For the avowed purpose of substituting so-called "open
competition" for the normal competition theretofore prevailing
between them, but really to defeat the Sherman Anti-Trust Act
without subjecting themselves to its penalties, large manufacturers
of linseed oil, oil cake, and linseed meal subscribed to an
agreement with a central agency which required each of the
subscribers: to reveal to the agency, promptly and periodically,
intimate details of its business for transmission to the others; to
subject itself to autocratic powers vested in the agency; to pay
large fees to the agency and make it pecuniary deposits forfeitable
for infractions of the agreement; to furnish schedules of prices
and terms of sale and adhere to them (unless more onerous ones were
obtained), until prepared to give immediate notice of departure
therefrom for relay by the agency to the other subscribers; to be
represented at monthly meetings and report upon matters of interest
to be there discussed, and to comply with all reasonable
requirements of the agency, and divulge no secrets. Held
that the necessary effect of the combination, viewed in the light
of what was done under it, was to suppress competition in violation
of the Sherman Act. P. 262 U. S. 388
American Column & Lumber Co. v. United States,
257 U. S. 377
275 F. 939 reversed.
Appeal from a decree of the district court dismissing a bill for
an injunction brought under the Sherman Act.
Page 262 U. S. 379
MR. JUSTICE McREYNOLDS delivered the opinion of the Court.
By an original bill filed June 30, 1920, the United States
charged that appellees. defendants below, were parties
Page 262 U. S. 380
to a combination in restraint of interstate trade and commerce
forbidden by the Sherman Act, and asked that they be enjoined from
continuing therein. The court below held the combination lawful,
and dismissed the bill. 275 F. 939.
The defendants are 12 corporations, commonly referred to as
"crushers," with principal places of business in six different
states, which manufacture, sell, and distribute linseed oil, cake,
and meal, and Julian Armstrong, who operates at Chicago under the
name "Armstrong Bureau of Related Industries." This Bureau conducts
a so-called "exchange," through which one subscribing manufacturer
may obtain detailed information concerning the affairs of others
doing like business. The defendant "crushers" constitute one of the
groups who contract for this service. They manufacture and
distribute throughout the Union a very large part of the linseed
products consumed therein, and, prior to the challenged
combination, were active, unrestrained competitors. Some time in
September or October, 1918, each of them entered into an identical
written "subscription agreement" with the Armstrong Bureau, and a
year thereafter signed another, not essentially different. The
latter is summarized and quoted from below.
After stating that "the matter contained herein is for the
exclusive and confidential use of the subscriber," the agreement
recites that it and other "crushers" of flaxseed desire promptly
and economically to secure from and through the Bureau the
"which will promote better and more safe, sane, and stable
conditions in the linseed oil, cake, and meal industry and increase
its service to the commonwealth:"
comprehensive data as to market, trade, and manufacturing
conditions in the linseed oil industry; economics in manufacture
and sale, by frank exchange of accurate information; the latest
authentic information concerning the credit of buyers; a
Page 262 U. S. 381
broader market for cake and meal; establishment of uniform cost
accounting systems; fair and just freight tariffs and
classifications; definite standardization of the products of the
industry; economics in the development of foreign markets and
increase of sales therein; stabilization of the flaxseed market so
far as lawful; shipment of cake and meal to the consumer from the
nearest point of production.
The contracting "crusher" agrees:
To subscribe for the Bureau's service for 12 months, and
thereafter from year to year, subject to cancellation by either
party upon 30 days' notice, and pay therefor a sum reckoned upon
the amount of flaxseed milled by it, but not less than $1,100
That all information reported or received shall be purely
statistical and relevant to past operations, and no part of the
Bureau's machinery will be used to fix prices, divide territory,
limit sales, production, or manufacture, or control
That it will
"promptly make, have made, forward, and have sent in and to said
Bureau, as and in the form required by this agreement, full,
accurate, complete, signed, and certified reports of all said
sales, quotations, and offerings or other information required by
the Bureau, and full, correct replies or answers to any and all
inquires concerning the same or seeking any information in regard
That, upon request, it will
"at once turn and have turned over to the Bureau's auditor for
examination all vouchers, books of account, correspondence, and
such other evidence or documents as he may request, or, in lieu of
the same, or any part thereof, such abstracts therefrom as he may
designate, verified under oath and certified by a certified public
accountant in good standing."
"if any subscriber considers that it has good cause to question
the report made by any other subscriber, then
Page 262 U. S. 382
it may request an investigation or audit to be made by the
Bureau, and, if considered proper by the Bureau, it will be so
the incident expense to be paid by the party found in error.
