Opinion ID: 1312425
Heading Depth: 5
Heading Rank: 2

Heading: Interpretation of the Texas and Michigan Acts

Text: The Senate rejected Reagan's bill, and enacted a much modified version of Senator Sherman's bill in July 1890. (26 Stats. 209; 15 U.S.C. §§ 1-7.) [5] Section 1 of the Sherman Act resembled the Kansas-Maine format: it made illegal [e]very contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce among the several States.... (15 U.S.C. § 1.) Section 2 of the Sherman Act had no counterpart in any of the then-existing state antitrust statutes. It provided: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several states ... shall be deemed guilty of a felony.... ( Id., § 2.) During the next 17 years, a few states adopted versions of the Sherman Act as their own state antitrust statutes. [6] Most, however, adopted acts more closely based on the original Kansas-Maine [7] or Texas [8] formats. Over the years, a number of states switched back and forth between the latter two models, and many added special provisions in a constant effort to refine and focus the law; Texas, for example, enacted revised laws in 1895, 1899, and 1903. Overall, the trend favored the Kansas-Maine format. [9] In addition to this legislative action, there also developed between 1896-1904, a substantial body of case law construing the various statutes  particularly the first Texas act (1889 Tex. Gen. Laws, ch. 117), and one of its progeny, the second Michigan act (1899 Mich. Pub. Acts, No. 255). The scope and meaning of the term combination in the original Texas act was addressed in a number of decisions by the Texas Supreme Court. Cooperative action for a specified, anticompetitive purpose by otherwise independent, competing firms, was held to be an illegal combination. [10] In Gates v. Hooper (1897) 90 Tex. 563 [39 S.W. 1079], however, the court held the 1889 Texas act did not regulate a purchase by one mercantile company of another. The court reasoned that in such a transaction the parties do not combine, as that term is used in the statute, because under a sale the parties do not maintain a separate, otherwise independent and competing relationship. In Gates, supra, 90 Tex. 563, a merchant sold his business to a competitor. The court explained why this transaction did not result in a combination: In order to constitute a trust, within the meaning of the statute, there must be a `combination of capital, skill or acts by two or more.' `Combination,' as here used means union or association. If there be no union or association by two or more of their `capital, skill or acts,' there can be no `combination,' and hence no `trust.' When we consider the purposes for which the `combination' must be formed, to come within the statute, ... we are led to the conclusion that the union or association of `capital, skill or acts' denounced is where the parties in the particular case designed the united co-operation of such agencies, which might have been otherwise independent and competing, for the accomplishment of one or more of such purposes. In the case stated in the petition there is no `combination.' The plaintiff bought defendant's goods, together with the goodwill of his business, both of which were subjects of purchase and sale.... By this transaction neither the capital, skill, nor acts of the parties were brought into any kind of union, association or cooperative action. The purchaser became the owner of the things sold.... ( Id., at p. 1080.) When confronted with the question of whether the two Michigan acts applied to mergers, the Sixth Circuit Court of Appeals interpreted the word combination consistently with Gates, supra, 39 S.W. 1079. In Hitchcock v. Anthony (6th Cir.1897) 83 Fed. 779, the court rejected a claim that a sale of one dockyard business to another dockyard company violated the first Michigan act (1889 Pub. Acts, No. 225). That act was modeled after the Kansas-Maine format, and prohibited all contracts, agreements, understandings and combinations made for various anticompetitive purposes. Despite the broadly worded proscription of conduct under the act, the court focused on the word, combination. The court wrote: The Michigan statute cited was properly construed by Judge Severens, who tried this case below, when he said that: `It is aimed at combinations between parties who, having each a separate business with no interest or concern in that of the other, join together to restrict the output or enhance the prices of goods; and not to cases where one owning a property which he could devote to a given purpose or not, as he pleases, conveys it to another....' ( Id., at p. 781.) Similarly, in A. Booth & Co. v. Davis (C.C.E.D.Mich. 1904) 127 Fed. 875, the court stated that Michigan's second act (1899 Pub. Acts, No. 225) did not apply to the sale of one fishing business to another fishing company. This Michigan act, as noted, was modeled after the original Texas act. It made trusts illegal, and defined trust as a combination of capital, skill or arts[ [11] ] by two or more persons ... for specified anticompetitive purposes. The federal district court found the act was directed only against combinations of persons or firms ... conspiring to co-operate in violation of its provisions, and that it contains nothing prohibitive of the acquisition by a person ... or association.... All such persons ... may carry on business ... provided they do not ... combine with other persons [or] firms ... to effect in any way the ends denounced in the statute. ( Id., at p. 878.) On appeal, the Sixth Circuit agreed: We think that the intent which [would make a given] contract or combination unlawful was one in which both parties participated, and that the act was not intended to comprise a case where there was a sale and a purchase of property, after which the seller should have no interest in the property, and therefore would have no intent as to its further use. ( Davis v. A. Booth & Co. (6th Cir.1904) 131 Fed. 31, 37-38 [construing 1899 Michigan act consistently with 1889 Michigan act].) The few other state cases of that period addressing the issue and construing similar statutes are in accord, and they demonstrate general awareness of the cases discussed above. For example, the Missouri Supreme Court cited and applied Gates, supra, 39 S.W. 1079, in holding a tobacco manufacturing corporation's purchase of another manufacturing corporation did not amount to a combination. ( State v. Continental Tobacco Co. (1903) 75 S.W. 737, 747.) And, although its opinion was filed shortly after the Cartwright Act was passed in 1907, the Nebraska Supreme Court also cited Gates, supra, (together with Davis, supra, 127 Fed. 875, 131 Fed. 31, and Hitchcock v. Anthony, supra, 83 Fed. 779), for the proposition that sale of one lumberyard business to another lumber company is not itself an illegal combination. ( Engles v. Morgenstern (1909) 85 Neb. 51 [122 N.W. 688, 690].) In summary, at the time the Cartwright Act was enacted there was a recognizable body of case law construing the word combination (in both Kansas-Maine and Texas-type acts) as not applying to the purchase of one business by another entity engaged in the same business.