(40 Sup.Ct.) $435 Oil Co. v. United States, 221 U. S. 1, 31 Sup. [and that it might prove possible thereby to It was a Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, preserve the competitive system. Ann. Cas. 1912D, 734, and in American Tobac- new experiment on old lines; and the maco Co. v. United States, 221 U. S. 106, 31 chinery employed was substantially similar: In undertaking to regulate competition Sup. Ct. 632, 55 L. Ed. 663. The conviction became general in America, that the legisla- through the Trade Commission, Congress (betion of the past had been largely ineffective. sides resorting to administrative as distinThere was general agreement that further leg-guished from judicial machinery) departed islation was desirable. But there was a clear in two important respects from the methods division of opinion as to what its character and measures theretofore applied in dealing should be. Many believed that concentration with trusts and restraints of trade: (called by its opponents monopoly) was inevitable and desirable; and these desired that concentration should be recognized by law and be regulated. Others believed that con- of enjoining the *continuance of prohibited centration was a source of evil; that existing combinations and compelling disintegration combinations could be disintegrated, if only of those formed in violation of law, the act the judicial machinery were perfected; and undertook to preserve competition through that further concentration could be averted supervisory action of the commission. The by providing additional remedies, and partic- potency of accomplished facts had already ularly through regulating competition. The been demonstrated. The task of the commislatter view prevailed in the Sixty-Third sion was to protect competitive business from further inroads by monopoly. It was to be ever vigilant. If it discovered that any business concern had used any practice which would be likely to result in public injurybecause in its nature it would tend to aid or develop into a restraint of trade—the commission was directed to intervene, before any act should be done or condition arise violative of the Anti-Trust Act. And it should do this by filing a complaint with a view to a thorough investigation; and, if need be, the issue of an order. Its action was to be prophylactic. Its purpose in respect to restraints of trade was prevention of diseased business conditions, not cure. N *434 The Congress. *The Clayton Act (Act Oct. 15, 1914, c. 323, 38 Stat. 730) was framed largely with a view to making more effective the remedies given by the Sherman law. Federal Trade Commission Act (Act Sept. 26, 1914, c. 311, 38 Stat. 717) created an administrative tribunal, largely with a view to regulating competition. (1) Instead of attempting to inflict punishment for having done prohibited acts, instead Many of the duties imposed upon the Trade Commission had been theretofore performed by the Bureau of Corporations. That which was in essence new legislation was the power conferred by section 5. The belief was widespread that the great trusts had acquired their power, in the main, through destroying or overreaching their weaker rivals by resort As Standard Oil reto unfair practices.4 "Unfair competition must usually proceed to great bates led to the creation of the Interstate Commerce Commission, other unfair meth-lengths and be destructive of competition before it can be seized and denounced by the anti-trust law. ods of competition, which the investigations In other cases it must be associated with, coupled of the trusts had laid bare, led to the crea- with, other vicious and unlawful practices in order It to bring the person or the corporation guilty of the tion of the Federal Trade Commission. was hoped that, as the former had substan- practice within the scope of the anti-trust law. The purpose of this bill in this section and in other sectially eliminated rebates, the latter might put tions which I hope will be added to it, is to seize an end to all other unfair trade practices, the offender before his ravages have gone to the length necessary in order to bring him within the law that we already have. "We knew little of these things in 1890. The commerce of the United States has largely developed in the last 25 years. The modern methods of carrying on business have been discovered and put into oper-ation in the last quarter of a century; and as we have gone on under the anti-trust law under the decisions of the court in their effort to enforce that law, we have observed certain forms of industrial activity which ought to be prohibited whether in and of themselves they restrain trade or commerce or not. We have discovered that their tendency is evil; we have discovered that the end which is inevitably reached through these methods is an end which is destructive of fair commerce between the states. It is these considerations which, in my judgment, have made it wise, if not necessary to supplement the anti-trust law by additional legislation, not in antagonism to the anti-trust law, but in harmony with the anti-trust law, to more effectively put into the industrial life to America the principle of the anti-trust law, which is fair, reasonable competition, independence to the individual, and disassociation among the corporations. 