That it will deposit with the Bureau not less than $1,000 nor
more than $10,000 of Liberty Bonds, according to its milling
"should the undersigned subscriber fail, in any manner
whatsoever, to comply with any of the terms of this agreement, or
with any and all reasonable requirements of said Bureau, then it
shall and does hereby forfeit to said Bureau at its election, all
money paid for services and all further benefits and rights under
this agreement, which forfeiture, for just cause, may be declared
by said Bureau, evidenced by written notice thereof mailed to said
offender by United States registered mail, and such subscriber
shall thereby forfeit all further right, title, or interest in and
to said bonds [so on deposit] in whole or in part,"
subject to the right of appeal to a council of three
subscribers, which shall have power to review the entire matter,
reinstate the offender, or take such other final action as seems
proper. No fine shall exceed the deposit with the Bureau.
That it will
"(a) immediately, and when and as hereafter issued, deposit with
the Bureau all public price lists of the undersigned covering raw
and boiled linseed oil, cake, and meal; (b) also to report to the
Bureau by prepaid telegraph, and further confirm by mail, duplicate
of all quotations made at variance with above price lists, giving
better terms to the contemplated purchaser than those quoted; (c)
with all reports made in compliance with the above paragraph 'b' of
quotations which amount to one carload or more of oil, cake, or
meal there shall also be reported at the same time and in the same
manner the prospective buyer's name, address, and f.o.b. point of
shipment; (d) insofar as the above reports 'a,'
Page 262 U. S. 383
'b,' and 'c' do not disclose the following, the undersigned
'subscriber' agrees to give the following information in connection
therewith, that is: the exact prices, terms, and discounts, and
whether made to the jobber, dealer, or consumer, and in what
quantities, carload or less than carload, and warehouse or mill
prices; (e) also to promptly report all changes in and alterations
or withdrawals of the above, of every kind whatsoever, that may be
made; (f) also to promptly report by prepaid telegraph, and further
confirm by mail, all orders received by the undersigned subscriber
in response to special quotations made as above provided in
paragraph 'c,' designating the quotation which is the basis of such
order and any variance therefrom."
"directly at the close of each day's business, each subscriber
shall mail by special delivery to the Bureau a complete report of
all its carload sales for that day of oil, cake, or meal, not
covered by its previous daily sales reports, which report shall
disclose the quantity and kind, price, and terms, and whether for
immediate or future delivery, and, if no sale has been so made,
this fact shall be likewise reported."
That, for the purpose of compiling a weekly sales report,
"a map of the United States shall be divided into zones as
agreed upon by all of the subscribers to this service, and each
subscriber at the conclusion of the week shall send to the Bureau
by special delivery, not later than the following Monday night, a
compiled report of all its sales of oil, cake, or meal into each
zone made during the period covered by such report, and not
previously so reported, specifically setting forth the following:
(a-a) total gallons of oil sold into each zone, also showing the
total gallons and price per gallon received for such oil sold;
(b-b) total tonnage of cake and meal sold into each zone, also
showing total weight and price received per ton for such cake or
meal sold; (c-c) sales reports on both
Page 262 U. S. 384
oil, cake, and meal shall differentiate spot and future
delivery, giving period of such futures."
That, before the 10th day of each calendar month, it will report
to the Bureau the number of gallons of oil and the total tons of
meal or cake on hand not covered by sale or contract.
That all information received from the Bureau or any meeting of
subscribers will be treated as confidential.
The Bureau undertakes, "with the help of each and every
That it will use its best efforts to organize the linseed oil,
cake, and meal industry of the United States.
That it will afford its full statistical service for the
exchange of information concerning quotations, sales, shipments,
production, and terms; also the service of its credit reporting
department, will suggest from time to time the means for broader
service, and will supply additional service whenever required, the
rate to be agreed upon.
That the statistical service furnished shall be accomplished and
provided by the use of special report forms conveying information
on past transactions which may be modified, changed, and others
provided, as experience suggests or as called for by the
subscribers in any of their meetings and approved by the
That the market information received by the Bureau will be
cleared and relayed promptly to subscribers in good standing.
That it will send to subscribers, in the form of market letters,
"news clippings" of interest to the industry and in accordance with
the object and terms of the agreement.
It is agreed by all:
That "monthly meetings will be held of all subscribers hereto at
some convenient center," with a representative of the Bureau, as
secretary, who shall present the matters pertaining to the
industry, to be therein openly discussed. Subscribers may send in
notice of matters and
Page 262 U. S. 385
topics for discussion, and, if they accord with the agreement
and object of the service, the Bureau shall cause the same to be
docketed and presented.
