Under the grant of power to Congress contained in Section 8 of
Article I of the Constitution "to regulate commerce with foreign
nations and among the several states and with Indian tribes," that
body may enact such legislation as shall declare void and prohibit
the performance of any contract between individuals or corporations
where the natural and direct effect of such a contract shall be,
when carried out, to directly, and not as a mere incident to other
and innocent purposes, regulate to any extent interstate or foreign
commerce.
The provision in the Constitution regarding the liberty of the
citizen is to some extent limited by this commerce clause, and the
power of to regulate interstate commerce comprises the right to
enact a law prohibiting the citizen from entering into those
private contracts which directly and substantially, and not merely
indirectly, remotely, incidentally and collaterally regulate, to a
greater or less degree, commerce among the states.
Interstate commerce consists of intercourse and traffic between
the citizens or inhabitants of different states, and includes not
only the transportation of persons and property and the navigation
of public waters for that purpose, but also the purchase, sale and
exchange of commodities.
The power to regulate interstate commerce and to prescribe the
rules by which it shall be governed is vested in Congress, and when
that body has enacted a statute such as the Act of July 2, 1890, c.
647, entitled "an act to protect trade and commerce against
unlawful restraints and monopolies," 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 thereby regulates
interstate commerce to that extent, and thus trenches upon the
power of the national legislature, and violates the statute.
The contracts considered in this case, set forth in the
statement of facts and in the opinion of the court, relate to the
sale and transportation to other states of specific articles, not
incidentally or collaterally, but as a direct and immediate result
of the combination entered into by the defendants, and they
restrain the manufacturing, purchase, sale, or exchange of the
manufactured articles among the several states and enhance their
value, and thus come within the provisions of the "act to protect
trade and commerce against unlawful restraints and monopolies."
Page 175 U. S. 212
When the direct, immediate and intended effect of a contract or
combination among dealers in a commodity is the enhancement of its
price, it amounts to a restraint of trade in the commodity, even
though contracts to buy it at the enhanced price are being
made.
The judgment of the court below, which perpetually enjoined the
defendants in the court below from maintaining the combination in
cast-iron pipe as described in the petition and from doing any
business under such combination, is too broad, as it applies
equally to commerce which is wholly within a state as well as to
that which is interstate or international only.
Although the jurisdiction of Congress over commerce among the
states is full and complete, it is not questioned that it has none
over that which is wholly within a state, and therefore none over
combinations or agreements so far as they relate to a restraint of
such trade or commerce, nor does it acquire any jurisdiction over
that part of a combination or agreement which relates to commerce
wholly within a state by reason of the the fact that the
combination also covers and regulates commerce which is
interstate.
This proceeding was commenced in behalf of the United States,
under the so-called antitrust act of Congress, passed July 2, 1890.
26 Stat. 209, c. 647. It was undertaken for the purpose of
obtaining an injunction perpetually enjoining the six corporations
who were made defendants, and who were engaged in the manufacture,
sale, and transportation of iron pipe at their respective places of
business in the states of their residence, from further acting
under or carrying on the combination alleged in the petition to
have been entered into between them, and which was stated to be an
illegal and unlawful one under the act above mentioned because it
was in restraint of trade and commerce among the states, etc.
The trial court dismissed the petition, 78 F. 712, but upon
appeal to the circuit court of appeals, the judgment of the court
below was reversed, with instructions to enter a decree for the
United States perpetually enjoining defendants from maintaining the
combination in cast-iron pipe as described in the petition, and
from doing any business under such combination. 85 F. 271. The six
defendants are the Addyston Pipe & Steel Company, of
Cincinnati, Ohio; Dennis Long & Company, of Louisville,
Kentucky; the Howard-Harrison Iron Company, of Bessemer, Alabama;
the Anniston Pipe & Foundry Company, of Anniston,
Page 175 U. S. 213
Alabama, the South Pittsburg Pipe Works, of South Pittsburg,
Tennessee, and the Chattanooga Foundry & Pipe Works, of
Chattanooga, Tennessee, one company being in the State of Ohio, one
in Kentucky, two in Alabama, and two in Tennessee.
The following are in substance the facts upon which the judgment
of the circuit court of appeals rested, as stated in the
record:
It was charged in the petition that, on the 28th of December,
1894, the defendants entered into a combination and conspiracy
among themselves by which they agreed that there should be no
competition between them in any of the states or territories
mentioned in the agreement (comprising some thirty-six in all) in
regard to the manufacture and sale of cast-iron pipe, and that, in
obedience to such agreement and combination and to carry out the
same, the defendants had since that time operated their shops and
had been selling and shipping the pipe manufactured by them into
other states and territories under contracts for the manufacture
and sale of such pipe with citizens of such other states and
territories. There was to be a "bonus" charged against the
manufacture of the pipe to the extent set forth in the agreements
and to be paid as therein stated. The whole agreement was charged
to have been entered into in order to enhance the price for the
iron pipe dealt in by the defendants.
The petition prayed that all pipe sold and transported from one
state to another under the combination and conspiracy described
therein be forfeited to the petitioner and be seized and
confiscated in the manner provided by law, and that a decree be
entered dissolving the unlawful conspiracy of defendants and
perpetually enjoining them from operating under the same and from
selling said cast-iron pipe in accordance therewith to be
transported from one state into another.
The defendants filed a joint and separate demurrer to the
petition insofar as it prayed for the confiscation of goods in
transit, on the ground that such proceedings under the antitrust
act are not to be had in a court of equity, but in a court of law.
In addition to the demurrer, the defendants filed a joint and
separate answer in which they admitted the existence
Page 175 U. S. 214
of an association between them for the purpose of avoiding the
great losses they would otherwise sustain due to ruinous
competition between defendants, but denied that their association
was in restraint of trade, state or interstate, or that it was
organized to create a monopoly, and denied it was a violation of
the antitrust act of Congress.
Testimony in the form of affidavits was submitted by petitioner
and defendants, and by stipulation it was agreed that the final
hearing might be had thereon.
From the minutes of the association, a copy of which was put in
evidence by the petitioner, it appeared that prior to December 28,
1894, the Anniston Company, the Howard-Harrison Company, the
Chattanooga Company, and the South Pittsburg Company had been
associated as the Southern Associated Pipe Works. Upon that date,
the Addyston Company and Dennis Long & Co. were admitted to
membership, and the following plan was then adopted:
"First. The bonuses on the first 90,000 tons of pipe secured in
any territory, 16' and smaller, shall be divided equally among six
shops."
"Second. The bonuses on the next 75,000 tons, 30' and smaller,
sizes to be divided among five shops, South Pittsburgh not
participating."
"Third. The bonuses of the next 40,000 tons, 36' and smaller,
sizes to be divided among four shops, Anniston and South Pittsburg
not participating."
"Fourth. The bonus on the next 15,000 tons, consisting of all
sizes of pipe, shall be divided among three shops, Chattanooga,
South Pittsburg, and Anniston not participating."
"The above division is based on the following tonnage of
capacity:"
South Pittsburg . . . . 15,000 tons
Anniston. . . . . . . . 30,000 tons
Chattanooga . . . . . . 40,000 tons
Bessemer. . . . . . . . 45,000 tons
Louisville. . . . . . . 45,000 tons
Cincinnati. . . . . . . 45,000 tons
Page 175 U. S. 215
"When the 220,000 tons have been made and shipped and the
bonuses divided as hereafter provided, the auditor shall set aside
into a reserve fund all bonuses arising from the excess of
shipments over 220,000 tons, and shall divide the same at the end
of the year among the respective companies according to the
percentage of the excess of tonnage they may have shipped (of the
sizes made by them) either in pay or free territory. It is also the
intention of this proposition that the bonuses on all pipe larger
than 36 inches in diameter shall be divided equally between the
Addyston Pipe & Steel Company, Dennis Long & Co., and the
Howard-Harrison Company."
