ADDYSTON PIPE

1
ADDYSTON PIPE STEEL CO. v. U. S., 175 U.S. 211
(1899)
United States v. Addyston Pipe Steel Co.,
 Circuit Court of Appeals, Sixth Circuit, 85 F.
271  February 8, 1898, Taft, J.

• To the extent that the present decree includes in
  its scope the enjoining of defendants thus
  situated from combining in regard to contracts
  for selling pipe in their own state, it is
  modified and limited to that portion of the
  combination or agreement which is interstate in
  its character. As thus modified the decree is
  affirmed.

2
Two questions are presented  in this case for our
decision First. Was the association of the
defendants a contract, combination, or conspiracy
in restraint of trade, as the terms are to be
understood in the act? Second. Was the trade
thus restrained trade between the states? The
argument for defendants is that their contract of
association was not, and could not be, a
monopoly, because their aggregate tonnage
capacity did not exceed 30 per cent. of the total
tonnage capacity of the country that in this
way the association only modified and restrained
the evils of ruinous competition

3
covenants in partial restraint of trade are
generally upheld as valid when they are
agreements (1) by the seller of property or
business not to compete with the buyer in such a
way as to derogate from the value of the property
or business sold (2) by a retiring partner not
to compete with the firm (3) by a partner
pending the partnership not to do anything to
interfere, by competition or otherwise, with the
business of the firm (4) by the buyer of
property not to use the same in competition with
the business retained by the seller and (5) by
an assistant, servant, or agent not to compete
with his master or employer after the expiration
of his time of service. Before such agreements
are upheld, however, the court must find that the
restraints attempted thereby are reasonably
necessary (1, 2, and 3) to the enjoyment by the
buyer of the property, good will, or interest in
the partnership bought or (4) to the legitimate
ends of the existing partnership or (5) to the
prevention of possible injury to the business of
the seller from use by the buyer of the thing
sold or (6) to protection from the danger of
loss to the employer's business caused by the
unjust use on the part of the employee of the
confidential knowledge acquired in such business.

4
The Addyston Rule

• The contract must be one in which there is a
  main purpose, to which the covenant in restraint
  of trade is merely ancillary.

5
The Agreement

• The defendants, being manufacturers and vendors
  of cast-iron pipe, entered into a combination to
  raise the prices for pipe for all the states west
  and south of New York, Pennsylvania, and Virginia
  
• Some regions were allocated to one company.
  Others were open but
• Under the agreement, every request for bids from
  any place, except the reserved cities, sent to
  any one of the defendants, was submitted to the
  central committee, who fixed a price, and the
  contract was awarded to that member who would
  agree to pay for the benefit of the other members
  of the association the largest "bounus."
• they could fix prices as they chose. The most
  cogent evidence that they had this power is the
  fact, everywhere apparent in the record, that
  they exercised it

6
The Reasonableness Defense

• It has been earnestly pressed upon us that the
  prices at which the cast-iron pipe was sold in
  pay territory were reasonable.
• A great many affidavits of purchasers of pipe in
  pay territory, all drawn by the same hand or from
  the same model, are produced, in which the
  affants say that, in their opinion, the prices at
  which pipe has been sold by defendants have been
  reasonable.
• We do not think the issue an important one,
  because, as already stated, we do not think that
  at common law there is any question of
  reasonableness open to the courts with reference
  to such a contract.
• Its tendency was certainly to give defendants
  the power to charge  unreasonable prices, had
  they chosen to do so.

7
What Happened

• For the reasons given, the decree of the circuit
  court dismissing the bill must be reversed, with
  instructions to enter a decree for the United
  States perpetually enjoining the defendants from
  maintaining the combination in cast-iron pipe
• What did they do?
• They merged. Legal until the Clayton Act in 1914.