"All subscribers shall report at these meetings on all matters
and conditions within their knowledge affecting the industry and
within the limits of this agreement, that they may be there
discussed for mutual benefit. . . . Any subscriber failing to
attend in person or by said representative at each of these
meetings, and be in punctual and continued attendance thereon,
shall be subject to a fine of $25 for each offense, the same to be
collected by and payable to the Bureau. This fine may be remitted
by a majority vote of the members present at the meeting where it
"any subscriber who has made offerings or quotations to a
prospective buyer, and is advised by such buyer that it is not to
be awarded such business, shall have the right to immediately
advise the Bureau of such unsuccessful offering or quotation,
giving all details of such bid or offering, and may then request
the Bureau to bulletin all of its subscribers asking specific
information regarding any quotation or sale to such prospective
buyer by any of the other subscribers, and the Bureau, on receipt
of such request, will immediately bulletin all subscribers asking
therefor, and, on receipt of replies, will send out a compilation
report thereof to all subscribers, together with the details of
sale, if such a sale has been reported, so that all subscribers,
including the original inquirer, will have a complete report of
this transaction. On receipt of a request for such specific
information from the Bureau, the undersigned subscribers will
immediately reply to same, giving full information as to any
quotation or sale which it may have made to such a buyer, and, if
it has made none, so report."
That each subscriber will furnish the Bureau, upon request,
information pertaining to any buyer of linseed
Page 262 U. S. 386
oil, cake, and meal, and may request the Bureau to secure like
information from all other subscribers whenever it shall have an
order, or an account with, or an inquiry from, the buyer, and this
information will be promptly relayed to all interested
When an adequate number of subscriptions had been obtained
(September, 1918), the organization began vigorously to function
according to letter and spirit of the agreement. It will suffice to
state a few of the steps taken:
The United States were divided into eight zones for price
quoting, and it was stipulated that each member should quote a
basic price for zone No. 1, and should add thereto 1, 2, 4, 6, 7,
8, and 11 cents, respectively, for the others. At subscribers'
meetings regularly held, "matters pertaining to the industry" were
discussed; members were "put on the carpet" and subjected to
searching inquiry concerning their transactions. A meeting held
October 29, 1919, adopted the following rule:
"In order to provide that the daily market information as
relayed by the Bureau shall at all times contain the fullest
measure of news value, it is agreed that hereafter no council
member shall dispatch changes in his prices as last filed with the
Bureau to more than one buyer without instantly thereafter
telegraphing such full and complete information to the Bureau as,
and in the form, required by the service contract."
"resolved that it now be recorded that the recommended terms of
this council for the sale of oil be 1% discount for cash settlement
in 10 days, or 30 days net trade acceptance, from date of shipment,
and in order that a specific list of the terms of sale of all the
council members may now be compiled and distributed, it is further
resolved that all council members shall send to the Bureau, not
later than January 27th, a full explanation of the terms of sale as
quoted by them to their trade. "
Page 262 U. S. 387
The Bureau displayed great industry in making inquiries,
collecting information, investigating the smallest derelictions,
and giving immediate advice to subscribers. Hundreds of so-called
"market letters," relating to divers transactions, were sent to
subscribers. A sale of two barrels of oil below schedule was deemed
worthy of special attention. Also from time to time it gave counsel
concerning "unfair merchandising" and the necessity for
establishing sound policy by constructive cooperation. The
following letters -- 224 and 245 -- dated February 5 and 12, 1919,
"Will all council members please reply promptly and fully
through the Bureau whether or not they made the sale in question to
"New York, N.Y. Feb. 3, 1919."
"Armstrong Bureau of Related Industries, Chicago."
"Gentlemen: Our Chicago manager advises us that, under date of
February 1st ,the Enterprise Paint Mfg. Co. informed him that they
had bought 10 barrels linseed oil at less than $1.46 from another
crusher in the Chicago territory. Will you kindly bulletin the
subscribers with a view to finding out if any of the crushers sold
this lot under their published price?"
"Yours very truly, American Linseed Company."
"In the file of replies today completed, 11 subscribers state,
in effect, that they have neither quoted nor sold the Enterprise
Paint Mfg. Co. The sale was apparently made by subscriber No. 6,
whose letter follows:"
Minneapolis, Minn., Feb. 6, 1919.
"Armstrong Bureau of Related Industries, Chicago."
