Case Name: UNITED STATES v. AMERICAN TOBACCO CO. et al.
Court: United States Circuit Court for the Southern District of New York
Jurisdiction: United States
Decision Date: 1908-11-07
Citations: 164 F. 700
Docket Number: 
Parties: UNITED STATES v. AMERICAN TOBACCO CO. et al.
Judges: Before I,ACOMBE, COXE, WARD, and NOYES, Circuit Judges.
Reporter: Federal Reporter
Volume: 164
Pages: 700–728

Head Matter:
UNITED STATES v. AMERICAN TOBACCO CO. et al.
(Circuit Court, S. D. New York.
November 7, 1908.)
1. Monopolies (§ 12 ) — “Combinations in Restraint op Interstate Commerce.”
Every combination which restrains free competition in interstate trade is a combination in restraint of interstate commerce, in violation of Sherman Act July 2, 1890, c. 647, § 1, 26 Stat 209 (U. S. Comp. St 1901, p. 3200).
[Ed. Note. — For other cases, see Monopolies, Cent. Dig. § 10; Dec. Dig. § 12.
For other definitions, see Words and Phrases, vol. 2, pp. 1275-1276; vol. 8, p. 7606.]
2. Monopolies (§ 20 ) — “Combination in Restraint op Interstate Commerce” — Consolidation oe Competing Corporations.
The consolidation into one corporation of a large number of corporations engaged in the different branches of the tobacco industry, many of which were previously active competitors in interstate and foreign commerce, with the result of eliminating such competition and of giving the consolidated company control of at least 75 per cent, of the entire manufactured tobacco business of the United States, including the interstate trade therein, constitutes a “combination in restraint of interstate commerce,” in violation of Sherman Act July 2, 1890, c. 647, § 1, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3200).
[Ed. Note. — For other cases, see Monopolies, Dec. Dig. § 20. ]
3. Commerce (§ 40 ) — “Interstate Commerce” — What Constitutes.
A corporation engaged in the manufacture and sale of tobacco in its various forms, which purchases its raw materials and supplies in different states and in foreign countries, and ships them by means of common carriers into other states for manufacture, and its products from one state into another between its different factories and agencies, and sells the same by means of agencies and salesmen throughout the United States- and in the markets of the world, is engaged in “interstate commerce,” and it is immaterial that it distributes its products by means of common carriers or that the title technically passes on delivery to such carriers.
[Ed. Note. — For other eases, see Commerce, Cent. Dig. §§ 29, 30; Deo. Dig. § 40.
For other definitions, see Words and Phrases, vol. 4, pp. 3724-3731.]
4. Monopolies (§ 17 ) — Combinations in Restraint op Interstate Commerce —Subsidiary Corporation — “Unlawful Monopoly.”
A corporation engaged in selling tobacco products at retail is not rendered unlawful by the fact that a majority of its stock is owned by another corporation, which is itself an unlawful combination in restraint of interstate commerce, and which sells to the retailing corporation the larger part of its goods, where the latter conducts its business independently in a lawful manner, and sells also goods of other manufacturers. Nor does it constitute an “unlawful monopoly,-’ in violation of Sherman Act July 2, 1890, c. «17, § 2, 26 Stat. 209 (IT. S. Comp. St. 1901, p. ¡1200), because it operates in the several states 100 retail stores out of 600,000 places where tobacco is sold.
[Ed. Note. — For other cases, see Monopolies, Dec. Dig. § 17. ]
Ward, Circuit Judge, dissenting.
In Equity.
J. C. McReynolds and Edwin P. Grosveuor, Sp. Asst. Attys. Gen., for complainant.
William J. Wallace, W. W. Fuller, Delancey Nicoll, and Junius Parker, for American Tobacco Co. and constituent companies.
William B. Hornblower, W. W. Miller, Morgan M. Mann, and John Pickrell, for Imperial Tobacco Co.
