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Annual Message Deals ^ With One Subject. 'DEFENDS DECISIONS OF COURT (d Cases of Standard Oil and ^ Tobacco Companies. THINKS AMENDMENTS NEEDED •altevee Present 8t«tute« Good as Par •• They Go but Suggest! Supple mental Legislation—For Fed- sral Corporation Law. Washington, Dec. 6.—President Taft's annual message, which was read IB both houses of congress today, deala otitnslrely with the anti-trust statute. * 1 text of tbs message is as fol- the Senate and House of Repre sentatives: This message la the first of several which I shall send to con gress durlngpfae Interval between the opening of fu regular sessloi adjournmeafcfor the days. The aAunt of oommu^cated^aa to r the government the number dTTnipor- taat subjects ogling for comment by the transmission to tlve repbrts by spe- he it impossible law distinctions, ted It 'This is obviously untrue. 3y Its Judgment every con tract and combination In reatralnt of interstate trade made with the purpose or necessary effect of controlling prices by atlttyiig competition, or of establish ing In'wbole or In part a monopoly of such trade, la oondsmned by tha stat ute. The moet extreme critics cannot instance a case that ought to be con demned under the statute which la not brought within Its terms as thus con strued. The suggeetlon la else made that the Supreme court by Its decision In tha last two cases has committed to the court the undefined and unlimited dis cretion to determine whether a of reatralnt of trade Is e terms of the statute. This untrue. A reasonable trade at common law la jjtood jmd ls^tfTeaftv' defined, it does noTresClirdie discretion of the court. It must be limited to accomplish the purpose of a lawful main contract to which, in order that It shall be en forceable at all. It must be Incidental. If It exceeds the needs of that contract It Is void. Tho test of reasonableness was never applied by the court at com mon-law to contracts or combinations or conspiracies In restraint of trade whose purpose was or whose neces sary effect would be to stifle competi tion' to control prices, or establish monopolies. The courts never as sumed power to say that such con tracts or combinations or conspira cies might be lawful If the parties to them were only moderate In the use of the power thus secured and did not exact from the public too great and exorbitant prices. It Is true that many theorists, and others en gaged In business violating statue, have hoped that aome sucl line United with a capital r Under this arrange- pe different kinds of e,distributed between companies, with a di vision of the prominent brands in tbf same tobacco products, so as to mi competition not only possible bufl\ T , hu " the , ? okl 1 D * “‘“T etanwter. The Immediate re.ult of co business of the country Is divided so that the present Independent com panies have 21.39 per cent., while the American Tobacco company wtfl have 08 per cent., the Liggett and Meyers 20.05 per cent, the Lorlllard company 22.82 per cent., and the Reynolds company 2.66 per cent The stock of the other thirteen companies, both preferred and common, has been taken from the defendant American Tobacco company and has been dis tributed among Its stockholders. All covenants restricting competition have been declared null and ‘further per formance of them has been enjoined. The preferred stock of tbs different companies has now been given vot ing power which was denied It the old on k Ownership. ed that tha pres- common ownership companies by former of the trust would Insure a continuance of the same old single control of all the companies Into which the trust has by decree been disintegrated. This la erroneous and Is based upon the assumed In efficacy and lnnoeuouaness of Judicial Injunc tions. The companies are enjoined from cooperation or combination; they have different managers, direc tors, purchasing and sales agents, all or any of the numerous stockhold ers, reaching Into the thousands, tempt to secure concerted action the companies with a view to the con trol of the market, their number Is so large that such an attempt could not well be concealed and its prime mov ers and all Its participants would be at once subject to .contempt proceed ings and Imprisonment of a summary definite and as clear as that which the tegrating parts. The circuit courts — Supreme court Itself lays down In en- and the attorney general were great- forcing the'statute. ^ * ly aided In framing the decree In tbw* Supplemental Legislation Needed—Not tobacco trust dissolution by an ex-- the executive, congress of ex dal oomml to Include able lepgttTadii that ought to be tlon of tha nath first The Anti-True Coui ;e of a reason of the topics t to the atten- stature at Its The Supreme ta lj|7 last the Buproi d down c •the ed doWn decisions equity brought by the United States to enjoin the further maintenance of the Standard Oil trust and of the Ameri can