"It was thereupon resolved:"
"First. That this agreement shall last for two years from the
date of the signing of same, until December 31, 1896."
"Second. On any question coming before the association requiring
a vote, it shall take five affirmative votes thereon to carry said
question, each member of this association being entitled to but one
vote."
"Third. The Addyston Pipe & Steel Company shall handle the
business of the gas and water companies of Cincinnati, Ohio,
Covington and Newport, Ky., and pay the bonus hereafter mentioned,
and the balance of the parties to this agreement shall bid on such
work such reasonable prices as they shall dictate."
"Fourth. Dennis Long & Company, of Louisville, Ky., shall
handle Louisville, Ky., Jeffersonville, Ind. and New Albany, Ind.
furnishing all the pipe for gas and water works in above-named
cities."
"Fifth. The Anniston Pipe & Foundry Company shall handle
Anniston, Ala. and Atlanta, Ga., furnishing all pipe for gas and
water companies in above-named cities."
"Sixth. The Chattanooga Foundry & Pipe Works shall handle
Chattanooga, Tenn. and New Orleans, La., furnishing all gas and
water pipe in above-named cities."
"Seventh. The Howard-Harrison Iron Company shall handle Bessemer
and Birmingham, Ala., and St. Louis, Mo., furnishing all pipe for
gas and water companies in the
Page 175 U. S. 216
above-named cities, extra bonus to be put on East St. Louis and
Madison, Ill., so as to protect the prices named for St. Louis,
Mo."
"Eighth. South Pittsburg Pipe Works shall handle Omaha, Neb., on
all sizes required by that city during the year of 1895, conferring
with the other companies and cooperating with them; thereafter,
they shall handle the gas and water companies of Omaha, Neb., on
such sizes as they make."
"Note. -- It is understood that all the shops who are members of
this association shall handle the business of the gas and water
companies of the cities set apart for them, including all sizes of
pipe made by them."
"The following bonuses were adopted for the different states as
named below: all railroad or culvert pipe or pipe for any drainage
or sewerage purposes on 12' and larger sizes shipped into bonus
territory shall pay a bonus of $1 per ton. On all sizes below 12'
and shipped into 'bonus territory' for the purposes above named,
there shall be a bonus of $2 per ton."
image:a
"On motion of Mr. Llewellyn, the bonuses on all city work as
specially reserved shall be $2 per ton. "
Page 175 U. S. 217
The states for sale in which bonuses had to be paid into the
association were called "pay" territory as distinguished from
"free" territory in which defendants were at liberty to make sales
without restriction and without paying any bonus.
The bylaws provided for an auditor of the association, whose
duty it was to keep account of the business done by each shop both
in pay and free territory. On the 1st and 16th of each month, he
was required to send to each shop
"a statement of all shipments reported in the previous half
month, with a balance sheet showing the total amount of the
premiums on shipments, the division of the same, and debt credit
balance of each company."
The system of bonuses as a means of restricting competition and
maintaining prices was not successful. A change was therefore made
by which prices were to be fixed for each contract by the
association, and except in reserved cities, the bidder was
determined by competitive bidding of the members, the one agreeing
to give the highest bonus for division among the others getting the
contract. The plan was embodied in a resolution passed May 27,
1895, in the words following:
"Whereas, the system now in operation in this association of
having a fixed bonus on the several states has not in its operation
resulted
in the advancement in the prices of pipe as was
anticipated, except in reserved cities, and some further
action is imperatively necessary in order to accomplish the ends
for which this association was formed: therefore, be it resolved,
that from and after the first day of June, that all competition on
the pipe lettings shall take place among the various pipe shops
prior to the said letting. To accomplish this purpose it is
proposed that the six competitive shops have a representative board
located at some central city to whom all inquiries for pipe shall
be referred, and said board shall fix the price at which said pipe
shall be sold, and bids taken from the respective shops for the
privilege of handling the order, and the party securing the order
shall have the protection of all the other shops."
In pursuance of the new plan, it was further agreed
"that all parties to this association having quotations out
shall
Page 175 U. S. 218
notify their customers that the same will be withdrawn by June
1, 1895, if not previously accepted, and upon all business accepted
on and after June 1st bonuses shall be fixed by the committee."
At the meeting of December 19, 1895, it was moved and carried
that, upon all inquiries for prices from "reserved cities" for pipe
required during the year of 1896, prices and bonuses should be
fixed at a regular or called meeting of the principals.
At the meeting of December 20, 1895, the plan for division of
bonuses originally adopted was modified by making the basis the
total amounts shipped into "pay" territory, rather than the totals
shipped into "pay" and "free" territory.
To illustrate the mode of doing business the following excerpt
from the minutes of the meetings of December 20, 1895, February 14,
1896, and March 13, 1896, is given:
"It was moved to sell the 519 pieces of 20' pipe from Omaha,
Neb., for $23.40, delivered. Carried. It was moved that Anniston
participate in the bonus and the job be sold over the table.
Carried. Pursuant to the motion the 519 pieces of 20' pipe for
Omaha was sold to Bessemer at a premium of $8."
"Moved that 'bonus' on Anniston's Atlanta water works contract
be fixed at $7.10, provided freight is $1.60 a ton. Carried."
An illustration of the manner in which "reserved" cities were
dealt with may be seen in the case of a public letting at St.
Louis. On February 4, 1896, the water department of that city let
bids for 2,800 tons of pipe. St. Louis was "reserved" to the
Howard-Harrison Company, of Bessemer, Ala. The price was fixed by
the association at $24 a ton, and the bonus at $6.50. Before the
letting, the vice-president of this company wrote to the other
members of the association under date of January 24, 1896, as
follows:
"I write to say that in view of the fact that I do not as yet
know what the drayage will be on this pipe, I prefer that if any of
you find it necessary to put in a bid without going to St. Louis,
please bid not less than $27 for the pipe, and 2 3/4
Page 175 U. S. 219
cents per pound for the specials. I would also like to know as
to which of you would find it convenient to have a representative
at the letting. It will be necessary to have two outside
bidders."
The contract was let to the Howard-Harrison Company, of Bessemer
at $24, who allowed the Shickle, Harrison & Howard Company, a
pipe company of St. Louis not in the association, but having the
same president as the Howard-Harrison Company, of Bessemer, to fill
part of the order. The only other bidders were the Addyston Pipe
& Steel Company and Dennis Long & Co., the former bidding
$24.37 and the latter $24.57. The evidence shows that the
Chattanooga foundry could have furnished this pipe, delivered in
St. Louis at from $17 to $18, and could have made a profit on it at
that price. The record is full of instances of a similar kind, in
which, after the successful bidder had been fixed by the "auction
pool," or had been fixed by the arrangement as to reserve cities,
the other defendants put in bids at the public letting as high as
the selected bidder requested, in order to give the appearance of
active competition between defendants.
