rather far-fetched legislative recitals about its educational character, suggest steam-roller tactics by well-organized interests. It is probably unconstitutional in whole or in major part as an invasion of the power of Congress over copyrights.

The mere fact that legislation is directed toward a particular business or toward a particular practice is no indication that it is inconsistent with the general welfare. Special industries present different problems and it has long been recognized by students of the field that general antitrust laws have limitations not necessarily encountered in like degree in more specific legislation. Nevertheless both legal criticism of the recent waves of legislation and judicial construction of particular statutes cast up by them are promoted by a recognition of the sponsorship and the legislative history behind them. The modern tendency to pass legislation which can be administered to restrict rather than to promote the freedom of the market seems to have been greatly accelerated in recent years.

COMMISSIONS AND BOARDS

Parallelism between State and Federal legislation breaks down with regard to the Federal Trade Commission Act.119 State administrative control has been extended in specific cases such as that of the milk industry, but there is no State trade commission established as an administrative agency to aid in the enforcement of general antitrust laws. Recently two State commissions have been established. The Utah act suggests N. R. A. technique for fostering concerted action by producers under the plea of protecting employment.120 In 1919 Montana designated the Board of Railroad Commissioners to be ex officio the "Montana Trade Commission" with the duty of supervising the business of milling grains.121 It has since been given the mission of administering the so-called Unfair Practice Act, which includes prohibitions of sales below cost 122 and expressly provides for admitting trade association cost surveys as evidence of the costs of individual concerns.123 It would thus seem to be a vehicle for promoting trade association price-maintenance combinations in direct opposition to traditional antitrust policy.

119 38 Stat. 717 (1914) (15 U. S. C. A. (1927) sec. 41).

120 Utah L. 1939, c. 10 naming the State Board of Agriculture to administer the Agricultural Fair Trade Act.

121 Mont. Rev. Codes Ann. (Anderson & McFarland, 1935) sec. 3914 (L. 1919, c. 223, sec. 1).

122 Mont. L. 1937, c. 80, sec. 3.

The statutes collected under the heading of "contracts not to compete" belong to two main classifications widely distinguishable in historical origin and in economic orientation. The phrase "contract not to compete" is very much like the phrase "contract in restraint of trade" and partakes of the same dualism. That is, the oldest contracts in restraint of trade were a particular sort of contract not to compete, covenants not to engage in a trade or calling. The covenantee apparently wished to limit competition with himself, but the public policy drawn in question was preponderantly and almost solely a policy against permitting society to be deprived of the economic activities of a useful member. In the days of an inflexible feudal society such agreements were looked upon as unqualifiedly bad. In a flexible modern society, a covenant against pursuing a particular business does not necessarily deprive the commonwealth of all useful activity on the part of one who has eliminated himself altogether from a given field. In the process of evolution the law early developed the formula that only contracts in unreasonable restraint of trade were invalid, and it later developed increasingly in transactions between manufacturers or traders that restraints most extensive, both in time and in space, might be justified by the needs of a large business operating in a large market.1

A differentiation of secondary importance developed between transactions where both parties were manufacturers or traders, on the one hand, and, on the other hand, transactions where the covenanting party was an employee undertaking not to compete with his master after the termination of his employment. This fact is related to the policy of the Middle Ages only in a very general way. The controlling portion of the social and economic background is not a rigid society which precludes change of employment, but rather a conviction that equality before the law involves a solicitude on the part of the State that the employer not take undue advantage of his bargaining power, which is, in most cases, much greater than that of the individiual employees who enter into the covenants of the sort here in question.

The second major kind of contract in restraint of trade or contract not to compete, which first became a matter of substantial public concern in the last half of the last century, is directed at control of the

1Nordenfelt v. Nordenfelt Co., House of Lords (1894) App. Cas. 535. The elementary history here outlined has been many times developed in greater detail. The cases are, for instance, collected in Oliphant, Cases on Trade Regulation (1925). For text development of the material see McLaughlin, Cases on the Federal Antitrust Laws (1933), Historical Introduction.

market and the public policy violated is the policy in favor of the free functioning of the price mechanism as a guiding factor in economic activity. Repercussions which affect the continuation of the economic activities of individuals may be involved in any case. Nevertheless, the contract not to compete of the antitrust laws arises in an atmosphere quite distinct from the atmosphere of the contract limiting the activities of the apprentice, the retiring partner, or the professional man selling his practice.

