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President Taft'sM
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DECEMBER 8,. 19H-
To thtf Senate and House of Representatives:
This message is the first of several which" I
shall send to congress during the interval be
tween the opening of its regular session and
Us adjournment for the Christmas holidays.
The amount of information to be communicated
as to the operations of the government, the
number of important subjects calling for com
ment by the executive, and the transmission to
congress of exhaustive reports of special com
missions, make it impossible to include in one
message of a reasonable length a discussion of
the topics that ought to be brought to the atten
tion of the national legislature at its first regu
lar session.
The Anti-Trust Law The Supremo Court
Decisions
In May last the supreme court handed down
decisions in the suits in equity brought by the
United States to enjoin the further maintenance
of the Standard Oil trust and of the American
Tobacco trust, and to secure their dissolution.
The decisions are epoch-making and serve to
advise the business world authoritatively of
the scope and operation of the anti-trust act of
1890. The decisions do not depart in any sub
stantial way from the previous decisions of the
court in construing and applying this important
statute, but they clarify those decisions by
further defining the already admitted excep
tions to the literal construction of the act. By
the decrees, they furnish a useful precedent as
to the proper method of dealing with the capital
and property of illegal trusts. TheBe decisions
suggest, the need and wisdom of additional or
supplemental legislation to make it easier for
the entire business community to square with
the rule of action and legality thus finally estab
lished and to preserve the benefit, freedom, and
spur of reasonable competition without loss of
real efficiency or progress.
No Change in the Rule of Decision Merely in
Its Form of Expression
The statute 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," and in the second,
declares guilty of a misdemeanor "every person
who shall monopolize or attempt to monopolize
or combine or conspire with any other person
to monopolize any part of the trade or commerce
of the several states or with foreign nations."
In two early cases, where the statute was
Invoked to enjoin a transportation rate agree
ment between Interstate railroad companies,
it was held that It was no defense to show that
the agreement as to rates complained of was
reasonable at common law, because it was said
that the statute was directed against all con
tracts and combinations in restraint of trade
whether reasonable at common law or not. It
was plain from the record, however, that the
contracts, complained of in those cases would
not have been deemed reasonable at common
law. In subsequent cases the court said that
the statute should be given a reasonable con
struction and refused to include within its in
hibition, certain contractual restraints of trade
which it denominated as incidental or as in
direct. These cases of restraint of trade that tha
court excepted from the operation of the statute
were instances which, at common law, wouhl
have been called reasonable. In the Standard
Oil and Tobacco cases, therefore, the court
merely adopted the tests of the common law,
and In. defining exceptions to the literal appli
cation of the statute, only substituted for the
test of being Incidental or Indirect, that of
being reasonable, and this, without varying in
the slightest the actual scope and effect of the
statute. In other words, all the cases under
the statute which .havfr now been decided would
have been decided the same way if the court
had originally accepted in Its construction the
rule at common law.
It has been said that the court, by introduc
ing Into the- construction of the statute common-law
distinctions, has emasculated It. This
Is obviously untrue. By Its judgment every
contract and combination in restraint of inter
state trade made with the, purpose or necessary
effect of controlling prices by stifling competi
tion, or of establishing In whole or in part a
monopoly of such trade, is condemned by the
statute. The most extreme critics can not in
stance a case that ought to be condemned under
The Commoner.
Message
the statuto which Is not brought wilhin its
terms as thus construed.
The suggestion is also made that tho supremo
court by its decision in the last two cases has
committed to tho court the undefined and un
limited discretion to determine whether a case
of restraint of trade is within tho terms of
the statuto. This Is wholly untrue. A reason
able restraint of trade at common law Ib well
understood and is clearly defined. It does not
rest in tho discretion of the court. It must be
limited to accomplish the purpose of a lawful
main contract to which, in order that it shall
be enforceable at all, it must be incidental. If
it exceed the needs of that contract, it is void.
Tho te3t of reasonableness was never applied
by the court at common law to contracts or
combinations or conspiracies in restraint of
trade whose purpose was or whoso necessary
effect would be to stifle competition, to control
prices, or establish monopolies. The courts
never assumed power to say that such contracts
or cpmbinations or conspiracies might he lawful
if the parties to them were only moderate in
the use of tha. power thus secured and did not
exact from the public toogreat and exorbitant
prices. It Is true that many theorists, and
others engaged m business violating the statuto,
have hoped that some such lino could bo drawn
by courts; but no court of authority has over
attempted it. Certainly there is nothing in tho
decisions of the latest two cases from which
such a dangerous theory of judicial discretion
in enforcing this statute can derive the slightest
sanction.
Force and Effectiveness of Statute a Matter
of Growth
We have been twenty-one years making this
statute effective for the purposes for which it
was enacted. The Knight case was discourag
ing and seemed to remit to the states the whole
available power to attack and suppress tho evils
of the trusts. Slowly, however, tho error of
that Judgment was corrected, and only in tho
last three or four years has the heavy hand of
the law laid upon the great illegal combina
tions that have exercised such an absolute do
minion over many of our Industries. Criminal
prosecutions have been brought and a number
are pending, but juries have felt averse to con
victing for jail sentences, and judges have been
most reluctant to impose such sentences on men
of respectable standing in society whose offense
has been regarded as merely statutory. Still,
as the off ease becomes better understood and
the committing of it partakes more of studied
and deliberate defiance of the law, we can be
cosfident that juries will convict individuals
and that jail sentences will be imposed.