In January, 1896, after the auction pool had been in operation
for more than six months, the Chattanooga Company wrote a letter to
its representative in the central committee. The letter is dated
January 2, 1896, and is as follows:
"Dear Sir: Referring to our policy for 1896 in bidding on pipe,
we have had this matter under consideration for some time past, and
from the information obtained from Mr. Thornton's statement as to
the amount of business done last year in pay territory, and from
estimates that we have made for business that will come into that
territory for 1896, we have been able to determine to what point we
could bid on work and take contracts, and if bonus is forced above
this point, let it go and take the bonus. We note from your letter
of yesterday that you have sized up the situation in its essential
points, and it agrees exactly with our ideas on the subject. It is
useless to argue that Howard-Harrison Iron Co.,
Page 175 U. S. 220
Cincinnati, and other shops, who have been bidding bonuses of $6
or $8 per ton, can come out and make any money if they continue to
bid such bonus. In the case of the Howard-Harrison Iron Co. people
on Jacksonville, Fla. The truth of the business is they are losing
money at the prices they bid for this work. If they take the
contract at $19 delivered, it will only net $16 at the shop after
they have paid back the bonus of $4.75; if they should continue to
buy all the pipe that goes up to such figures as they have paid for
Jacksonville and other points, they would wreck their shop in a few
months. However, they, of course, calculate this bonus will be
returned to them on work taken by other shops. We are very much
pleased with the bonus that has been paid and we only hope they
will keep it up as it is only money in our pockets. As long as
there is no money to us let them make the pipe, as we shall
continue to do so."
"For the present you will adopt the following basis:"
"On 16' and under standard weights, $14.25 at shop."
"On 18' and 36' standard weights, $13."
"On 16' and under light weights, $14.50 to $14.75 at shop."
"That is, you will bid all over $13, $14.25 and $14.50 on work.
If we get work at these prices it will be satisfactory. If the
others run bonus above this point let them take it, as it will be
more money to us to take the bonus."
"We note Mr. Thornton's report of average premiums from June 1st
to December, that the average was $3.63. The average bonuses that
are prevailing today are $7 to $8. We cannot expect this to
continue, and we think your estimate of $6 ton average bonus is
high, as we do not believe the premiums of '96 will average that
price, unless there is a decided change for the better in business.
We find there were sold and shipped into pay territory from January
1, 1895, to date, including the 40,000 tons of old business that
did not pay a bonus, about 188,000 tons, and we think a very
conservative estimate of shipments into this territory will amount
to fully 200,000 this year; more than that, probably overrun
240,000 tons, from the fact that the City of Chicago and several
other places that annually use large quantities of pipe were not in
the market
Page 175 U. S. 221
last year, or last season, from the fact that they were out of
funds. On the basis as given you above, if the demand should reach
220,000 tons, which would give us our entire 40,000 tons, provided
we old no business, then the association would pay us the average
'bonus,' which might be from $3.50 to $5 on our 40,000. If we
cannot secure business in 'pay territory' at paying prices, we
think we will be able to dispose of our output in 'free territory,'
and, of course, make some profit on that."
"At the prices that Howard-Harrison people paid for
Jacksonville, Des Plaines, and one or two other points, they are
losing from $2.50 to $3 per ton, that is, provided 'bonuses' would
not be returned to them. Therefore when business goes at a loss, we
are willing that other shops make it."
Another letter was written by the same company pending a trouble
over a letting at Atlanta. The Anniston Company, to whom Atlanta
had been "reserved," made its bid so high ($24) that a Philadelphia
pipe firm, R. D. Wood & Co., had been able to underbid the
Anniston Company in spite of difference in freights. All the bids
had been rejected as too high, and upon a second letting Anniston's
bid was $1.25 a ton less, and the job was awarded to it. The charge
was then made by Atlanta persons that there was a "trust" or
"combine." This was vigorously denied. The letter of the
Chattanooga Company evoked by this difficulty was dated February
25, 1896, and reads as follows:
"Gentlemen: We are in receipt of a carbon copy of your favor of
the 24th instant to F. B. Nichols, V.P., in reference to Atlanta,
Ga. We certainly regret that the matter has assumed its present
shape, and that R. D. Wood & Company should make a lower bid by
$1 a ton than the southern shops. You know we have always been
opposed to special customers and reserved cities, we do not think
that it is the right principle and we believe, if the present
association continues, that all special customers and reserved
cities should be wiped out; there is no good reason why we should
be allowed to handle New Orleans, you Atlanta, Howard Harrison
Page 175 U. S. 222
Iron Co. St. Louis, or South Pittsburg, Omaha. We are not in the
business to award special privileges to any foundry, and we believe
that the result would be more benefit to all concerned if all
business was made competitive. It is hardly right, and we believe
if you will think over the matter carefully you will concede it,
for us to be put into a position of being unable to make prices or
furnish pipe for the City of Atlanta, when we have always
heretofore had a large share of their trade. We cannot explain our
position to the Atlanta people and we consider it is detrimental to
our business, and think no combination should have the power to
force us into such a position. The same argument will apply with
you as to New Orleans, St. Louis, and other places. We think this
matter should be considered seriously, and some action taken that
will result in reestablishing ourselves (I mean the four southern
shops) in the confidence of the Atlanta people. Wistar, R. D. Wood
& Company's man, has no doubt told them all about our
association, or as much as he could guess, and has worked up a very
bitter feeling against us. The very fact that you have been
protected and have had all their business for the past two years is
proof to them that such a 'combination' exists, and they state
that, if they find out positively that we are working together,
they will never receive a bid from any one of us again. We cannot
afford to leave these people under that impression, and something
ought to be done that would disprove Mr. Wistar's statement to
them. We believe that all business ought to be competitive. The
fact that certain shops have certain cities 'reserved' is all based
upon mere sentiment, and no good reason exists why it should be so.
We believe that, as a general thing, we have had our prices
entirely too high, and especially do we believe this has been the
case as to prices in reserved cities. The prices made at St. Louis
and Atlanta are entirely out of all reason, and the result has been
and always will be, when high prices are named, to create a bad
feeling and an agitation against the combination. There is no
reason why Atlanta, New Orleans, St. Louis, or Omaha should be made
to pay higher prices for their pipe than other places near
Page 175 U. S. 223
them who do not use anything like the amount of pipe and whose
trade is not as desirable for many other reasons. There is no
sentiment existing with us in reference to Atlanta, as we would as
soon sell our pipe anywhere else, only, as stated above, it is
wrong in principle that we should be forced to give up Atlanta or
any other point for no good reason that we know of."
It appears quite clearly from the prices at which the
Chattanooga and South Pittsburg Companies offered pipe in free
territory that any price which would net them from $13 to $15 a ton
at their foundries would give them a profit. Pipe was freely
offered by the defendants in free territory more than five hundred
miles from their foundries at less prices than their representative
boards fixed prices for jobs let in cities in pay territory nearer
to defendant's foundries by three hundred miles or more.
The defendants adduced many affidavits of a formal type, chiefly
from persons who had been buying pipe from defendants and other
companies, who testified in a general way that the prices at which
the pipe had been offered by defendants all over the country had
been reasonable, but in not one of the affidavits was any attempt
made to give figures as to cost of production and freight, and in
not a single case were the specific instances shown by the evidence
for the petitioner disputed.