The fact that combinations dominating the market on a wide basis, sometimes national or international, grew in part by purchases of the good will of businesses reenforced by contracts by the sellers not to compete, is only one of the connecting links that have caused both of the phrases here discussed to cover two such clearly distinguishable fields. Particularization may develop this point more clearly than further generalities. New Mexico has a statute expressly prohibiting contracts not to compete between railroads. This is clearly a contract of the modern or second type. Consideration for the continuation of the economic activity of the individual seems a far call here. There is no policy against having artificial persons drop out of economic society unless there is some adverse effect upon the efficiency of production, distribution or transportation. The policy here (now largely abandoned in favor of commission regulation) is a policy in favor of relying upon the preservation of competition as a regulator of railroad rates. An Indiana statute particularly prohibiting division of territory by buyers of livestock belongs to the same general class. The same is true of a definition in the general antitrust laws of Texas, that a combination to abstain from business is a trust. Indeed, a large portion of the general antitrust laws could conceivably be classified under the head of "contracts not to compete" because they include prohibitions of contracts in restraint of trade of all sorts, and a particular reference to a contract not to compete is a matter of details of form rather than a matter of substance.

Several States, however, have specific provisions relating to contracts not to compete of the classifical sort. Justice Taft (later Chief Justice of the United States Supreme Court) propounded a useful summary of the common law bearing on this field in a late nineteenth century proceeding." He pointed out that covenants not to

2 See Watkins, Industrial Combinations and Public Policy (1927).

3

As in Diamond Match Co. v. Roeber, 106 N. Y. 473, 13 N. E. 419 (1887).

N. M. Stat. Ann. (Courtright, 1929) sec. 116-704 (L. 1882, c. 59, sec. 1).

Ind. Stat. Ann. (Burns, Supp. 1939) sec. 42-921 (Acts 1935, c. 203, sec. 12). Tex. Stat. (Vernon, 1936) Civ. Code, art. 7426 (7), (Acts 1903, p. 119).

་ United States v. Addyston Pipe & Steel Co., 85 Fed. 271 (C. C. A. 6th (1898)).

compete were always ancillary to a sale, to a partnership, or to an employment. The five classes he listed included covenants by a partner "pending" the partnership not to compete with the firm, and by a buyer not to use property bought in competition with a seller. The legislation here compiled, however, mentions only the three more common types of covenants, by sellers, by retiring partners, and by employees.

8

A North Dakota statute marks a transitional stage in providing that the seller may promise not to compete in a limited territory, for, while the subject matter suggests a restriction of the old-fashioned sort, the purpose seems merely to declare that the policy of preserving competition is not infringed. Legislation particularly mentioning sellers, partners, or employees, however, operates, with such minor exceptions, in the direction of placing narrow limits upon such covenants more arbitrary than any which would obtain at common law. Thus, Louisiana forbids employers to exact covenants restricting employees from entering into competing businesses after termination of employment. This would seem to exclude all such restrictive covenants by employees, since a claim that an employee bargained for the restriction could scarcely be taken seriously. Other States arrive at similar results by declaring all contracts restraining the pursuit of a profession, trade, or business to be void, with certain exceptions only, and including no exception of covenants by employees.10 In a few States restrictive covenants accompanying the sale of a business or the dissolution of a partnership are arbitrarily limited in space without regard to the reasonable needs of the particular business.11 In South Dakota restrictive covenants by employees are lawful only in professions, the practitioners of which are required to be licensed by the law of the State.12

Thus, in several jurisdictions, a laundryman, endeavoring to prevent his drivers from taking his customers with them when they change jobs, would seem clearly to be handicapped. In any event, the policy of such legislation would definitely seem to be a pro-labor policy rather than an antitrust policy.

N. D. Comp. Laws Ann. (1913) sec. 5929 (Civ. Code (1877) sec. 960). La. Gen. Stat. Ann. (Dart, 1939) secs. 4963.1-4963.3 (Acts 1934, No. 133, secs. 1-3).

10

Cal. Civ. Code (Deering, 1937) secs. 1673-1675 (Cal. Civ. Code (1872) secs. 1673-1675); Mont. Rev. Code Ann. (Anderson & McFarland, (1935) secs. 7559-7561 (Civ. Code (1895) secs. 2446-2448); Okla. Stat. Ann. (1937) tit. 15, secs. 217-219 (L. 1890, secs. 886-888).

"S. D. Comp. Laws (1929) secs. 899, 900 (C. L. Civ. Code (1913) secs. 1278-1279); Cal. loc. Cit., n. 10, supra.

"S. D. Comp. Laws (1929) sec. 900 (C. L. Civ. Code (1913) sec. 1279).

III. TYING CONTRACTS AND EXCLUSIVE DEALING

ARRANGEMENTS

Statutes relating to tying clauses and exclusive dealing arrangements are numerous and distinctive enough to warrant their segregation under a special section in the compilation that follows. Their scope and significance, however, can best be discussed in relation to the broader topic of legislation against specific monopolistic or predatory practices. They have accordingly been discussed under that heading at page LXXIV.