SOME ECONOMIC ASPECTS OF THE CANADIAN WOODEN MATCH INDUSTRY AND PUBLIC POLICY By lax Douglas Stewart A THES IS Submitted to the School for Advanced Graduate Studies of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Economical 1960 [been-4‘... ABSTRACT The origins of the monopolisation in 1927 of the Canadian wooden match industry were in the main British, Swedish and American. Numerous match producers appeared in the United Kingdom following the invention in 1827 of the modern type of match. A persistent consolidation of firms subsequently developed under the direction of one of the earhy British producers. To overcome financial difficulties, several small Swedish match firms introduced to the industry in that country a most compelling force toward nonOpoly in the person of Ivar Kreuger. He proceeded from a swift achievement of Swedish monOpoly to the cartelisation of much of the world's wooden match industry.- Acting on the observa- tion that the demand for matches as a whole is highly inelastic, many national governments aided the Swedish financier in ultimately acquiring control of three-quarters of the world output, and established for themselves a reliable source of tax revenue. The dominant firm in the United States frequently used merger as a means of growth. -2- Stable "rationalisation" of the industry throughout the world required agreement among the three major match producers.. After a long series of restrictive arrangements, a more formal and comprehensive scheme of market allocation was created in 1927 with the formation of a British monOpoly, which agreed to share the united Kingdom market with the Swedish interests and which held majority ownership in a newly created Canadian match monOpoly. The latter was the means of allocating the Canadian market mostly to the British interests and partly to the American interests. The Swedish interests agreed to withdraw for a cash settlement. . The Canadian monOpoly maintained its position by aggressive attack against new rivals. In recognition of the elastic demand for individual brands, new firms usually offered their matches at lower prices. The monOpolist limited the unfavourable effect on his sales by closing off the distributive channels from the entrants, thereby making unavailable any significant quantity of lower-priced matches from reaching the market. Price main- tenance permitted substantial Jobber profits, which induced dis- tribntors to avoid the products of new firms. The monopolist's profits remained unusually high, even during the great depression of the 1930's. The technological fact that output of one continuous match-making machine is large relative to the size of the Canadian market indicates that oligopoly, not monopolistic competition, might be an alternative market structure. If price wars ensued, rather than price rigidity, the wooden match monopolist, with - 3 - greater financial and productive resources, would more likely survive a price struggle than would new firms. There would likely be either the rigid price structure of an oligcpoly or a tendency to return to monOpoly. Legal success against the monopolist had little economic effect. The fines were small relative to the monOpoly return. The industry structure was unaltered. More caution by the monOpolist, because of his conviction, in buying out rivals might reduce the rate of entry by lowering the prospect of realising a capitalised share of expected future profits. Such expectations appear to have provided some inducement to entry in some instances in the past. Concentration in income distribution, with much of it available to British owners, appears more important than the misallocation of resources in excess capacity. Monopoly power would be curtailed by divestment of the moncpolist's book match facilities. The way of divestiture is not legally open. New tax provisions could capture future excess profits but not achieve lower prices. A crown company could eliminate profits, and lower prices. An alteration of the concentration of income, either by fiscal means or by the device of a crown company seems unlikely. 10 11 13 15 16 CONTENTS Introduction Psrt I: External Conditions -- Industrial, Legislative and Judicial Survey of the History and Technology of the Match Industry Appendix: The "Everlasting" Match The Swedish Match Industry and its world-Hide Ramificstions The Position of Diamond Match in Domestic and International Hitch Production , The British Match Industry and its International Connections The Growth of the Law -- English, American and Canadian -- prior to Anti-Combines and Antitrust Legislation British Judicial and Legislative Process Part II: The Canadian Situation -- Legislative, Judicial and Industrial Canadian Legislative and Judicial Change to the Privy Council Decision of 1921 The Combines Investigation Act, 1923, to the End of Horld Hhr II Canadian Legislative and Judicial Development since 1945 The Formation of the Canadian Monopoly, Price Enhancement, and the quick.Elimination of the first Competitor The Elimination of the second Competitor and the secret Acquisition of its Factory by the “haters of Eddy Match The Acquisition by Eddy Match of its third Rival after an inconclusive Mhrket Struggle The Disappearance through Acquisition by an Eddy Subsidiary of the fourth Competitor after a Period of independent and profitable Operation The Elimination of the last profitable Rival ‘Divers Observations on the Canadian wooden Match Industry Bax v. Eddy Match and Eddy Match v. The Queen 17 Competitive Prospect, Canadian and International 18 Structure and Analysis of the Canadian Industry Appendices Introduction Canadian combines policy began in 1889, when Parliament passed I'An Act for the Prevention and Suppression of Combinations formed in Restraint of Trade."1 the substance, incorporated in 1892 into the Criminal Code2 where it still remains, forms the cornerstone of Canadian anti-combines law. It condemns chiefly conspiracies that I'unduly prevent, limit or lessen" the produc- tion, distribution, purchase or .sale of a commodity, or 'unreason- ably enhance' its price. The statute was at first considered to be mainly dOc1aratory of the common law, creating no new offence, no new Penalty, and merely serving as a warning to potential trans- Bl‘essors.3 Shortly after Parliament's removal in 1900 of the Word 'unlawfully", Judicial opinion held that section 520 of the criminal Code went further than the common law. The new POIition was clearly expressed by Mr. Justice Osler in the mtvllrio Court of Appeal: - 2 - 'The right of competition is the right of every one, and Parliament has now shown that its intention is to prevent oppressive and unreasonable restrictions upon the exercise of this right; that whatever may hitherto have been its full extent, it is no longer to be exercised by some to the injury of others. In other words, competition is not to be prevented or lessened unduly, that is to say, in an undue manner or degree, wrongly, improperly, excessively, inordinately, which it may well be in one or more of these senses of the word, if by the combination of a few the right of the many is practically interfered with by restricting it to the members of the combination." This principle, that an offence lies in conspiring to unduly lessen or eliminate competition, was confirmed by the Supreme Court of Canada in a later civil action. The Chief Justice, Sir Charles Fitzpatrick, also stated more clearly the point that an agreement not unlawful at the common law might be rendered unlawful by the enactment, because of a purpose 'to unduly prevent or lessen competition's I'In effect, clause (d) of section 498 of the Code5 declares in very plain language that an agreement which might in itself be perfectly lawful as made by the parties in the exercise of’the freedom to contract or to abstain from contracting, which the English law has for many years recognised in every individual, is unlawful if the object of the parties is to unduly prevent or lessen competition in an article or com- modity which is a subject of trade or commerce. ... It is not necessary ... that the agreement should be in itself fraudulent or otherwise illegal; and all agreements which prevent or lessen competition do not come within the operation of the statute; the mischief aimed at is the undue and abusive lessening of competition which operates to the oppression of individuals or is injurious to the public generally."6 Later decisions have supported the emphasis on the suppression of competition by conspiracy. Accepting that the section does extend beyond the common law, Chief’Justice Harvey of Alberta held that it nevertheless did not ban an arrangement . 3 - 'merely'to buy out a competitor completely.‘ There was no agree- ment between persons remaining in the trade to limit competition, and the vendor was left free to continue in competition with the purchaser, if he so chose.7 successor to two earlier pieces of legislation,8 the Combines Investigation Act, 1923,9 duplicated in part the Criminal Code provisions, provided more severe penalties, established a continuing enforcement agency, and broadened the scope of anti- combines policy to include both l'mergera, trusts or monopolies, so called, which have operated or are likely to operate to the detriment or against the interest of the public,‘ and I'con‘bines which have operated or are likely to operate to the detriment or against the interest of the public, and which result from the purchase, lease, or other acquisition by any person of any control over or interest in the whole or part of the business of any other person.‘ A subsequent trial Judgment placed a narrow interpreta- tion upon the clause concerning the acquisition of another business by any person. The various acquisitions involved were held not to be in contravention of the Act either because they had I'but small effect' on the trade or because there was no “common purpose between the buyer and the seller acting in a concerted and unlawful way as required in the case of an illegal combine."m Since there was no cross-appeal by the Crown in this case, the widening of the scope of anti-combines law was for the moment more apparent than real. The suppression of competition . D l ' I ‘ . ' v v I . ‘ . . I ‘ ‘ O . s . ‘ ‘ D I7 x ‘t I. O ' Q r e ‘ -. ‘ 1 V I O I _ . . . . v I O .. J I e , e~ I l . . , . ' , ‘ ‘ ' . ‘ ' 'e . a A . ~ ‘ w , e a - ~ \ ‘ I I _ . ,v ' . I e ‘ 1 a: .- - - _ A ‘ ‘ ., , A a l , V 4 - ' . . a V r k . a '. ‘ ‘ r ‘ . , ~ I ‘J ' '. J A ' ‘ i . r a . . I I ' ‘ . -. , . I . , . a ‘ a s A 6 ' ’ . ‘ , . ‘ A . ‘ a. > . u ‘ \ ' . ‘ e .7 . . . _ 1 . V- f r A it . I m I‘ r '7 Q ‘ D e ‘ C‘ e I r . . . ._ . . i , ' . u I" v I ‘ a" t 'N ‘ - a - 4 - by conspiracy, principally among oligopoliets, remained the central theme of Canadian anti-combines activity. An amendment, in 1935, differentiated more clearly the two main avenues to private control of competition, the way of’the conspirator and the way of the monopolist. Their frequent cross- ing was, perhaps, implied by the inclusion of both descriptions in one section of the statute and by calling either offence a I'oombine", but they were now distinguished.11 The significance of the distinction was to develop as further cases were brought to court under the lot. i study of the Canadian wooden match industry is of special interest for several reasons. Firatly, the industry illustrates clearly the interdependence between national monopoly and international cartel arrangements, the two concentrations of economic power tending to reinforce each other in their mutual restraining or eliminating of competitive market forces.12 "From the beginning of the twentieth century, the world's three leading match producers have had a series of close associations with one another for the purpose of restricting competition, on national markets and in international trade, in the production and sale of latches."13 International agreements preceded and led up to the fermation of a monopoly in the Canadian industry. Secondly, that monopoly was convicted, in 1951, on the charge that the firms involved had I'been parties or privies to or knowingly assisted in the formation or operation of a combine within the meaning of the Combines Investigation Act, to wit: -5- a merger, trust or monopoly which ... substantially or completely controlled throughout Canada, excluding lewfeundland, ... the business of producing, manu- facturing, supplying or dealing in wooden matches, ... which merger, trust or moncpoly has Operated or was likely to operate ... to the detriment or against the interest of the public, whether consumers, producers or others.‘ Mr. Justice Bienvenue summarised the basis of the conviction thus: “By acquiring all the competing industries and placing them under its control, defendant Eddy Match Company, Limited thus formed a combine, a trust or monopoly as defined in the above-mentioned Act. This defendant acted in such a way, with the control it exercised in fact in every part of Canada, with the exception of Newfoundland, that it would have been practically impossible for a new firm to establish itself in this trade. It has been established that those who were engaged in this trade were dislodged from same, defendant Eddy enjoying all the privileges attached to a monopoly.