Memorandum on Proposed Trust Regulation


Memorandum on Proposed Trust Regulation


Davies, Joseph Edward




1913 December 27


Wilson Papers, Library of Congress, Library of Congress, Washington, District of Columbia


Wilson, Woodrow, 1856-1924--Correspondence




MEMORANDUM OF RECOMMENDATIONS AS TO TRUST LEGISLATION BY JOSEPH E. DAVIES, COMMISSIONER OF CORPORATIONS.--o--I. Legislation to reduce the debatable ground connected with the Sherman law should not change the text of the law, except possibly to increase the criminal penalty. The simplicity, breadth, and comprehensiveness of this organic law should remain intact. Legislation should rather be supplemental.
II. Supplemental legislation:The debatable ground arises by reason of uncertainty as to what constitutes restraint of trade, in the first section of the act, which provides that every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade, is illegal. This uncertainty can be reduced by the following supplemental legislation:

(1)A law that should provide that in any suit under the law wherein it appeared that a contract, combination or conspiracy impaired free competition, that a presumption should arise therefrom that such contract, combination or agreement was in restraint of trade, but that such presumption should be rebuttable, with the burden upon the party claiming it to show affirmatively that such impairment of competition was not restraint of trade.

(2)Certain agreements now definitely and clearly understood should be declared by law to be conclusively a restraint of trade. Some of these might be enumerated as follows:

a Agreements to fix prices.

bAgreements to limit output.

cAgreements to apportion territory.

dAgreements not to sell to certain persons or classes of persons, to prevent competition.eAgreements for exclusive handling of commodities, shutting out thereby independents from certain fields.Such provision should contain the saving clause providing that the enumeration of these specific unfair practices or agreements should not operate to exclude other contracts, agreements or combinations which were in fact unreasonable.

(3)Practices:In addition to agreements, contracts and the like, there are certain well-known practices resorted to, not necessarily by combinations, but by single units, and not necessarily by contracts or agreements, but by conduct, with the object of stifling competition. They should be prohibited and made penal by law. Some of these are:

a The practice of local or temporary underselling to stifle competition.

bThe practice of preventing the local dealer from handling competing articles.

cThe practice of full-line forcing, by which the buyer is required to buy a full line of the sellers goods or none.

dThe practice of exacting special privileges as to rebates or service.

eEspionage, or spying by illegal means.

fDeception or concealment as to true control -- bogus independents.

(4)It should also be enacted that where in any unit it is alleged that there is an agreement or contract in restraint of trade, and any of these practices are proven, that such restraint of trade shall be conclusively held to be an undue or unreasonable restraint of trade or an attempt to monopolize.

(5)Supplemental legislation prohibitive:a Interlocking directorates or interlocking ownership or control, should be prohibited between competing corporations or associations, between industrials and railroads, or between industrials, railroads, banks and insurance companies, with the possible exception as to banks of small capital and deposits.In the interests of stockholders, interlocking directorates should also be prohibted between cognate or integrated corporations or associations, for the reason that stockholders are frequently wronged by having the profits of their company diverted to the interest of the officers, who are interested in subsidiary corporations connected with the parent company. The law should contain a provision giving twelve or eighteen months to bring about this readjustment.bHolding companies and mergers should be prohibited along the lines of the New Jersey Seven Sisters laws, and be made subject, if permitted, to review by a commission analogous to the Public Utilities Commission, as in these laws provided.

cStock watering: It should be enacted that it should be unlawful for any corporation to engage in interstate commerce unless such corporation had received value in either money or property at its true money value, for all stocks and bonds issued by it. This should be rather carefully hedged about, lest an apparent seal of government approval be placed upon an organization which would permit of exploitation in stock-jobbing and promoting schemes.

dSize: If legislation as to size were deemed necessary, it might be treated in a manner which would make control of 40 per cent of the output of the United States, or of such part thereof as a business is extensive in, presumptively an unreasonable restraint of trade, with the burden upon the party alleging reasonableness to establish it.

(6)Supplemental legislation to relieve private parties:a Statute of limitations should be extended.bFindings of fact in the Government suit should be made conclusive of facts in private action by private parties against the same defendants.cFrom my present point of view, I should oppose any provision that would enable private parties to intervene in Government suits or which would enable private parties to invoke equity powers under the Sherman law, by reason of the fact that it might tend seriously to retard and embarrass the Department of Justice.