There was some evidence as to the capacity of the defendants'
mills. The division of bonuses was based on an aggregate yearly
output of 220,000 tons, but there are averments in the answer that
indicate that this was not a statement of the actual limit of
capacity, but was only taken as a standard of restricted output
upon which to calculate an equitable division of bonuses. Nowhere
in the large mass of affidavits is there any statement of the
per diem capacity of the defendants' mills. Taking their
aggregate capacity, however, as 220,000 tons, that of the other
mills in the pay territory was 170,500 tons, and that of the mills
in the free territory was 348,000 tons, according to the affidavit
of the chief officer of one of the defendants. Of the
non-association mills in the
Page 175 U. S. 224
pay territory, one was at Pueblo, Colorado, another was in the
state penitentiary at Waco, Texas, and a third in Oregon. Their
aggregate annual capacity was 45,500 tons. Another non-association
mill was the Shickle, Howard, Harrison mill, of St. Louis,
Missouri, with a capacity of 12,000 tons. John W. Harrison, who was
president of this company, was also president of the
Howard-Harrison mill at Bessemer, Alabama, which was a member of
the association, and it appears that an order taken by the Bessemer
mill at St. Louis was partly filled by the St. Louis mill. The
other mills in the pay territory were one at Columbus, Ohio, with
an annual capacity of 30,000 tons, one at Cleveland, Ohio, of
69,000 tons, one at New Comerstown, in northeastern Ohio, of 8,000
tons, and one at Detroit, Michigan, of 15,000 tons, and their
aggregate annual capacity was 113,000 tons. In the free territory
there was one mill in eastern Virginia with an annual capacity of
16,000 tons, four mills in eastern Pennsylvania with a capacity of
87,000 tons, three mills in New Jersey with a capacity of 210,000
tons, and two mills at New York, one at Utica and another at
Buffalo, with an aggregate capacity of 35,000 tons.
The evidence was scanty as to rates of freight upon iron pipes,
but enough appeared to show that the advantage in freight rates
which the defendants had over the large pipe foundries in New York,
eastern Pennsylvania, and New Jersey in bidding on contracts to
deliver pipe in nearly all of the pay territory varied from $2 to
$6 a ton, according to the location.
The defendants filed the affidavits of their managing officers,
in which they stated generally that the object of their association
was not to raise prices beyond what was reasonable, but only to
prevent ruinous competition between defendants which would have
carried prices far below a reasonable point; that the bonuses
charged were not exorbitant profits and additions to a reasonable
price, but they were deductions from a reasonable price in the
nature of a penalty or burden intended to curb the natural
disposition of each member to get all the business possible and
more than his due proportion; that the prices fixed by the
association were always reasonable and
Page 175 U. S. 225
were always fixed, as they must have been, with reference to the
very active competition of other pipe manufacturers for every job;
that the reason why they sold pipe at so much cheaper rates in the
free territory than in the pay territory was because they were
willing to sell at a loss to keep their mills going, rather than to
stop them; that the prices at a city like St. Louis, in which the
specifications were detailed and precise, were higher because pipe
had to be made especially for the job and they could not use stock
on hand.
Page 175 U. S. 226
MR. JUSTICE PECKHAM, after stating the facts, delivered the
opinion of the Court.
The foregoing statement, which has been mainly taken from that
preceding the opinion of Circuit Judge Taft, delivered in this case
in the circuit court of appeals, comprises, as we think, all that
is essential to the discussion of the questions arising in this
case, and we believe the statement to be fully borne out as to the
facts by the evidence set forth in the record.
Assuming, for the purpose of the argument, that the contract in
question herein does directly and substantially operate as a
restraint upon and as a regulation of interstate commerce, it is
yet insisted by the appellants at the threshold of the
Page 175 U. S. 227
inquiry that, by the true construction of the Constitution, the
power of Congress to regulate interstate commerce is limited to its
protection from acts of interference by state legislation or by
means of regulations made under the authority of the state by some
political subdivision thereof, including also congressional power
over common carriers, elevator, gas, and water companies, for
reasons stated to be peculiar to such carriers and companies, but
that it does not include the general power to interfere with or
prohibit private contracts between citizens, even though such
contracts have interstate commerce for their object and result in a
direct and substantial obstruction to or regulation of that
commerce.
This argument is founded upon the assertion that the reason for
vesting in Congress the power to regulate commerce was to insure
uniformity of regulation against conflicting and discriminating
state legislation, and the further assertion that the Constitution
guarantees liberty of private contract to the citizen, at least
upon commercial subjects, and to that extent the guaranty operates
as a limitation on the power of Congress to regulate commerce. Some
remarks are quoted from the opinions of Chief Justice Marshall in
Gibbons v.
Ogden, 9 Wheat. 1, and
Brown v.
Maryland, 12 Wheat. 419, and from the opinions of
other justices of this Court in the cases of
The
State Freight Tax, 15 Wall. 275;
Railroad Company v.
Richmond, 19 Wall. 589;
Welton v.
Missouri, 91 U. S. 280;
Mobile County v. Kimball, 102
U. S. 697, and
Kidd v. Pearson, 128 U. S.
1,
128 U. S. 21, all
of which are to the effect that the object of vesting in Congress
the power to regulate interstate commerce was to insure uniformity
of regulation against conflicting and discriminating state
legislation. The further remark is quoted from
Railroad Company
v. Richmond,supra, that the power of Congress to regulate
commerce was never intended to be exercised so as to interfere with
private contracts not designed at the time they were made to create
impediments to such commerce. It is added that the proof herein
shows that the contract in this case was not so designed.
It is undoubtedly true that, among the reasons, if not the
Page 175 U. S. 228
strongest reason, for placing the power in Congress to regulate
interstate commerce was that which is stated in the extracts from
the opinions of the Court in the cases above cited.
The reasons which may have caused the framers of the
Constitution to repose the power to regulate interstate commerce in
Congress do not, however, affect or limit the extent of the power
itself.
In
Gibbons v.
Ogden, 9 Wheat. 1, the power was declared to be
complete in itself, and to acknowledge no limitations other than
are prescribed by the Constitution.
Under this grant of power to Congress, that body, in our
judgment, may enact such legislation as shall declare void and
prohibit the performance of any contract between individuals or
corporations where the natural and direct effect of such a contract
will be, when carried out, to directly, and not as a mere incident
to other and innocent purposes, regulate to any substantial extent
interstate commerce. (And when we speak of interstate, we also
include in our meaning foreign commerce.) We do not assent to the
correctness of the proposition that the constitutional guaranty of
liberty to the individual to enter into private contracts limits
the power of Congress and prevents it from legislating upon the
subject of contracts of the class mentioned.
The power to regulate interstate commerce is, as stated by Chief
Justice Marshall, full and complete in Congress, and there is no
limitation in the grant of the power which excludes private
contracts of the nature in question from the jurisdiction of that
body. Nor is any such limitation contained in that other clause of
the Constitution which provides that no person shall be deprived of
life, liberty, or property, without due process of law. It has been
held that the word "liberty," as used in the Constitution, was not
to be confined to the mere liberty of person, but included, among
others, a right to enter into certain classes of contracts for the
purpose of enabling the citizen to carry on his business.
Allgeyer v. Louisiana, 165 U. S. 578;
United States v. Joint Traffic Association, 171 U.
S. 505,
171 U. S. 572.
But it has never been, and in our opinion ought not to be, held
that the word included
Page 175 U. S. 229
the right of an individual to enter into private contracts upon
all subjects, no matter what their nature and wholly irrespective
(among other things) of the fact that they would, if performed,
result in the regulation of interstate commerce and in the
violation of an act of Congress upon that subject. The provision in
the Constitution does not, as we believe, exclude Congress from
legislating with regard to contracts of the above nature while in
the exercise of its constitutional right to regulate commerce among
the states. On the contrary, we think the provision regarding the
liberty of the citizen is, to some extent, limited by the commerce
clause of the Constitution, and that the power of Congress to
regulate interstate commerce comprises the right to enact a law
prohibiting the citizen from entering into those private contracts
which directly and substantially, and not merely indirectly,
remotely, incidentally, and collaterally, regulate to a greater or
less degree commerce among the states.
We cannot so enlarge the scope of the language of the
Constitution regarding the liberty of the citizen as to hold that
it includes, or that it was intended to include, a right to make a
contract which in fact restrained and regulated interstate
commerce, notwithstanding Congress, proceeding under the
constitutional provision giving to it the power to regulate that
commerce, had prohibited such contracts.
