288 U.S. 344 (1933), 504, Appalachian Coals, Inc. v. United States

Docket Nº:No. 504
Citation:288 U.S. 344, 53 S.Ct. 471, 77 L.Ed. 825
Party Name:Appalachian Coals, Inc. v. United States
Case Date:March 13, 1933
Court:United States Supreme Court

Page 344

288 U.S. 344 (1933)

53 S.Ct. 471, 77 L.Ed. 825

Appalachian Coals, Inc.


United States

No. 504

United States Supreme Court

March 13, 1933

Argued January 9, 10, 1933




1. Competing producers of bituminous coal formed a corporation to act as their selling agent, with authority to set the prices. The industry was in grave distress because of overexpansion, relatively diminishing consumption, organized buying, and injurious marketing practices within itself, and the members of the combination sought, through the agent, to escape those practices, promote the sale of their coal in fair competition, and sell as much of it as possible. Although they controlled a large proportion (73%) of the commercial production in the immediate region where they mined, the great bulk of their output was marketed in another and highly competitive region, and in view of the vast volume of other coal actually and potentially available, the conditions of production, and transportation facilities, there was no basis for concluding that competition anywhere could be injuriously affected by the operation of their plan. Held that there is no present reason for an injunction under the Sherman Act.

Page 345

2. The purpose of the Sherman Act is to maintain the freedom of interstate commerce in the public interest; its restrictions are not mechanical or artificial, but are to be construed by the essential standard of reasonableness. P. 359.

3. The Act does not seek to establish a delusive liberty of interstate commerce by making normal and fair expansion impossible; it does not prevent those engaged in that commerce from adopting reasonable measures to protect it from injurious and destructive practices and to promote competition upon a sound basis. P. 360.

4. The mere fact that the parties to a combination eliminate competition among themselves is not enough to condemn it. The question is one of intent and effect, not to be determined by arbitrary assumptions, but by close and objective scrutiny of the particular conditions and purposes in each case. Pp. 360, 375.

5. Good intentions will not save a plan otherwise objectionable under the Sherman Act, but knowledge of actual intent is an aid in the interpretation of facts and prediction of consequences. P. 372.

6. A cooperative enterprise is not to be condemned as an undue restraint because it may effect a change in market conditions, where the change would be in mitigation of recognized evils and would not impair, but rather would foster, fair competitive opportunities. P. 373.

7. A cooperative plan of competing producers cannot be held illegal merely because they do not integrate their properties in a single corporation, but keep their plants independent. In either case, the test is the same: is there an unreasonable restraint of trade or an attempt to monopolize? P. 374.

8. A suit under the Sherman Act to enjoin a combination is governed by the principles of equitable relief, and to warrant an injunction, there must be a definite factual showing of illegality. P. 377.

9. Where a trade agreement was attacked and sustained under the Sherman Act before it was put in operation, the case being decided upon the purposes of the participants and the probable consequences of their plan, the decree directed the District Court to dismiss the bill without prejudice, but to retain jurisdiction to the end that, should results of the plan, in actual operation, prove contrary to the Act, the case might be reopened by that court for further proceedings by the government and the voluminous testimony already taken remain available in that event. P. 378.

1 F.Supp. 339, reversed.

Appeal from a decree of the District Court composed of three circuit judges granting an injunction against a combination of producers of bituminous coal, in a suit by the Government under the Sherman Antitrust Act.

Page 356

HUGHES, J., lead opinion

[53 S.Ct. 473] MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

This suit was brought to enjoin a combination alleged to be in restraint of interstate commerce in bituminous coal and in attempted monopolization of part of that commerce, in violation of §§ 1 and 2 of the Sherman Anti-Trust Act, 26 Stat. 209. The District Court, composed of three Circuit Judges, made detailed findings of fact and entered final decree granting the injunction. 1 F.Supp. 339. The case comes here on appeal. 28 U.S.C. § 380.