Charles R. Carruth, for R. P. Richardson, Jr., & Co., Inc.
Stroock & Stroock (S. M. Stroock, of counsel), for United Cigar Stores Co.
Before I,ACOMBE, COXE, WARD, and NOYES, Circuit Judges.
For other cases see same topic & § number in Dec. & Am. Digs.-1907 to date, & Rep’r Indexes
For other cases see same topic & § number in Dee. & Am. Digs. 1907 to date, & Itep’r Indexes

Opinion:
LACOMBE, Circuit Judge.
Act July 2, 1890, c. 647, 26 Stat. 209 (U. S. Comp. St. 1901, p. 3200), in its first section, declares to be illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations." That declaration, ambiguous when enacted, is, as the writer conceives, no longer open to construction in the inferior federal courts. Disregarding various dicta and following the several propositions which have been approved by successive majorities of the Supreme Court, this language is to be construed as prohibiting any contract or combination whose direct effect is to prevent the free play of competition, and thus tend to deprive the country of the services of any number of independent dealers however small. As thus construed the statute is revolutionary. By this it is not intended to imply that the construction is incorrect. When we remember the circumstances under which the act was passed, the popular prejudice against large aggregations of capital, and the loud outcry against combinations which might in one way or another interfere to suppress or check the full, free, and wholly unrestrained competition which was assumed, rightly or wrongly, to be the very "life of trade," it would not be surprising to find that Congress had responded to what seemed to be the wishes of a large part, if not the majority, of the community, and that it intended to secure such competition against the operation of natural laws. The act may be termed revolutionary, because, before its passage, the courts had recognized a "restraint of trade" which was held not to be unfair, but permissible, although it operated in some measure to restrict competition. By insensible degrees, under the operation of many causes, business, manufacturing and trading alike, has more and more developed a tendency toward larger and larger aggregations of capital and more extensive com binations of individual enterprise. It is contended that, under existing conditions, in that wá'y only can production be increased and cheapened, new markets opened and developed, stability in reasonable prices secured, and industrial progress assured. But every aggregation of individuals or corporations, formerly independent, immediately upon its formation terminates an existing competition, whether or not some other competition may subsequently arise. The act as above construed prohibits every contract or combination in restraint of competition. Size is not made the test: Two individuals who have been driving rival express wagons between villages in two contiguous states, who enter into a combination to join forces and operate a single line, restrain an existing competition; and it would seem to make little difference whether they make such combination more effective by forming a partnership or not.
Accepting this construction of the statute, as it would seem this court must accept it, there can be little doubt that it has been violated in this case. The formation of the original American Tobacco Company, which antedated the Sherman act, may be disregarded. But the present American Tobacco Company was formed by subsequent merger of the original company with the Continental Tobacco Company and the Consolidated Tobacco Company, and when that merger became complete two of its existing competitors in the tobacco business were eliminated.
What benefits may have come from this combination, or from the others complained of, it is not material to inquire, nor need subsequent business methods be considered, nor the effects on production or prices. The record in this case does not indicate that there has been any increase in the price of tobacco products to the consumer. There is an absence of persuasive evidence that by unfair competition or improper practices independent dealers have been dragooned into giving up their individual enterprises and selling out to the principal defendant. In this connection interesting testimony is given by one of the government's witnesses. The deponent was for many years an independent dealer and secretary of the Independent Tobacco Manufacturers' Association. He testified:
"My business was conducted by me alone. I had no partner, no corporation. It had got to be a large business, and if anything happened to me there was no one there to continue it. The value of the business was in a brand, and I became fearsome what would happen to it if I would be disabled in any way. It would not be much value to my estate unless some one had a knowledge of the business' and knew how to manage it, and then I believed there was a maximum business beyond which you cannot conduct it profitably personally. It will get so big that it requires an organization. And then, too, I was only identified as a scrap tobacco manufacturer; and, going, by precedent, the consuming public of tobacco changes every 10, 12, or 15 years, and I have figured that might happen again, and it wouldn't use scrap tobacco, and might use something else, and then I would not have much business, I thought; whereas the American Tobacco Company had been in conference with me, I knew the officers, and I made up my mind, when a proper proposition was made to me, such as was satisfactory to me, I would be very anxious to affiliate myself with a good, big tobacco organization, large enough and strong enough to take care of all conditions that might come up. I was not induced to sell out by a decrease of profits or by any unfair competition. I never had any fear they could drive me out of business.''