3 See Report of Senate Committee on Interstate Commerce, June 13, 1914, Sixty-Third Congress, Second Session, No. 597, p. 10, reporting the bill: "Some would found such a commission upon the theory that monopolistic industry is the ultimate result of economic evolution and that it should be so recognized and declared to be vested with a public interest and as such regulated by a commission. This contemplates even the regulation of prices. Others hold that private monopoly is intolerable, unscientific, and abnormal, but recognize that a commission is a necessary adjunct to the preservation of competition and to the practical enforcement of the law. "The commission which is proposed by your committee in the bill submitted is founded upon the latter purpose and idca. 4 "Unfair Competition," by William S. Stevens, Political Science Quarterly (1914) p. 283; "The Morals of Monopoly and Competition" (1916) by H. B. Reed. See Railway Problems by William Z. Ripley (1907) p. x. 40 SUP.CT.-37 Senator Cummins, chairman of the committee which reported the bill, said (Cong. Rec. vol. 51, p. 11455): " $436 *(2) Instead of undertaking to define what (if duly supported by evidence) were to be and it declared that findings of fact so made practices should be deemed unfair, as had been done in earlier legislation, the act left the de- method of competition pursued could, on taken as final. The question whether the termination to the commission. Experience those facts, reasonably be held by the comwith existing laws had taught that definition, mission to constitute an unfair method of being necessarily rigid, would prove embarrassing and, if rigorously applied, might involve great hardship. Methods of competition which would be unfair in one industry, under certain circumstances, might, when adopted in another industry, or even in the same industry under different circumstances, competition, being a question of law, was necessarily left open to review by the court. Diffenbaugh, 222 U. S. 42, 32 Sup. Ct. 22, 56 Compare Interstate Commerce Commission v. L. Ed. 83; Interstate Commerce Commission v. Baltimore & Ohio R. R., 145 U. S. 263, 12 Sup. Ct. 844, 36 L. Ed. 699. *437 be entirely unobjectionable.8 *Furthermore, an enumeration, however comprehensive, of existing methods of unfair competition must necessarily soon prove incomplete, as with new conditions constantly arising novel unfair methods would be devised and developed. In leaving to the commission the determination of the question whether the method of competition pursued in a particular case was unfair, Congress followed the precedent which it had set a quarter of century earlier, when by the act to regulate commerce it conferred upon the Interstate Commerce Commission power to determine whether a preference or advantage given to a shipper or locality fell within the prohibition of an undue or unreasonable preference or advantage. See Pennsylvania Co. v. United States, supra, 236 U. S. 361, 35 Sup. Ct. 370, 59 L. Ed. 616; Texas & Pacific Railway v. Interstate Commerce Commission, 162 U. S. 197, 219, 220, 16 Sup. Ct. 666, 40 L. Ed. 940. Recognizing that the question whether a method of competitive practice was unfair would ordinarily depend upon special facts, Congress imposed upon the commission the duty of finding the facts, Third. Such a question of law is presented to us for decision, and it is this: Can the refusal by a manufacturer to sell his product to a jobber or retailer, except upon condition that the purchaser will buy from him also *438 his trade requirements in another article or sion to be an unfair method of competition articles, reasonably be found by the commisunder the circumstances set forth in the findings of fact? If we were called upon to consider the sufficiency of the complaint, and that merely, the question for our decision would be, whether the particular practice could, under any circumstances, reasonably be deemed an unfair method of competition. But as this suit to set aside the order of the commission brings before us its findings of fact, we must determine whethere these are sufficient to support their conclusion of law that the practice constituted "under the circumstances therein set forth, unfair methods of competition in interstate comdistributors in the material known as sugar-bag merce against other manufacturers, dealers and cloth, and against manufacurers, dealers and distributors of the bagging known as rewoven bagging and second-hand bagging in violation of" the statute. 