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/15] "The above division is based on the fol- | panies of the cities set apart for them, includ

lowing tonnage of capacity: South Pittsburg. Anniston.

Chattanooga

Bessemer
Louisville

Cincinnati

.15,000 tons.

.30,000 tons.

.40,000 tons.

.45.000 tons.

.45,000 tons. .45,000 tons.

"When the 220,000 tons have been made and shipped and the bonuses divided as here after 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.

Iron

"Seventh. The Howard-Harrison Company shall handle Bessemer and Birmingham, Ala., and St. Louis, Mo., furnishing all pipe for gas and water companies in the [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 com

ing all sizes o1 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.

List of Bonuses.

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All other territory free.

"On motion of Mr. Llewellyn, the bonuses on all city work as specially reserved shall be $2 per ton."

*The states for sale in which bonuses had[217, 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 by-laws provided for an auditor of the association, whose duty it was to keep ac count 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 water works contract be fixed at $7.10, pro-
send to each shop "a statement of all ship-vided freight is $1.60 a ton. Carried."
ments 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:

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 "Whereas, the system now in operation in you find it necessary to put in a bid without this association of having a fixed bonus on going to St. Louis, please bid not less than the several states has not in its operation re- $27 for the pipe, and 24 *cents per pound for[219] sulted in the advancement in the prices of the specials. I would also like to know as to pipe as was anticipated, except in reserved which of you would find it convenient to have cities, and some further action is imperative-a representative at the letting. It will be ly necessary in order to accomplish the ends necessary to have two outside bidders." for which this association was formed: The contract was let to the Howard-HarriTherefore, be it resolved, that from and after son Company, of Bessemer, at $24. who althe first day of June, that all competition|lowed the Shickle, Harrison, & Howard on the pipe lettings shall take place among Company, a pipe company of St. Louis not the various pipe shops prior to the said let in the association, but having the same presiting. To accomplish this purpose it is pro-dent as the Howard-Harrison Company, of posed that the six competitive shops have a Bessemer, to fill part of the order. The only representative board located at some central other bidders were the Addyston Pipe & eity to whom all inquiries for pipe shall be Steel Company and Dennis Long & Co., the referred, and said board shall fix the price former bidding $24.37 and the latter $24.57. at which said pipe shall be sold, and bids The evidence shows that the Chattanooga taken from the respective shops for the privi- foundry could have furnished this pipe, delege of handling the order, and the party se-livered in St. Louie, at from $17 to $18, and curing the order shall have the protection of all the other shops."

could have made a profit on it at that price. The record is full of instances of a similar

In pursuance of the new plan it was fur-kind, in which, after the successful bidder ther agreed "that all parties to this associa[218]tion having quotations out shall 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 adopt ed was modified by making the basis the total amounts shipped into "pay" territory. rather than the totals shipped into "pay" and "free" territory.

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 defend

ants.

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:

1896 in bidding on pipe, we have had this "Dear Sir: Referring to our policy for 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 To illustrate the mode of doing business business that will come into that territory the following excerpt from the minutes of for 1896, we have been able to determine to the meetings of December 20, 1895, Febru- what point we could bid on work and take ary 14, 1896, and March 13, 1896, is given: contracts, and if bonus is forced above this "It was moved to sell the 519 pieces of 20" point, let it go and take the bonus. We note pipe from Omaha, Neb., for $23.40, delivered. from your letter of yesterday that you have Carried. It was moved that Anniston par-sized up the situation in its essential points, ticipate 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

and it agrees exactly with our ideas on the
subject. It is useless to argue that Howard-
Harrison Iron Co., *Cincinnati, and other[220]
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. [ company pending a trouble over a letting at In the case of the Howard-Harrison Iron Co. Atlanta. The Anniston Company, to whom people on Jacksonville, Fla. The truth of Atlanta had been "reserved," made its bid 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 to-day 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 [221]pipe were not in the market *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 did 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

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 *Iron Co. St. Louis, or[2221 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 re-establishing ourselves (I mean the four southern shops) in the confi. dence 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 [223]for their pipe than other places near 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."

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, Mich., 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, accord

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 de-ing to the location.
fendants in free territory more than 500 miles
from their foundries at less prices than their
representative boards fixed prices for jobs
let in cities in pay territory nearer to de-
fendant's foundries by 300 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 fig.
ures as to cost of production and freight, and
in not a single case were the specific instances
shown by the evidence for the petitioner dis-
puted.