“ 5 The extensive use of predatory and aggressive practices to remove competitors lent considerable support to the conclusion that the control possessed was 'likely to cperate to the detriment or against the interest of the public.“16 The case, therefbre, may not be decisive in that more possession of substantial or complete control of a particular class or species of business, in the absence of 'unfair practices" to gain that control, may not be condemned as against the public interest. Finally, the Eddy Match case affords a clear demonstra- tion that the imposition of penalties permissible under Canadian anti-combines legislation has been vigorous in comparison with the rare and seemingly reluctant use of any of the remedies involved. Parliament has nevertheless added significant new remedies, as well as the possibility of more stringent penalties.17 There is . .m. C \ a . ' . 1 . 9 . e . 4 .aQIIJEHT‘O 3n‘.1" . 6 - a useful opportunity both to examine the effect of the judicial decision, governed as it was by more limited legal provisions than those presently prevailing, on the economic structure of the industry, and to appraise the feasibility, in analogous cases, of making use of more severe penalties and the range of remedies now available in order to effect a significant change in the particu- lar industry, so as to create a market structure more closely approximating that of free competition. Some improvement in Canadian combines policy may iresult from greater penalties, making "the punishment fit the crime.‘ There is, however, more prospect of enhancement in the judicial admission of amalgamation in the role of at least a minor villain in the suppression of competition, and in the judicial use of’a remedial approach18 to the problemnof departures from free competition. 1. 2. 3. A. 5. 7. 8. 9. 10. ll. 12. 13. 14. 15. 16. - 7 - (1889) 52 Victoria, c.41. (1892) 55-56 Victoria, c.29. The preamble to the 1889 Act reads, "whereas it is expedient to declare the law .... Both N. Clarke wallace, sponsor of the legislation, and the Minister of Justice gave assurance that no new offence would be created. See Canada, ngates, gggge of Commcgg, ipr.8, 1889, p. 1113, and Apr.22, p. 1438. Rex v, Elliott (1905) 9 0.L.R. 656 at 661. Section 520 was renumbered 498 in Reviged Statutgg Q; Canadg, 1906, c. 146. Egidmsn v, Shraggg (1912) 46 8.0.3. 1 at 3. Sigwayi v, Thogp! (1917) 36 D.L.R. 752. Combines Investigation Act, (1910) Statutgs cg Canagg, 0.9, and The Combines and Fair Prices Act, 1919, and The Board of Commerce Act, (1919) Statgtes of Canada, c.45 and c. 37. (1923) Statutes cg anadg, c. 9. 3;; v, Canadian Impgri Company et a . (1934) 61 C.C.C. 114. (1935) Sigtgtgg c; Canadg, c. 54. nggda egg Internatioggl Cartels: in Inquiry into thg lgtgre and Effects of International Cartels and other Trgdg Combinations, Report of Commissioner, Combines Investigation Act, Ottawa, 1945, p.1. 'Report on Restrictive Business Practices in International Trade,“ Economic and Soci 1 Council Official Records: lineteenth SessionI Supplement NoI 21; E72675, New York: United Nations, 1955, p. 13. The three leading producers are the Swedish Match Company, Bryant and May, Limited, of the United Kingdom, and the Diamond Match Company of the United States. Edd Match Com Limit 6 t 1. (1953) 104 c.c.c. 39 at 40. m v, fig: thh Company, Limited et a1. (1953) 101 0.0.0. 39 at 59. gggy flgigh Qggpggy, Limited et g1, v, The Queen (1954) 109 C.C.C. 1. 17} 18. -8- Court injunctions against the continuation or repetition of an offence and court orders for dissolution are permitted. Fines are now in the discretion of the court. See (1952) Statute; of Canada, c. 39. In Re ina v Good e Tire and Rubber Com a of Canada, Limited et a1. (1953) 107 C.C.C. 88, Mr. Justice Treleaven issued an order prohibiting the continuation or repetition of the offence to which the parties pleaded guilty. Part I External Conditions -- Industrial, Legislative and Judicial Chapter 1 The first century of the modern wooden match industry ended in the year of the formation of the Eddy Match Company in Glands. That event eliminated competition among Canadian match producers. It was characteristic of developments in the industry throughout the world, and displayed clearly the influence of the w<31'Il.d's chief match manufacturers. They were involved in complex interrelated arrangements and agreements, both national and international. Although the finance of the industry had been developed partly in connection with technological changes, the eObnomic condition of the match industry with its strongly Ionopolistic elements was created primarily for its own sake. TOchnical change did establish limits and provide particular °PPOrtunities. A survey of the technological progress in the I'lltlfacture of matches will enhance understanding of the economic 1-"Plications of the seising of these opportunities, as they Proeented themselves, by means of complicated financial 9(illnactions and numerous trading agreements. - 11 - Several chemical discoveries preceded the first important mechanical advances that were achieved. John Walker, a nineteenth century druggist of Stockton-on-Tees, Durham, England, is usually considered to have begun the modern wooden match industry. A sale of his "friction lights" or "Congreves. is first reported in his records on April 7, 1827.1 Those nonphosphoric matches, using a mixture of the active ingredients of potassium chlorate and antimom sulphide, are properly deemed to be "the lineal ancestors of twentieth century matches."2 They were of the strike-embers type, ignited by being drawn across glass paper.3 Because the Durham inventor neglected to obtain the protection of a patent, |‘Lucifers" soon appeared in imitation of his idea.‘ The ignition of these various early matches continued to prove difficult. It was found that it could be improved by the addition of free sulphur to the composition of the match head, and made even more effective by the use of white or yellow phosphorus; Charles Seuria of St. Lothair, France, created the first ~ Phosphorus match in 1830, by replacing the antimony sulphide of the Congreves with phosphorus.6 A second pioneer's neglect to Obtain a patent led to the wide-spread use of Sauria's discovery. The United States patent for the process was obtained in 1837 by Alonso Dwight Phillips, a powder maker in Massachusetts.7 The Phosphorus used was a lethal form, although many decades were to Pfles before its use was generally prohibited. Especially among latch workers, numerous cases of phossy jaw or necrosis of the - 12 - mandible resulted. The earliest reports and descriptions of the disease appeared in Austria in the eighteen forties.8 At the as. time, Anton SchrUtter of Austria, R. Bb'ttger of Germany and Gustav Peach of Sweden were introducing nonpoisonous amor- phone phosphorus as a substitute in match-making for the poison- oum white phosphorus. Because the nontoxic red phosphorus was impregnated in the rubber, whereas the white phosphorus was part of the composition of the match head, this change marked the first appearance of a safety match.9 The LundstrSh brothers were then operating their small match factory in JonkSping, Sweden, where one of them, Johan Edvard, is credited with hving carried out the first successful production 0f the new safety match in 1855. Evidence of its quick acceptance 1- found in the i-ediate acquisition of rights to the Lundstro'm Process by F. lay of Bryant and May, an English match concern. 1'here were more than forty million of these safety matches used in England during the following year, 1856.10 The manufacture of nfety matches was to remain essentially European until the nineteen twenties.n The first step in the production of nonpoisonous strike- “V'Hhere matches came in 1861., when G. Lemoine prepared sesqui- In:l-Iahide of phosphorus. Sevens and Cahen took out a French P'tent, which the pioneer Lemoine had neglected to obtain, in 1398 on the sesquisulphide compound.12 The United States rights “Ore purchased two years later by the Diamond Match Company for 911. hundred thousand dollars, and a British licence was obtained - 13 - by Bryant and May.13 The formula proved inefficient in the United States because of differences in climatic conditions. However, Hilliam A. Fairburn, who was to become the president of the Diamond Match Company in 1915, had successfully adapted the I'seslqui“ formula to American conditions by the end of 1910.14 The granting of a United States patent in 1851 to an I.H.Smith in Massachusetts for a continuous automatic match- making machine15 seems to establish American priority in the mechanisation of the industry. There was nevertheless almost simultaneous advancement in the use of a continuous machine in the manufacture of matches in both Sweden and the United States.16 llexander Lagerman of Jehkdping devised a match-making machine in 1372. Slight alterations have been introduced subsequently." The match-making machine on which the United States patent was floated in 1888 to Ebenezer Beecher was fundamentally the Present-day high-speed continuous machine.18 The elimination of white phosphorus in the production of _ Htches is an interesting semitechnical aspect of the creation of th! industry in its modern form. The Finnish prohibition of “hits phosphorus matches in 1872 marked the beginning of their ”fither'slow elimination. Taxation eradicated them in 1905 in RI13min. The following year an international convention against “hits phosphorus matches was signed at Berne, Switzerland. The British White Phosphorus Match Prohibition Act of 1908, becoming 'ffective in 1910, made phosphorus sesquisulphide available to '11 match manufacturers upon payment of reasonable royalties to - 14 - the patent holder. A tax of two cents per hundred matches, im- posed in the United States in 1912, was prohibitive. The Diamond Match Compaq, at the urging of the President of the United States, deeded its sesquisulphide patent to the public.19 The modern technological characteristics of the wooden match industry had thus come into being by the second decade of the twentieth century. British, American and Swadish interests had played dominant r81es in the development. These same interests played equally vital r81es in the financial and economic evolution of the industry, which is the more direct concern of this study. -15.. Appendix to Chapter 1 In 1929 and throughout the 1930's in numerous countries, including Sweden, Great Britain and the United States, various I patents were issued covering repeatedly ignitable matches.1 In spite of denials by at least the British and American members of the world's match triad that such matches have ever met with am commercial success, stories about ”everlasting" or re-ignitable matches have persisted.2 There have been allegations that they have been kept off the market by blocking patents at the instance of existing match producers, which have been stated in the British House of Lords.3 Before werld War II re-ignitable matches were manufac- tured in Switzerland and Holland, and in a factory of J. John Masters and Compam', Limited, in the United Kingdom. The last named comparw had been a subsidiary of the Swedish Match Company before becoming a part of the British Match Corporation. The British product was claimed to have been a source of "complaint ind adverse comment," although a United States Department of Justice official declared that the manufacture of the “ever- 1eating" match "was commercially successful in Holland and Switzerland.” Patents covering repeatedly ignitable matches, which °°u1d conceivably represent an important advance in match tech- mflogy, were issued to three main groups: an Austrian Dr. Ferdinand Ringer, the Hungarians Dr. Zoltén rbidi and Mr. R6283 - 16 - xdnig, and the Swedish Match Company. The Swedish Match Comparv purchased the Ringer and F61di-K3nig patent rights during the 1930's. Others obtaining patents included Knut E. Olsson and Hans Goldberger and Heinrich Roller. It was reported after Uorld Mar II that a Jugoslav engineer had invented a 1. inch match, compared with the Ringer 3 inch stick, that could be ignited 100 times, using a new chemical discovered in a Zagreb laboratory. There were few details in the report.6 By a 1935 agreement with the Swedish Match Company, Bryant and May assumed 15 per cent of tin Swedish company's costs incurred in research and patent acquisitions with respect to the 'everlasting' match. Patent costs accounted for more than half the total expenses. Up to February, 1950, Bryant and May had paid to Swedish Match under the agreement a total of £7,586. Bryant and May opposed, unsuccessfully on both occasions, British patent applications of Dr. Ringer in 1929 and 1930 at the sugges- tion of the Swdish Match Compaq, and during the war on independent action because of the fear that wartime communications light delay tbs receipt of the wishes of the Swedish concern.7 without necessarily accepting the claim of Dr. Ringer that news of his “everlasting" ntch had so depressed the price Of Kreuger shares that there ensued the financial embarrassment Vhich brought Ivar Kreuger to his suicide, it has been establish- .6 that the Swedish Match Company did attach sufficient importance to his patents to purchase them in 1936.3 In connection with the United States suit filed in - 17 - 1944. the viewpoint of the Diamond Match Company was manifestly out- lined in a document discovered in that company's files. 