'See Report Senate Committee on Interstate Commerce, June 13, 1914, Sixty-Third Congress, Second Session, No. 597, p. 13: "The committee gave care- It is obvious that the imposition of such a ful consideration to the question as to whether it condition is not necessarily and universally would attempt to define the many and variable unfair practices which prevail in commerce and to an unfair method; but that it may be such forbid their continuance or whether it would, by a under some circumstances general declaration condemning unfair practices, clear. Under the usual conditions of competseems equally leave it to the commission to determine what prac-itive trade the practice might be wholly unob tices were unfair. It concluded that the latter course would be the better. • See also "Unfair jectionable. But the history of combinations Competition," by W. H. S. Stevens (University of has shown that what one may do with imChicago Press, 1916) pp. 1, 2. For laws prohibiting specific acts of unfair competition, see "Trust Laws and Unfair Competition" (Federal) Bureau of Corporations (March 15, 1915) pp. 184, 199. punity, may have intolerable results when done by several in co-operation. Similarly what approximately equal individual traders may do in honorable rivalry may result in grave injustice and public injury, if done by a great corporation in a particular field of business which it is able to dominate. In other words, a method of competition fair among equals may be very unfair if applied where there is inequality of resources.10 Without providing for those cases where the method of competition here involved would Report of (Federal) Bureau of Corporations on the International Harvester Co., March 3, 1913, p. 30: "In discussing the competitive methods of the company it should be recognized that some practices which might be regarded with indifference if there were a number of competitors of substantially equal size and power may become objectionable when one competitor far outranks not only its nearest rival, but practically all rivals combined, as is true of the International Harvester Company, so far as several of its most important lines are concerned." The Australian Industries Preservation Act, 19081910, expressly declares that "unfair competition means competition which is unfair in the circum- be unobjectionable, *Massachusetts legislated stances." "Trust Laws and Unfair Competition" against the practice, as early as 1901, by a (Federal) Bureau of Corporations (March 15, 1915) pp. 552, 747. See note 1, supra. #439 10 See "The Morals of Monopoly and Competition," by H. B. Reed (1916) pp. 120-122. (40 Sup.Ct.) statute (chapter 478) of general application. (sugar-bag cloth. Warren, Jones & Gratz, of Its highest court, in applying the law which St. Louis, are the Carnegie Company's sole it held to be constitutional, described the pro-agents for selling and distributing steel ties. hibited method as "unfair competition." They are also the American Manufacturing Commonwealth v. Strauss, 188 Mass. 229, 74 Company's sole agents for selling and distribN. E. 308; Id., 191 Mass. 545, 78 N. E. 136, uting jute bagging in the cotton-growing sec11 L. R. A. (N. S.) 968, 6 Ann. Cas. 842. Com- tion west of the Mississippi. By virtue of pare People v. Duke, 19 Misc. Rep. 292, 44 their selling agency for the Carnegie Company, N. Y. Supp. 336. The (Federal) Bureau of Warren, Jones & Gratz held a dominating Corporations held the practice, which it de- and controlling position in the sale and disscribed as "full-line forcing" to be highly rep-tribution of cotton ties in the entire cottonrehensible.11 Congress, by section 3 of the growing section of the country, and thereby it Clayton Act, specifically prohibited the prac- was in a position to force would-be purchastice in a limited field under certain circum-ers of ties to also buy from them bagging stances. An injunction against the practice manufactured by the American Manufacturhas been included in several decrees in favoring Company. A great many merchants, jobof the government entered in cases under the bers, and dealers in bagging and ties throughSherman Law.12 In the decree by which the out the cotton-growing states were many American Tobacco Company was disintegrat- times unable to procure ties