The Liberty to Trade as Buttressed by National Law/Indirectness of Restraint

by George Howard Earle, Jr.

CHAPTER V

Indirectness of Restraint

One would think, in reading some of the briefs submitted on behalf of the trusts, that "indirectness of restraint" was a mere arbitrary unmeaning phrase solely devised that a trust could make some pretense of a defence in the absence of all real ones, whereas it means little more than the absence of dangerous probability explained by Mr. Justice Holmes. So, it is the present purpose to inquire not merely whether this be so, but whether it is not, indeed, but an abbreviation covering one of the most essential and scientifically thought out doctrines of the law.

If the doctrine, in this connection, be understood, it may be defined as the effort of the law so to limit the doctrine of tendency as to prevent its improper extension to the extinguishment of all other rights, or "the doctrine of indirection defines the limitations of the doctrine of 'tendency' so that all rights and powers may not be absorbed by an absurd extension of the latter."

The first and most important thing to be remembered in this connection is that the doctrine has no application whatever to tortious or involuntarily suffered restraints, its sole application being to cases of voluntary or contractual restraint, involving in its accomplishment no wrongful means or end. This is constantly overlooked in argument, and leads but to confusion and error. The doctrine of "tendency," indeed, if properly understood and limited, comprises the whole doctrine of "indirectness" within itself.

Sir Frederick Pollock, in "Contracts," page 317, discussing Egerton vs. Earl Brownlow, 4 H. of L. C. 1 (1853), says: "The question * * * was whether there was an apparent tendency to mischief * * * or only a remote possibility of inconvenient consequences. * * * Egerton vs. Earl Brownlow, however, is certainly a cardinal authority for one rule which applies in all cases of 'public policy,' namely, that the tendency of the transaction at the time, not its actual result, must be looked to.” This contrasting "tendency" with "remote possibility" is inherent in the subject, and must have at all times and in all such cases been a necessary part of the mental processes of the courts; but it is remarkable how little prominence it attained before the Nation undertook to protect national trade, and thus required a consideration of State as contrasted with national rights. It is confidently believed that even if the term "indirect" in connection with restraints of trade was ever used in the whole history of the common law, its use or discussion in one thousand years has not equaled either, under the Anti Trust Act since 1895. Indeed, until I found the passage in Pollock, just quoted, I had no reference to the principle at common law, and, even there, the term is not used and the discussion is but as to "tendency." This advantage would have been gained, from so confining the discussion, that it would not have required all the labor of defining and restricting the enunciation of a new term of art. And it is submitted that the doctrine enunciated in the Egerton case, and by Mr. Justice Holmes, as just quoted, was all that was necessary, and would have led to the same results. Indeed, he makes it the differentiating factor between the Knight and Swift cases, saying, at page 397 of the latter: "Moreover, it is a direct object, it is that for the sake of which the specific acts and courses of conduct are done and adopted. Therefore the case is not like The United States vs. E. C. Knight Co., 156 U. S. 1." No more illuminating or better exposition of those cases could be found!

One thing is certain, and that is that this unhappy word is intended to enunciate no new doctrine in controversion of the maxim: "Dolus circuitu non purgatur," and one of the chief objections to the word "direct," in this connection, is that in other connections it is used as an equivalent of "proximate," and so suggests an inquiry along that line. But this cannot be correct, as a power may be "inevitable," at least in some sense, certainly "foreseeable" in its results, and not be "direct" at all (see the Knight case), and yet be one that may never be reached, or if reached, be so by the most circuitous path possible, and be "direct." In the Knight case a complete control of manufactories, in every respect and as to every discretion, was secured; and yet the restraint was held to be "indirect," "remote;" while in the Addyston case but a limited amount of discretion was yielded, and yet, because that yielding might, through many possible steps, end ultimately in a decrease of national trade, the restraint was held to be "direct" and unlawful. But the court found conduct evincing intent and consequent dangerous probability in the later case, and thought it lacking, on the evidence, in the former!