'The patents have not so long to run and if it becomes a marketable commodity by our pushing it, once the patents are out - as in the case of book matches - it would be a fertile field for the rotten- est kind of competition. It is to be hoped that if the item is not put out and pushed by a strong manufacturer, no one else will take it up even after the patents expire.‘ Patents are by no means the only barriers to innovation. Events in the autumn of 1933 offered a succinct reply to Diamond's allegation 'thst in September 1933 Diamond sent one of its officials to Budapest to in- vestigate the claims made for the rdldi and Kdnig invention. It was found that the development of said rod was still in an experi- mental state and that no patents had been granted.‘ Events moved niftly forward, and the Swedish Match Compamr purchased the Foldi- IBnig patent rights for all countries except Czechoslovakia, Austria and flblland in October of 1933.9 The affair was in safe hands. O Although the complaints made no specific plea regarding patents, the impressive technological possibilities of the "ever- lasting' match had struck the United States District Judge with such force that he decreed on this matter at some length. Defendant The Swedishhflatch Company is hereby (A) Directed to grant to any applicant making written request therefor an unrestricted and royalty- fres license to make, use and sell any product or pro- cess, directly or indirectly, relating to everlasting or re-ignitable matches or their manufacture covered by United States letters patent or patent applica- tions, including all divisions, continuatione, ”I - 13 - extensions or reissues of such patents or patent applications owned or controlled by said defendant on the date of the entry of this judgment, including, but not limited to, the following: . ms. see. 2,015,383 - Fdldi and Ko'nig 2,093,516 - r31a1 and K3111; 1,903,838 - Ringer 1,941,621 " Ringal' 2,059,807 - Ringer (B) Enjoined from instituting or threatening to institute suits for patent infringement or suite to collect royalties which.are based upon any of the United States letters patent or patent applications, including all divisions, continuations, extensions, or reissues of such patents or patent applications owned or controlled by said defendant on the date of entry of this Judgment, referred to in subparagraph (A) hereof. Defendant The Swedish Match Company is hereby directed to issue to any applicant making written request therefor, an unrestricted and unconditional grant of immunity under foreign patents or applications for foreign patents corresponding to the United States letters patent and patent applications referred to in ‘ Paragraph 12 hereof, to import into, and to sell or use, and to have imported, sold or used in, any country, any match product made in the United States. Defendant The Swedish.Match Company is directed to grant to any applicant therefor a non-exclusive, non- assignable and unrestricted license to make, use and sell, save for a uniform reasonable royalty, under any patented invention of The Swedish Match Company, its subsidiaries, successors, assigns or nominees, con- ceived within five years after the date of entry of this Judgment relating to everlasting or re-ignitable matches. Any applicant for such license who fails to agree with The Swedish Match Compaq upon a reasonable royalty mny apply to this Court, after notice to the Attorney General, to determine the reasonable royalty for such license. Since the 1946 Consent Decree, Swedish Match has granted at least 44 royalty free licenses regarding re-ignitable matches. The three granted outside the United States went to applicants in Portugal, Canada and the United Kingdom. The rights under these licenses do not appear to have been exercised.11 - 19 - Diamond's appraisal that an innovation such as the "ever-lasting" match requires active promotion by a strong pro- ducer would seem to have been realistic. The 191.6 Consent Decree might best be described as having achieved a modest modification of the world-wide monopolistic structure of the wooden match industry. That basic structure was not seriously weakened. Without a more thorough reconstruction of the match industry, the assessment of the conduct of the world's leading match producers with regard to technological change by the senior United States official actively involved in the antitrust case might continue to be most pertinent. 'The defendants suppressed inventions and improvements in the match art. By the acquisition of patents controlling the 'repeating' or 'everlasting' match, the defendants have been able virtually to suppress its production and use.'12 i'I X . ~e ' 1 '4 ,. 4‘. 99. 1°. 11, 12, 13, 'Mhtch.‘ EncycIOQaedia Britannica, 1952, vol. 15, p. 46. .M.F. Crass, Jr., 'A History of the Match Industry," Journal 9f Chgmiggl Education, Mhr., June, July, Aug., Sept., 1941; Mar., p. 118. Archibald Clow and Han L. Clow, The Chemical Revoluti , Batchwcrth Press, London, 1952, p. 453. ,lh;geg pa ‘53s Crass, Mar., p. 119. .1219.- M- Crass, June, p. 277. TMatch.' Encyclgpgegia Britangigg, 1952, vol. 15, p. 46. 191d. Archibald Clow and Man L. Clow, p. 454. cr'lI, SCPte, pa 428s 610", pa ‘S‘e Cress, July, pe 316s John Missenden, "The world's Match Industry,“ Chgmigal Trggg Jggggal egg Chemical Eggipger, Aug.29, 1924, p. 240. ”Match" W. 1952. vol. 15. p. 46. Crass, July, p. 316. Missenden, p. 240. C. Ainsworth Mitchell, TMatches,‘ in Geoffrey Martin, t ial Ma u actu Ch t , Sixth Ed. rev. by Wilfrid Francis, Part II Inorganic, vol. 2, Technical Press, London, 1954, p. 452. Cress, July, p. 316. lbymond Kirk and Donald F. Othmer, ed., Encyclopgdia g; C i o o , vol. 8, Interscience EncyclOpedia, law York, 1952, p. 820. 'Match.' Encyclopaedia Bgitannicg, 1952, vol. 15, p. 46. Steuart M. Emery, 'Our Lowly Match Has Rounded Out a Century,“ Igw £21k Tings, Nov. 27, 1927, I 5:8. Cress, Sept., p. 430. mm. “Match.“ Weenies. 1952. vol. 15. p. 46. Di 0 A Re rt fer the Investor, Blyth and 00., Inca, 00t. 1955, ppe L'Se 155. 165. 17'. 153.. l€9e 3. 4. o 21 - Crass, Aug., 1941, p. 380. Repgrt on the Supply and Egport of Matches and the Supply of Mgtch-thigg Machingry, MonOpolies and Restrictive Practices Commission, H.M.S.0., London, 12 May, 1953, p. 34. Isaac F. Marcosson, “The Match King," Saturday Evening ngt, OCte 29, 19299 p. ‘e Crass, Aug., 1941, p. 383. Crass, Sept., 1941, pp. 430-31. Appendix to Chapter 1. i Stat s o Amer ca v The Diamond Match Com n et a1. April 9, 1946 Civil No. 25-397, U.S. District Court, S.D.M.I., Complaint, per. 103; Answer, par. 103. British Match Report, per. 104. £hamiaa1_ihairaaia. 1933. '01- 27. p- 2531- ---- ---- , 1934, vol. 28, cola. £866, 3236. 4236. 314. ---- ---- , 1935, '01. 29, OOIe 7660a ---- ---- , 1937, vol. 31, cols. 2824, 8202. ---- O... , 1939, VOle 33, 001.. 3160, 6600s Civil No. 25-397, Answer, per. 103. Pgrligmentary Debates, Rouge of Lords, 29 Apr111948, col. 584. British Match Report per. 110. Chem a1 (Londons, "Match Industry in the U.K.,' Mny 23, 1953, Pa 7 e Hendell Barge, Cartels: Challenge to a Free World, Public Affairs Press, Washington, D.C., 1944, p. 190. British.Mhtch Report, para. 104, 108. Chemical Abgtrgcts, loc. cit. M w York Time , April 19, 1949, p. 27. British Mitch Report, para. 104, 107, 112-13. British Match Report, par. 108. Mgw Iorkgr, Oct. 11, 1947, pp. 28-29. British Match Report, per. 105. Civil Mo. 25-397, Complaint and Answer,par. 104. Barge, p. 191. 10. 11. -22- Civil No. 25-397, Complaint, Prayer; 12‘14. British.Match Report, per. 115. Barge, p. 186. Judgment, pars. Chapter 2 The LundstrSm brothers accomplished much at J3nk3ping that assured Sweden. an important position among the match Plxhducing countries of the world. Johan Edvard's new safety latch, placing nontoxic red phosphorus in the rubber, and their associate Alexander Lagerman's match-making machine were signifi- cant technical contributions. There was a valuable asset in the country's large stands of suitable timber. Carl Frans had begun °P0ning export markets as early as 1850 with sales in the United Kllrrgdom. Bryant and May became the sole agents in 1854, when they “Ore dealers in matches but not yet manufacturers;l The Ilnndstrdh's newly organised JShkSping Tandsticksfebriksaktiebclaget °Ontinued the pioneering in large scale overseas distribution, Vhich was eventually to play a dominant rdle in world markets. They introduced Swedish matches to Germaq at that time as well.2 Ifln spite of the strong position of the J3nk6ping company, small llatch factories proliferated throughout the country. Three of those plants in the town of Kalmar on the Baltic were to become gSpecially significant in the monopolising of Swedish match t ‘t . m m . ,_ ,. v . ,. V . . t 0 . 1 1 .e ~ . . r 7. . . . f . \ . I... \ e s V ‘ a q .. e s ‘1 I .a . I w a a . '9 . a . 'l . r . . ‘ , e. r I . . . ' . ' , e e , \ fl' ’) ‘7, I , . . . . r m .“ ‘1‘, q ' " - 24 - production.because a Peter'B. Kreuger merged them in 1874. He was the grandfather of Ivar Kreuger who was to exert a pervasive influence in the industry by the end of World war 1.3 In 1903 the J8nk8ping company and six other large Swedish match concerns amalgamated to form the J6nk6ping och Vulcan undstickfabriksaktiebolaget, which was to the Swedish mtch business what the United States Steel Corporation had become to the American steel business. The capital stock of the new Ilium was seventeen million kroner.‘ Japanese manufacturers were nndorselling in the Indian market, which had been first pre- 3imrted by Swedish exporters. The Japanese enjoyed a great advantage in lower freight charges to India. It was hoped that the new combine, presenting a solid front, would be more Offective in this rivalry.5 During this period the young engineer Ivar Kreuger was ranging the earch in a variety of Jobs. His earliest stay in the 0fitted States had included a visit to the New York Stock Exchange 9‘ the time that J. P. Morgan was assembling the vast United Steel Corporation. He returned in the year of the J8nk6‘ping-Vu1can .Orger and played an hportant part in the construction of the uchbold Stadium at Syracuse University. That project aroused his interest in a new material, reinforced concrete, and led him to take the opportunity of representing Julius Kahn, “her of special iron rods used with the concrete, in Europe. He learned in London in 1907 that a Swedish engineer, Paul Toll, had ‘lready requested the European agency. The two men quickly - 25 - decided to Join forces in Stockholm as building contractors. That was the modest beginning in 1907 of Kreuger and Toll, a firm which would later exert great influence in the world's wooden match industry and have world-wide ramifications in financial circles.6 The introduction of American methods into the Swedish tnmilding trade brought the firm immediate success. Paul Tell concentrated on construction and Ivar Kreuger devoted more and lore of his time to securing contracts, raising capital and lmunching branch offices in Finland, Russia, Germaq arm the rest or Scandinavia. In 1911 the original firm became purely a con- tracting concern called Kreuger and Toll Building Compaq and lhBeuger and Tell itself became a holding company with a share capital of one million kronor. The incorporationlof A.B.Kreuger 3nd Toll stated its objectives to be 'to conduct contracting and building operations and similar business as well as to manufacture and sell building material. The Company mny in connexion with its affairs acquire shares in other concerns as in- vestments, but it may not carry on,a regular trading business in securities.