Story Case

The bridge building concerns, operating exclusively in the states west of the Mississippi River, were in strong competition with each other, so that none of them made any profit. The presidents of the companies gathered at a convention and created the Western Bridge Builders' Association. This was in the nature of a holding company, whereby each of the corporations agreed to put its interest, as represented by its shares, into a committee consisting of five members. This committee issued trustee certificates, showing each company's interests. Each corporation retained its identity, but the committee was clothed with the power to determine what prices should be asked, the amount of output of each plant, and the territory to be covered. At the end of each year, the profits should be pooled, and then divided on a pro rata basis to each corporation, depending upon the capital invested by each of them. In 1900, this organization was attacked by the United States, as being in contravention of the first section of the Sherman Act, which provides that " every contract, combination, the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal." What should the court do in this case?

Ruling Court Case. United States Vs. Addyston Pipe Company, Volume 175 United States Reports, Page 211

The Addyston Pipe Company, located in Cincinnati, and five other pipe companies, located farther south, entered into an agreement, by which it was provided that there should be no competition between them in thirty-six different states, in regard to the sale and manufacture of cast-iron pipes. By this agreement, one or more states were designated as the special territory of a particular company, and no other company to the agreement was permitted to sell in those states. In order, however, to make prospective purchasers believe there was competition, other members of the agreement would make "fake" bids, always a little above the price agreed upon by the association, and the amount bid by the company to which the territory was assigned. This territory was known as "pay territory." The companies were permitted to sell at any price in "free territory," i.e. territory not covered by the agreement. It was shown that they sold cast-iron pipes at a very much lower rate in "free" territory, and at a profit, than that sold in "pay" territory, notwithstanding the fact that the "free" territory was considerably farther away from their manufacturing plants than the "pay" territory. The United States brings this action, contending that the agreement here involved creates a combination in restraint of trade and commerce.

It was contended by the defendants that this case related only to manufacture, and like the Knight Case, involving the combination of sugar manufacturers, heretofore given, was not within the scope of the law. Mr. Justice Peckham said: "The direct purpose of the combination in the Knight Case was the control of the manufacture of sugar. There was no combination or agreement, in terms, regarding the future disposition of the manufactured articles; nothing looking to a transaction in the nature of interstate commerce. The probable intention on the part of the manufacturer of the sugar to thereafter dispose of it by sending it to some market in another state, was held to be immaterial, and not to alter the character of the combination. The various cases which had been decided in this court, relating to the subject of interstate commerce, and to the difference between that and the manufacture of commodities, and also the police power of the states as affected by the commerce clause of the Constitution, were adverted to, and the case was decided upon the principle that a combination simply to control manufacture was not a violation of the act of Congress, because such a contract or combination did not directly control or affect interstate commerce, but that contracts for the sale and transportation to other states, of specific articles, were proper subjects for regulation, because they did form part of such commerce.

"If, therefore, an agreement or combination directly restrains not alone the manufacture, but the purchase, sale, or exchange of the manufactured commodity among the several states, it is brought within the provisions of the statute. The power to regulate such commerce, that is, the power to prescribe the rules by which it shall be governed, is vested in Congress, and when Congress has enacted a statute, such as the one in question, any agreement or combination which directly operates, not alone upon the manufacture, but upon the sale, transportation and delivery of an article of interstate commerce, by preventing or restricting its sale, etc., thereby regulates commerce to that extent, and to the same extent trenches upon the power of the national legislature and violates the statute. We think it plain that this contract or combination effects that result." Judgment was given for the United States.

Ruling Law. Story Case Answer

In the year 1890, Congress passed the Sherman Anti-Trust Law, to cope with large combinations of manufacturers and other industrial and commercial organizations, created for the purpose of controlling trade between the states. The original arrangement whereby business and trade were controlled, is illustrated by the Story Case. Title to stocks or bonds or property was put in the name of the holding company, or holding committee, for the benefit of the members, each of whom still retained his or its identity. An actual trusteeship was created, so that the combinations were properly designated as trusts. These combinations, creating a trusteeship, do not exist today, because they have been declared invalid under the Sherman Act. The word "trust," however, lost its meaning as signifying a trusteeship, and became synonymous with "monoply" or combination," and is used in this sense today. Obviously, any such agreement as outlined in the Story Case, is invalid now.