(7)Administrative supplemental legislation:a Publicity: Some agency of Government should be clothed with the power to exact verified, periodical reports from corporations engaged in interstate commerce, so that there should be disclosed facts as to the kind and character of stock and bond issues; the amount of underwriting and promotion cost; the alleged value, character and kind of property turned in for stock and bonds, and possibly the assessed value thereof; the fact as to whether bonds are automatically convertible into preferred stock; the fact as to whether the company is a holding company, controlling and managing other corporations, or whether it is managed and controlled by another corporation holding its stock; the names of its officers and names of its stockholders; the fact as to whether its officers or stockholders are interested in other corporations; and such other similar data as might be required. Such Government agency should keep this information as a matter of public record and should make public thereof as much as would be consistent with due protection to the business interests in the matter of trade secrets, confidential communications as to credit, etc. So much as could, with due regard to private rights, be made a matter of public record, should be published. The Bureau of Corporations, I believe, has this power now. It has never been exercised and its presenmt appropriation is utterly inadequate to carry it out.bInterstate trade commissions: As analysis of the proposals as to commissions discloses two different and distinct kinds of commissions: one, with the broadest of powers to regulate, even to the extent of regulating monopoly and prices and giving immunity baths; the other with purely administrative power, with an entirely different purpose, to wit: to aid in the restoration of competition and to sustain the Sherman law. It is desirable that there should be a body of administrators who are independent of political exigencies, who are charged with the duty of developing a consistent and definite plan with reference to the relation of Government to industrials, and who would thereby build up a body of administrative rule, procedure and law similar to that which has been developed in transporation by the Interstate Commerce Commission. The establishment of such a commission would be constructive, even though its powers were limited. This idea is closely identified with the best progressive thought of the country, and it would also be received by legitimate business interests with great favor. A large variety of powers are defined by the various bills. There would practically be common ground and consensus of opinion at least as to the first three with reference to the following powers:

(1)Power to obtain reports from interstate corporations, with power of process to obtain information, if necessary, and coupled therewith provisions as to publicity.

(2)Power to act as administrative arm of the court in conjunction with the Department of Justice, or independent thereof, to aid in effecting decrees of dissolution entered by the courts with a provision that such findings shall be, of course, subject to review and approval or disapproval by the courts.

(3)Power to investigate, either upon its own initiative or upon complaint, violations of the Sherman law.

(4)Power, after due hearing had, to make findings of fact and prescribe such reformations as are necessary, and to serve notice on the offending corporation to comply with such findings within sixty days or more, with a provision that upon failure to so comply, facts should be turned over to the Department of Justice.Such a commission does not give power to confer immunity baths, nor would it usurp the function of the courts. By reports and recommendations to Congress, its powers would be enlarged and increased as experience would justify. It would aid business; it would aid in the restoration of competition, and it would furnish a vehicle to give more immediate relief to the general public or to individuals that were oppressed by unfair practices.Practically all of the bills provide that the Bureau of Corporations should be merged into such commission. There seems to be much force in the suggestion.--o--The foregoing powers, with the exception of the last, are such as would, in my judgment, arouse no very decided opposition. My personal views are that such a commission ought to be clothed with broader power, extending even to quasi-judicial functions -- an appointive body subject to recall by two-thirds Congressional vote, and more or less in immediate touch and response to the will of the people, has certain advantages from a progressive point of view to Federal judges appointed for life, in the matter of passing upon economic matters vital to the interest of the country. Moreover, my experience with the action of commissions in Wisconsin commends to my mind the scientific and economic investigations which are characteristic of such bodies, and upon which their findings are based. It seems to me that it is better to have these new and vital problems disposed of on a basis of economic fact and present condition rather than upon what may be an ancient legal precedent and in fact an anachronism.The following excerpt from the decision of Justice Harlan in the case of the Interstate Commerce Commission vs. Brimson, 154 U. S., 474, is most interesting in connection with the idea of an interstate trade commission:An adjudication that Congress could not establish an administrative body with authority to investigate the subject of interstate commerce and with power to call witnesses before it, and to require the production of books, documents, and papers relating to that subjectg, would go far towards defeating the object for which the people of the United States placed commerce among the States under national control. All must recognize the fact that the full information necessary as a basis of intelligent legislation by Congress from time to time upon the subj

Respectfully submitted,
Joseph E. Davies.

Original Format




Davies, Joseph Edward, “Memorandum on Proposed Trust Regulation,” 1913 December 27, WWP18252, First Year Wilson Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.