‘ The divergent interests of the partners had now taken form in distinct companies. Expansion was rapid. By the time the Ilhar‘es of A.B. Kreuger and Toll were listed on the Stockholm Stock Exchange early in 1914 its capital had been successively increased to three million kroner. During the previous year Stockholm bankers, holding Iortgages on the three plants of his father's floundering match business in Kalmar, had asked Ivar Kreuger to study the situation - 26 - in Kalmar. Re analysed the entire Swedish match industry and con- cluded that the ruin threatening the industry arose from the existence of too many small factories and the resulting excessive undercutting of prices. His report led the Stockholm bankers to request him to reorganise the family business. After hesitating a week or so he consented to enter the family business. Retaining majority control of A. B. Kreuger and Toll, Ivar Kreuger left its active management in the hands of Paul Toll for.the time being. Be made clear his approach to the industry at a dinner celebrating his appointment as managing director of the Kalmar concern. A match box in hand, he declared 'that a trivial increase of one-eighth of a cent in the factory price of a box of matches would add millions in income and harm no one.8 he was at least exploring the alcheq of monopoly profit. ‘ within two years of his return to Kalmar, Ivar Kreuger had combined about ten independent Swedish.match concerns in the United Swedish Match.Pactories, Limited, sometimes known as the Kalmar Trust. world Mar I continually increased the seriousness of two problems, the loss of export markets and various shortages of raw materials. The larger J3hk3ping-Vulcan combine found these difficulties becoming critical. The creator of the Kalmar Trust, on the other hand, installed modern equipment, closed some small plants and enlarged others, acquired domestic sources of important raw materials, and promoted overseas markets by using his Kreuger and Toll branch offices to find outlets in “ - 27 - eastern Europe and by hiring men in London to locate western European outlets. The first foreign plant was established in Harvey. Kalmar Trust's profits were rising dramatically at the mane time that the Jankh'ping-Vulcan combine was facing an immed- iate lack of vital raw materials.9 In preparation for the end of the struggle between the two combines, the share capital of Kreuger and Toll was raised to six million kronor in 1917. The mlalgamation of the two groups formed the new Swedish Match Compaq (Svenska Tindsticksaktiebolaget), capitalised at 45,000,000 kronor, of which six million were held by A.B. Kreuger and Tell.10 The Swedish Match Company, having achieved self- mufficiency before the end of the war, was now what its creator called I'the vertical trust to the last degree."11 The policy of overseas expansion continued after the war with the active involvement of Kreuger and Toll, which had Previously been concerned primarily with Swedish building, real 0State and match manufacturing. Its capital was again increased in 1918 to sixteen million kronor, the stock being first placed on the market after the declaration of a twenty per cent dividend. The following year two Stockholm banks provided Ivar Kreuger with 60,000,000 kronor for the world expansion of Swedish Match interests on his personal guaranty alone. That same year he founded the American Kreuger and Toll Corporation with a capital- isation of $1,000,000, which was increased to $6,000,000 in 1920 and to $7,000,000 in 1923. A.B. Kreuger and Toll retained only a controlling interest in the new company; selling the rest of the - 28 - stock in the United States. Ivar Kreuger had begun the inter- national financing of his enterprises.12 Rapidly expanding business organizations have a voracious appetite for funds. The Kreuger and Toll capital was raised in 1921 to 28,000,000 kronor. Confronting a World War I legacy of trade barriers and a pattern of state monopolies that had first appeared in France in 1872, the Swdish Match expansion began in Belgium, Austria and Czechoslovakia in Europe and in recapturing the Indian market in Asia. A combined enterprise with the largest Japanese producer was undertaken, that concern being subsequently brought under the control of the Swedish Match comm.” The creation of the International Match Corporation in the United States in 1923 opened much wider access to American funds. It also brought about the direct entry into Canada of Swedish Match interests. The International Match Corporation ‘cquired the Match Company, Limited, of Berthierville, Quebec, "hich had been established by Rockefeller interests. The company hfid started business in the production of match splints, beginning the manufacture of matches in 1922. The name of World Match cOrporation, Limited, was assumed when the firm was bought by Iver Kreuger through International Match in 1923.14 The formation in 1925 of the Swedish American Investment Corporation, capitalised at 845,000,000, transferred an important part of the financing of A.B. Kreuger and Tell to the United States. The new company received shares in the Swedish Match - 29 a Company, American Kreuger and Tell, and a real estate subsidiary. A.B. Kreuger and Toll took on 76,000 shares. There was a further increase in the capital of Kreuger and Toll in 1927 to 50,000,000 kronor, and 'B“ shares, carrying only 1/l,000 vote, were intro- duced on the London Stock Exchange. There was now developing an enormous flow of funds chiefly through the sale of securities of the International Match Corporation and of A.B. Kreuger and Toll in Sweden, England, the United States, Holland, Switzerland, Germaq and Belgium under the auspices of a most impressive group of bankers, including Lee, Higginson and Company, Brown Brothers and Company, Dillon, Read and Company, N.M. Rothschild and Sons, Rape and Compaq, 11.7. Hollandsche Koopmansbank, Sociétd de Banque Suisse, Union Financihre de Genhve, Deutsche Bank, Dmrmstidter and Rationalbank, Socidte’ de Belgique S.A., and Hutuelle Solvay S.A. The prices received were as much as five t1." the face value.” To aid his machinations Ivar lreuger needed several leans of transferring the large sums obtained in the United states to Europe without any close scrutiny of the transactions. 3- formed two companies under the uninquisitive laws of s\Iiiitserland, Pinans Gesellschaft ft'i'r die Industrie (Socie'te’ Financihre pour 1' Industrie) and the Continental Investment Corporation. Bryant and May, Limited, had some interest in the former cOIpaq until 1927.16 The latter company was soon trans- ferred from Zurich to Vaduz, to take advantage of the even more congenial legal atmosphere of Liechtenstein. Many otter companies - 30 - were created to enlarge the complexity of the activities of Kreuger; the above were more significant with respect to the match interests.” Ivar Kreuger used the vast sums he raised to make loans ‘t<> a number of’national governments. That the amounts were of much a magnitude was clearly seen in connection with the ensuing bankruptcy in the final auditors' report of 1935 by the Stockholm office of Price, Usterhouse and Company, which stated that A. B. Kreuger and Toll and its many associated companies had raised $724,000,000 between 1917 and 1932, from which Ivar Kreuger had diverted to his own personal use without any accounting an amount of $110,000,000.18 The usual agreement in return for a six per cent loan was a government granted monopoly to the Swedish Match Company, generally covering both production and distribution. It P11371606 for profit-sharing between the government and the Swedish Hatch Company. That resulted customarily in a twelve per cent total 1“come to the Kreuger interests.19 What the users of matches got 18 perhaps best expressed in Kreuger's own words, "excellent Mtchee and the price is fixed."20 Although there were earlier loans and absolute monopolies had usually resulted, the ”5,000,000 loan to France in 1927 may be taken as illustrative of ‘reuger'e technique. The Swedish.Match Company obtained a semi- Ionopoly in what had been hitherto the closed French market, living been granted a monopoly in match-making machinery and allowed to import under Swedish Match labels and to establish Swedish Match selling agencies.21 During the same year Swedish 4“ 4 .. 31 - Match and British interests in the United Kingdom and other parts or the British Commonwealth, including Canada, were consolidated.22 Within five or six years the private financing of many governments achieved for the Swedish Match Company control of the ntch trade in over forty countries, including Greece, Peru, Ecuador, Estonia, Latvia, Hungary, Jugoslavia, Rumania, Poland, Dansig, Lithuania, Guatemala, and Turkey, and important interests in France, Germany, Japan, the United Kingdom and other parts of the Commonwealth.23 Important trading agreements with American latch producers had existed for many years,24 and. it was reported at the time of Ivar Kreuger's death in 1932 that he had been striving for a match monopoly in the United States.“25 It was later held that he had virtually completed his scheme to mono- polise the match factories of the United States and alumna.“5 Whorever a government loan did not appear feasible, Ivar Kreuger would buy out existing concerns or arrange for a division of the lltch business. The estimates of the extent of Swedish Match Coapany control ran as high as 75$ of the world's output.27 In ‘ddition to the sprawling match empire and the obfuscating network 03 secret financial companies, A. B. Kreuger and Toll had consid- “table interests in A.B. Svenska Kullagerfabriken (S.K.P.), Telefonaktiebolaget L.M. Ericsson, the original engineering con- struction business, sawmills, sulphate pulp, power, iron ore, gold, silver, copper, real estate in several countries, and banking in a number of countries.28 The entire complex was a monument to its builder's ”insatiable itch for wealth and power.'29 - 32 . The magnitude and scope of its activities led one writer to cite it as the example of the high finance of the twenties. writing about Usdnesday, October 23, 1929, when the Times industrial average fell from 1.15 to 381., J.K. Galbraith noted, “the papers that night went to press with a souvenir of a fast departing era. Formidable advertisements announced subscription rights in a new offering of certificates in Aktiebolaget Kreuger and Toll at $23330 The following week the gturgg 31!;ng Pogt prominently displayed the views of Ivar Kreuger on monoply, which are worth noting in some detail. I'It is my firm conviction that big business constitutes one of the chief agencies for economic progress in the world today. In order to realise this it is only nec- essary to look at the wonderful industrial and commercial development which has taken place in the United States during recent year, and which, to a large extent, has been caused by the mass production made possible by the constant growth of the industrial concerns in that country. "The danger of a trust misusing its position in order to extort unreasonable prices for its products from the consumer is much exaggerated in the public mind. low- adays public Opinion constitutes a very effective protection against any abuse from big business. It must be borne in mind that the larger the enterprise, the greater will be the difficulty for it to conceal any essential facts regarding the conduct of its business. "With regard to international trusts it may be said that they are under such strong observation and are so vulnerable to public opinion that they cannot afford to expost themselves to justified criticism in regard to their price policy. I consider it to be the primary duty of big business to effect economy in the manufacture and distribution of its goods, and to give the public part of the benefit of such economy, but I consider it only fair that the giher part of such benefit should go to the shareholders." Recalling the final auditors' report is sufficient - 33 . comment on the ”strong observation” of international trusts. It is interesting to note the immediate Journalistic reaction to Ivar Kreuger's suicide on March 12, 1932, in Paris as a parry to his quoted remarks concerning the strong protection of public cupinion. There was a British reference to him as a financier of governments, primarily an industrialist seeking stable markets for matches.32 A French article called him a man who '. . . a vecu dans une fibvre continuelle, échafaudant sans cease de nouvelles affaires, étendant surs l'univers entier l'emprise de ses trusts et des ses sociétés, banquier des nations, martyr de la fortune dont il avait été l'artisan, mais dont il n'etait plus 1e maitre. Un Jour est venu oh, dans la crise mondialg, l'ddifice a creque, l'ensevelissant sous ses ruines." Thatwas a far cry indeed from public scrutiny of abuses. Once the incredible extent of his fraud began swiftly to unfold, there was expressed a new concept of Ivar Kreuger as I‘le plus grand escroc du sibclefl'y‘ A later recapitulation of the affairs of his billion 5011" empire suggested the following division of interests:35 Kreuger and Tell, $400,000,000 Heterogeneous operations, $570,000,000 Match operations, $365,000,000 (Swedish Match Company, $140,000,000) The widespread moral or at least intellectual bankruptcy, which had permitted the financial bankruptcy to assume such proportions, lakes the proximate cause of the empire's dissolution of special ilport. In connection with a preposed acquisition of Kreuger's telephone holdings by the International Telephone and Telegraph Company, J.P. Morgan and Compaw had insisted upon a proper audit,36 an almost unique event in the annals of the Swedish Match h . . (II: . I- O . 1 D . O ‘ O. C .. 