The Knight and Securities cases afford a much stronger instance. Unification by complete ownership took place in both instances. So complete was the analogy that four of the justices held that the law laid down in the former case was overruled by the latter; and yet, on the facts found, identical acts, found in the one case as constituting indirect methods of restraint, were, in the other, found to be direct; and on no question of law did the latter case depart from the former! Both cases are constantly cited by the Supreme Court to justify a single doctrine, and correctly. As has been indicated, the reason is that while the acquisition of "power" to restrain may be viewed with such just suspicion as to make it prima facie dangerous, illegal, to require explanation, that still, if that explanation satisfy the court that there was neither purpose nor interest amounting to dangerous temptation to misapply it, the justly and lawfully acquired power can be lawfully retained; because neither restraint nor the power acquired with interest or intent to restrain exists, necessary to constitute that tendency, which is equally illegal with restraint itself.

To repeat: The doctrine of "direct" or "indirect" restraints would have continued to be explained, as at common law, by a sensible definition of the term tendency, had not the doctrine for identical reasons become so important a one in solving questions resulting from the duality of government and powers in the United States; but having been necessarily so used in regard to such questions generally, it most naturally was also applied to them in this particular respect, as to a national matter. Nevertheless, the common law doctrine of "tendency," properly understood, also fully covered the subject.

As the purpose is to consider the Knight case separately in this connection, what has been said will only be justified shortly here. But first, a word of caution. It is not the purpose of this essay to justify the findings of fact of that case, the inference of interest or tendency; and tendency is a question of fact^[1] of any particular case. Such findings, however important to the particular case, are of no importance to any one else, binding neither juries nor the court itself, in later cases. This has been ably pointed out in a restraint case where the inferences of fact of another restraint case, previously passed upon by it, were again unsuccessfully urged upon the House of Lords.^[2] An exact parallel of the Knight and Securities cases, in America!

And, in addition to this, it must never be forgotten that while the law remains and should be permanent, that conditions of civilization and trade are constantly changing; and that it was held under prior conditions, that certain conduct did not tend to restraint; still, under subsequent ones, it is permissible to hold that tendency may be clear even from identical conduct. So that identically opposite decisions may only demonstrate the unchangeable quality of the law's hostility to restraints of prosperity, however brought about.^[3] For the present, but two opinions will be referred to, as it is thought they perfectly clarify the subject—Mr. Justice Peckham's, in the Anderson case,^[4] and Mr. Justice White's, in the Securities case,^[5] the latter because no stronger view can possibly be contended for than that of the minority, which dissented because the majority would not go even so far.

In the Anderson case, then, the doctrine is thus lucidly stated: "Where the subject-matter of the agreement does not directly relate to and act upon and embrace interstate commerce, and where the undisputed facts clearly show that the purpose of the agreement was not to regulate, obstruct, or restrain that commerce, but that it was entered into with the object of properly and fairly regulating the transaction of the business in which the parties to the agreement were engaged, such agreement will be upheld as not within the statute, where it can be seen that the character and terms of the agreement are well calculated to attain the purpose for which it was formed; and where the effect of its formation and enforcement upon interstate trade or commerce is, in any event but indirect and incidental, and not its purpose or object. As is said in Smith vs. Alabama:^[6] 'There are many cases, however, where the acknowledged powers of a State may be exerted and applied in such a manner as to affect foreign or interstate commerce without being intended to operate as commercial regulations.' The same is true as to certain kinds of agreements entered into between persons engaged in the same business for the direct and bona fide purpose of properly and reasonably regulating the conduct of their business among themselves and with the public. If an agreement of that nature, while apt and proper for the purpose thus intended, should possibly, though only indirectly and unintentionally, affect interstate trade or commerce, in that event we think the agreement would be good. Otherwise, there is scarcely any agreement among men which has interstate or foreign commerce for its subject that may not remotely be said to in some obscure way affect that commerce, and be void." The synonyms of "indirect," used in this decision, being "unintended," "obscure," "not its purpose," "incidentally," "possibly though unintentionally," "if at all," "no purpose of affecting or in any manner restraining," "if at all only in a very indirect and remote," "no direct tendency to diminish or in any way impede or restrain," "no tendency directly or indirectly to restrict competition," "not with intent or purpose of affecting in the slightest degree," "no tendency to limit the extent of the demand, or to limit the number marketed, or to limit or reduce price, or place any impediment in the course of the commercial stream," "too remote and fanciful," "reasonable and fair," "possibly in but a remote way." But what is this, but an able application of the common law, as laid down by Baron Parke in Mallan vs. May?

