[Footnote 1: United States v. E.C. Knight Company, 156 U.S., 1.]
The other question—Did the Sherman Act change the common-law rule as to what restraints and monopolies are forbidden?—has been even more troublesome. The lawyers in Congress who framed the law believed that it did not. This is the testimony of Senator Hoar in his Autobiography, and as he was a member of the Senate Judiciary Committee which reported the act in its present form, and claims to have drawn it himself, his testimony is entitled to belief. The Supreme Court, however, in this particular went further than was expected. In the Trans-Missouri Freight Association case,[1] which reached the Supreme Court two years after the Knight case, that tribunal decided by a five-to-four majority that the words "every contract … in restraint of trade" extended the operation of the law beyond the technical common-law meaning of the terms employed so as in fact to include all contracts in restraint of interstate trade without exception or limitation. This theory was strongly combated by the minority of the court, speaking through Justice (afterwards Chief Justice) White, and was denounced by many eminent lawyers, notably the late James C. Carter, then leader of the New York Bar, who predicted that sooner or later it must be abandoned as untenable. Their protests were well founded. The theory, carried to its logical conclusion, would have prohibited a great variety of transactions theretofore deemed reasonable and proper, and would have brought large business to a standstill. As a matter of fact, it was never carried to its logical conclusion, and six years later it was expressly repudiated by Justice Brewer; one of the five, in the course of his concurring opinion in the Northern Securities case.[2] Justice Brewer said that while he believed the Trans-Missouri case had been rightly decided he also believed that in some respects the reasons given for the judgment could not be sustained.
Instead of holding that the Anti-Trust Act included all contracts, reasonable or unreasonable, in restraint of interstate trade, the ruling should have been that the contracts there presented were unreasonable restraints of interstate trade, and as such within the scope of the Act…. Whenever a departure from common-law rules and definitions is claimed, the purpose to make the departure should be clearly shown. Such a purpose does not appear and such a departure was not intended.
[Footnote 1: United States v. Trans-Missouri Association, 166 U.S., 290.]
[Footnote 2: Northern Securities Company v. United States, 193 U.S., 197.]
Nevertheless, the troublesome question remained, to plague lawyers and the community generally, until it was finally put at rest and the statute once more planted on the firm ground of common-law rule and definition by the decisions in the Standard Oil and Tobacco cases.
What, then, is this common-law rule which President Taft found so clear? No one has discussed it more lucidly than did the youthful Circuit Judge Taft himself in delivering the opinion of the Circuit Court of Appeals in the Addyston Pipe & Steel Co. case,[1] an opinion in which his two associates on the bench, the late Justices Harlan and Lurton, concurred. The rule may be briefly stated as follows:
Every contract or combination whose primary purpose and effect is to fix prices, limit production, or otherwise restrain trade is unlawful, provided the restraint be direct, material, and substantial.
Where, however, the restraint of trade is not direct, but merely ancillary or collateral to some lawful contract or transaction, it is not unlawful, provided it is reasonable, that is to say, not broader than is required for the protection of the party in whose favor the restraint is imposed.
[Footnote 1: United States v. Addyston Pipe & Steel Co., 85 Fed. Rep., 271.]