1 . I, I. \ a e . xiv 1 vi .1 ‘v . ‘ p. 4 . ex - 34 .. Compaq and its affiliates. The rapid collapse of Kreuger's empire after his suicide entailed the quick evaporation of many almost fictitious holding companies. They were simply sets of books in trusted employees' homes. Many of the sound enterprises among his holdings passed :inmo the control of separate groups. The structure of the Swedish Hatch Company, which had come so close to a world monopoly, proved most durable. Its reorganisation, with the capitalisation 'vigorously reduced to one quarter -- 90,000,000 kronor, was swiftly consummated before the end of 1932. It had quickly become evident that many of the monopoly grants would lapse if the Swedish Match Company did not continue. The bankruptcy proceedings of the International Match Corporation in Manhattan soon revealed that there had been an extensive penetration in the American match market, allegedly unknown to the dominant firm in the United States, the Diamond Mhtch Company. The newly organised Swedish Match Company, with headquarters moved to Jflhkhping, had representatives of the British Match Corporation, an affiliate, on its board of directors, and an executive of S.K.F. as the chairman of its executive committee.37 In the fall of 1933 the security holders and creditors of A.B. Kreuger and Tell, the Swedish Match Company, and the International Match Corporation commenced working in harmony and suspended their legal actions against one another. Their mutual benefit seemed best served by retaining the entire group of match nonspolies in one system and by preventing the bankruptcy of the - 35 - Swedish Match Company. Three years later it was announced that the company, at an extraordinary meeting in J3nk8ping, had in- creased its share capital to 117,500,000 kronor, thereby setting tap the means to acquire the match-making facilities held by the bankrupt International Match Company and A.B. Kreuger and Tell. Nearly 1,100,000 "B'| shares were bid for all the European, except Turkish, assets. Almost 900,000 of these shares plus $8,500,000 ‘wmme offered for the EurOpean assets of the International Match Corporation and its Philippine properties. The expected result ‘was to be the consolidation and strengthening of the position of the Swedish.Match Company. It could hardly be less. The formal offer was made on May 15, 1936, at 1:50 p.m. New York time. Preferred stockholders of the International Match Corporation raised two specific objections: the likelihood of Kreuger being alive and the undue favouring of the Swedish Match Company. The second objection was surely more than a flight of fancy. Advertisements describing the intended sale appeared in newspapers in Amsterdam, London and Paris. There was no other bid. Setting aside a sum for the objectors, Oscar U. Ehrhorn, the referee in bankruptcy in the United States, approved the preposal as part of a comprehensive settle- ment. Unsecured claims were scaled down by $171,008,138 and secured claims hy $16,156,112. The secured claims then amounted to $49,390,031 and the unsecured to $48,003,141. An interesting contrast presented itself between the American and Swedish handling of certain claim alleging a measure of culpability. Claims against e r‘\ - 36 . former International Match directors, including $31,416,534 against the estate of Percy A. Rockefeller, the nephew of John D. Rockefeller who had sold Xreuger a Canadian match factory in the 1920's, and $100,000,000 against the estate of S.F. Pryor, totaling $150,000,000 were settled out of court for $1,500,000. Claims of 15,000,000 kronor against Ivar Kreuger's brother, Torsten, were settled by payment of 1,100,000 kronor ordered by the Supreme Court of Sweden. A six minute fifty-one dollar trans-Atlantic telephone talk between the Irving Trust Company, 1 Wall Street, and the Enskilda Bank of Stockholm completed the $12,776,079 exchange.38 The International Match estate then held the entire stock of the American-Turkish Investment Corporation, which manufactured matches under a Turkish monopoly agreement, non- interest bearing notes of the Turkish Republic of $14,255,598 face value, discounted at $7,427,257, and the entire stock of the Vulcan Match Company, which had been the Swedish Match Company's sales subsidiary in the United States and which held all the canon shares of the Union Match Company and 61.95 of the common shares of the Federal Match Corporation. The proceeds of the sale to Swedish Match added to the holdings of the estate because of its ownership of the Liechtenstein concern, the Continental Investment Company, which had become the direct owner of many of the overseas properties of the Swdish Match Company.39 A Turkish bank bid of $2,500,000 for the Turkish assets was rejected in the face of a bid for all the remaining assets, “ - 37 - except the sures of Union Match and Federal Match. *These assets, trith.the exception noted, were purchased fer $7,250,000 by a liermuda company established for the purpose of carrying out an (arderly and gradual liquidation of the assets to protect holders cmf International Match Corporation participating preferred shares. They inclined the Vulcan Match Company's cash balance of $1,500,000, largely created by the separate disposal of the Union Match and Federal Match stock. Referee Ehrhorn had rejected the Bermuda company's bid of $800,000, because a bid of $996,000 was made by an Irving Reynolds of Manhattan. Strenuous efforts were made to link him with some American match firm and approval of his purchase was delayed. No connection was established at the time and his purchase was approved."0 Because of the denials of both Reynolds and various match companies that any American company was interested in his purchase, it is significant to note that the affair is described in a Fortune article in 1939. In 1937 Diamond Match Company distributed to its stockholders the stock of the Pan- American Match Corporation. The son of the vice-president of the Diamond Match Company had been made secretary of Pan-American 'to keep an eye on things for Diamond." One of its subsidiaries was the Federal Match Corporation which was stated to have been 'bought in the Kreuger bankruptcy by Irving Reynolds, acting for Pan-American."1 The durability of the monOpolistic empire of the Swedish Match Company is dramatically outlined by its reported condition at the end of 1936. There were subsidiaries in Norway, Denmark, ....- .U I. I. - 33 - Finland, Estonia, Latvia, Lithuania, Poland, Danzig, Germany, liolland, Belgium, Gt. Britain, France, Switzerland, Austria, Iiungary, Rumsnia, Jugoslavia, Egypt, India, Ceylon, China, the Philippines, and Japan. Other interests were held in Gt. Britain, .Jugoslavia, Australia, Guatemala, Nicaragua, Colombia, Peru, Chile, ‘the Argentina, and Brazil. Contrasting with the loss of 522,791,360 kronor in 1932 at the time of the Kreuger debacle, the ‘following table of profits for the Swedish Match Company demon- strates the strengthening of its position that was achieved during the liquidation: IEAR PROFIT (kronor) 1933 4,403,413 1934 3,625,670 1935 11,198,737 (partly 1934 earnings received in free currencies) 1936 12,826,888 1937 14,323,903 1938 14,318,484 1946 17,767,882 1551 11,611,789 1952 10,777,495 1953 13,000,000 The company was described in 1938 as having match-making interests in more than thirty countries with about one hundred factories out of a total of one hundred and fifty subsidiaries. The combined annual output was given at 450,000,000,000 matches, with its Swedish annual output at 90,000,000,000. The Swedish Match Company remains an important element in the world's wooden match industry."'2 One of its annual reports after the reorganisation r. - 39 - anxpressed what was apparently the continuing philosophy of (speration of the Swedish Match Company: "The company is also «cooperating with most of the more important independent match manufacturing concerns in the world, and this contributes to the stabilisation of market conditions, with beneficial results to all parties.“3 SWEDISH MATCH INTERESTS IN THE UNITED STATES, TIE UNITED KINGDOM, AND CANADA 1903 1915 | merger merger Kreuger and Toll Building Jonkoping- Kalmar r 1907 { 1911J Vulcan Trust I IN\ 1?: ‘41,— \ / Kreuger and Tell , \ / 1 9 1 1 Diverse Holdi ; Com-miss : Match Interests: I International M Corp | I Sociéte' . 150 subsidiaries I Financiere Vulcan M Co J before 1932 and I " ‘‘‘‘‘‘‘‘‘ after reorganisation; I Continental Maw Iork M Co Investment 75 subsidiaries ' Corp Transamerican M Corp after World War II E l I i as ._ J. -y Bryant : I and -—--' May I ‘2—_—J I \ I I World 63% Match : Corp \J’I I ll \ Eddy l Match : Co .J merger b: 1927 1" l . ‘Vlo I '—50$ Match I Dominion Match Co - \ ', _161.?! Federal Match Co . 4 9 1 CV 111‘ 1" ... .. \U new AV etrd elv Us . u Ht 2' I 1:: ”new! 0 e e O O 11. 13. 44. :5. (5. 17. 93. II). III. 1:2. 1&3. 15. 16. 17. 18. - 41 - figport op the Supply and Export of Matches and the Supply of Match-Making Machinery, MonOpolies and Restrictive Practices Commission, H.M.S.O., London, 12 May, 1953, par. 20. Isaac F. Marcosson, “The Match King,“ Saturday EveningiPost, Oct. 29, 1929, p. A. Marcosson, p. 233. Allen Churchill, The Incredible Ivar KreUger, Rinehart and Co., New York, 1957, p. 78. Marcosson, p. 233. cerhill, ppe 57-9e Ernst Dyberg, Martin Fehr and E. Browaldh, Report of thp Liquidators of A,B, Kreugar and Toll, Centraltryckerist, Stockholm, 1932, pp. 3-4. British Match Report, par. 22. Marcosson, p. 234. New 10 k Times, July 24, 1932, VI, p. 2. Marcosson, p. 234. Report of the Liguidatogp, p. 4. Marcosson, p. 234. Marcosson, p. 237. kmlrt 0! tin LigUidator', ppe 4-5e “al.0058011, pa 237s Churchill, p. 98. Matches: Investigationfiinto an Allegeg:Coppine in thp Manufactpre._piptribution and Sale of Matches, Report of Commissioner, Combines Investigation Act, Ottawa, Dec. 27, 1949, pp. 8 and 14e Repprt of tpp Liguidatorp, pp. 5-6 British Match Report, para. 23 and 31. Churchill, pp. 124-7 ' s1 0 vestm ts: Banks Insuranc Co anie Inve tment T usts a1 Estate. Finance gnd Credit Companies Moody's Investors Service, New York, 1935, p. 2118. 159. :21“ 2&2; 333. :35. 26. :r7. 28. :39. I30. 231. .32. 133. 34. 35. 36. - 42 - K.L. Austin, ”Ivar Kreuger's Story in Light of Five New York Times, Mar. 7, 1937, IV p. 6. 1339,, Oct. 28, 1929, p. 1.1.. Years," Marcosson, p. 238. British Match Report, par. 30. Canadian Match Report, p. 15. Economist, Mar. 19, 1932, p. 637. New York Times, Apr. 28, 1933, p. 32. N w York Times, May 6, 1932, p. 25. New York Times, Mar. 7, 1937, IV p. 6. Time, October 28, 1929, p. 43. Isaac F. Marcosson, "Europe and America: An Interview with Ivar Kreuger,“ Saturday EveningpPost, Apr. 2, 1932, p.3. Eppnomipt, Mar. 19, 1932, p. 636. Alfred Plummer, Ipternational Combines in Modern Industgv, Sir Isaac Pitman and Sons, London, 1951, p. 51. J.K. Galbraith, The Great Crash l 22, Houghton Mifflin, Boston, 1955, p. 103. New York Times, Oct. 24, 1929, p. 29) 1929’ P0 242. 19, 1932, p. 615. 26 Mars, 1932, p. 39. Marcosson, Oct. Economist, Mar. L'Illustration, 370. L'Illustration, New York Times, 30 Avril, 1932, p. 534. Apr. 17, 1932, p. 5. Mar. 7, 1937, IV p. 6. Mar. 13, 1932, p. 1. New York Time , New Yogk Times, Churchill, pp. 236-9. Proctor H. Hansl, Years 0; Plunder: A Financial Chroniclefipg Ou Times, Harrison Smith and Robert Haas, New York, 1935, in Chapter'lx, "The Hoax of the Centuries.” ‘Max Hinkler, "Playing with Matches: The Rise and Fall of Ivar_Kreuger,' The Nation, May 25, 1932, p. 590. O.G.V. (Oswald Garrison Villard, Ed.), "The Failure of Big Business," The Nation, May 25, 1932, p. 586. l‘ 3‘5. 377. 3E3. 3%). AI). 41. 42. o 43 - (continued) Jehn H. Huorinen, "Kreuger's Vanished Millions,“ Current fiistogy, May, 1932, pp. 241-2. New York Times, Sept. 28, 1932, p. 27. , Nov. 30, 1932, p. 27. , DOC. 4, 1932, II pe 5e , Apr. 28, 1933, p. 32e , Sept. 22, 1933, p. 27. Sidney Hertzberg, "Aftermath of the Kreuger Crash,“ Current Histo , Nov., 1933, p. 240. Moody's Manual of Investments: Ipdustrial Securities, Moody's Investors Service, New York, 1934, p. 2494. Churchill, p. 118. New York Times, Apr. 23, 1935, p. 3. U ......C... New York Times, 1 3 New York Times, May 24, 1935, p. 31o Feb. Apr. Apr. 29, 1936, p. 29. 23, 1936, p. 33. 28, 1936, p. 29. May 15, 1936, p. 37. May 26, 1936, p. 35. June June June July June Apr. June July July Jan. Feb. July July 6, 1936, p. 23o 17, 1936, De 35s 19, 1936, Po 29. 14, 1936, p. 1. 9, 1938, p. 33. 28, 1936, p. 29. 6, 1936, p. 230 13, 1937, p. 27. 21, 1936, p. 30. 28, 1937, p. 36. 59 1937, p. 29. 30’ 1937, ppe 25 and 290 31, 1937, p. 19. Aug.4, 1937, p. 36. Aug. 21, 1937, p. 19. July 29, 1939, p. 24. ......V ”Diamond Match.Company; its sphere of influence covers 90 per cent of the industry,“ Fortune, May, 1939, p. 173. Maggy's Manual of Investments: Industrial Securities, Moody's Investors Service, New York, 1937, pp. 3241-2. New ngk Times, June 23, 1933, p. 30. , June 7, 1934, p. 41. July 3, 1935, p. 23. , June 6, 1936, p. 28. , June 10, 1937, p. 33. , May 29, 1938, III p. 3. , June 13, 1939, p. 40. .9 I. . . . - . . 1 i - —e .... . . .— . . .- .. . . -. .- ..- _ A e -9 -. 4 - .. -44- 42. (continued) Moody's Manual of Investments: Indpstria1_§ecurities, Moody's Investors ServiceS New York, 1948, p. 2539. 9 TE Times (London June 6, 1953, p. 10. COCO , May 26, 1954, p0 11. The Sweden Year-Book 1228, Almqvist and Wiksells Boktryckeri A.B., Stockholm, 1938, p. 175. 