Defendants, other than Appalachian Coals, Inc., are 137 producers of bituminous coal in eight districts (called for

Page 357

convenience Appalachian territory) lying in Virginia, West Virginia, Kentucky, and Tennessee. These districts, described as the Southern High Volatile Field, form part of the coal bearing area stretching from central and western Pennsylvania through eastern Ohio, western Maryland, West Virginia, southwestern Virginia, eastern Kentucky, eastern Tennessee, and northeastern Alabama. In 1929 (the last year for which complete statistics were available), the total production of bituminous coal east of the Mississippi River was 484,786,000 tons, of which defendants mined 58,011,367 tons, or 11.96 percent. In the so-called Appalachian territory and the immediately surrounding area, the total production was 107,008,209 tons, of which defendants' production was 54.21 percent, or 64 percent if the output of "captive" mines (16,455,001 tons) be deducted.1 With a further deduction of 12,000,000 tons of coal produced in the immediately surrounding territory, which, however, is not essentially different from the particular area described in these proceedings as Appalachian territory, defendants' production in the latter region was found to amount to 74.4 percent.2

The challenged combination lies in the creation by the defendant producers of an exclusive selling agency. This agency is the defendant Appalachian Coals, Inc., which may be designated as the Company. Defendant producers own all its capital stock, their holdings being in

Page 358

proportion to their production. The majority of the common stock, which has exclusive voting right, is held by seventeen defendants. By uniform contracts, separately made, each defendant producer constitutes the Company an exclusive agent for the sale of all coal (with certain exceptions) which the producer mines in Appalachian territory.3 The Company agrees to establish standard classifications, to sell all the coal of all its principals at the best prices obtainable and, if all cannot be sold, to apportion orders upon a stated basis. The plan contemplates that prices are to be fixed by the officers of the Company at its central office, save that, upon contracts calling for future deliveries after sixty days, the Company must obtain the producer's consent. The Company is to be paid a commission of 10 percent of the gross selling prices f.o.b. at the mines, and guarantees accounts. In order to preserve their existing sales outlets, the producers may designate subagents, according to a agreed form of contract, who are to sell upon the terms and prices established by the Company and are to be allowed by the Company commissions of eight percent. The Company has not yet begun to operate as selling agent; the contracts with it run to April 1, 1935, and from year to year thereafter unless terminated by either party on six months' notice.

The Government's contention, which the district court sustained, is that the plan violates the Sherman Anti-Trust Act in the view that it eliminates competition among the defendants themselves and also gives the selling agency power substantially to affect and control the price of bituminous coal in many interstate markets. On the latter point, the district court made the general finding that this elimination of competition and concerted

Page 359

action will affect market conditions, and have a tendency to stabilize prices and to raise prices to a higher level than would prevail under conditions of free competition. The court added that the selling agency will not have monopoly control of any market, nor the power to fix monopoly prices.

Defendants insist that the primary purpose of the formation of the selling agency was to increase the sale, and thus the production, of Appalachian coal through better methods of distribution, intensive advertising and research, to achieve economics in marketing, and to eliminate abnormal, deceptive, and destructive trade practices. They disclaim any intent to restrain or monopolize interstate commerce, and, in justification of their design, [53 S.Ct. 474] they point to the statement of the district court that

it is but due to defendants to say that the evidence in the case clearly shows that they have been acting fairly and openly, in an attempt to organize the coal industry and to relieve the deplorable conditions resulting from overexpansion, destructive competition, wasteful trade practices, and the inroads of competing industries.

1 F.Supp. p. 341. Defendants contend that the evidence establishes that the selling agency will not have the power to dominate or fix the price of coal in any consuming market; that the price of coal will continue to be set in an open competitive market, and that their plan by increasing the sale of bituminous coal from Appalachian territory will promote, rather than restrain, interstate commerce.

First. There is no question as to the test to be applied in determining the legality of the defendants' conduct. The purpose of the Sherman Anti-Trust Act is to prevent undue restraints of interstate commerce, to maintain its appropriate freedom in the public interest, to afford protection from the subversive or coercive influences of monopolistic endeavor. As a charter of freedom, the Act

Page 360

has a generality and adaptability comparable to that...

To continue reading