During the existence of the American Tobacco Company new enter-' prises have been started, some with small capital, in competition with it, and have thriven. The price of leaf tobacco — the raw material— except for one brief period of abnormal conditions, has steadily increased, until it has nearly doubled, while at the same time 150,000 additional acres have been devoted to tobacco crops and the consumption of the leaf has greatly increased. Through the enterprise of defendant and at large expense new markets for American tobacco have been opened or developed in India, China, and elsewhere. But all this is immaterial. Each one of these purchases of existing concerns, complained of in the petition, was a contract and combination in restraint of a competition existing when it was entered into, and that is sufficient to bring it within the ban of this drastic statute.
A large part of the record is taken up with testimony as to concealment of the relations existing between some of the defendants. It is difficult to see what bearing this has on the questions in controversy. If an agreement by a corporation to acquire a majority of the stock in a competing corporation is obnoxious to the statute, its vice is certainly not eradicated by the promptest publicity. If, on the other hand, such an agreement is innocent, it does not become guilty merely because the parties to it keep their own counsel about.their mutual transactions.
It is contended that the case at bar is not within the statute, since . the various combinations complained of deal primarily with manufacture; and United States v. Knight, 156 U. S. 1, 15 Sup. Ct. 249, 39 L. Ed. 325, is cited in support of that proposition. It seems to the writer, however, that subsequent decisions of the Supreme Court have modified the opinion in that case, and that the one at bar is as much within the statute as was the combination condemned in Loewe v. Lawlor, 208 U. S. 274, 28 Sup. Ct. 301, 52 L. Ed. 488. Relief under the statute should be granted against the several domestic corporations defendant.
The Imperial Tobacco Company of Great Britain and Ireland, Eim-ited, is one of the defendants. It is a British corporation and entered into a contract with the American Tobacco Company in the city of Eondon, where such contract was a legal and proper one. It is apparently the contention of petitioner that subsequent acts of the imperial Tobacco Company in this country practically amount to the entering into a combination or contract of the sort specified in the statute. So far as appears the only transactions of that company here are these: It buys leaf tobacco of the American grower in very large quantities by its own independent force of purchasing employes. It does not sell its manufactured products here — indeed, such products, having to pay both tariff duties and revenue tax, could not be sold here except at a loss, save in the case of a few fancy high-priced brands. It may be an enlightened public policy to prohibit an alien corporation from buying its raw material in this country unless it sends its products here to compete with American manufacturers; but, if it be, this act seems not to have gone to that extent. The petition should be dismissed as to the Imperial Tobacco Company. A like disposition should be made as to the Briiish-American Company.
As to relief: In the main brief it is prayed that the domestic defendants the American Tobacco Company, American Snuff Company, and others enumerated, should be restrained from carrying on interstate or foreign commerce until conditions existing before illegal con- tracts or combinations were entered into are restored. Such relief is certainly drastic enough and should be efficient. In the petition it is prayed that receivers be appointed for the various companies, who apparently are to conduct a tobacco business and create some sort of artificial competition to take the place of the natural competition which, it is alleged, was destroyed by the combinations. Such a scheme seems impracticable and is wholly unnecessary.
I concur with Judge COXE in his reasoning and conclusions touching the United Cigar Stores Company and the R. P. Richardson, Jr., Company, and agree that issuance of injunction should be suspended until after decision on appeal.