Story Case

The American Sugar Refining Company, a corporation existing under the laws of the state of New Jersey, was engaged in the manufacture of refined sugar. It was a large corporation and had few strong competitors. To further its control over the manufacture of refined sugar it bought the controlling interest in four Philadelphia refineries. Having acquired control over these refineries, it had a practical monopoly in refining sugar in the United States. It was prosecuted by the United States for the violation of a certain act, passed by Congress in 1890, entitled, "An Act to protect Trade and Commerce against unlawful restraints and monopolies."This act provided that "every contract or combination in the form of a trust, or otherwise, or conspiracy in restraint of trade and commerce among the several states is illegal, and that persons who shall monopolize, or shall attempt to monopolize, or combine or conspire with others to monopolize trade and commerce among the several states, shall be guilty of a misdemeanor."

It was contended, on behalf of the United States, that the combination was in violation of the statute just given. But the company contended that the combination was not in violation of the statute; it insisted that the combination related solely to manufacture, over which Congress has no control, and had no direct relation with commerce between the states. Is the combination a violation of the statute?

Ruling Court Case. Pearsons Vs. Kidd, Reported In The 128th Volume Of The United States Reports, Page 1

The General Assembly of the state of Iowa, in 1884, passed a statute which provided that "no person shall manufacture or sell" any intoxicating liquors in that state. "Every person who shall manufacture any intoxicating liquors shall be deemed guilty of a misdemeanor." The statute further provided that proceedings might be brought in a court of equity to abate any such manufacture as a public nuisance. Notwithstanding this law, J. S. Kidd, the defendant herein, owned and operated a distillery for the purpose of manufacturing intoxicating liquors. Pearsons filed this bill in a court of equity, setting forth the foregoing facts, and requesting that this distillery be declared a nuisance and abated by process of law.

Kidd resisted this suit, on the ground that he was manufacturing liquors, not for sale in Iowa, but for sale in other states and foreign countries. For that reason, he insisted that he was engaged in interstate commerce, and any law passed by the state of Iowa, which interfered with his business, was in violation of that part of the Constitution which provided that Congress shall have power to regulate commerce with foreign countries and between the several states.

Decision: The Constitution, it is true, gives Congress the power to regulate interstate and foreign commerce. But this power is not so comprehensive that it covers the production and manufacture of goods, although such goods may eventually become a part of interstate commerce. In this case, Kidd was engaged only in manufacture, not in interstate commerce, within the meaning of the Federal Constitution.

Mr. Justice Lamar, who delivered the opinion of the court, said in part: "No distinction is more popular to the common mind, or more clearly expressed in economic and political literature, than that between manufacture and commerce. Manufacture is transformation - the fashioning of raw materials into a change of form and use. The functions of commerce are different. The buying and selling and transportation incidental thereto constitute commerce; and the regulation of commerce in the constitutional sense embraces the regulation at least of such transportation. The legal definition of the term as given by this court in the case of the County of Mobile vs. Kimball, 102 United States, 691, at page 702, is as follows: 'Commerce with foreign countries and among the states strictly considered, consists in intercourse and traffic, including in these terms navigation, and the transportation and transit of persons and property, as well as the purchase, sale and exchange of commodities.' If it be held that the term includes the regulation of all such manufactures as are intended to be in the future the subject of commercial transactions, it is impossible to deny that it would also include all productive industries that contemplate the same thing. The result would be that Congress would be invested, to the exclusion of the states, with the power to regulate, not only manufactures, but also agriculture, horticulture, stockraising, domestic fisheries, mining - in short, every branch of human industry. For is there one of them that does not contemplate, more or less clearly, an interstate or foreign market? Does not the wheatgrower of the Northwest, and the cotton planter of the South, plant, cultivate and harvest his crops with an eye on the prices at Liverpool, New York and Chicago 1 The power being vested in Congress and denied to the States, it would follow as an inevitable result that the duty would devolve on Congress to regulate all of these delicate, multiform and vital interests - interests which in their nature are and must be local in all details of their successful management."

Accordingly, it was decided that Kidd was not engaged in interstate commerce within the meaning of the Constitution of the United States, and that his distillery should be abated.

Ruling Law. Story Case Answer

In the case of United States vs. Knight, reported in Volume 156 United States Supreme Court Reports, Page 1, the court said that manufacture is not commerce ; that commerce may follow manufacture. Manufacturing is the change of raw material into some other form; the element of intercourse is lacking. Therefore, manufacture and production are not within the commerce clause of the United States, and are subject to the exclusive control of the states.

The mere fact that an article is manufactured for exportation out of the state does not make its production a matter of interstate commerce; consequently, if a state forbids the manufacture of liquors within its borders, one who manufactures for export cannot claim protection under the commerce clause.

For the same reason, a combination of manufacturers within a state, when their agreement has reference only to the manufacture of commodities, is not a violation of the Sherman Anti-trust Law. The agreement between them must affect commodities in their transportation or sale beyond state lines. The Sugar Company is correct in its contention.

In the Addyston Pipe Company case, reported in Volume 175 United States Reports, Page 211, the manufacturers went a step further than mere production, and became transporters and sellers as well. Therefore, when they entered into a contract to control competition in the manufacture and sale of cast iron pipe, the transactions were held to come within the domain of interstate commerce, and subject to the Anti-trust Laws.