Tobacco trust, and to secure thelf dissolution. The decisions ajd epoch- making and serve to advise the bull- nasi world authoritatively of the scope 1 and operation of the anti-trust set of 1190. The decisions do not dspart In any substantial way from the previous decisions of the court in construing 4Qd applying this Important statute, —^but they d^rify those Important deci sions by further defining the already ^admitted exceptions to the literal con- 7struotlon of the act. By the decreet, ■they furnish a useful precedent aa to the proper method of dfeallng with the capital and property of Ijltgaf trusts. £TbfSf decisions suggtst tbs nsed and . Svladom of additional or supplemental : legislation to make It easier for the -entire business community to square with the rule of notion and lagallty thus finally established and to preserve the benefit, freedom and spur of nt* eonable competition without Jpts of foal efficiency or progress. Decision— Expression, section de- “every contract, form of truat or Iracy, In restraint commerce among the sev- emj states or with foreign nations," and In the second, declares guilty of a misdemeanor every person who shall monopolise or attempt to monopolise or combine or conspire with any other person to monopoltxe any part of the trade or commerce of tho several states or witfc foreign nations." In two early cases, where the statute was Invoked to enjoin a transportation egreement between Interstate railroad •ampanlafk It was held that It was no defense to show that the agreement aa to rates complained of was reasanal at common law* because It was said that the statute was directed agalnRt all contracts and combinations in re straint of trade whether reasonal at common law or not It was plain from she record, however, that the contracts E plained of in those cases would have been deemed reasonable at mon law. In subsequent cases the •ourt said that the statute should bo ghren a reasonal construction and re fused to Include within Its Inhibition •frtaln contractual restraints of trado fcrhlch It dominated as Incidental or as indirect These cases of restraint of trade that Ike court excepted from the operation of the statute were Instances which, at oominon law, would have been called reasonable. la the Standard Oil. and Tobacco cases, therefore, the court merely adopted the teeta of the com mon law, and in defining exceptions to tha Uteral application of the statute, cnlj substituted for the test of helps Incidental or Indirect, that ot being reasonable and this, without varying In tha slightest the actual scope and effect of the statute. In other words, all the cases under the statute which have now been decided would have been decided the same way If the court had originally accepted tn Its construc tion the rule at common law. It has been said that the court by ’ To! introducing into the construction forcing this ■lightest sanction! Force and Effectlvenei Matter of Growth. We havo been twenty-one years making this statue effective for the purposes for which it was enacted. The Knight case was discouraging and seemed to remit to-the states the whole available power to attack and suppress the evlla of the trusts. Slowly, however, the errors of that Judgment was corrected, and only In the last three or four years has the heavy hand of the law been laid upon the great Illegal combinations that have exercised such an absolute do minion over many of our Industries. Criminal prosecutions have been brought and a number are pending, but Juries have felt averse to convict ing for Jail sentences, and Judges have been most reluctant to Impose such sen tences on men of respectable standing In society whose offense has been regarded as merely statutory. Still, as the offense becomes better under stood and the committing of It par takes more of studied and deliberate defiance of the law, we can be confl? dent that juries will convict Individ uals snd that Jail sentences will be Imposed. The Remedy In Equity by Dleeolutlon. In the Standard Oil case the Su preme and circuit courte found the combination to be a monopoly of the Interstate business of refining, trans porting. and marketing petroleum and tfl products, effected and maintained thrfikgh thirty-seven different cor porations, the stock of which was held by a New Jersey company. It In effect commanded the dissolution of this combination, directed the transfer and pro-rata distribution by the New Jersey company of the stock held by It In the thirty-seven corporations to and among Its stock holders. and the corporations and In dividual defendants were enjoined from conspiring or combining to re store such monopoly; and all agree ments between the subsidiary corpor ations tending tn produce or bring about further violations of the act were enjoined. In the Tobncdo case, the court found that the Individual defendants, twenty-nine In number, had been en gaged In a successful effort to ac quire complete