIS THE BAKER A TAYLOR COMPAITT NKW TO&X THE CAMBRIDGE UNIVERSITY PRESS LONDON THE MARUZEN-KABUSHIKI-KAISHA TOKVO, OSAEl, mtOTO, FDKnOKA, SENDAI THE MISSION BOOK COMPANY SHANGHAI 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 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. 27 43 10 UNIVERSITY OF CALIFORNIA AT LOS ANGELES THE UNIVERSITY LIBRARY This book is DUE on the last date stamped below NOV 1 ftD jm.2s*<^ 3 \m ■^ OCT 1 1943 o ^9Sf Form L-9-15m-2,'36 JAN 9l95^t !iia Jul ^.459 Oct 19 '59 Dec 12 '60 '^^^ 8/?£C0 hn U 6V ff.^' 18 61 lilav 22 6 li l^C l7 196f /tr 9 ~«9nRnara»iiuiuii»DK9BaiH D 8 1965 |0 MOV 1 1 19761 UMVERSITY r LIBRARY 3 1158 00416 0965 UC SOUTHERN REGIONAL LIBRARY FACILITY AA 001 252 833 J