from any other ed pursuant to the mandate of this court, firm than Warren, Jones & Gratz. In many each of the fourteen companies was enjoined instances Warren, Jones & Gratz refused to from "refusing to sell to any jobber any sell ties unless the purchaser would also buy brand of any tobacco product manufactured from them a corresponding amount of bagby it, except upon condition that such jobber ging, and such purchasers were oftentimes shall purchase from the vendor some other compelled to buy from them bagging manubrand or product also manufactured and sold factured by the American Manufacturing by it. United States v. American Company in order to procure a sufficient supTobacco Co. (C. C.) 191 Fed. 371, 429. The ply of steel ties. practice here in question is merely one form of the so-called "tying clauses" or "conditional requirements" which have been declared in a discerning study of the whole subject to be "perhaps the most interesting of any of the methods of unfair competition."18 *"" The following facts found by the commission, and which the Circuit Court of Appeals held were supported by sufficient evidence, *440 *441 *These are conditions closely resembling those under which "full-line forcing," "exclusive-dealing requirements" or "shutting off materials, supplies or machines from competitors"-well-known methods of competition, have been held to be unfair, when practiced by concerne holding a preponderant position in the trade.14 Fourth. The Circuit Court of Appeals set show that the conditions in the *cotton tie and aside the order of the commission solely on bagging trade were in 1918 such that the Fed- the ground that it was without authority to eral Trade Commission could reasonably find determine the merits of specific individual that the tying clause here in question was an grievances, and that the evidence did not unfair method of competition: Cotton, Amer-support its finding that Warren, Jones & ica's chief staple, is marketed in bales. To Gratz hadbale cotton, steel ties and jute bagging are essential. The Carnegie Steel Company, a subsidiary of the United States Steel Corporation, manufactures so large a propertion of all such steel ties that it dominates the cotton tie situation in the United States and is able - to fix and control the price of such ties throughout the country. The American Manufacturing Company manufactures about 45 per cent. of all bagging used for cotton baling; one other company about 20 per cent.; and the remaining 35 per cent. is made up of second hand bagging and a material called N Report of the (Federal) Bureau of Corporations on the International Harvester Company (March 3, 1913) p. 308. 12 See "Unfair Methods of Competition and their Prevention" by W. H. S. Stevens, Annals, American Academy of Political and Social Science (1916) pp. 42, 43, "Trust Laws and Unfair Competition" (Federal) Bureau of Corporations (March 15, 1915) pp. 484-486, 493. "adopted and practiced the policy of refusing to sell steel ties to those merchants and dealers who wished to buy from them unless such merchants and dealers would also buy from them a corresponding amount of jute bagging." The reason assigned by the Circuit Court of Appeals for so holding was that the evidence failed to show that the practice complained of (although acted on in individual cases by respondents) had become their "general practice." But the power of the Trade Commission to prohibit an unfair method of competition found to have been used is not limited to cases where the practice had become general. What section 5 declares unlawful is not unfair competition. That had been unlawful before. What that section made unlawful were "unfair methods of competition"; that is, the method or means by which an unfair 18 "Unfair Competition," by W. H. S. Stevens (1916) eral) Bureau of Corporations (March 15, 1915) pp. 1 See "Trust Laws and Unfair Competition" (Fed D. 54. 319-323, 328. ― ――― end might be accomplished. The commission | United States intervened. On first report of was directed to act, if it had reason to be- receiver. Order entered instructing receiver. lieve that an "unfair method of competition See, also, 40 Sup. Ct. 353, 64 L. Ed. -; in commerce has been or is being used." The 40 Sup. Ct. 394, 64 L. Ed. -; 40 Sup. Ct. purpose of Congress was to prevent any un- 580, 64 L. Ed. 40 Sup. Ct. 582, 64 L. fair method which may have been used by any concern in competition from becoming its general practice. It was only by stopping its Ed. #442 In my opinion the judgment of the Circuit Court of Appeals should be reversed. Order Instructing Receiver. use before it became a general practice, that PER CURIAM. Upon consideration of the the apprehended