dominion over the manufacture, sale, and distribution of tobaeco In this country and abroad, and thnt this had been done by com binations made with n purpose and effect to stifle '‘competition, control prices, and establish a monopoly, not only in the manufacture of tobacco, but also of tin-foil and licorice used In Ita manufacture and of Its products of cigars, cigarettes, and snuffs The tobacco ault presented a far more complicated and difficult case than the Standard OH suit for a decree which would effectuate tho will of the court and end the violation of the statute There was here no single holding company ns In the case of the Standard OH trust. The main comrany was the American Tobacco company, a manufacturing, selling, and holding company. Tho plan adopted to destroy the combination and restore redlvtslon of, of the the com] and new purposes parties to old. . Situation After Readjustment. The American Tobacco company (old) radjusted capital. $92,000,000; npetltlon Involved the capital and plants «»t between some of [ constituting the trust lies organised for the decree snd made l numbering, new and wlir rious from 41 per cent 28H per cent, as a minimum, except In the case of one small company, the Porto Rican Tobacco company. In which they will hold 45 per cent The twenty-nine Individual defendants are enjoined for three years from buying any stock except from each other, and the group is thus prevented from extending Its control during that pe riod. All parties to the suit, and the new companies who are made parties, are enjoined perpetually from in any way effecting any combination be tween any of the companies In viola tion of the statute by way of resump tion of the old trust Each of the fourteen companies Is enjoined from aoqulring stock In any of tho others. All these companies are enjoined having common directors or offi or commpii buying or selling si or common offices, sr lending money to esch other. 8lze ef New Companies. Objection wss made by certain in dependent tobacco companies that this settlement wss unjust because It left companies with very large capital In active business, and that the settle ment that would be effective to put all on an equality would be a division of the capital and plant of the trust Into ■mall factions tn amount more nearly equal to that of each of the Independ ent companies. This contention re sults from a misunderstanding of the anti-trust law and Its purpose. It is not Intended thereby to prevent the accumulation of large capital In busi ness enterprises In which such a com bination can 'secure reduced cost of production, sale and distribution. It Is directed against such an aggreg* tlon ef capital only when Its purpose Is that of stifling competition, enhanc ing or controlling prices and estab lishing a monopoly. If we shall have by the decree defeated these purposes and restored competition between the large units Into which the capiat and plant have been divided, we ahlirbave accomplished the useful purme of the statute. Confiscation Net the Purpose of the Statute. It Is not the purpose of the to confiscate the.property and clpltal of the offending trusts. Methafla of punishment by fine or imprisonment of the individual offenders, by fine of the corporation, or by forfeiture of Its goods In transportation, are provided, but the proceeding tn equity is a spe cific remedy to stop the operation of the trust by Injunction and prevent the future use of the plant and capital In violation of the statute. Effectiveness ef Decree. le his- Repeal or Amendment. pert from the bureau of corporations* I ... bo objection—ud Indeed I can Federal Corporation Commleelon Wo~ ■ee decided adTan»««ee—In the enact-1 ment o« a law which (ball deecribe and , d0 Bot Mt (ortll ln deU |j tte terms-’ denonnM method._ of competition, j and iect | 0ni 0 , a It atute which rntflbt supply the constructive legislation per- which are unfair and are badges of the 1 unlawful purpose denounced Is the anti-trust law. The attempt and pur pose to suppress a competitor by un derselling him st a price se unprofit able as te drive him oat of business, or the making of exclusive contracts with customers trader which they are required to give up association with other manufacturers, and numerous kindred methods for stiffing competi tion and effecting monopoly, should be described with sufficient accuracy in a mlttlng and aiding the formation of' combinations of capital Into federal; corporations. They should be subject, to rigid rules as to their organization/ and procedure, Including effective pub* licity, and to the closest supervision a*- to the Issue of stock and bonds by an.; executive bureau or commission In the- department of commeroe and labor, to* which In times of doubt they might- well submit their proposed plans for criminal .tatut. on tha on. hjd to ! ,ut “ re *>“»"«•«• « met. h. dlrtlnetlr enable th. government to ehorten Ite ; understood ,hat lncor P ora,,on