December 25, 1921 



HARDWOOD RECORD 



17 



Supreme Court Forbids Open 

 Competition Practices 



Majority Decision Sustains Permanent Injunction Against Mem- 

 bers of American Hardwood Manufacturers* Association Who 

 Operated Plan; Justice Clarke Presents Decree; Powerful 

 Dissenting Opinion Is Read by Justice Brandeis; 

 Vote Against Defendants Is Six to Three; 

 Decision Important to All Business 



The Essence of the Condemnation of the Plan 



"The Plan is, essentially, simply an expansion of the gen- 

 tlemen's agreement of rosier days, skillfully devised to evade 

 the law. To call it open competition because the meetings 

 were nominally open to the public, or because some volu- 

 minous reports were transmitted to the Department of Jus- 

 tice, or because no specific agreement to restrict trade or fix 

 prices is proved, can not conceal the fact that the funda- 

 mental purpose of the Plan was to procure "harmonious" 

 individual action among a large number of naturally com- 

 peting dealers with respect to the volume of production and 

 prices, without having any specific agreement with respect 

 to them, and to rely for maintenance of concerted action in 

 both respects not upon fines and forfeitures, as in earlier 

 days, but upon what experience has shown to be the more 

 potent and dependable restraints of business honor and social 

 penalties, — cautiously reinforced by majiy and elaborate 

 reports, which would promptly expose to his associates any 

 disposition in any member to deviate from the tacit under- 

 standing that aU were to act together under the subtle direc- 

 tion of a single interpreter of their common purposes, as evi- 

 denced in the minute reports of what they had done and in 

 their expressed purposes as to what they intended to do. 



' ' In the presence of this record it is futile to argue that 



the purpose of the Plan was simply to furnish those engaged 

 in this industry, with widely scattered units, the equivalent 

 of such information as is contained in the newspaper and 

 Government publications with respect to the market for com- 

 modities sold on boards of trade or stock exchanges. One 

 distinguishing and sufficient difference is thta the published 

 reports go to both seller and buyer, but those reports go to 

 the seUer only; and another is that there is no skilled inter- 

 preter of published reports ( such as we have in this case, to 

 insistently recommend harmony of action likely to prove 

 profitable in proportion as it is unitely pursued. 



"Convinced, as we are, that the purpose and effect of the 

 activities of the 'Open Competition Plan' here under discus- 

 sion, were to restrict competition and thereby restrain inter- 

 state commerce in the manufacture and sale of hardwood 

 lumber by concerted action in curtailing production and in 

 increasing prices, we agree with the District Court that it 

 constituted a combination and conspiracy in restraint of 

 inter-state commerce within the meaning of the Anti-Trust 

 Act of 1890 (26 Stat. 209) and the decree of that court must 

 be affirmed." — Majority Opinion Supreme Court of the United 

 States, I>ecember 19, 1921. 



The "open competition" plan of the American Hardwood Manu- 

 facturers' Association was declared by the United States Supreme 

 court on December 19 to be a restraint upon trade in violation of 

 the Sherman Anti-trust Law. In rendering the decision the court 

 was divided 6 to 3, Justices McKenna, Holmes and Brandeis dis- 

 senting. 



While the Supreme Court decision on the hardwood open compe- 

 tition plan is an important victory for the Government, it cannot 

 be said that the decision covers all types of these organizations, 

 although Department of Justice officials in commenting on the de- 

 cision said it would form the basis for the Government's policy to- 

 wards hundreds of associations maintained by various industries to 

 exchange price and other trade information. Activities of these 

 associations have been under observation by the Department for 

 some time, but definite formation of policy, it has been stated by 

 Attorney-General Daugherty, awaited the decision in the hardwood 

 case. 



In rendering its decision the Supreme Court sustained the United 

 States District Court of Western Tennessee, which in AprU, 1920, 

 granted an injunction perpetually restraining the association from 



entering into further agreements under the plan, forbidding the 

 further distribution of statistical information under the plan and 

 directing the abandonment of all "efforts whatsoever having the 

 purpose or tendency to enhance or maintain prices. ' ' 



Full Text of Majority Decision 



Justice Clarke delivered the opinion of the court, as follows: 

 The unincorporated "American Hardwood Manufacturers' Association" 

 was formed In December, 1918, by the coDSOlidatlon of two similar assocla- 

 tioDB, from one of which It took over a department of activit.y designated 

 the "open competition plan," and hereinafter referred to as the "Plan." 



Participation in the Plan was optional with the members of the asso- 

 ciation, but at the time this suit was commenced, of its 400 members 365, 

 operating 465 mills, were members of the Plan. The importance and 

 strength of the association Is shown by the admission In the joint answer 

 that while the defendants operated only 5 per cent of the number of mills 

 engaged in hardwood manufacture In the country, they produced one-third 

 of the total production of the United States. The places of business of the 

 corporations and partnerships members of the Plan were located in many 

 states from New York to Texas, but chiefly In the hardwood producing 

 territory of the ' Southwest. The defendants are the members of the 

 Plan, their personal representatives, and P. R. Gadd, its "Manager of 

 Statistics." 