effect of an unfair method in first report of Frederic A. Delano, receiver, in suppressing competition by destroying rivals the above-entitled cause, and of the supplecould be averted. As the Circuit Court of Ap- mental report of June 3, 1920, and the varipeals found that the evidence was sufficient ous suggestions of the United States, interto support the facts set forth above, and vener, and of the state of Texas, and of the since on those facts the commission could several motions, applications, exceptions, and reasonably hold that the method of competi- suggestions heretofore filed by parties claimtion in question was unfair under the circum-ing an interest in the subject-matter of this stances, it had power under the act to issue suit, it is this 7th day of June, A. D. 1920, the order complained of. adjudged and ordered that the action of said receiver in taking possession of and operating under his own management and control the property described in the order of this court of April 1, 1920, until the further order of this court, including the oil and gas wells and STATE OF OKLAHOMA v. STATE OF TEX-plants, toll bridges, water plants, tank wag- (Decided June 7, 1920.) ons, pipe lines, storage tanks, and other prop- In Equity. Óriginal suit by the State of Oklahoma against the State of Texas, in which the United States intervened. On motions by the Judsonia Developing Association and others for leave to file petitions in intervention. Motions granted. See, also, 40 Sup. Ct. 353, 64 L. Ed. —; 40 Sup. Ct. 394, 64 L. Ed. ·; 253 U. S. 465, 40 Sup. Ct. 580, 64 L. Ed. ; 40 Sup. Ct. 582, 64 L. Ed. *466 field organization created by *him for the operation and development of the property and the resources thereof, and for collecting, conserving, and investing the proceeds of the sale of all oil, gas, gasoline, and other products taken therefrom since April 1, 1920, be, and they are hereby, ratified and approved. 2. So much of the land described in the order of this court of April 1, 1920, in range 14 west, as lies between the south edge of the present sand bed of the Red river (nrarked generally by the border line of vegetation *470 *471 PER CURIAM. *The motions of the Jud-along the edge of the flood plain) and the foot sonia Developing Association, Burk Divide of the Texas bluff, as was on the 1st day of Oil Company No. 2 and others, Burk Divide April, 1920, in the possession of persons Oil Company No. 3 and others, and Mellish claiming under patents from the state of Consolidated Placer Oil Company, for leave Texas, and is not included in the river-bed to file petitions in intervention herein, are ed by the receiver to the several operators or lands, as hereinafter defined, shall be returnhereby granted; and similar leave is grant-claimants in possession on April 1, 1920, or ed to any and all other parties claiming any their assigns, together with all wells, tanks, title to or interest in the lands in the pos-pipe lines, structures, equipment, and materisession of the receiver herein by virtue of al, upon condition that such operator, claimthe orders of April 1, 1920, and June 7, ant, or assigns account for, pay over to, and 1920. impound with the receiver, if not already done, three-sixteenths of the gross proceeds of all oil taken from the respective lands on (253 U. S. 465) STATE OF OKLAHOMA v. STATE OF TEX-and since April 1, 1920, and the royalty on AS (UNITED STATES, Intervener). (Decided June 7, 1920.) No. 27. commercial gas customary in the Burk-Burnett and Northwest Extension oil fields, and royalty on casing-head gas in accordance with the regulations and schedule of prices promulgated for Indian lands by the Secretary of the Interior August 10, 1917, the proceeds thereof to be either paid in cash, or the pay Original suit by the State of Oklahoma against the State of Texas, in which the (40 Sup.Ct.) ment thereof within 90 days to be secured [ vision, but excluding any allowance for genby good and sufficient surety to be approved eral or office supervision; (2) to refund to by the receiver, and upon the further condi- those operators or drillers who have drilled tion that said operator or claimant shall en- and brought into production new wells in ter into an agreement in writing with the re- said area since April 1, 1920, a fair perceiver, by the terms of which the operator centage of the entire actual cost of such shall develop and operate said properties in work, including a reasonable allowance for a workmanlike and businesslike manner, sub-field supervision, but excluding any allowance for general or office supervision; (3) to pay the just claims of mechanics and materialmen for work done and materials furnished on wells in said