under -m- I tute I venture to say that not tory of American law has a decree nioro effective fer such av purpose been entered by a court tbaji that Alft "Circuit against the Tobacco trust. Judge Noyes said In his.Judgment ap proving the decree: "The extent to which It has been necessary to tear apart this combina tion and force It Into new forma with the attendant burdens ought to dem onstrate that the federal anti-trust statute Is a drastlo statute which ae- compllshea' effective reeutta; which ao long aa it stands on the statute hooka muat ba obeyed, and which cannot be disobeyed without Incurring far- reaching penalties And. on the oth er hand, the successful refenstruction the Ugf.lt ud Meyer. Tobacco com-! of tbf. orgnnti.tlon .houljfc tench that pany (new! capital, 167.000,000; tha lh. elf.ct of onforclng thla m.tute I. P Lorlllard company (new) capital, not to deelroy. but to reconstruct; not $47,000,000, and the R. J Reynold! «o demolteh but to re-create company (old) capital, $7,* cordance with the conditions an chiefly engaged tn tha >h« congreea has dadarad Tobaeco T m cate Id tlons iwl I shall« the present situation will necessarily be actlvitjeby all the companies un der different managers, and then com petition n^iat follow, or there will be activity by one company and stag nation by another. Only a short time [will Inevitably lead to a change ownership of the stock, as all oppor tunity for continued cooperation must lllsappear. t Those critics who speak jit this disintegration In the trust as mere change of garments have not Ivan consideration to the Inevitable wiring of 1 the decree and understand ttle the personal danger of attempt 'd to evade or set at nanght the sol- in- Injunction of a court whose ob is made plain ny the decree and [hope JftbJbftJons are set forth with a itall and comprehensiveness unex- ipled In the history of equity Juris- idence. [The effect of these two decisions has to decrees dissolving the combine In of manufacturers of electric lamps, ithern wholesale grocers’ associa- an Interlocutory decree against powder trust with directions by circuit court compelling dlssolu- , and other combinations of & slra- hlstory are now negotiating with department of Justice looking to a itegratlon by decree and reorgan- Ion ln accordance with law. It s possible to bring about these re lations without general business banco. ment for Repeal of the Anti-Trust Law. now that the anti-trust act Is i be effective for the accomplish- f the purpose of Ita enactment, met by a cry from many differ- lartera for Its repeal. It Is said ibstructlve of business progress, attempt to restore old-fash ethods of destructive oompetl een small units, and to make » those useful combinations and the reduction of the cost luctlon that are essential to con- iperity and normal growth, cent decisions the Supreme _ lea.'eletr that there is noth- iw4iiuui the statute which condemns invasion i>* u. Ltlons of capital er mere big- plant organised to secure In production and a reduc- i coat It is only when the, er necessary effect ot the or* n and maintenance of the i er the aggregation of im- are the stifling of oompetl- and potential, and the en hancing of prices and establishing a monopoly, that the statute Is violated. Merd else It no sin against the law. The merging of two or more business plants necessarily sllmlnates competi tion between the units thus oomblned. but* bis elimination Is tn oontraveotion of tne statuts only whsn ths combina tion Is made for purpose of ending this particular competition tn order to se* cur^ control of. and enhanee, prices and create a monopoly. Lack of Deflnitsnsee In the Statute. The complaint la made of the statute that It la not sufficiently definite In Its description of that which Is forbid den. to enable business men to avoid Its violation. The suggestion Is, that we may have a combination of two corwrattons, which may run on for years, and that subsequently the attor ney general may conclude that it was lolatlon of the statute, and that which was supposed by the combiners to be Innocent then turns out to be a combination tn violation of the atat ute. The answer to this hypothetical case is that when men attempt to aui&ss stupendous capital as will en- a le them to suppress competition, a ntrol prices and establish a monop n y they know the purpose of their a ts. Men do not do such a thing without having it clearly in mind. If v hat they do Is merely for the purpose 0 reducing the cost of production, v ithout the thought of suppressing ompetitlon by use of the bigness of te plant they are creating, then they jmnot be convicted at the time the 1 plon Js made, nor can they be con • ' l$ted later, unless It happen that later i n they conclude to suppress compel! on and take the usual methods for olng so, and thus establish for them elves a monopoly. They can. ln such case, hardly complain if the motive vhich subsequently Is disclosed la at