The Liberty to Trade as Buttressed by National Law/The Sherman Act

by George Howard Earle, Jr.

CHAPTER I

(1) What restraints of national trade do the Anti-Trust Acts make illegal? (2) What monopolies are condemned by them?

The wording of the Sherman Act is clear and comprehensive. It reads: "Every contract, combination, or conspiracy;" "every person who shall monopolize or attempt to monopolize," and "any part of the trade." etc.

This is certainly broad enough. It says nothing about "reasonable restraints," or "indirect restraints" being excepted; though the Supreme Court has consequently held that "reasonable restraints were not excepted, while, nevertheless, "indirect restraints" were!

This may seem serious and illogical, but, to anticipate a little, it is not, being but a matter of confusing terminology.

Whether serious or not, it is as to ultimate results, and a clear understanding, exceedingly important to determine (1) whether the Act really makes all restraints of trade illegal; and (2) whether, if so, it in this respect exceeds the common law.

The unhesitating reply is, that, regarding substance, and not mere nomenclature, the Act both says and means "every;" and that in so saying and meaning it but applies the rule of the common law to the Nation's efforts to protect its own trade.

This statement can hardly go unchallenged, in view of many opinions of the Supreme Court itself; but it is really not matter difficult of explanation.

Until the Freight Association case^[1] it had generally been conceded that, as stated by Mr. Justice Jackson, In re Greene, 52 Fed. (1892), "when Congress * * * adopts or creates common law offences, the court may properly look to that body of jurisprudence for the true meaning and definition of such crimes, if they are not clearly defined in the act creating them. * * * The act does not undertake to define what constitutes a contract, combination or conspiracy in restraint of trade, and recourse must, therefore, be had to the common law for the proper definition of these general terms, and to ascertain whether the acts charged come within the statute;" or, as Chief Justice Fuller more succinctly said in the Knight case:^[2] "It was in the light of well settled principles that the Act of July 2, 1890, was framed." This conclusion is fortified by the many authorities cited in the opinion of the Court of Appeals in the Freight Association case.^[3] In the last-named case, a combining and conspiring body of railroads, asserting that what they did was legal at common law, invoked this principle in the Court of Appeals, and, succeeding in convincing that court that their view of the common law was correct, won their case. On appeal, therefore, it was open to the Supreme Court to reverse, either because the common law did include the offense complained of, or because the statute exceeded the common law; and, as it was convinced that, in any event, the purpose of the Act had been invaded, it selected the simpler course of "assuming" that the common law did not include the offence, but that, even so, the statute did. And so originated a doctrine that bas caused much discussion and some difficulties—to be later mentioned.

The Supreme Court, after referring to Mogul vs. McGregor et al.,^[4] cited by the courts below as holding that contracts in reasonable restraint of trade were legal at common law, continues: "But, assuming that agreements of this nature are not void at common law, and that the various cases cited by the learned courts below show it, the answer to the statement of their validity now is to be found in the terms of the statute under consideration." And this language is again quoted in Loewe vs. Lawlor.^[5] This assumption, once made, has been, since, continued as fully serving the purpose; but as it has resulted in making the law self-contradictory in other cases, and introduced difficulty and confusion, it is of great importance to inquire whether it was well founded—an inquiry still open if I be right—and thus to ascertain whether the common law has not already solved the difficulties thus arising.

Let us, then, inquire whether the common law did not also make every contract, combination and conspiracy in restraint of trade unlawful?

The true distinction lies in the difference between restraining trade and restraining men from engaging in trade. This is often lost sight of, but it is none the less a real and substantial distinction.

The law, unquestionably, protected the liberty of citizen or subject to engage in trade from wrongful molestation; but it did not protect it absolutely. It might always, for example, from the earliest times, be made valueless by an exercise of a like liberty by others—that is, by competition.

But it was protected from all unlawful attack, absolutely. It was only thus protected as part of the liberty of the citizen, and the liberty to make a binding contract might be equally important. There was, therefore, an inherent and inevitable conflict between these two phases of man's liberty: the liberty to bind himself, that is, to contract, and the liberty to remain unbound —the right to contract pro tanto and of necessity destroying the other right. This balance being even—liberty against liberty—public policy had to control the issue; and trade, being of vital interest to the public, the contractor was permitted to choose his freedom to contract wherever such choice advanced trade. That is the whole doctrine of "reasonable restraints," if the best considered cases are looked to. In other words, if the contract were fair and reasonable, and beneficial to the public—that is, in advancement of an enlarged trade—it was "reasonable" to permit a liberty of contract which, if denied, would tend to diminish trade. "Reasonable" restraints of trade, therefore, were not in reality, restraints upon trade at all, but only such voluntary restraints upon traders as advanced trade; and it was chiefly because they advanced trade that they were permitted. While the law was tender of the rights of the individual, and protected them in trade, its chief end and aim was totality—trade in gross, the trade of the nation or realm; and of that it was jealous to the extreme.