Tho Remedy in Equity by Dissolution
In the Standard Oil case the supreme court
and circuit courts found the combination to be
a monopoly of the interstate business of refin
ing, transporting, and marketing petroleum and
its products, effected and maintained through
thirty-seven different corporations, the stock
of which was held by a New Jersoy company.
It in effect commanded the dissolution of this
combination, directed the transfer and pro rata
distribution by the New Jersey company of tho
stock held by It in thirty-seven corporations to
and among its stockholders; and the corpora
tions and individual, defendants were enjoined
from conspiring or combining to restore such
monopoly; and all agreements between the sub
sidiary corporations tending to produce or bring
about further violations of tho act wero
enjoined.
In the Tobacco case, the court found that the
Individual defendants, twenty-nine in number,
had been engaged In a successful effort to
acquire complete dominion over the manufac
ture, sale, and distribution of tobacco in this
country and abroad, and that this had been
done by combinations made with a purpose and
effect to stifle competition, control prices, and
establish a monopoly, not only in the manufacture-
of tobacco, but also of tin-foil and licorice
used in. its manufacture and of its products of
cigars, cigarettes and snuffs. The tobacco suit
presented a far more complicated and difficult
case than the Standard Oil suit for a decree
which would effectuate the will of tha court and
end the violation of the statute. There was
here no single holding company as in the case
of the Standard Oil trust. The main company
was the- American Tobacco company, a manu
facturing, selling, and holding company.. The
plan adopted -to destroy tho combination and
rostore competition involvod tho redlvlsion of
tho capital and plants of tho whole trust be
tween some of tho companies constituting tho
trust and now companies organized for tho pur
poses of tho docreo and made parties to it, and
numbering, now nnd old, fourteen.
Situation After Readjustment
Tho American Tobacco company (old), re
adjusted capital, $92,000,000; tho Liggett &
Meyers Tobacco company (now), capital, $G7,
000,000; the Lorillard company (now), capital,
$17,000,000; and tho R. J, Reynolds Tobacco
company (old), capital, $7,525,000, are chiefly
engaged In the manufacture and salo of chew
ing and smoking tobacco and clgarB. Tho
former one tin-foil company in divided into
two, one of $825,000 capital and tho other ot
$100,000. Tho one snuff company Is divided
into threo companies, ono with a capital of
$15,000,000, another with a capital of $8,000,
000, and a third with a capital of $8,000,000.
Tho licorice companies are two, ono with a
capital of $5,758,300 and another with a capi
tal of $2,000,000. There Is, also, tho British
American Tobacco company, a British corpora
tion, doing business abroad with a capital of
$26,000,000, the Porto Rlcan Tobacco company,
with a capital of $1,800,000, and tho corpora
tion of United Cigar Stores, with a capital of
$9,000,000.
Under this arrangement, each of tho different
kinds of business will bo distributed botwecn
two or more companies with a division of the
prominent brands in tho same tobacco products,
so as to make competition not only posslblo but
necessary. Thus the smoking-tobacco business
of tho country in divided so that tho present
independent companies have 21.39 por cent,
whilo the American Tobacco company will have
33.08 per cent, the Liggett & Meyers 20.05 per
cent, the Lorillard company 22.82 per cent, and
tho Reynolds company 2.CG per cont. Tho stock
of tho other thirteen companies, both preferred
and common, has been takon from tho defen
dant American Tobacco company and has beon
distributed among Its stockholders. All cove
nants restricting competition have been declared
null and further performance of them has beon
enjoined. The preferred stock of tho different
companies has now been given voting power
which was denied it under tho old organization.
Tho ratio of the preferred stock to the common
was 78 to 40. This constitutes a very decided
change in the character of tho ownership and
control of each company.
In the original suit there wero twenty-nine
defendants who wero charged with being the
conspirators through whom tho Illegal combi
nation acquired and exercised its unlawful do
minion. Under the decree theso defendants will
hold amounts of stock in the various distributee
companies ranging from 41 por cont as a maxi
mum to 28 por cent as a minimum, except
in tho case of ono small company, tho Porto
Rlcan Tobacco company, In which they will
hold 45 per cent. Tho twenty-nine individual
defendants are enjoined for threo years from
buying any stock excopt from each other, and
the group is thus prevented from extending Its
control during that period. All parties to the
suit, and the new companies who are made
parties, are enjoined perpetually from in any
way effecting any combination between any of
the companies in violation of the statute by way
of resumption of the old trust. Each of the
fourteen companies is enjoined from acquiring
stock in any of tho others. All these companies
are enjoined from having common directors or
officers, or common buying or selling agents, or
common offices, or lending money to each other.
Size of New Companies
Objection was made by certain independent
tobacco companies that this settlement was un
just because it left companies with very large
capital in active business, and that the settle
ment that would be effective to put all on am
equality would be a division of the capital ant
plant of the trust into small fractions in amount
more nearly equal to that of each of the Inde
pendent companies. This contention results
from a misunderstanding of the anti-trust law
and its purpose. It is not Intended thereby to
prevent the accumulation of large capital in
business enterprises in which such a combina
tion can secure rednced cost of production, sale
and distribution. It is directed against suck
an aggregation of capital only when its purpose
is that of stifling competition, enhancing or
controlling prices, and establishing a monoply.
If we shall have by the decree defeated these
(Continued on Pago 10.)
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