ributed by the court to the original combination. New Remedies Suggested. | Much Is said of the repeal of this statute and of constructive legislation Intended to accomplish the purpose and blase a clear path* for honest mer- chants and business men to follow. It may be that such a plan will be evolved, but 1 submit that the discus sions which have been brought out In recent days by the fear of the con tinued execution of the anti-trust law task by 'prosecuting single misde meanors Instead of an entire con spiracy, and, on the other hand, to serve the purpose of pointing out more in detail to the business com munity what must be avoided. Federal Incorporation Recommended. In a special message to congress on January 7, 1910, I ventured to point out the disturbance to business that would probably attend the disso lution of these offending trusts, said: “But auch an Investigation and pos sible prosecution of corporations# we ^ b® Invested also with the duty al- wbose prosperity or destruction affects the comfort not only of stockholders but of millions of wage earners, em ployes, and associated tradesmen must necessarily tend to disturb the con fidence of the business community, to dry up the now flowing sources of capital from Its places of hoarding, and produce a halt In our present prosperity that will cause suffering and strained circumstances among the Innocence many for the faults of the guilty few. The question which wish In this message to bring clear- ’ to the consideration and discus sion of congress Is whether, In order to avoid such a possible business danger, something cannot be done by which these business combinations may be offered a means, without great financial disturbance, of # changlng the character, organization, and extent of their business Into one within the lines of the law under federal control and supervision, securing compliance with the anti-trust statute. "Generally, in the Industrial com binations called ‘Trusts.’ the prin cipal business Is the sale of goods in many states and In foreign markets; ln other words, the Interstate and for eign business far exceeds the busi ness done ln any one state. This fact will Justify the federal govern ment ln granting a federal charter to such a combination to make and sell ln interstate and foreign com merce the products of useful manu facture under such limitations as will secure a compliance with the anti trust law. It Is possible so. toi frame a statute that while It oj^rs ’protec tion to a federal compa^V ngalnst harmful, vexatious, ; and federal law could not exempt the com- - pany thus formed and Its Incorporators and managers from prosecution under- the anti-trust law for subsequent llle- • gal conduct, but the publicity of lt»- procedure and the opportunity for fre quent consultation with the bureau or* commission in charge of the incorportu tion as to the legitimate purpose of itac transactions would offer it a*! great se curity against. successful prosecution*'- for violations of the law as would be' practical or wise. Such a bureau or commisqlon might. Ject It to reasonable taxation and control by the states with respevt to Ita purely loeal business "Corporations organised under thla act should be prohibited from so- quiring snd holding stock ln other corporations (except for special rea sons, upon approval by the proper federal authority), thus avoiding the creation under national auspices of the holding company with subordinate corporations ln different states, which has been such an effective ageney la the creation of the great trusts sad monopolies. "If the prohibition of the anti-trust act against combinations In restraint of trade Is to be effective.!/ enforced. It is essential that the national gov ernment shall provide for the creation of national corporations to carry on a legitimate business throughout the United States. The conflicting laws of the different states of the Union with resrect to foreign corporations makes It difficult. If not impossible, for one corporation to comply with their re quirements so as to carry on business In a number of different states." I renew the recommendation of the onnetraent of a general law providing for the voluntary formation of cor porations to engage in trade and com merce among the states and with for eign nations. Every argument which as then advanced for such n law. ready referred to, of aiding courts fx». the dissolution and,recreation of trusts* within the law. It should be an execu tive tribunal of the dignity and power- of the comptroller of the currency or* the Interstate commerce commission,., which now exercise supervisory power' over Important classes of corporations^ under federal regulation. The drafting of such a federal incor poration law would offer ample oppor tunity to prevent many manifest evlla- In corporate management today. In cluding Irresponsibility of control In. the hands of the few who are not ths*- real owners. Incorporation