to claim that the competitive cash register had the same shortcomings. It also enabled him, in case the customer insisted upon purchasing the "knocker," to persuade the customer to purchase a genuine National machine when the "knocker," as was inevitable, speedily broke down.

9. It instructed its sales agents secretly to weaken and injure the internal mechanism and to remove and destroy parts of competitive cash registers in actual use by purchasers whenever they could get their hands upon them. The object was evidently to cause the purchaser of a competitive cash register to become dissatisfied and to turn to the National to replace it.

10. It threatened competitors and purchasers of competitors' machines with suits for infringement of the National's patent rights, when no such right existed, and no such suit was contemplated.

II. In other cases it began suit against competitors and against purchasers of competitive cash registers for infringement when it was well known that there was no ground for such suits and when there was no intention of pressing the suits beyond the point necessary to harrass the competitors.

12. It organized cash register manufacturing concerns and sales concerns ostensibly as competitors of itself, but in fact as convenient instruments for gaining the confidence and obtaining the secrets of competitors.

13. It induced, by offers of largely increased compensation, the agents and employees of competitors to leave the employment of the competitors to enter that of the National.

14. It applied for patents upon the cash registers of competitors and upon improvements upon those cash registers merely for the purpose of harrassing the competitors by interference suits and threats to institute such suits.

Perhaps the most interesting of any of the methods of unfair competition is the requirement that, in order to obtain certain articles, a concern shall lease, sell, purchase, or use certain other articles. The successful imposition of such requirements is usually most destructive to competition; and not infrequently it may be suppressed altogether. Though conditions of this character show variety, they may be discussed under three heads:

22 Adapted from "Unfair Competition," in the Political Science Quarterly. XXIX, 291-299. Copyright (1914).

The purchase or lease of articles upon which the patents have expired, as a condition of obtaining patented articles.

The "tieing" clauses in the leases of the United Shoe Machinery Company furnish an example of this. A "tieing" clause may be described as a provision that a given machine must be used in conjunction with another or other machines. Sometimes the Shoe Machinery Company leases together two patented articles. In certain other cases the leases have tied to patented machines others upon which the patents have expired. The effect of the latter type of clause was described by a witness before a congressional committee: "At the present time a very large proportion of the important basic patents have expired, and but for the restrictions imposed upon us by their leasing system we should today be exercising our undoubted right to use, without royalty, a large part of the machinery now employed."

The Crown Cork & Seal Company, of Baltimore, manufactures more tin caps for bottles than does any other concern in the United States. The same concern also controls patents upon a certain device known as the Jumbo capping machine. None of the machines. is sold. They are leased to brewing and bottling establishments under agreements which provide that the "said machines shall be used only in connection with Crown corks purchased by the lessee directly from the lessor." The patents on the caps expired years ago. The lease attempts to compel bottlers to purchase all caps from the Crown Cork & Seal Company.

The theory which underlies the grant of a monopoly in a patent is that human progress is promoted by the gift to inventors for a term of years of the exclusive property in their inventions. At the end of the period it is intended, however, that the inventions shall become the property of the public. Theoretically any concern may begin the production of an article previously patented as soon as the term of the patent expires. Actually it may be unable to do so. Conditional requirements may so destroy the market that even if the goods were produced there would be no customers to purchase. This precise situation seems to have developed through the "tieing" clauses of the Shoe Machinery Company applying to patents.

2. The use of certain patented articles as a condition of obtaining other patented articles.

The contracts of the Shoe Machinery Company require that a given patented machine must be used in conjunction with another patented machine. Under free competition the relative productive efficiency of various machines produced by various concerns would determine to a nicety the reward belonging to each patentee. As it is, a machine more efficient than the United's machine for the work

it is designed to perform might have no market and bring in no royalties to its patentee. A similar case is that of the Motion Picture Patents Company, which, by virtue of its film control, has endeavored to compel the use of motion pictures containing one or more of the patents which it controls.

3. The purchasing, selling, or handling of a certain article or line of articles as the condition of the purchase or handling of another article or line of articles.

The Commissioner of Corporations in his report on the International Harvester Company has used the term "full-line forcing" to describe "the practice of requiring dealers to order new lines as a condition of retaining the agency for some brand of the company's harvesting machines."

A restriction of similar character is charged by the government in its suit against the American Coal Products and Barrett Manufacturing companies. These concerns are supposed to have a very substantial control of the pitch made from coal tar. Some purchasers and users of roofing materials have been required to buy one ton of felt to every two tons of pitch.

