20. Does it forbid you and your friends to form a syndicate which shall buy all the available wheat in the country through the Chicago Exchange and hold it until it has doubled in price? Reasons and precedent.

21. Does the Sherman Act prevent you from using your patent right to sell or refuse to sell to whom you please, the article which you have patented? Why? 22. The Doe Manufacturing Company has a typewriter patent. It sells each machine with a "license restriction" providing that the paper and ink used on the machine may only be those supplied by the Doe Company and providing further that all machines are sold subject to this agreement. Does the Sherman Act prohibit such a clause? Reasons. Cite an authority.

23. The Magical Medical Company sells a patent medicine to retailers with the written agreement that retailers will not sell the remedy to the public at less than $1.00 per bottle. The purpose of the agreement is to prevent cut-price druggists from making temporary bargain sales of the remedy in such a way as to interfere with its permanent sale at standard prices by other druggists. Is the agreement binding under the Sherman Act? Reasons and precedent.

24. In the above case would the decision have been different if the remedy had been unpatented, but simply manufactured by a secret process?

25. Explain the difference between the rulings in the mimeograph and Sanatogen cases,—Henry v. Dick and The Bauer Chemical Company v. O'Donnell.

26. A department store cuts prices on music. Other music stores complain to the music publishers and the publishers' association agrees not to furnish music to any store which sells below a certain standard price. Can the department store recover damages under the Sherman Act? Reasons and precedent. 27. Why is such a strong effort being put forth by manufacturers to change the laws so as to permit price protection? What are your impressions of the arguments presented on both sides of the question?

28. Prepare an essay on Price Protection and The Sherman Act showing the methods, the advantages and disadvantages of price protection and outlining the proposals for a proper legal regulation of the problem.

29. Resolved that the Sherman Act has been partly successful. Defend either side of this question with a systematically arranged argument and cases illustrating the argument.

30. What do the cases thus far considered show to have been the least successful parts of the Sherman Act, or its interpretation by the courts? Examples.

31. What does the Sherman law provide as to the protection of a competitor whose business is damaged by an illegal combination?

32. What are your views as to the completeness of this protection in practice? Explain fully with illustrations.

33. Explain how the past interpretation of the Act has led to uncertainty. 34. Does the Sherman Act forbid combinations because of their size, or because of destructive restraints of trade? Cite the exact parts of the law proving your answer.

35. Prepare an essay on the Sherman Act showing the reasons for its passage, its most important features and their interpretation, and giving conclusions as to its value.

36. What is a boycott?

37. Did the Sherman Act originally apply to interstate boycotts carried on by labor unions? Cite examples.

38. Outline and explain the changes made on this point by the Clayton Act of 1914.

CHAPTER VIII

POWERS OF CONGRESS-Continued

PUBLICITY, THE TRADE COMMISSION AND THE CLAYTON ACT

Third Period of Regulation.-We have now considered two stages in our policy of trust control, viz: first, the attempt to prevent the building up of trusts by illicit rebates and special favors and discriminations on the railways; second, the effort to demolish the trusts by forbidding their formation in interstate trade. Both of these have been partly successful, as we have seen, in suppressing the cruder forms of discrimination and have partly failed in the original purpose, which was to preserve the opportunities for competition wherever possible, to protect the consumer from extortion, and to secure to the investor a moderate amount of safety. Meanwhile, public opinion passed through the third stage in which the new doctrine of Publicity occupied popular attention. In 1898 the extraordinary business boom following the Spanish War led to the flotation of a long list of new corporations, most of them grossly overcapitalized and many of them foredoomed to bankruptcy. The capital stock of these new combinations being sold broadcast to investors, enlisted all classes of the people in the ownership of the new enterprises,—when the inevitable harvest of bankruptcy followed, a profound and painful impression among all circles of the investing public was created.

A new thought then arose in the public mind-the prime evil of the trust or combination was not in its unfair discrimination against competitors but rather in the enormous overcapitalization of its own stock. This attracted public attention to the methods of corporate promotion, largely because the original promoters of the new combinations had been able to sell out their stock holdings, reap handsome profits, and "step from under" before the crash came. What could the government do to remedy these conditions? The answer was, "Publicity," and as in the original campaign against the trust, the discriminatory freight rate had been attacked, while later the combination itself had been declared illegal, so now the remedy for corporate ills was believed to be a public statement of the facts, by government authority.

The Bureau of Corporations.-Accordingly, in 1903, the Department of Commerce and Labor was created, the chief feature of which was a Bureau of Corporations under the direction of a commissioner. The Commissioner of Corporations "shall have

power and authority to make, under the direction and control of the Secretary of Commerce and Labor, diligent investigation into the organization, conduct, and management of the business of any corporation, joint stock company or corporate combination engaged in commerce among the several States and with foreign nations, excepting common carriers subject to 'An Act to regulate commerce,' approved February fourth, eighteen hundred and eightyseven, and to gather such information and data as will enable the President of the United States to make recommendations to Congress for legislation for the regulation of such commerce, and to report such data to the President, from time to time as he shall require; and the information so obtained or as much thereof as the President may direct, shall be made public."