While unfriendly or discriminating legislation of the several
states may have been the chief cause for granting to Congress the
sole power to regulate interstate commerce, yet we fail to find in
the language of the grant any such limitation of that power as
would exclude Congress from legislating on the subject and
prohibiting those private contracts which would directly and
substantially, and not as a mere incident, regulate interstate
commerce.
If certain kinds of private contracts do directly, as already
stated, limit or restrain, and hence regulate, interstate commerce,
why should not the power of Congress reach those contracts just the
same as if the legislation of some state had enacted the provisions
contained in them? The private contracts may in truth be as
far-reaching in their effect upon
Page 175 U. S. 230
interstate commerce as would the legislation of a single state
of the same character.
In
In re Debs, 158 U. S. 564, it
was said by MR. JUSTICE BREWER, speaking for the Court:
"It is curious to note the fact that in a large proportion of
the cases in respect to interstate commerce brought to this Court
the question presented was of the validity of state legislation in
its bearings upon interstate commerce, and the uniform course of
decision has been to declare that it is not within the competency
of a state to legislate in such a manner as to obstruct interstate
commerce. If a state, with its recognized power of sovereignty, is
impotent to obstruct interstate commerce, can it be that any mere
voluntary association of individuals within the limits of that
state has a power which the state itself does not possess?"
What sound reason can be given why Congress should have the
power to interfere in the case of the state, and yet have none in
the case of the individual? Commerce is the important subject of
consideration, and anything which directly obstructs and thus
regulates that commerce which is carried on among the states,
whether it is state legislation or private contracts between
individuals or corporations, should be subject to the power of
Congress in the regulation of that commerce.
The power of Congress over this subject seems to us much more
important and necessary than the liberty of the citizen to enter
into contracts of the nature above mentioned, free from the control
of Congress, because the direct results of such contracts might be
the regulation of commerce among the states, possibly quite as
effectually as if a state had passed a statute of like tenor as the
contract.
The liberty of contract in such case would be nothing more than
the liberty of doing that which would result in the regulation, to
some extent, of a subject which, from its general and great
importance, has been granted to Congress as the proper
representative of the nation at large. Regulation, to any
substantial extent, of such a subject by any other power than that
of Congress, after Congress has itself acted thereon, even
Page 175 U. S. 231
though such regulation is effected by means of private contracts
between individuals or corporations, is illegal, and we are unaware
of any reason why it is not as objectionable when attempted by
individuals as by the state itself. In both cases, it is an attempt
to regulate a subject which, for the purpose of regulation, has
been, with some exceptions such as are stated in
Mobile County
v. Kimball, 102 U. S. 691,
102 U. S. 697;
Morgan v. Louisiana, 118 U. S. 455,
118 U. S. 465;
Bowman v. Chicago & N.W. Railway, 125 U.
S. 465;
Western Union Telegraph Co. v. James,
162 U. S. 650,
162 U. S. 655,
exclusively granted to Congress, and it is essential to the proper
execution of that power that Congress should have jurisdiction as
much in the one case as in the other.
It is, indeed, urged that to include private contracts of this
description within the grant of this power to Congress is to take
from the states their own power over the subject, and to interfere
with the liberty of the individual in a manner and to an extent
never contemplated by the framers of the Constitution, and not
fairly justified by any language used in that instrument. If
Congress has not the power to legislate upon the subject of
contracts of the kind mentioned, because the constitutional
provision as to the liberty of the citizen limits, to that extent,
its power to regulate interstate commerce, then it would seem to
follow that the several states have that power although such
contracts relate to interstate commerce, and more or less regulate
it. If neither Congress nor the state legislatures have such power,
then we are brought to the somewhat extraordinary position that
there is no authority, state or national, which can legislate upon
the subject of or prohibit such contracts. This cannot be the
case.
If it should be held that Congress has no power, and the state
legislatures have full and complete authority, to thus far regulate
interstate commerce by means of their control over private
contracts between individuals or corporations, then the legislation
of the different states might and probably would differ in regard
to the matter, according to what each state might regard as its own
particular interest. One state
Page 175 U. S. 232
might condemn all kinds of contracts of the class described,
while another might permit the making of all of them, while still
another might permit some and prohibit others, and thus great
confusion would ensue, and it would be difficult in many cases to
know just what law was applicable to any particular contract
regarding and regulating interstate commerce. At the same time,
contracts might be made between individuals or corporations of such
extent and magnitude as to seriously affect commerce among the
states. These consequences would seemingly necessarily follow if it
were decided that the state legislatures had control over the
subject to the extent mentioned.
It is true, so far as we are informed, that no state legislature
has heretofore authorized by affirmative legislation the making of
contracts upon the matter of interstate commerce of the nature now
under discussion. Nor has it, in terms, condemned them. The reason
why no state legislation upon the subject has been enacted has
probably been because it was supposed to be a subject over which
state legislatures had no jurisdiction. If it should be decided
that they have, then the course of legislation of the different
states on this subject would probably be as varied as we have
already indicated.
On the other hand, if it be true that in no event could a state
legislature enact a law affirmatively authorizing such contracts
(even if Congress had no jurisdiction over the subject), because in
so doing it would to a greater or less extent itself thereby,
though indirectly, regulate interstate commerce, then the question
whether such contracts were legal without legislative sanction
would depend upon the decisions of the various state courts having
jurisdiction in the cases, and in that event, as the same question
might arise in different states, there would be great probability
of inconsistent and contradictory decisions among the courts of the
different states, and that too upon questions of contracts
amounting to the regulation of interstate commerce. It is true that
under our system of government there are numerous subjects over
which the states have exclusive jurisdiction, resulting in the
enactment
Page 175 U. S. 233
of different laws upon the same subject in various states, and
also in varying and inconsistent judicial judgments in the
different states upon the same subject. That condition has never
been regarded as an end in itself desirable. It undoubtedly results
in some confusion as to the law applicable to the particular case,
and in many instances thereby increases the cost and renders
doubtful the result of the litigation arising under such
circumstances. They are results and the necessary accompaniment of
the division of sovereignty between the states, on the one hand,
and the federal government, on the other, and yet the enormous and
inestimable benefits arising from the existence of separate,
independent, and sovereign states have completely submerged the
comparatively minor evils of inconsistent judgments and different
laws upon many of the subjects over which the states have exclusive
jurisdiction. But upon the matter of interstate and foreign
commerce and the proper regulation thereof, the subject being not
alone national but international in its character, the great
importance of having but one source for the law which regulates
that commerce throughout the length and breadth of the land cannot,
in our opinion, be overestimated. Each state in that event would
have complete jurisdiction over the commerce which was wholly
within its own borders, while the jurisdiction of Congress, under
the provisions of the Constitution, over interstate commerce would
be paramount, and would include therein jurisdiction over contracts
of the nature we have been discussing.
The remark in
Railroad Co. v. Richmond, supra, that it
was never intended that the power of Congress should be exercised
so as to interfere with private contracts not designed at the time
they were made to create impediments to interstate commerce, when
read in connection with the facts stated in the report, is entirely
sound. It therein appears that a contract had been made between the
parties as to the erection of an elevator and the business to be
done by it, which contract was valid when made. Subsequently
Congress passed acts relating to the construction of bridges over
rivers and streams and authorizing railroads to carry
passengers
Page 175 U. S. 234
on their way from one state to another. The railroad company,
becoming tired of its contract with the elevator company, desired
to take advantage of this legislation, and contended that under it
the contract which it had theretofore made with the elevator
company became void as an obstacle to or a regulation of commerce.