212. Monopoly Control of Cost Goods23

BY W. H. S. STEVENS

Attempts to acquire the control of the machinery necessary to the manufacture of a particular line of goods are by no means unknown. Following its organization in 1890 the old American Tobacco Company, by securing and maintaining for some time the exclusive control of the most successful cigarette machinery, was enabled to strengthen its dominant position in the business. At the time of its organization it acquired control of the Allison and the Emery machines, the patents of which belonged to firms entering the new combination. Soon afterward it made a contract for the exclusive use and control of the Bonsack machine. Thus it acquired control of the very best machines used in the production of cig

arettes.

In 1913 the government brought suit against the American Can Company. That concern was charged with acquiring control of the principal can-making machinery plants of the United States, together with most of the valuable patents for making that machinery. In some cases this result was accomplished through long-term contracts

23 Adapted from "Unfair Competition," in the Political Science Quarterly XXIX, 469-475. Copyright (1914).

with patentees for controlling the disposition of the machinery manufactured under their patents; in others by the purchase of licenses which the owners of the patents had issued to the manufacturers of cans; in still others by obtaining contracts not to sell such machinery to other parties.

Somewhat different are cases in which control is acquired of the articles or materials which enter into the manufacturing process. The greater part of the supply of raw paper used in the manufacture of photographic papers throughout the world is said to be in the hands of the General Paper Company of Germany. Prior to 1906, when the control of this company was almost complete, the General Aristo Company, which is controlled by the Eastman Kodak Company, is alleged to have contracted to purchase the entire supply of raw paper exported by the General Paper Company to the United States. This contract, it is claimed, was continued from 1906 to 1910. Testimony before the Industrial Commission is to the effect that the Photographic Supplies Combination first secured control of raw paper imported from Germany about the year 1899.

The government has charged the Aluminum Company of America with endeavoring to obtain such a control of the bauxite properties of the United States as would prevent anyone but itself from producing metal aluminum. Prior to 1905, the Aluminum Company of America possessed valuable bauxite properties, yet it did not approach control of even 50 per cent of the total bauxite supply of the United States. In that year, however, the company through the General Chemical Company acquired the capital stock of the General Bauxite Company. As part consideration for this contract, the General Chemical Company agreed that it would not use or sell bauxite sold to it by the General Bauxite Company for conversion into metal aluminum, but would use it solely for the manufacture of alum, alum salts, alumina sulphate, and similar products. In 1909 a contract was made with the Norton Chemical Company for the purchase of the bauxite properties of the Republic Mining & Manufacturing Company, whose capital stock was owned by the Norton. company. In considering these contracts made by the Aluminum Company of America, it should be borne in mind that this organization is alleged to control nearly one-half of the stock of the Aluminum Castings Company, 37 per cent of the stock of the Aluminum. Goods Manufacturing Company, and to be sole owner of the stock of the Northern Aluminum Compa. / and the United States Aluminum Company, manufacturers of aluminum cooking utensils.

E. THE GOVERNMENT AND MONOPOLY

213. Law and the Forms of Combination24

BY BRUCE WYMAN

Notwithstanding all the law against agreements in restraint of trade, the present generation has seen the greatest movement toward consolidation which is recorded in economic history. But this was not accomplished without a reckoning with the law. In the face of adverse law the ingenuity of attorneys, acting for clients who wished to bring about a community of interests, has been taxed to the utmost; and at best their schemes have proved only temporary expedients. In this era of consolidation there has been a change of base at least four times: first, the pool-a direct agreement between the corporations concerned for their joint operation to a certain extent; second, the trust-an indirect arrangement between the shareholders to control the actions of their corporations; third, the holding company-a central company to hold the shares of the constituent companies; and, fourth, the single corporation, which buys the properties of the competing corporations outright. Yet, despite these various forms, the problem as to how various corporations may be concentrated under one control is still to a large extent unsolved.

There was never real legal expectation of the success of any form of pooling. There was too much express authority against combinations in restraint of trade for that.

Perhaps every member would live up to his agreement; but there was no remedy at law if anyone did not. Perhaps the proceeds of the pooling would be fairly divided; but the court would not order an accounting. And experience showed again and again that, without legal obligation, there were always members in any such pool treacherous enough to break it. Moreover, there was the corporation law to reckon with which has always held it contrary to policy for corporations to surrender their independence by entering a pool. The courts have held that for no purpose, legal or illegal, could corporations be members of a partnership; that they could not carry on their business in common.2

25

It is further to be noted that when a combination in restraint of trade is once proved to be such, outlawry is declared. It can bring no suit against those in it; neither can they sue it. The courts will have nothing to do with either association or associates. This is the penalty, that the loss must lie where it falls; and this policy is in

24 Adapted from Control of the Market, 142-164. Copyright by the author. Published by Moffat, Yard & Co. (1911).

Mills v. Upton, 10 Gray 582; Mallory v. Hanaur Oil Works, 86 Tenn. 596.