The Commissioner was given power to summon witnesses, administer oaths, and hear evidence, and compel the production of documentary testimony. Under these provisions the bureau was organized and made several important investigations of interstate companies, the results of which were published as government documents. The commissioner appointed upon his staff, experts in research, and the results of the bureau's work have been the production of complete and authoritative data on the industrial, commercial and financial management of the industries investigated. Among the more important of these have been the transportation of petroleum and its products, the steel business, the tobacco business, sugar refining, inland waterways, water power companies, the lumber industry and the marketing of cotton. All of these have been carried on by the bureau through its special agents who have examined the financial methods, the transport and sale of products, the relations with the railways, the agreements between producers and many other questions affecting the commercial side of the industries named. The real service rendered by the bureau in making these investigations is the shedding of light upon business conditions, that is, the official collection and statement of facts which may be published by the direction of the President. Sometimes the mere knowledge that information on certain illegal practices has been secured by agents of the bureau was sufficient to cause their immediate cessation. In one case a series of important railway discriminations were stopped as soon as the bureau agents had collected the data necessary to prove them, even before the publication of the facts took place. This potential publicity of the practices arising in trade competition is one of the most effective methods of government regulation yet devised. The bureau, although it expended only a small annual appropriation, was successful in bringing about noteworthy and beneficent changes. It proved beyond question the wisdom of this third step in our regulative policy. With the added impetus which the publicity movement gained from the law of 1903 it soon became a fixed practice among industrial companies to issue annual or quarterly

statements of their business. In the short period from 1903 to 1910 a complete revolution in the publicity methods of all the great producing companies was brought about. The concern which practices secrecy of its accounts is now the exception rather than the rule. The personnel, powers and authority of the bureau of corporations have been taken over by the new trade commission under the Act of 1914.

The Corporation Tax.-Under the Act of 1903 many companies could not be included in reports of the bureau of corporations because they were not interstate concerns and were therefore beyond the jurisdiction of Congress. To remedy this President Taft incorporated in the Tariff Act of 1909 the provision for a corporation tax. This levy is imposed according to the net income of each company, as we have already seen in the chapter on taxation. Section 38 of the law provides that all corporations should make a report to the collector of internal revenue showing their gross and net earnings, and certain other items from which the collector is to make an assessment for taxation upon those which have a net income of $5,000 or over. By this means it was planned to secure information as to the actual financial status of all the corporations of the country, regardless of whether they were engaged in interstate commerce or not. While it was the purpose of the law to make these reports public records, no appropriation to render them available for public inspection was ever made, and as a result they are only public to the extent that the President wishes to make them so. While neither the bureau of corporations nor the corporation tax has given to the investor any direct and important information on the conditions of a particular company whose stock he may consider purchasing, they have strengthened the general movement for publicity and have thereby indirectly wrought the desired result. The Corporation Tax has now been made a part of the general income tax under the Act of 1913.

General Tendencies of Corporate Regulation. Of the three stages in our legislative program thus far considered, the regulation of rates has attracted most attention and yielded the greatest benents thus far, but in the period from 1903-1910 the Publicity policy yielded the best results. Every great corporation in the land became desirous of securing public approval and co-operation. It wanted (a) To sell its stock to numbers of small investors in order that the public at large might have an active interest in the enterprise; (b) It must have a favorable public sentiment in order to market its wares most profitably; (c) The experience of recent years has taught that no corporation is strong enough to defy public sentiment. Such sentiment, when thoroughly aroused, brings on a destructive and hostile political movement which undermines the prosperity of all business undertakings; warfare between the government and a corporation seldom results profitably for the latter.

Many corporations are trying to win public confidence by vast and expensive forms of publicity and advertising, and various other means of influencing public opinion. They have engaged in a "campaign in the open." Secrecy of financial operations and juggling of accounts are slowly going out of fashion. The publication by the government of the results of its investigations of any business would naturally be sufficient to influence public opinion in such a potent way that no corporation would willingly oppose or disregard the sentiment thus aroused. The shrewder managers have already calculated that if publicity must come, they have much to gain by an early and cordial adoption of the policy; the business tide is setting strongly toward this new ideal. Mystery, secrecy, and suspicious appearances are being rooted out and the public is being courted with an eagerness that bespeaks a new understanding of the relation .of the people to the corporation. In this new movement, which has already been of inestimable value to all concerned, the leading rôle and chief credit must be assigned to those principles of government publicity laid down in the Federal laws of 1903 and 1909.

THE FEDERAL TRADE COMMISSION

Fourth Period: Administrative Versus Legislative Control of Trusts and Combinations.-In our examination of the Sherman Act we saw that the advocates of the national commission plan viewed the whole question of trusts and combinations from a new and different angle. They pointed out that the national Congress is unable to regulate this problem in all of its rapidly changing aspects and details. The best that Congress can do is to fix a few general principles. The real regulation under these principles must be carried out by some authority which will devote its entire time to this one subject. The vast difference between the new plan and the old method of regulation may be summed up in the following ideas which lie at the basis of the commission system.

(a) Do not attempt to enforce competition where combination is feasible and beneficial.

(b) Let combinations grow as much as they please within reason, so long as they employ no extortionate or destructive practices. (c) Hasten the settlement of disputes arising from the regulative laws, in order to secure for the business community an early settlement of the law on all important points, and thereby avoid uncertainty.

(d) To these ends let the control and regulation of interstate commercial companies, except the common carriers, be conducted by a national trade commission instead of by the national legislature and the courts as heretofore.

The practical force of these ideas is unanswerable. It has been admitted on all sides that our need has not been for extensive and