In the Securities case,^[7] Mr. Justice White says: "Where an authority is exerted by a State, which is within its power, and that authority, as exercised, does not touch interstate commerce or its instrumentalities, and can only have an effect upon such commerce by reason of the reflex and remote results of the exertion of the lawful power, it cannot be said, without a contradiction in terms that the power exercised is a regulation, because a direct burden upon commerce * * * The question whether a burden is direct and therefore constitutes a regulation of interstate commerce is to be determined by ascertaining whether the power exerted is lawful, generally speaking, and then by finding whether its exercise in the particular case was such as to cause it to be illegal, because directly burdening interstate commerce. If in a given case the power be lawful and the mode in which it is exercised be not such as to directly burden, there is no regulation of commerce, although as an indirect result of the exertion of the lawful power some effect may be produced upon commerce." But, of course, the mere fact that a result merely "may be produced" and as "an indirect result" cannot even at common law amount to the "dangerous probability" constituting "tendency" with which the law deals.

Or, in a nutshell, as is said by the same justice in Pabst vs. Crenshaw:^[8] "The distinction between direct and indirect burdens upon interstate commerce, by means of which the harmonious working of our constitutional system has been made possible."

But, of course, it must not be forgotten, as already pointed out, that no exercise of power is lawful if used to accomplish an illegal purpose, or that really tends to the accomplishment of it, or the public evil involved in its accomplishment. But, assuming that the application of the power is for a lawful purpose and with lawful tendencies, its merely possible results are not controlling. But the distinction between "tendency" or "intent," and mere "unintended possibility," must ever be kept in mind if error is to be avoided. And it is to be feared that it is not always.

A very satisfactory way of stating and explaining this is that of Chief Justice Marshall, in Gibbons vs. Ogden,^[9] as is so ably pointed out by Mr. Justice Moody in the Employers' Liability cases.^[10]

Where there are two powers, one in the State, another in the nation, one in individuals, or another in the nation, the exercise of the one power is not to be destroyed by the mere existence of the other, where that exercise is bona fide, with no intent or purpose of invading, or manifest, or natural tendency to invade it. In such cases there must be temptation added to power to constitute tendency, or that intent that is, of course, its equivalent, or most intensified form.

It is worth while to repeat that: "Where acts are not sufficient in themselves to produce a result which the law seeks to prevent, for instance, the monopoly" (or, of course, that which tends to it), "but require further acts in addition to the mere forces of nature to bring that result to pass, an intent to bring it to pass is necessary in order to produce a dangerous probability that it will happen. But when that intent and the consequent dangerous probability exist, this statute, like many others, and like the common law in some cases, directs itself against that dangerous probability as well as against the completed result."^[11]

But it must also be borne in mind that, as trade is carried on for profit, and rarely successfully by the pure altruist, the acquirement of power that offers its owner unlimited opportunities of attaining the object—profit—and satisfying cupidity, but at the expense of the consuming public, needs no additions "to the mere forces of nature to bring that result to pass." "Tendency" has appeared, and with it unlawfulness.

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1. 171 U. S. 581 (1898).
2. See Lord Lindley's opinion as to Allen vs. Flood in Quinn vs. Leathem, 1901, A. C. 533-4 (1901).
3. See Egerton vs. Earl Brownlow, 4 H. of L. C 1 (1853) [Lord St. Leonards's opinion]; Maxim vs. Nordenfelt, (1893) 1 ch 630 (1894), A. C. 535; Gibbs vs. Consolidated Gas Co., 130 U. S. 396 (1889), Fowle vs. Park, 131 U. S. 88 (1889).
4. 171 U. S. 615, 616 (1898).
5. 193 U. S. 394, 395 (1904).
6. 124 U. S. 473 (1888).
7. 193 U. S. 394 (1904).
8. 198 U. S. 30 (1905).
9. 9 Wheat. 204 (1824).
10. 207 U. S. 535 (1908).
11. Mr. Justice Holmes, 196 U. S. 396 (1905).