"Gentlemen: Replying to your market letter No. 224, we sold
Enterprise Paint Manufacturing Company on February 3d five barrels
of bleached linseed oil at $1.50, delivered their plant. This is
our price in the Chicago market at the present time."
"Yours truly, Midland Linseed Products Co."
The prices of oil became more stable.
Page 262 U. S. 388
Defendants continued with meticulous care actively to carry out
the several provisions of the agreement amongst them, and that they
intended further to pursue the plan unless restrained is not
The obvious policy -- indeed, the declared purpose -- of the
arrangement was to submerge the competition theretofore existing
among the subscribers and substitute "intelligent competition," or
"open competition;" to eliminate "unintelligent selfishness" and
establish "100% confidence" -- all to the end that the members
might "stand out from the crowd as substantial coworkers under
modern cooperative business methods."
In American Column & Lumber Co. v. United States,
257 U. S. 377
considered a combination of manufacturers got up to effectuate this
new conception of confidence and competition, and held it within
the inhibition of the Sherman Act because of inevitable tendency to
destroy real competition, as long understood, and thereby restrain
trade. Our conclusion there cannot be reconciled with the somewhat
earlier opinion and judgment of the court below. They are in direct
The Sherman Act was intended to secure equality of opportunity,
and to protect the public against evils commonly incident to
monopolies and those abnormal contracts and combinations which tend
directly to suppress the conflict for advantage called competition
-- the play of the contending forces ordinarily engendered by an
honest desire for gain.
"The statute did not forbid or restrain the power to make normal
and useful contracts to further trade by resorting to all normal
methods, whether by agreement or otherwise, to accomplish such
purpose. . . . The words 'restraint of trade' should be given a
meaning which would not destroy the individual right to contract
and render difficult, if not impossible, any movement of trade in
the channels of interstate commerce -- the free movement of which
it was the purpose of the
Page 262 U. S. 389
statute to protect."
United States v. American Tobacco Co., 221 U.
, 221 U. S.
-180; Ramsay v. Associated Bill Posters,
260 U. S. 501
Federal Trade Commission v. Sinclair Refining Co.,
261 U. S. 463
Certain it is that the defendants are associated in a new form
of combination, and are resorting to methods which are not normal.
If, looking at the entire contract by which they are bound
together, in the light of what has been done under it, the Court
can see that its necessary tendency is to suppress competition in
trade between the states, the combination must be declared
unlawful. That such is its tendency we think must be affirmed. To
decide otherwise would be wholly inconsistent with the conclusion
reached in American Column & Lumber Co. v. United States,
The record discloses that defendants, large manufacturers and
distributors, powerful factors in the trade, of commodities
restricted by limited supplies of raw material (linseed), located
at widely separated points, and theretofore conducting independent
enterprises along customary lines, suddenly became parties to an
agreement which took away their freedom of action by requiring each
to reveal to all the intimate details of its affairs. All subjected
themselves to an autocratic Bureau, which became organizer and
general manager, paid it large fees, and deposited funds to insure
their obedience. Each subscriber agreed to furnish a schedule of
prices and terms and adhere thereto, unless more onerous ones were
obtained, until prepared to give immediate notice of departure
therefrom for relay by the Bureau. Each also agreed, under penalty
of fine, to attend a monthly meeting and report upon matters of
interest to be there discussed, to comply with all reasonable
requirements of the Bureau, and to divulge no secrets.
With intimate knowledge of the affairs of other producers, and
obligated as stated, but proclaiming themselves
Page 262 U. S. 390
competitors, the subscribers went forth to deal with widely
separated and unorganized customers necessarily ignorant of the
true conditions. Obviously they were not bona fide
competitors; their claim in that regard is at war with common
experience, and hardly compatible with fair dealing.
We are not called upon to say just when or how far competitors
may reveal to each other the details of their affairs. In the
absence of a purpose to monopolize, or the compulsion that results
from contract or agreement, the individual certainly may exercise
great freedom; but concerted action through combination presents a
wholly different problem, and is forbidden when the necessary
tendency is to destroy the kind of competition to which the public
has long looked for protection. The situation here questioned is
wholly unlike an exchange, where dealers assemble and buy and sell
openly, and the ordinary practice of reporting statistics to
collectors stops far short of the practice which defendants
adopted. Their manifest purpose was to defeat the Sherman Act
without subjecting themselves to its penalties.
The challenged plan is unlawful, and an injunction should go
against it, as prayed by the original bill. The cause will be
remanded to the court below with instructions to issue such an
injunction, and promptly to take any further action necessary to
carry this opinion into effect.