Voluntary. I recommend that the federal char ters thus to be granted shall be volun tary, at least until experience* Justifies, mandatory provisions. The benefit to- be derived from the operation of great businesses under the protection of* such a charter would attract all who- are anxious to keep within the lines, of the law. Other large combinations that fall to take advantage of the fed eral Incorporation will not have a- right to complain if their failure te- ascribed to unwillingness to submit their transactions to the careful scru tiny, competent supervision and pub licity attendant upon the enjoyment of such a charter. Supplemental Legislation Needed. Tbq. opportunity thus suggested for federal incorporation. It seems to me. Is,suitable constructive legislation needed to' facilitate the squaring of * great industrial enterprises to Ahe rule- of action laid down by the ajftl-trust law. This statute la construed br> the Supreme court must continue to- be the line of distinction for legltl- unless we are"! from all business and reduce It to tmo common system of regulation or con trol of prices like that which now pre vails with respect to public utilities,, and which when applied to all busi ness would bs a long step toward stato socialism. Importance of the AntLTruct Act. The anti-trust act It the expression of the effort of a freedom-loving peo ple to preserve equality of opportun ity. It Is the resnlt of the confident determination of such a people to maintain their future growth by pre serving uncontrolled and unrestricted* the enterprise of the Individual, hla Ingenuity, his Intelligent# and his In dependent courage. Fcr twenty years or more this stat ute has been upon the statute bodk. AH knew of Ita general purpose and approved. Many of its violators were cynical over Its assumed Impotence. It seemed Impossible of enforce-., ment. Slowly the mills of the courts!: ground, and only gradually did thema-! Jesty of the law nssert Itself. Many] of its statesmen-authors died before it| became a living force, and they and, others saw the evil grow whlfb theyjj hr.d hoped to destroy. Now, its effl-l; cncy Is seen; now Its power is heavy; LI now Its object Is near achievement. , Now we hear the call for Its repeal on ■ the p,PR thnt 14 * ntPrfer * f w,th bus!-’ and every explanation which was at i ne8s prosperity, and we are advised ln that time offered to possible objec-1 most general terms how, by some tlon., h.T. been conflrroed by our «x- j other statute snd in some other way. perlence .Ine. the enforcement of | the evil we nre Juet .tamping out can the anti-trust statute has resulted In the actual dissolution of active com mercial organizations. It Is even more manifest now than It was then that the denunciation of conspiracies In restraint of trade should not and does not mean the de nial of organizations large enough to be Intrusted with our Interstate and foreign trade. It has been made mere clear now than It was then that a purely negative statute like the anti trust law may we!l be supplemented by specific provisions for the build ing up and regulation of legitimate national and foreign commerce. Government Administrative Experts Needed to Aid Courts In Trust Dlaaolutlona. The drafting of the decrees la the dissolution of the present trusts, with a view to their reorganisation Into be cured, if we only abandon this work of twenty years and try another ex periment for another term of years. * It is said that the act has not done good. Can this be said tn the face of the effect of the Northern Securities decree? That decree was ln no way so dras tic or inhlbitive in detail as either the Standard Oil decree or the tobacco de cree; but did’it not stop for all time the then powerful movement toward; the control of nil the railroads or tbe t country In a single hand? Such a one-man power could not have been a healthful instance ln the republic, even though exercised under ♦he general supervision of an Inter- state commission. Do we desire to make such ruthless combinations and monopolies lawful? When all energies are directed, not toward the reduction of the cost legitimate corporations, has made It i production for the public benefit by a especially apparent that the courts 1 healthful competition, but toward new are not provided with the adminlstra-. ways and means for making perma- tlve machinery to make the neces- nent ln a few hands the absolute con- ■ary Inquiries preparatory to re- trol of the conditions and prices pre- organization, or to pursue such In- vailing ln the whole field of industry, quirlea. and they should be empow- then lndlvkfhal enterprise and effort hsve produced nothing but glittering ered to Invoke the aid of the bureau will be paralyzed and the spirit ef generalities and have offered no line of corporations in determining the commercial freedom will be dead, of distinction or rule of action aa suitable reorganisation of the dlsln- WM. H. TAFT.