area brought in since April 1, 1920, and the claims of persons, associations, and corporations for advance ject to the supervision of the receiver and to the orders of this court, and shall impound with the receiver three-sixteenths of the gross amount of the proceeds from the sale of *467 oil *thereafter produced, and the royalty on gas and casing-head gas as hereinbefore specified. This agreement to contain such fur-ments made in good faith for drilling operather stipulations as the receiver may deem tions upon such wells, provided satisfactory proper for regulating the production of gas evidence of the existence of all of such claims and oil and to prevent waste or the entrance of water to the oil sands or oil-bearing strata to the destruction or injury of the oil deposits or the damage of wells in the possession of the receiver; and, provided further, that the receiver, in his discretion, may agree with any operator or claimant to operate for his benefit and at his expense the lands in said "Big Bend" area. Until the several operators or claimants comply with the foregoing conditions, the receiver shall retain possession of the respective properties and shall operate the same in accordance with the order of this court of April 1, 1920, as modified by this order. be furnished. 5. Said receiver is further authorized and directed to release and surrender to the lawful owners thereof (1) all oil and gas stored within the receivership area which is shown by evidence satisfactory to him to have been produced by operations outside of said area; (2) all machinery, tools and other equipment stored within the receivership area when the receiver took possession and not actually used in the production, storage, transportation, etc., of the oil and gas products thereof, and such other machinery, tools, drilling rigs and similar apparatus found within the receivership area as may not be required for the receivership operations; (3) all oil, gas and the products thereof which are shown by In the event of failure or refusal of any operator to operate the property as directed by the receiver, or if any operator shall vio-evidence satisfactory to the receiver to have late his agreement with the receiver, the receiver is authorized to take possession of and operate such property, impound three-sixteenths of the proceeds as provided by this order, and pay out of said proceeds the ex-1, penses of operation, keeping a separate account of the expense of production of each well as nearly as practicable. been produced by operations outside of the receivership area, but which were mingled and stored with similar products produced within said area on and subsequent to April 1920. *469 6. Said receiver is further authorized and directed (1) to arrange for the sale and disposition of all oil, gas, gasoline, water, and other products of said property; (2) to take toll bridges within the receivership area, and possession and license the operation of all to regulate and limit the tolls chargeable able, properly credit and account for, such thereon; (3) to sell at the best price obtain derricks, tanks, pipe lines, tools, appliances and materials not claimed by the owners thereof and not required for the receiver's obtainable such tanks, machinery, appliances, operations; (4) to purchase at the best price tools, motor cars, and equipment, as may be development of the property in his charge; necessary for the operation, protection, and out of the gross proceeds derived from the #468 (5) to retain and employ whatever technical production of any well in the river-bed *area or other assistants he may require or may paid to him since April 1, 1920: (1) To pay deem necessary to satisfactorily operate, deto the operator or operators of any such well velop and protect the property in his charge, the actual cost of operating the same since fix the terms of employment and the rate of April 1, 1920, inclusive, including in such compensation; (6) to make such banking arcost a reasonable allowance for field super-rangements as he may deem necessary to 3. The river-bed lands, for the purposes of this order, shall comprise all lands not here inbefore excepted, being more specifically that part covered by the receivership of all the broad and approximately flat sandy stretch which extends from the foot of the bluff or the edge of the flood plain, as the case may be, on the south side of the river, to the midchannel of the river as defined in said or der of April 1, 1920, and as it then existed including everything within the bounds just described. 4. It is further ordered that said receiver be and he is hereby authorized and directed, |
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