The Court held that contracts which were valid when made continue
valid and capable of enforcement so long, at least, as peace lasts
between the governments of the contracting parties notwithstanding
a change in the condition of business which originally led to their
creation. It was them added that it never was intended that the
power of Congress should be exercised so as to interfere with
private contracts not designed at the time they were made to create
impediments to interstate commerce.
There is no intimation in this remark that Congress has no power
to legislate regarding those contracts which do directly regulate
and restrain interstate commerce. The inference is quite the
reverse, and it is plain that the case assumes, if private
contracts when entered into do directly interfere with and regulate
interstate commerce, Congress had power to condemn them. If the
necessary, direct, and immediate effect of the contract be to
violate an act of Congress and also to restrain and regulate
interstate commerce, it is manifestly immaterial whether the design
to so regulate was or was not in existence when the contract was
entered into. In such case, the design does not constitute the
material thing. The fact of a direct and substantial regulation is
the important part of the contract, and, that regulation existing,
it is unimportant that it was not designed.
Where the contract affects interstate commerce only
incidentally, and not directly, the fact that it was not designed
or intended to affect such commerce is simply an additional reason
for holding the contract valid, and not touched by the act of
Congress. Otherwise the design prompting the execution of a
contract pertaining to and directly affecting, and more or less
regulating, interstate commerce is of no importance. We conclude
that the plain language of the grant to Congress of power to
regulate commerce among the several
Page 175 U. S. 235
states includes power to legislate upon the subject of those
contracts in respect to interstate or foreign commerce which
directly affect and regulate that commerce, and we can find no
reasonable ground for asserting that the constitutional provision
as to the liberty of the individual limits the extent of that
power, as claimed by the appellants. We therefore think the
appellants have failed in their contention upon this branch of the
subject.
We are thus brought to the question whether the contract or
combination proved in this case is one which is either a direct
restraint or a regulation of commerce among the several states or
with foreign nations contrary to the act of Congress. It is
objected on the part of the appellants that even if it affected
interstate commerce, the contract or combination was only a
reasonable restraint upon a ruinous competition among themselves,
and was formed only for the purpose of protecting the parties
thereto in securing prices for their product that were fair and
reasonable to themselves and the public. It is further objected
that the agreement does not come within the act, because it is not
one which amounts to a regulation of interstate commerce, as it has
no direct bearing upon or relation to that commerce, but that, on
the contrary, the case herein involves the same principles which
were under consideration in
United States v. E. C. Knight
Company, 156 U. S. 1, and, in
accordance with that decision, the bill should be dismissed.
Referring to the first of these objections to the maintenance of
this proceeding, we are of opinion that the agreement or
combination was not one which simply secured for its members fair
and reasonable prices for the article dealt in by them. Even if the
objection thus set up would, if well founded in fact, constitute a
defense, we agree with the circuit court of appeals in its
statement of the special facts upon this branch of the case and
with its opinion thereon as set forth by Circuit Judge Taft, as
follows:
"The defendants, being manufacturers and vendors of cast-iron
pipe, entered into a combination to raise the prices for pipe for
all the states west and south of New York, Pennsylvania,
Page 175 U. S. 236
and Virginia, constituting considerably more than three-quarters
of the territory of the United States, and significantly called by
the associates 'pay' territory. Their joint annual output was
220,000 tons. The total capacity of all the other cast-iron pipe
manufacturers in the pay territory was 170,500 tons. Of this,
45,000 tons was the capacity of mills in Texas, Colorado, and
Oregon, so far removed from that part of the pay territory where
the demand was considerable that necessary freight rates excluded
them from the possibility of competing, and 12,000 tons was the
possible annual capacity of a mill at St. Louis, which was
practically under the same management as that of one of the
defendants' mills. Of the remainder of the mills in pay territory
and outside of the combination, one was at Columbus, Ohio, two in
northern Ohio, and one in Michigan. Their aggregate possible annual
capacity was about one-half the usual annual output of the
defendants' mills. They were, it will be observed, at the extreme
northern end of the pay territory, while the defendants' mills at
Cincinnati, Louisville, Chattanooga and South Pittsburg, and
Anniston and Bessemer were grouped much nearer to the center of the
pay territory. The freight upon cast-iron pipe amounts to a
considerable percentage of the price at which manufacturers can
deliver it at any great distance from the place of manufacture.
Within the margin of the freight per ton which eastern
manufacturers would have to pay to deliver pipe in pay territory,
the defendants, by controlling two-thirds of the output in pay
territory, were practically able to fix prices. The competition of
the Ohio and Michigan mills, of course, somewhat affected their
power in this respect in the northern part of the pay territory,
but the further south the place of delivery was to be, the more
complete the monopoly over the trade which the defendants were able
to exercise within the limits already described. Much evidence is
adduced upon affidavit to prove that defendants had no power
arbitrarily to fix prices and that they were always obliged to meet
competition. To the extent that they could not impose prices on the
public in excess of the cost price of pipe with freight from the
Atlantic
Page 175 U. S. 237
seaboard added this is true, but within that limit, they could
fix prices as they chose. The most cogent evidence that they had
this power is the fact everywhere apparent in the record that they
exercised it. The details of the way in which it was maintained are
somewhat obscured by the manner in which the proof was adduced in
the court below -- upon affidavits solely and without the
clarifying effect of cross-examination -- but quite enough appears
to leave no doubt of the ultimate fact."
"The defendants were, by their combination, therefore, able to
deprive the public in a large territory of the advantages otherwise
accruing to them from the proximity of defendants' pipe factories,
and, by keeping prices just low enough to prevent competition by
eastern manufacturers, to compel the public to pay an increase over
what the price would have been if fixed by competition between the
defendants, nearly equal to the advantage in freight rates enjoyed
by defendants over eastern competitors. The defendants acquired
this power by voluntarily agreeing to sell only at prices fixed by
their committee, and by allowing the highest bidder at the secret
auction pool to become the lowest bidder of them at the public
letting. Now the restraint thus imposed on themselves was only
partial -- it did not cover the United States; there was not a
complete monopoly. It was tempered by the fear of competition, and
it affected only a part of the price. But this certainly does not
take the contract of association out of the annulling effect of the
rule against monopolies. In
United States v. E. C. Knight
Company, 156 U. S. 1,
156 U. S.
16, CHIEF JUSTICE FULLER, in speaking for the Court,
said:"
"Again, all the authorities agree that in order to vitiate a
contract or combination, it is not essential that its result should
be a complete monopoly; it is sufficient if it really tends to that
end, and to deprive the public of the advantages which flow from
free competition."
"It has been earnestly pressed upon us that the prices at which
the cast-iron pipe was sold in pay territory were reasonable. A
great many affidavits of purchasers of pipe in pay territory, all
drawn by the same hand or from the same model, are produced in
which the affiants say that, in their
Page 175 U. S. 238
opinion, the prices at which pipe has been sold by the
defendants have been reasonable. We do not think the issue an
important one, because, as already stated, we do not think that at
common law there is any question of reasonableness open to the
courts with reference to such a contract. Its tendency was
certainly to give to the defendants the power to charge
unreasonable prices had they chosen to do so. But if it were
important, we should unhesitatingly find that the prices charged in
the instances which were in evidence were unreasonable. The letters
from the manager of the Chattanooga foundry, written to the other
defendants and discussing the prices fixed by the association, do
not leave the slightest doubt upon this point, and outweigh the
perfunctory affidavits produced by the defendants. The cost of
producing pipe at Chattanooga, together with a reasonable profit,
did not exceed $15 a ton. It could have been delivered at Atlanta
at $17 to $18 a ton, and yet the lowest price which that foundry
was permitted by the rules of the association to bid was $24.25.