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 defend[224]ants. Of the nonassociation mills in the *pay territory one was at Pueblo, Colo., another was in the state penitentiary at Waco, Texas, and a third in Oregon. Their aggregate annual capacity was 45,500 tons. Another nonassociation mill was the Shickle, Howard, Harrison mill, of St. Louis, Mo., 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, Ala., which was a member of the association, and it appears that an order

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 were always fixed, as they must[225, 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.

Mr. Frank Spurlock argned the cause and. with Mr. Foster V. Brown, tiled a brief for appellants:

The freedom of contract is of paramount consideration, and is not lightly to he interfered with.

Printing & Numerical Registering Co. v. Sampson, L. R. 19 Eq. 462; Roustilon Rousillon, L. R. 14 Ch. Div. 351; National Benefit Co. v. Union Hospital Co. 45 Minn 272, 11 L. R. A. 437, 47 N. W. 806; Greenhood, Pub. Pol. 116.

Where the purpose of a contract is bona fide to prevent the ruinous consequences of competition, an agreement to divide a portion of the gross receipts among trading

firms is not illegal, and does not create a
partnership.

Eastman v. Clark, 53 N. H. 276, 16 Am.
Rep. 192; Mayrant v. Marston, 67 Ala. 453;
Fay v. Davidson, 13 Minn. 298, Gil. 275;
3 Kent. p. 25, notes.

There is nothing illegal in an agreement effecting a division of territory, business, or customers among competitors, and confining each in his operations to a particular territory, or excluding each from a certain district.

over common carriers, elevator, gas, and wa|ter 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 inWickens v. Evans, 3 Younge & J. 318; sure uniformity of regulation against con National Benefit Co. v. Union Hospital Co. flicting and discriminating state legislation 45 Minn. 272, 11 L. R. A. 437, 47 N. W. 806; and the further assertion that the ConstiCollins v. Locke, L. R. 4 App. Cas. 674; Her-tution guarantees liberty of private contract riman v. Menzies, 115 Cal. 16, 35 L. R. A. to the citizen, at least upon commercial sub318, 46 Pac. 730; Hubbard v. Miller, 27 Mich.jects, and to that extent the guaranty ope15, 15 Am. Rep. 153.

Contracts by which a few manufacturers stipulate among themselves not to bid on contracts, except on certain terms and under certain regulations controlling the action of each, do not regulate commerce, nor are they illegal, even though they fix prices at which the parties must sell their goods.

Dueber Watch Case Mfg. Co. v. E. Howard Watch & Clock Co. 35 U. S. App. 16, 66 Fed. Rep. 637, 14 C. C. A. 14: Macauley Bros. v. Tierney, 19 R. I. 255, 37 L. R. A. 455, 33 Atl. 1: Bohn Mfg. Co. v. Hollis, 54 Minn. 223, sub nom. Bohn Mfg. Co. v. Northwestern Lumbermen's Asso. 21 L. R. A. 337, 55 N.

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rates 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, 6 L. ed. 23, and Brown v. Maryland, 12 Wheat. 419, 6 L. ed. 678; and from the opin ions of other justices of this court in the cases of The State Freight Tax, 15 Wall. 275, sub nom. Philadelphia & R. R. Co. v. Pennsylvania, 21 L. ed. 161; Dubuque & S. C. R. Co. v. Richmond, 19 Wall. 589, 22 L. ed. 176; Welton v. Missouri, 91 U. S. 280, 23 L. ed. 349; Mobile County v. Kimball, 102 U. S. 697, 26 L. ed. 239; and Kidd v. Pearson, 128 U. S. at 21, 32 L. ed. 350, 2 Inters. Com. Rep. 232, 9 Sup. Ct. Rep. 6, 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 Dubuque & S. C. R. Co. v. Richmond, 19 Wall. 589, 22 L. ed. 176, that the power of Congress to regulate commerce was fere with private contracts not designed at the time they were made to create impediments to such commerce. It is added that

never intended to be exercised so as to inter

the proof herein shows that the contract in
this case was not so designed.

It is undoubtedly true that among the [226] *Mr. Justice Peckham, after stating the facts, delivered the opinion of the court: reasons, if not the strongest reason, for plac (28) The foregoing statement, which has been ing the power in Congress to regulate intermainly taken from that preceding the opin-state commerce, was that which is stated in ion of Circuit Judge Taft, delivered in this the extracts from the opinions of the court in the cases above cited. 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 ap[227 pellants at the threshold of the *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

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, 6 L. ed. 23, 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,

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