43. New York Times, June 10, 1937, p. 33. Chapter 3 The bankruptcy proceedings, especially those concerning the International Match Corporation, following the suicide of Ivar Kreuger on March 12, 1932, which revealed a great deal of informa- tion relating to the world-wide Operations of the Swedish Match Company, disclosed also considerable detail about the Diamond Match Company and its many interests throughout the match industry in the United States. The light cast upon the activities of the three chief match concerns of the world in a 1944 United States Complaint against the Diamond Match Company, The British Match Corporation, Svenska TEndotickn Aktiebolaget, and Others, is not everywhere perfectly clear. Many of the allegations were neither proved nor admitted, the case concluding in 1946 in a Consent Decree.1 It is fortunate that the wealth of material made avail- able by the Canadian Eddy Match case2 and by the British Report of the Monopolies and Restrictive Practices Commission3 provides confirmation of several significant points in dispute. An amalgamation of ten of the largest match producers in the United States in 1880 created the Diamond Match Company of - 46 - Connecticut, a predecessor to the present-day Diamond Match Company of Delaware. Five more companies were brought into the combination before the end of the year.4 Its purpose, reported to 'be the termination of senseless destructive competition, was clearly stated in 1889 by Chief Justice Sherwood of the Supreme Court of Michigan: 'Its object was to monopolize and control the business of making all friction matches in th country, and to establish the price thereof." Its control of the industry was virtually complete by the end of 1880. In buying up the preperty of independent match manufacturers the Diamond Match Company obtained a contract from the seller that he would not enter into competition for a period of twenty years. After inveighing against monopoly in such terms as "destructive of free institutions" and "repugnant to the instincts of a free peeple,' the Supreme Court of Michigan, in handling a dispute with regard to one of these restraining contracts, could but declare that both parties stood ip pap; delicto and therefbre could not look to the courts for the enforcement of the restrictive terms.6 It was the year before the enactment of the Sherman Antitrust Act of 1890. working relationships were established by the three principal match manufacturers at the beginning of the twentieth century. Finding no purchaser for the British patent rights on its new continuous match-making machine, the Diamond Match Company began the manufacture of matches in the United Kingdom in 1895 at a large factory in Liverpool. Bryant and May, Limited, the - 47 - leading British producer, soon realised that the new process,. ‘which was reported to use only twenty-five per cent of the hand { labour needed in other processes, endangered its predominant jposition in the British industry. In 1901 Bryant and May and the 'British Diamond subsidiary entered into an agreement whereby Bryant and May acquired the rights and assets of the British Diamond company and, in return, the Diamond Match Company acquired 54.5} of the share capital and almost the entire voting stock in Bryant and May. They agreed at the same time to a division of markets. Diamond would abstain from the manufacture or sale of matches anywhere in the British Commonwealth, except British Colonies in North America and the West Indies, and Bryant and Mby would abstain from manufacture in North America and the Nest Indies, and would limit exports thereto to the value they had attained in the previous year.7- Although the Diamond Match Company alleged that, at its request, the agreement was modified in 1911 and cancelled in 1914, it appears rather that the 1901 Agreement was replaced in 1914 by an agreement which imposed no restriction on the overseas manu- facture or sale by Bryant and May, but which required Diamond to continue to hbstain from manufacture in those areas, which had been previously allocated to Bryant and May. The Monopolies and Restrictive Practices Commission of the United Kingdom considered that the 1914 arrangements remained binding on the parties in 1952.8 Most of the United States interest in Bryant and May was acquired by British shareholders, so that by 1920 it amounted to 4 - 43 - about one-eighth of the voting stock. That was exchanged in 1927 for slightly more than five per cent of the voting stock of the IBritish.Match.Corporation, a consolidation embracing 95% of the ;production in the United Kingdom.9 William A. Fairburn was a director of Bryant and May from 1915, when he became the President of the Diamond Match Company, and a director of the British Match Corporation from.the time of its inception in 1927. The records of the Eddy Match Case revealed that the President of the Diamond IMatch Company kept in touch with officers of Bryant and May and participated actively in the management of the Eddy Match Company, of which Bryant and May was the principal stockholder. That somewhat blunts the sharp implication in the allegation that William A. Fairburn never attended a directors' meeting of either Bryant and May or the British Match Corporation.10 Marking arrangements with the Swedish Match Company started in 1903 with.sn agreement that made the Diamond Match Company the exclusive selling agent in the United States for strike-on-box matches produced by the Swedish Match Company, its predecessors or affiliates. With the possible exception of the period from 1917 to 1920, when the newly created Swedish Match Company was carrying out aggressive expansion in what was perhaps an example '. . . of internal cartel diseension, particularly between the two leaders of the American and Swedishgroups,"11 the exclusive agency agreement was in effect at least well into Hcrld war II. Negotiations in 1920 between Hilliam A. Fairburn, President of the Diamond Match Company, and Ivar Kreuger, '4 - 49 - Managing Director of the Swedish Match Company, resulted in a memorandum agreement, referred to by Mr. Fairburn as "the Peace Treaty with the Swedes.‘ The exclusive selling agency was to continue for ten years, but was later extended to the end of 1935. It was then continued on a three months' basis. The consequent promotion by the Diamond Match Company of the sale of Swedish Match products was described by an emplqyee of Diamond as 'depressing and killing business on our own brands.“ Prices were apparently determined on behalf of Swedish Match by the Vulcan Match Company until 1932 and subsequently by the New Yerk Match Company. The arrangements survived the suicide of the head of the Swedish Match Company. Although allegedly on purely economic grounds, the Diamond Match Company did, in 1925 or 1926, dismantle its facilities at Savannah, Georgia, for the production of strike-on-box matches. That curtailment could nevertheless have been brought about in compliance with the alleged requirement of’the 1920 Memorandum Agreement that the Diamond Match Company tirastieally reduce its manufacture of strike-on-box matches.12 The 1927 Trading Agreement between the Swedish Match Company and Bryant and May, J. John Masters and Company and the British Match Corporation is pertinent with regard to the withdrawal by Diamond from various South American markets. It provided for a division of overseas markets. The British Match Corporation and its associates were confined to the British Uominions and Colonies outside Asia and to the South American countries of Argentina, Brazil and Colombia. In 1923 the Diamond - 50 - Match Company had sold its interest in a Brazilian match firm, Companhie Fiat Lux, to Bryant and May, thereby enhancing the latter company's position in the Brazilian market. The sale of Diamond's interest in a Colombian match manufacturer in 1928 to Bryant and May left that company and the Swedish Match Company the sole stockholders of Compania Fosforera Colombians. Regardless of the alleged reasons fer these transfers, the sales of stock by Diamond were in complete harmony with the existing Swedish- British understandings.13 The entire network of agreements, some parts of which were neither admitted nor proved in the United States Consent Judgment, among the three main match manufacturing firms in the world covered market allocations, reserving many national markets exclusively to one concern and dividing others by quotas, price fixing, Joint ownership and Operation of match-making facilities in some countries, and various other forms of eliminating ccmpetie tion such as exclusive agencies and the arbitrary curtailment of both manufacture and international trade. By the Consent Judgment of.April 9, 1946, the defendants, including the three chief producers, were severally and Jointly enjoined and restrained from participating in any restrictive arrangements, and from carrying out or reviving any of the understandings alleged or known to have been established in the past.14 Nevertheless the activities of the dominant American match producer have "more than maintained its industry position in wooden matches."15 Its sphere of influence apparently - 51 - comprises from 83116 to 90%17 of the total production in the United States. The widespread influence of the Diamond Match Company can be readily illustrated by an examination of several intercorporate relationships that were built up after World War I. It is significant also to see that the Swedish Match Company has played at least a remarkably catalytic rBle in the advancement of the Diamond Match Company's power. Until 1929, the Diamond Match Company owned 80$ of the stock of the Berst-Forster-Dixfield Company, the sole producer of square stick 'strike-on-box' matches in the United States. From 1929 until 1947, Diamond held 491 of the stock. The William Gordon Corporation, controlled by trustees for the sons and grandchildren of William A. Fairburn, President of'Diamond, owned the other 51$. That interest was acquired by Diamond in 1947, and the Berst-Forster-Dixfield Company was merged into Diamond. The intimate connection of the William Gordon Corporation with Diamond is demonstrated by a letter from the auditor of the Diamond Match Company to the treasurer of a Canadian match company. August 6, 1935. Mr. Philip B. Reyes, Treasurer, Commonwealth Match Co. Ltd., St. Johns, Quebec, Canada. Dear Mr. Reyes: As you.know, we have been sending you, through U.C.P. a credit memo for $600.00 monthly, to cover certain items with which you are familiar. Please be advised that beginning with the month of August U.C.P. will send you a credit memorandum - 52 - monthly for $135.00. This will be an estimate to cover half of Conway's salary and expenses. Beginning with the month of August, you will please pa: in cash Charette and Label $150.00 each per month. The William Gordon Corporation will send you each month, in re- imbursement, a check for $300.00. If, in any month,‘you do not receive check from William Gordon Corporation, due tO'temporary delay on account of inability to get signatures, please obtain the needed cash from Commonwealth, as a personal advance, and make payment to the two men in question, regularly and consistently each month. In the event that it becomes necessary for you to obtain these funds from Commonwealth, that company will be reimbursed by the William Gordon Corporation. YOurs very truly, (signed W. W. Howe) WWHARM . Auditor. P. A. Conway, who had formerly been the Vice-President of Columbia Match and, before that, the Sales Manager of World Match, was then in charge of sales for the Commonwealth Match Company. label and Charette had been associated with the Canada ‘Match Company, which was at that time an ostensibly independent concern. J.W. Charette was the original President of Canada Match, and after his resignation acted as a nominee of the Eddy Match Company in holding Canada Match stock. It was established that U.C.P. referred to Uniform Chemical Products, Inc., a wholly- owned subsidiary of the Diamond Match Company. The closely work- ing harmony of interests between the Diamond Match Company and the William Gordon Corporation would seem to ensure that the jointly owned Berst-Forster-Dixfield Company would scarcely be at odds with Diamond's policies. - 53 .