The same thing was true all through pay territory to a greater or
less degree, and especially at reserved cities."
85 F. 271.
The facts thus set forth show conclusively that the effect of
the combination was to enhance prices beyond a sum which was
reasonable, and therefore the first objection above set forth need
not be further noticed.
We are also of opinion that the direct effect of the agreement
or combination is to regulate interstate commerce, and the case is
therefore not covered by that of
United States v. E. C. Knight
Company, supra. It was there held that, although the American
Sugar Refining Company, by means of the combination referred to,
had obtained a practical monopoly of the business of manufacturing
sugar, yet the act of Congress did not touch the case, because the
combination only related to manufacture, and not to commerce among
the states or with foreign nations. The plain distinction between
manufacture and commerce was pointed out, and it was observed that
a contract or combination which directly related to manufacture
only was not brought within the purview of the act, although, as an
indirect and incidental result of such combination,
Page 175 U. S. 239
commerce among the states might be thereafter somewhat affected.
MR. CHIEF JUSTICE FULLER, in delivering the opinion of the Court,
spoke of the distinction between the two subjects, and said:
"The argument is that the power to control the manufacture of
refined sugar is a monopoly over a necessity of life, to the
enjoyment of which by a large part of the population of the United
States interstate commerce is indispensable, and that therefore the
general government, in the exercise of the power to regulate
commerce, may repress such monopoly directly and set aside the
instruments which have created it."
"Doubtless the power to control the manufacture of a given thing
involves in a certain sense the control of its disposition, but
this is a secondary, and not the primary, sense, and although the
exercise of that power may result in bringing the operation of
commerce into play, it does not control it, and affects it only
incidentally and indirectly. Commerce succeeds to manufacture, and
is not a part of it."
"
* * * *"
"It will be perceived how far-reaching the proposition is that
the power of dealing with a monopoly directly may be exercised by
the general government whenever interstate or international
commerce may be ultimately affected. The regulation of commerce
applies to the subjects of commerce, and not to matters of internal
police. Contracts to buy, sell, or exchange goods to be transported
among the several states, the transportation and its
instrumentalities, and articles bought, sold, or exchanged for the
purposes of such transit among the states, or put in the way of
transit, may be regulated, but this is because they form part of
interstate trade or commerce. The fact that an article is
manufactured for export to another state does not, of itself, make
it an article of interstate commerce, and the intent of the
manufacturer does not determine the time when the article or
product passes from the control of the state and belongs to
commerce."
"
* * * *"
"There was nothing in the proofs to indicate any intention to
put a restraint upon trade or commerce, and the fact, as we
Page 175 U. S. 240
have seen, that trade or commerce might be indirectly affected
was not enough to entitle complainants to a decree."
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 article; 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.
We think the case now before us involves contracts of the nature
last above mentioned, not incidentally or collaterally, but as a
direct and immediate result of the combination engaged in by the
defendants.
While no particular contract regarding the furnishing of pipe
and the price for which it should be furnished was in the
contemplation of the parties to the combination at the time of its
formation, yet it was their intention, as it was the purpose of the
combination, to directly and by means of such combination increase
the price for which all contracts for the delivery of pipe within
the territory above described should be made, and the latter result
was to be achieved by abolishing all competition between the
parties to the combination. The direct and immediate result of the
combination was therefore necessarily a restraint upon interstate
commerce in respect of articles
Page 175 U. S. 241
manufactured by any of the parties to it to be transported
beyond the state in which they were made. The defendants, by reason
of this combination and agreement, could only send their goods out
of the state in which they were manufactured for sale and delivery
in another state, upon the terms and pursuant to the provisions of
such combination. As pertinently asked by the court below, was not
this a direct restraint upon interstate commerce in those
goods?
If dealers in any commodity agreed among themselves that any
particular territory bounded by state lines should be furnished
with such commodity by certain members only of the combination, and
the others would abstain from business in that territory, would not
such agreement be regarded as one in restraint of interstate trade?
If the price of the commodity were thereby enhanced (as it
naturally would be), the character of the agreement would be still
more clearly one in restraint of trade. Is there any substantial
difference where, by agreement among themselves, the parties choose
one of their number to make a bid for the supply of the pipe for
delivery in another state, and agree that all other bids shall be
for a larger sum, thus practically restricting all but the member
agreed upon from any attempt to supply the demand for the pipe or
to enter into competition for the business? Does not an agreement
or combination of that kind restrain interstate trade, and when
Congress has acted by the passage of a statute like the one under
consideration, does not such a contract clearly violate that
statute?
As has frequently been said, interstate commerce consists of
intercourse and traffic between the citizens or inhabitants of
different states, and includes not only the transportation of
persons and property and the navigation of public waters for that
purpose, but also the purchase, sale, and exchange of commodities.
Gloucester Ferry Co. v. Pennsylvania, 114 U.
S. 196,
114 U. S. 203;
Kidd v. Pearson, 128 U. S. 1,
128 U. S. 20. 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
Page 175 U. S. 242
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 interstate 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.
The defendants allege, and it is true, that their business is
not like a factory manufacturing an article of a certain kind for
which there is at all times a demand, and which is manufactured
without any regard to a particular sale or for a particular
customer. In this respect, as in many others, the business differs
radically from the sugar refiners. The business of defendants is
carried on by obtaining particular contracts for the sale,
transportation, and delivery of iron pipe of a certain description,
quality, and strength, differing in different contracts as the
intended use may differ. These contracts are generally speaking
obtained at a public letting at which there are many competitors,
and the contract bid for includes, in its terms, the sale of the
pipe and its delivery at the place desired, the cost of
transportation being included in the purchase price of the pipe.
The contract is one for the sale and delivery of a certain kind of
pipe, and it is not generally essential to its performance that it
should be manufactured for that particular contract, although
sometimes it may be.
If the successful bidder had on hand iron pipe of the kind
specified, or if he could procure it by purchase, he could in most
cases deliver such pipe in fulfillment of his contract just the
same as if he manufactured the pipe subsequently to the making of
the contract and for the specific purpose of its performance. It is
the sale and delivery of a certain kind and quality of pipe, and
not the manufacture, which is the material portion of the contract,
and a sale for delivery beyond the state makes the transaction a
part of interstate commerce. Municipal corporations and gas,
railroad, and water companies
Page 175 U. S. 243
are among the chief customers for the pipe, and when they desire
the article, they give notice of the kind and quality, size,
strength, and purpose for which the pipe is desired, and announce
they will receive proposals for furnishing the same at the place
indicated by them. Into this contest (and irrespective of the
reserved cities) the defendants enter not in truth as competitors,
but under an agreement or combination among themselves which
eliminates all competition between them for the contract, and
permits one of their number to make his own bid and requires the
others to bid over him. In certain sections of the country, the
defendants would have, by reason of their situation, such an
advantage over all other competitors that there would practically
be no chance for any other than one of their number to obtain the
contract unless the price bid was so exorbitant as to give others
not so favorably situated an opportunity to snatch it from their
hands. Under these circumstances, the agreement or combination of
the defendants, entered into for that express purpose and to
directly obtain that desired result, would inevitably and
necessarily give to the defendant, who was agreed upon among
themselves to make the lowest bid, the contract desired and at a
higher price than otherwise would have been obtained, and all the
other parties to the combination would, by virtue of its terms, be
restricted from an attempt to obtain the contract.
