Story Case

All of the trans-Atlantic steamship lines, with the exception of a few small companies, entered into an agreement, known as the North Atlantic Conference, to apportion among themselves the traffic in steerage passengers, and to fix the fares to be charged. Each line was free to secure such share of the traffic as it could, but a line obtaining more than its agreed quotation was bound to compensate the other lines which failed to get their share. The agreement was subject to revision, and a line which did not prove its capacity to hold its share of the business was liable to have this share reduced at the next apportionment.

The United States brought an action against the company as being a violation of the Sherman Act. The United States attorney claimed that this was a combination to prevent free competition, and to regulate the charges for transportation on the ocean, with sufficient power to crush outside competition. The North Atlantic Conference showed, during the trial, that there was no evidence that the rates fixed were unreasonably high; it argued that without some method of regulating competition, there would be a succession of rate wars, putting the weaker lines out of business and resulting, in fact, into a monopoly. Under the rule of reason, it was argued, the combination was not in restraint of trade, and should not be dissolved. What should be the opinion of the court?

Ruling Court Case No. 1. United States Vs. International Harvester Company, District Court Of The United States, District Of Minnesota

In 1902, the International Harvester Company was formed by the combination of five competing companies into one new company. The International Harvester Company thereby acquired control of about eighty-five per cent of the trade in farm implements. In 1912, the United States brought this action to dissolve the company, as a violation of the Sherman Anti-Trust Act.

The evidence, as was conceded by the judges, showed that there was no over capitalization; it showed that the company did not use unfair methods to crush competitors, and that competition was strong and growing. It was shown that the company had improved its harvester machines in quality, but that prices had advanced little in comparison with other farm machinery, in regard to which there was no claim of restraint of trade. It was conceded by the majority of the court that in the main, the business conduct of the company towards its competitors and the public had been honorable, clean, and fair.

Judges Smith and Hook rendered the majority opinion of the court, and based their decision not upon the conduct of the International Harvester Company, but upon the original contract whereby the combination was formed. The court held that the original companies could not have made a legal contract as to prices or as to their services, and, therefore, they could not legally unite to regulate their business.

Judge Smith said: "If the five companies which formed the International had been small, and their combination had been essential to enable them to compete with large corporations in the same line, then their uniting would, in the light of reason, not have been in restraint of trade, but in the furtherance of it; but when they constituted the largest manufacturers of their articles in America, if not in the world, and held jointly about eighty to eighty-five per cent of the trade, and two at least of the companies forming the combination were prosperous, their combining was, when similarly viewed, an unreasonable restraint of trade.

There is no limit under the American Law to which a business may not independently grow, and even a combination of two or more businesses if it does not unreasonably restrain trade, is not illegal, but it is the combination which unreasonably restrains trade that is illegal, and if the parties in controversy have eighty or eighty-five per cent of the American business, and by the combination of the companies all competition is eliminated between the constituent parts of the combination, then it is in restraint of trade, within the meaning of the statute under all of the decisions.

Circuit Judge Hook concurred with Judge Smith, saying: "I concur in the foregoing opinion that the International Harvester Company is not the result of the normal growth of the fair enterprise of an individual, a partnership, or a corporation. On the contrary, it was created by combining five great competing companies, which controlled more than eighty per cent of the trade in necessary farm implements, and it still maintains a substantial dominance. That is the controlling fact; all else is detail."

Judge Sanborn, who rendered the dissenting opinion, said: "The particular facts proved in this individual case, not only fail to show that the defendants were unduly or unreasonably restraining or attempting to monopolize interstate or foreign trade, or threatening so to do at the time this suit was commenced and for seven years before that time, but they establish the converse.

"The evidence in this suit seems to me to present a new case under the Anti-Trust Law. No case has been found in the books, and none has come under my observation, in which the absence of all the evils against which law was directed, at the time of the suit was brought, and for seven years before, was so conclusively proved as in this suit: The absence of unfair or oppressive treatment or competitors, or unjust or oppressive methods of competition, the absence of the drawing of an undue share of the business away from competitors, and to the defendants, the absence of the raising of prices * * * * to their consumers, the absence of deterioration of the quality, the absence of the decrease of the wages of the laborers and of the prices of materials - the absence, in short, of all the elements of undue injury to the public and undue restraint of trade, together with the presence of free competition which increased the share of the competitors in the interstate trade and decreased the share of the defendants. Neither the Standard Oil Company's case, 221 United States, Page 1, nor the American Tobacco Company's case, Volume 221 United States Reports, Page 106, nor any other authorities cited seem to me to rule this case, because in none of them was there such affirmative, to my mind, conclusive evidence that for years before the suits were commenced the defendants had practiced no acts and pursued no methods which constituted an undue restraint of trade or an unreasonable attempt to monopolize it." The majority rules that the International Harvester Company should be dissolved. The appeal by the harvester company is now before the United States Supreme Court.