Sir F. Pollock (citing Leather Cloth Co. vs. Lorsont^[6]) says: "The admission of limited restrictions is commonly spoken of as an exception to the general policy of the law. But it seems better to regard it rather as another branch of it. Restriction which is reasonable * * * is allowed by the very same policy that forbids restrictions generally, and for like reasons."

Again, in Rannie vs. Irvine,^[7] Maule, J., says with fine succinctness: "The exception is in furtherance of the rule."

In Homer vs. Ashford,^[8] Best, C. J., says: "The first object of the law is to promote the public interest; the second to preserve the rights of individuals;" and then, after denouncing restraints of trade, he again gives the true reason for allowing "partial" or "reasonable" restraints of it: "The effect of such contracts is to encourage rather than cramp."

Again, in the leading case of Mallan vs. May,^[9] unanimously approved by eight judges in the Exchequer Chamber in Price vs. Greene,^[10] Baron Parke, whose explanations are always so clear, says: "The rule * * * is, that total restraints of trade, which the law so favors, are absolutely bad, and that all restraints, though only partial, if nothing more appear, are presumed to be bad. * * * Contracts in restraint of trade are in themselves, if nothing show them to be reasonable, bad in the eye of the law. * * * But if there are circumstances recited in the instrument (or, probably, if they appear by averment) it is for the court to determine whether the contract be a fair and reasonable one or not; and the test appears to be, whether it be prejudicial or not to the public interest; for it is on grounds of public policy alone that these contracts are supported or avoided. * * * It is justly observed by Lord Wynford that the effect of those contracts" (those allowed) "is to encourage rather than cramp the employment of capital in trade, and the promotion of industry." And, finally, Lord Macnaghten, speaking in the House of Lords and so settling the law of England, says in Nordenfelt vs. Maxim:^[11] "The public have an interest in every person carrying on his trade freely; so has the individual. All interference with individual liberty of action, in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and, therefore, void. That is the general rule. But, there are exceptions. * * * It is a sufficient justification and, indeed, it is the only justification, if the restriction is reasonable—reasonable, that is, in reference to the interests of the parties concerned, and reasonable in reference to the interests of the public—so framed and so guarded as to afford adequate protection to the party in whose interest it is imposed, while, at the same time, it is in no way injurious to the public." Finally, in the Addyston case:^[12] "The inhibition against restraints of trade at common law seems, at first, to have had no exceptions. * * * After a time it became apparent to the people and the courts that it was in the interest of trade that certain covenants in restraint should be enforced. It was of importance, as an incentive to industry and honest dealing in trade." If it be asked of what importance all this is, in view of the fact that the Supreme Court has, in any event, already held that every contract in restraint of trade is void, the reply is, that if the so-called reasonable restraints of the common law, properly understood, are to be included, the Act is then defeating its own purpose of protecting and encouraging national trade; for, if they be included, then are contracts in furtherance of trade made illegal. But a second and greater difficulty lies in the fact that, driven just as the common law judges were by the real reason and sense of the thing the courts are one by one allowing all these alleged exceptions to a professedly universal rule, and thus making both the rule and the exceptions uncertain to those who do not inquire deeply. It is believed that the court has never precluded itself by this labor-saving assumption from making this inquiry, and that the inquiry when made will only fortify the conclusion that it has reached independently, while at the same time clarifying the principle governing the so-called exceptions.

The court, in any event, has never said that any restraint or limitation of the totality of National trade was a reasonable thing to permit, though it has already permitted an exercise of the liberty of contract that tended to its advancement; but that is the exact position of the common law.

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1. 53 F. 440 (1892), 58 F. 58 (1893), 166 U. S. 290 (1897).
2. 156 U. S. 16 (1895).
3. 58 F. at p. 67 (1893).
4. 23 Q. B. D. 598 (1889); 1892 A. C. 25 (1891).
5. 208 U. S. 274 (1908).
6. 9 Eq. 353 (1869).
7. 7 Man & G. 978 (1844).
8. 3 Bing. 326 (1825).
9. 11 M. & W. 665 (1843).
10. 16 M. & W. 346 (1847).
11. 1894 A. C 559 (1894).
12. 85 Fed. 280 (1898), 175 U S 211 (1899).