The combination thus had a direct, immediate, and intended
relation to and effect upon the subsequent contract to sell and
deliver the pipe. It was to obtain that particular and specific
result that the combination was formed, and, but for the
restriction, the resulting high prices for the pipe would not have
been obtained. It is useless for the defendants to say they did not
intend to regulate or affect interstate commerce. They intended to
make the very combination and agreement which they in fact did
make, and they must be held to have intended (if in such case
intention is of the least importance) the necessary and direct
result of their agreement.
The cases of
Hopkins v. United States, 171 U.
S. 578, and
Anderson v. United States,
171 U. S. 604, are
not relevant. I n the
Hopkins case, it was held that the
business of the members
Page 175 U. S. 244
of the Kansas City Live Stock Exchange was not interstate
commerce, and hence the act of Congress did not affect them; while
in the
Anderson case, it was held that whether the members
of the Traders' Live Stock Exchange were or were not engaged in the
business of interstate commerce was immaterial, as the agreement
proved was not in restraint of trade and did not regulate such
commerce. It was said that when it is seen that the agreement
entered into does not directly relate to and act upon and embrace
interstate commerce, and that it was executed for another and
entirely different purpose, and that it was calculated to attain
it, the agreement would be upheld if its effect upon that commerce
were only indirect and incidental. The agreement involved in that
case was held to be of such a character. The case we have here is
of an entirely different nature, and is not covered or affected by
the decisions cited.
It is also urged that as but one contract would be awarded for
the work proposed at any place, and therefore only one person would
secure it by virtue of being the lowest bidder, the selection by
defendants of one of their number to make the lowest bid as among
themselves could not operate as any restraint of trade; that the
combination or agreement operated only to make a selection of that
one who should have the contract by being the lowest bidder, and it
did not in the most remote degree itself limit the number or extent
of contracts, and therefore could not operate to restrain
interstate trade. This takes no heed of the purpose and effect of
the combination to restrain the action of the parties to it so that
there shall be no competition among them to obtain the contract for
themselves.
We have no doubt that where the direct and immediate effect of a
contract or combination among particular dealers in a commodity is
to destroy competition between them and others, so that the parties
to the contract or combination may obtain increased prices for
themselves, such contract or combination amounts to a restraint of
trade in the commodity even though contracts to buy such commodity
at the enhanced price are continually being made. Total suppression
of the
Page 175 U. S. 245
trade in the commodity is not necessary in order to render the
combination one in restraint of trade. It is the effect of the
combination in limiting and restricting the right of each of the
members to transact business in the ordinary way, as well as its
effect upon the volume or extent of the dealing in the commodity,
that is regarded. All the facts and circumstances are, however, to
be considered in order to determine the fundamental question --
whether the necessary effect of the combination is to restrain
interstate commerce.
If iron pipe cost $100 a ton, instead of the prices which the
record shows were paid for it, no one, we think, would contend that
the trade in it would amount to as much as if the lower prices
prevailed. The higher price would operate as a direct restraint
upon the trade, and therefore any contract or combination which
enhanced the price might in some degree restrain the trade in the
article. It is not material that the combination did not prevent
the letting of any particular contract. Such was not its purpose.
On the contrary, the more contracts to be let, the better for the
combination. It was formed not for the object of preventing the
letting of contracts, but to restrain the parties to it from
competing for contracts, and thereby to enhance the prices to be
obtained for the pipe dealt in by those parties. And when, by
reason of the combination, a particular contract may have been
obtained for one of the parties thereto, but at a higher price than
would otherwise have been paid, the charge that the combination was
one in restraint of trade is not answered by the statement that the
particular contract was in truth obtained and not prevented. The
parties to such a combination might realize more profit by the
higher prices they would secure than they could earn by doing more
work at a much less price. The question is as to the effect of such
combination upon the trade in the article, and if that effect be to
destroy competition and thus advance the price, the combination is
one in restraint of trade.
Decisions regarding the validity of taxation by or under state
authority, involving sometimes the question of the point of time
that an article intended for transportation beyond the
Page 175 U. S. 246
state ceases to be governed exclusively by the domestic law and
begins to be governed and protected by the national law of
commercial regulation, are not of very close application here. The
commodity may not have commenced its journey, and so may still be
completely within the jurisdiction of the state for purposes of
state taxation, and yet at that same time the commodity may have
been sold for delivery in another state. Any combination among
dealers in that kind of commodity which in its direct and immediate
effect forecloses all competition and enhances the purchase price
for which such commodity would otherwise be delivered at its
destination in another state would, in our opinion, be one in
restraint of trade or commerce among the states, even though the
article to be transported and delivered in another state were still
taxable at its place of manufacture.
It is said that a particular business must be distinguished from
its mere subjects, and from the instruments by which the business
is carried on; that in most cases of a large manufacturing company,
it could only be carried on by shipping products from one state to
another, and that the business of such an establishment would be
related to interstate commerce only incidentally and indirectly.
This proposition we are not called upon to deny. It is not,
however, relevant. Where the contract is for the sale of the
article and for its delivery in another state, the transaction is
one of interstate commerce, although the vendor may have also
agreed to manufacture it in order to fulfill his contract of sale.
In such case, a combination of this character would be properly
called a combination in restraint of interstate commerce, and not
one relating only to manufacture.
It is almost needless to add that we do not hold that every
private enterprise which may be carried on chiefly or in part by
means of interstate shipments is therefore to be regarded as so
related to interstate commerce as to come within the regulating
power of Congress. Such enterprises may be of the same nature as
the manufacturing of refined sugar in the
Knight case --
that is, the parties may be engaged as manufacturers of a commodity
which they thereafter intend at
Page 175 U. S. 247
some time to sell, and possibly to sell in another state; but
such sale we have already held is an incident to, and not the
direct result of, the manufacture, and so is not a regulation of or
an illegal interference with interstate commerce. That principle is
not affected by anything herein decided.
The views above expressed lead generally to an affirmance of the
judgment of the court of appeals. In one aspect, however, that
judgment is too broad in its terms -- the injunction is too
absolute in its directions -- as it may be construed as applying
equally to commerce wholly within a state as well as to that which
is interstate or international only. This was probably an
inadvertence merely. Although the jurisdiction of Congress over
commerce among the states is full and complete, it is not
questioned that it has none over that which is wholly within a
state, and therefore none over combinations or agreements so far as
they relate to a restraint of such trade or commerce. It does not
acquire any jurisdiction over that part of a combination or
agreement which relates to commerce wholly within a state, by
reason of the fact that the combination also covers and regulates
commerce which is interstate. The latter it can regulate, while the
former is subject alone to the jurisdiction of the state. The
combination herein described covers both commerce which is wholly
within a state and also that which is interstate.
In regard to such of these defendants as might reside and carry
on business in the same state where the pipe provided for in any
particular contract was to be delivered, the sale, transportation,
and delivery of the pipe by them under that contract would be a
transaction wholly within the state, and the statute would not be
applicable to them in that case. They might make any combination
they chose with reference to the proposed contract, although it
should happen that some nonresident of the state eventually
obtained it.
The fact that the proposal called for the delivery of pipe in
the same state where some of the defendants resided and carried on
their business would be sufficient, so far as the act of Congress
is concerned, to permit those defendants to combine as they might
choose, in regard to the proposed contract
Page 175 U. S. 248
for the delivery of the pipe, and that right would not be
affected by the fact that the contract might be subsequently
awarded to someone outside of the state as the lowest bidder. In
brief, their right to combine in regard to a proposal for pipe
deliverable in their own state could not be reached by the federal
power derived from the commerce clause in the Constitution.
To the extent that the present decree includes in its scope the
enjoining of defendants thus situated from combining in regard to
contracts for selling pipe in their own state, it is modified and
limited to that portion of the combination or agreement which is
interstate in its character. As thus modified, the decree is
Affirmed.