- The pervasive community of interests between the Beret- ForaterbDixfield Company and the Diamond Match Company merits a further illustration. A statement of the Eddy Match Company discloses an informative series of stock transfers, which took place at the end of 1929. At the creation of the Eddy Match Company Mrs. L. R. Fairburn received from the Canadian Match Company 681 shares of the common stock of Eddy Match, which were apparently included in the transfers of the following year: December 9, 1929 - W. A. Fairburn to Mrs. L. R. Fairburn, 1634 Common December 10, 1929 - Mrs. L.R. Fairburn to Westways { Investment, Inc., 2315 Common December 11, 1929 - Westways Investment, Inc., to Beret- Forster-Dixfield Co., 2315 Common December 16, 1929 - Berst-Forster-Dixfield Co. to B. C. Snead, 2315 Common Mr. Fairburn was the President of the Diamond Match Company and Chairman and Managing Director of the Eddy Match Company. Mr. Snead was Corporation Counsel of Diamond and Deputy Chainsan and Deputy Managing Director of Eddy.18 The Diamond Match Company seemingly used without difficulty the Beret-Forster-Dixfield Company as a facilitating agent to transfer, and to accomplish the shift with an interesting subtlety,nominal ownership of shares of stock in the Canadian company. An amalgamation in 1923 of nine American match companies created the Federal Match Corporation. By 1929, Ivar Kreuger had acquired 61.95 of the common stock of Federal and the entire common stock of the Union Match Company. The latter company had been purchased on behalf of Kreuger by the Treasurer of Union, who delivered the stock certificates to F. Atterberg, - 54 - the Vice-President of the International Match Corporation and the President of the Vulcan Match Company, the American sales subsi- diary of International. Federal took over the Union plant, running it at 25-305 of capacity. Diamond's annual report for 1931 asserted that Swedish Match's purchase of Federal should have no effect on Diamond. That a significant change in viewpoint took place within a few years was revealed hy a transaction involving the bankrupt International Match. Diamond brought about the incorporation of the Pan- American Match Corporation in 1937 and distributed its stock as a dividend to the stockholders of Diamond. The Federal and Union holdings were found among the assets of the Vulcan Match Company, the appraised value of the American companies being $1,328,000. Irving Reynolds, partner in the Manhattan law firm of Madge, Stern, Williams and Tucker, submitted a bid for these properties. Efferts were made without success to link him with some American latch.company. After these efforts failed and both Reynolds and various companies issued disclaimers, the referee in bankruptcy approved the sale of the stock in Federal and Union for $996,000 and the controlling shares were delivered in his own name. It was soom.obvioua that Reynolds had been acting for Pan-American because the company obtained the Federal and Union stock in the same year. The allegation that Pan-American and its successor, the Universal Match Corporation, was an active competitor of Diamond is best met quickly by the fact that, in 1937, the son of Diamond's Vice-President Howard F. Holman, Richard A. Holman was v‘ - 55 - nade Secretary of Pan-American "to keep an eye on things for I)iamond.' Federal and Union were merged in 1939 under the Federal 'name, and the remaining stock was acquired by Pan-American in 1940. In 1937 and 1938 Pan-American obtained a majority interest in the Universal Match Securities Corporation, which held the stock of the than existing Universal Match Corporation and the West Virginia Match Corporation. The two Universal companies merged under the name of the Universal Match Corporation. The balance of its stock was acquired by Pan-American in 1910, at which time Federal, Universal and West Virginia became operating units of Pan-American and were subsequently dissolved. A year later the name was changed to the present Universal Match Corporation, held to be the second largest match manufacturer in the United States.19 N A Canadian holding company, the Ledburn Company, was incorporated in 1933, acquiring a thirty per cent interest in the Commonwealth Match Company and a substantial holding in the National Development Company, a Delaware corporation. Some of the original shareholders of Ledburn pointed up the widening interests of Diamond. 0f the 7,127' outstanding shares, the following were of particular interest: 1183 shares - John G. Daniel, Vice-President of North American Match 3551 shares - R. I. Lundquist, Industrial Management Engineers 1204 shares - P. B. Keyes, Vice-President and Treasurer of Commonwealth and formerly with Diamond Match in California . 56 - 3 shares - W. F. Reynolds, Jr. subsequently with Uniform Chemical Products and later Purchasing Agent of the Diamond Match Company That Diamond was the beneficial owner of the Ledburn holdings was seen from the fact that Diamond supplied the funds for Ledburn's Imurchase. That Diamond controlled the Operations of both the Ledburn Comparw and the Commonwealth Match Company was. demonstrated ‘by'directives sent to Mr. Keyes from B. Chandler Snead. A paragraph from a letter of July 19th, 1931., to Mr. Keyea from John C. Sebright of the office of B. Chandler Snead, is illustrative: ‘ "I am enclosing herewith the entries for Common- wealth and Ledburn, as prepared by Mr. Rowe, and call your attention to his instructions respecting the charge to Commonwealth and the refund to the D.M. Co of the $300.00 exchange cost." The purchase of the Ledburn stock in 1935 by a new Canadian holding company, the Hilton Company, represented no real change in ownership. The President, Hilton S. Pedley, 'a friend of Mr. Fairburn's,' had been at one time employed by the Swedish Match Company in Japan and subsequently by the Diamond Match Company to carry out a survey of the Japanese match industry. In 1936 Diamond loaned money to Mr. Pedley as exclusive sales agent for an incorporated association in the United States of importers of Japanese matches. That arrangement at least made possible the control of quantities and prices with regard to Japanese matches sold in the United States. By 1936 Ledburn had obtained a sub- stantial holding of stock in the Universal Match Securities Corporation. The object of nominees holding the stock was to conceal the real ownership. Diamond's concern in that respect was - 57 - established in a letter of March 12, 1936, to Mr. Keyes from B. Chandler Snead: “Referring to our recent telephone conversation, I am enclosing herewith the report of the auditors of the Universal Match Securities Corporation as at December 3lat, 1935, which please return to this office in due course. Please see that The Diamond Match Company is not brought into any of your discussions and also impress upon your auditors that any and all information in the premises is to be obtained through you, and that under no circum- stances are they to correspond with either the Universal Match Securities Corporation or its auditors." {The entire holdings of Ledburn, the thirty per cent interest in (Jommonwealth and more than 41,000 shares of Universal Match Securities, were sold in 1937 to the Pan-American Match Corporation, ‘the cash proceeds were distributed to the Hilton Company, and ILedburn was dissolved. The continuing involvement of Diamond was shown at the time when Pan-American's name was changed to Universal. A problem had arisen with respect to a transfer tax assessment by the Province of Quebec. It was significant, in the light of later protestations by Diamond that it did not control Universal, that John C. Sebright, who had succeeded to the various positions of 3. Chandler Snead, dealt with the matter, expressing himself in the following terms: ”with respect to the change of ownership from Pan- American Match Corporation to Universal Match Corporation, this also should not be taxed as nothing was involved here except a change of name;” Any separation of interests did not in any way, throughout these transactions, make itself evident.20 In 1928 the Diamond Match Company caused the North American Match Corporation to be organised. The controlling - 5g - shares were distributed as a stock dividend to the stockholders of ‘the Diamond Match Company. William A. Fairburn, President of IDiamond, upon hearing that Ivar Kreuger had become interested in the Ohio Match Company, bought its entire stock from the E. J. 'Ioung family for $7,000,000. North American acquired fifty per cent of the stock, and the other half went to Kreuger for $6,000,000. It was held by the Swiss affiliate, Socidté’ IFinanciere pour l'Industrie. In 1935 the creditors of Kreuger and Toll approved its sale for $2,800,000 to John 6. Daniel, Vice- JPresident of’North American Match Corporation. The stock so acquired was retired and in 1936 that Ohio Match Company and North American were merged into the present Ohio Match Company. H. A. IFairburn installed his friend Louis H. Meade as Chairman, Operat- 21ng Vice-President and Treasurer. It is of further significance ‘that the old Ohio Match had been made a sub-agent of Diamond, umder its exclusive selling agency agreement with the Swedish Match Company, in 1921, seven years prior to Kreuger acquiring a stock interest. Swedish Match influence was at least catalytic in the extension of Diamond's power throughout the American match industry.21 Before its merging into the present Ohio Match, North American brought about the organisation of the Smokers Match Corporation, which acquired a substantial stock interest in the old Lion Match Company and in the Lumen Corporation, which owned Lion Match stock. In 1935 the Smokers Match stock was distributed to the stockholders of North American. Control had been initially e0 ... 59 a. laith the Diamond Match Company and then with its stockholders; evidence, such as the North American participation in the Canadian holding company, Ledburn, supports the view that Diamond's control was not relinquished. In 1937 the merger of the old Lion Match Company, the Lumen Corporation and Smokers Match Corporation lcreated the present Lion Match Company. The shares were distributed 'to the holders of Smokers Match stock, which meant North American stockholders. That in turn placed control in the hands of the stockholders of Diamond.22 In the American civil action, which culminated in the 1946 Consent Judgment, the Diamond Match Company persistently argued that its stock and the stocks of Universal, Ohio and Lion 'were actively traded in independently. That, of course, by no means denied directly the allegation that Diamond, through its officers, nominees and stockholders, controlled the policies of those companies. Independent dealing in the various stocks established merely the possibility that Diamond's control could have been dissipated. The Diamond Match Company caused the organisation of the companies, North American, Smokers and Pan- American, which initiated the centralisation of control in the hands of Diamond stockholders of the three separate groups of American match producers.23 It would appear unreasonable to assume that Diamond's ultimate purpose was to dispose of the control it had so persistently acquired. That such control was in fact retained by Diamond was shown by various incidents connected with the Commonwealth Match t9 -dfloo ’ I. 9.195! - 60 - Company, owned seventy per cent, through nominees, by Bryant and Hay, and thirty per cent, through nominees, by Diamond. The Iliamond interest in the Canadian company was held, from 1937 to 1947, by Universal or its predecessor, Pan-American. In 1947 Commonwealth became wholly owned by the Valcourt Company,2li itself a wholly-owned subsidiary of the Eddy Match Company, in which the Ixrincipal shareholders were Bryant and May and Diamond.' During the period when the Universal Match Corporation owned thirty per cent of its stock, the Treasurer of the Commonwealth Match Company regularly sent financial statements to W. A. Fairburn, President of Diamond.25 Further evidence that Diamond's contention of iaudapendence between itself and such companies as Universal must 13:11 to the ground is seen in a letter of November 8, 1946, shortly thafbra the Commonwealth stock was transferred from Universal, from V‘. A. Fairburn to the Vice-President of Eddy Match. The letter, containing references to the son of N. A. Fairburn, N. A. Fairburn, 41r., the President of Industrial Management Engineers and of its (3anadian subsidiary, Management Engineers of Canada, J. E. Duffey, ‘the General Sales Manager of Eddy Match, E. P. Miller, and an officer of Bryant and May, dealt with problems which had arisen kecause of a prOposed change in the information required by the 'British Companies' Act. Mr. Fairburn's wording indicated clearly the community of interest between Diamond and Universal, which had persisted from the Diamond inspired inception of its predecessor, Pan- American: -61- "Because of certain Government activities in Canada, it seems necessary for E.P.M. to keep in the background when it comes to correspondence and letters in file in his Montreal office. Will endeavor to have H.A.F.Jr. contact him in regard to this phase of the matter. It is understood, of course, that the matter that you require will be obtained for you by U.A.F.Jr., who can appear in the picture as a representative of Bryant and May, and he has no direct contact, holds no official position and is not on the payroll of Diamond. As you know, Diamond has no stock interest in Common- wealth, but is interested, as is Bryant and May, in the Eddy Company. There is no objection to your personal conversations with E.P.M. It would seem that E.P.M. could keep in touch with Canada, Federal and Valcourt affairs, but should have no contact, as far as the files are concerned, with Commonwealth, or with officials of that Company. J.E.D., as set forth on the bottom of page 1 of your letter, should be the clearing-house for all Commonwealth figures, and such figures could reach you through U.A.F.Jr. I‘I am writing to Mr Hacking to-day, to ascertain the name of the Bryant and May official who will handle details by correspondence in regard to this revision in accounting. I do not desire to have cOpies of regular correspondence sent to me, but when statements are com- plated to your satisfaction, shall be glad to have you send them to me, and I will forward them to Mr Racking. "I think that it is highly desirable for you to have letterheads printed with your own name and personal address, or a box at the Pembroke postoffice, that would be separate and distinct from the Eddy and Canadian Splint companies, and no cOpiea of correspondence dealing with this matter (if Commonwealth is mentioned therein) should be in Eddy files. .26 The President of the Diamond Match Company showed both his influence upon the subsidiary of an ostensibly independent company and his eagerness to conceal the true position of Diamond. It is of interest to note that the various penetrations by Swedish Match interests into the United States market led .. 62 - ultimately to the extension of the power of the Diamond Match interests. That represented, of course, simply a change in the identity of the monOpoliser rather than any Change in the fact of monopolising. One further significant penetration concerned directly the Diamond Match Company. Although alleged negotiations for a merger in 1929 of Diamond and International Match were neither admitted nor proved, William A. Fairburn did reject a proposal for a merger made by Ivar Kreuger. A consent judgment being far from an ideal means of establishing the truth, some events following Fairburn's rejection remain obscure, but the min outline is quite clear. The 1920 Agency Agreement with Swedish Match was renewed for four years, continuing it until the and of 1934. It was extended after that on a three‘montha' renewal basis. In a recapitalisation of the Diamond Match Company, apparently designed by Fairburn to cOpe with the desire by some Diamond directors and stockholders for a merger with the Inter- national Match Corporation, two-thirds of the common stock was issued to the owners of the predecessor company and one-third of the stock in the new Delaware Corporation was offered ”to bankers with the expectation by William A. Fairburn that Kreuger would purchase the same . . .“27 Those 350,000 shares of Diamond were found among the Kreuger holdings after March 12, 1932, and were “purchased by the Diamond Hatch Company for $7,750,000 less than they had been sold for two years previously.28 That the dominant position and widespread power of the Diamond Match Company in the United States wooden match industry .‘ . . . g V ‘ , . ,. K k “'- A l . - v . , . y . . . A . ‘ . . ~ - _ 5' n _, ‘ . r . . , . , 1 . ‘ . g . , C I I l a. ' . . ‘ \' a ' ‘ I v . .. 63 .. has. been maintained is carefully set down in a 1955 investment banking report, in connection with the growing diversification of Diamond,29 which has become a general wood products concern, handling in addition to matches, pulp and paper, lumber, building materials and woodenware.3o Its match sales first accounted for less than half the total sales in 1938, and now account for less than twenty per cent of the total.31 Satisfaction is expressed with regard to wooden matches. "Diamond has more than maintained its industry position in wooden matches. . ."32 The expectation that Diamond will improve its position in the book match field is firmly stated. "Diamond has long been the unquestioned leader in wooden matches and by placing emphasis on book matches, expects to be able to win for itself in that field a similar position."33 The economic implications of both national monOpolisa- tion and international market allocation are, perhaps inadvertently, “all described in the report. "Wooden matches also have shown greater price stability than book matches. ... Diamond's match business has demonstrated remarkable earnings stability over the years and management relies on it as a firm and reliable source or profit on which it can base eXpansion into other fields of rOrest products.'31° The effect on the owners of the company has bfien most gratifying. “Diamond has earned a profit and paid QOIImon dividends in every year since 1882. Diamond has not changed its quarterly dividend rate, except to raise it, for more than 35 yoars.'35 The assertion that "Diamond achieved its dominant Position in the match industry in the United States in large part .. 64 - through its superior research activity" stresses the significance of such technical accomplishments as Mr. Fairburn's adaptation of the Sevene and Cahen process for sesquisulphide of phosphorus. Without deprecating that achievement in any way, a proper balance may be best restored in an appraisal of Diamond by recalling its original creation in 1880 by financial merger for the purpose of controlling the United States match industry and fixing the price of the product.” The record has shown that the undertaking has been attended with some successr CORPORATE RELATIONSHIPS (F MATCH COMPANIES IN THE UNITED STATES Vulcan M Co :—bankruptcy——-1 Fairburn (Kreuger) 1937 100% Family I o I \ 100$ '29 61.9S l‘ ,' 51: \L eL, Pan- '47 Union 14 Co Federal M American I 7E Corp '23 Match 1 1.9% BID manage Corp I Co *- - -’ ~ -' ~ :4: :1: major Universal Match '37-'38_ Univ '40 W Va old Heat made Univ. Virginia units of I! Go M Corp Pan-Amer 191.0 -—) shall Canadian 00 minor—— —————— CO-OIIVOOlth I?\ new name: '47 present Valcourt Co -..J Universal :2: Match Ed-- M Co Corp '41 'HOHH-bd HDOHIOB'O Mbwzoo wasp: cxothU H : Sociéte Financibre No. American (Kresger) Match Corp n a I I d n I?‘ '28 from v.11. Fairburn [I u a \‘ so: 50% II —-): s a ‘. a r . ‘ I.\ 1936 1 0 bank- L ————— mergenfiL a n ruptcy resent Ohio Go ’- control—d .11.] 1935 a s ‘ Itock control— 4hrwuv0mxooam Mx>mxoo soap: uxoszu N D New Diamond (0.1.) 1930 I bank- 1/3 raptor 81: :2: etc. - estimated order of sins. we" .}\1 a .\ I‘a 1 . . , . v a A .. r I " . '- I] | ,. | I r i‘ L "'. ', A . 3'. ‘ 5 L t . f s "O L VI A V , . -. v w 1:11. v .. ‘ a it - 9 v -0 . i‘ . » s t, . .L .... ? ..., . . . I O O 1. 2. 3. A. 5. 9. lo, 151. 12, 1J3. -66- United States of Americ v The Diamond Match Compgny gt a1. (April 9, 1946; Civil No. 25-397, U.S. District Court, SODONOYO (I Rex v, Eddy Match Company, Limited et a1. (1953) 104 0.0.0. 39. Eddy Match Company,_Limited et al v The ueen (1954) 109 C.C.C. 1. gyport on thg Supply and Eyport o{,Matches and the Supply of Match-Making Machineyy, Monopolies and Restrictive Practices Commission, H.M.S.O., London, 12 May, 1953. I'Diamuond Match Company; its sphere of influence covers 90 per cent of the industry,” Fortune, May, 1939, p. 90. fiigkyfiggg 3,3 uh; gt a1 .(1889) 1.3 N .w. 1102. fiighggggog vI Buhl et al.at 1103, 1108 and 1110. British Match Report, par. 26. Civil No. 25-397, Answer of Defendants, par. 40. Victor 8. Clark, Hi to of Manu actures in the United Stateg, MbGraw-Hill, New York, 1929, vol. III, pp. 292-3. British.Match Report, par. 26. Civil No. 25-397, Answer of Defendants, par. 35. British Match Report, pars. 37 and 193. Civil No. 25-397, Complaint, par. 17; Answer of Defendants, par. 17. Irvin Earner, Integggtional ngtglg, Sir Isaac Pitman and Sons, London, 1946, p. 374. my! Maggy of mestnegtg: Indggtrial Securitigg, Moody's Investors Service, New York, 1943, p. 1430. “it York Tégé’ Apr. 28, 1933, P. 32. Civil No. 25-397, Complaint, para. 32, 51 and 53; Answer of Defendants, para. 32, 51 and 56. British.Match Report,.psr. 32. Civil No. 25-397, Complaint, par. 57; Answer, par. 57. British.Match.Report, pars. 26, 32 and 34; Appendix 4. "Report on Restrictive Business Practices in International Trade," Economic and Social Council, Official Records: Nineteenth Seggion, Supplement NoI 3A; E/Eé75, New York: United Nations, 1955, pp. 13-14. JLii. 1115. ILfiV. 2123. 15?. :BC), 251. 23, - 67 - 'Ths Diamond Match Company: A report for the investor,“ Blyth and Co., Inc., New York, 1955, p. 10. Civil No. 25-397, Complaint, par. 29. Fortpne, May, 1939, pp. 89, 176 and 178. Blyth and Co., p. 6. Civil No. 25-397, Answer, pars. 4, 5 and 29. Canadian Match Report, pp. 22, 30, 48 and 49. Eddy Match Case Transcript, vol. 4, p. 580; vol. 5, p. 1056; vol. 6, p. 1208; vol. 12, p. 2904; Factum of the Respondent, vol. 2, p. 217. Moody's Manual of Investments: Industrial Securities, 1928’ p. 1979. 1938, p. 2996e 1941, p. 1753. 1948, Pa 1045e Blyth and Co., pa 10o Foytune, May, 1939, p. 173. Civil No. 25-397, Complaint, par. 17; Answer, par. 6. Epw York Times, Apr. 29, 1932, p. 25. ' Sept. 28, 1932, p. 27. Apr. 23, 1937, pa 310 July 30, 1937, pp. 25 and 29. ‘uge A, 1937, p. 360 Aug. 21, 1937, p. 19. June 9, 1938, p. 35. Mpggy'p Manual pt Investments; Industrial Securities, 1932, p. 8280 1948, p. 2628. Civil No. 25-397, Answer, para. 6 and 121. Canadian Match Report, p. 30. Egg: Match Case Transcripta vol. 3, pp. 425, 543, 544 and 548; vol. 4, p. 667; vol. , pp. 1040, 1074, 1285 and 1287; vol. 9, p. 2132; vol.12, pp. 3103-5; Factum of the Respondent, pp. 56 and 59-60. Mppgy's Manual pf Investments: Industrial Securities, 1932, p. 828. Fortunp, May, 1939, p. 171. Civil No. 25-397, Complaint, par. 7; Answer, par. 7. New York Times, Sept. 28, 1932, p. 27. "" p Sept. 13, 1935, p. 310 3221222: Hay, 1939. p. 173. Civil No. 25-397, Complaint, par. 8; Answer, par. 8. ..... Civil No. 25-397, Complaint, pars. 6, 7 and 8; Answer, pars. 6, 7 .nd 8a 24. 125. 26. 128. 232. :33. :34m 335. 36. 37. Edderatch Case Transcript, Factum of the Reapondent, p. 114. Eddy Match Case Trpnscript, vol. 9, pp. 2105, 2141, 2149, 2162, 2174, 2215 and 2250. Eddy Match Case Transcript, vol. 10, pp. 2571-2. Civil No. 25-397, Answer, par. 74. Moody's Manual of:;pvestments: Industrial Securitipg, 1943, po 11.30. F0 tune, May, 1939, p. 170. Civil No. 25'397, Complaint, pars. 74 and 78; Answer, para. 7‘ and 78a Ngw Iork Timeg, June 24, 1932, p. 27. ---- , June 30, 1932, p. 31. ---- , July 1, 1932, p. 33. Blyth .1“: Co., Pp. 6’70 £91 a M mgy's 533991 of Lgvestmentp: nguptgpl Sepurities, 19‘39 Pa 14300 Blyth and Co., p. 10. ---- , p. 11. ---- , pp. 10-11. ---- , p. 30. --"- ’ p. 22. gigpprdpon v, Bphl at 51. (1889) 43 N.U. 1102. Chapter 4 The desirability of a more detailed examination of the .British match industry rests upon the fact of its principal lembers having an enduring influence on the Canadian industry. Many of the modes of conduct of those firms have had significance on the Canadian scene. The initial preclusion of competition from Canadian match production by the creation of the Eddy Match Com- pany, Limited, was simply a constituent of the world-wide abrogation of competition in the manufacture and distribution of matches. The formation of the British Match Corporation, Limited, was a more important component of that same decline. The enterprising Lundstrdm brothers began exporting from their J6hk8ping factory to the United Kingdom in 1850, marking the inception of more than a century of close association between the Swedish and British industries. Four years later Bryant and May, at that time merely dealers in matches, became the sole United Kingdom agent for the Jdnkdping factory. In 1855 Bryant and May purchased the United Kingdom patent rights for Johan Edvard Lundstroh's safety match, and undertook their manufacture six .. 70 - years later. They had witnessed the rapid growth in sales of the imported matches.1 In 1871 the British Government attempted pioneering in the alchemy of monOpoly profit by the Chancellor of the Exchequer proposing a tax on matches. American experience indicated easy collection. The tax would discourage reckless use. It was to be a halfpenny per 100 or part thereof on wooden matches and a penny on the "more aristocratic' wax lights. The Chancellor's proposed lotto -- Ex Luce Lucellum -- would have lent apprcpriate irony to ‘the endeavours of Ivar Kreuger some forty years later.2 Four days after the introduction of the bill into the House of Commons the Matchmakers' Procession, reportedly led by Mr. May, reached Bow Bridge four miles from Parliament. Because no more than ten light bear a petition to Parliament, they had encountered a police inspector at the bridge. There was thought to have been some ‘violence after the procession disbanded. The tax bill was with- drawn two days later on Wednesday, April 26, 1871.3 That defeat of a nineteenth century public effort to obtain "from light a little profit" is a sharp contrast to the success of private efforts in the twentieth century. In 1903 P. thenadler, a London export agent, initiated an amalgamation of six of the largest Swedish factories to form the Jdnkdping and Vulcan Match Company, Limited. Its sole agent in the United Kingdom until 1910 was the Match Agency, Limited, a subsidiary of Bryant and May. The agency then went to a British subsidiary of J5nk3ping-Vu1can. The Diamond Match Company had - 71 - entered into an agreement, so durable as to survive into World War II, making it the sole United States agent for the Swedish combine from its very beginning in 1903. During the early years of the twentieth century Continental match exports to the United Kingdom increased steadily, accounting fer more than 50 per cent of British consumption by 1912. More than half the British imports were Swedish.‘ The Diamond Match Company had begun manufacturing in Liverpool in 1895, introducing in its plant the following year a continuous match machine similar to the Lagerman¢ievelopment in Sweden. The incongruity of the hand processes common in the United Kingdom dramatised to Bryant and May that the new method endanger- ed its position as the leading British producer. In 1901 an exchange with.Diamond's British subsidiary was agreed upon. All the British goodwill, preperty, rights and assets went to Bryant and HM!) 54.5 per cent of the capital of Bryant and May and virtually all its voting power went to the Diamond Match Company. By agreement the same year each party undertook to abstain from the manufacture or sale of matches in the other's agreed markets. That indenture was modified at the request of Diamond in 1911, the year of the United States Supreme Court's orders of dissolution in the §1§p§p£g_gil and Ampyicpp Tobaccp cases. In 1914 the year that the United States Congress passed the Federal Trade Commission Act and the Clayton Act, the 1901 compact was allegedly ended at the request of Diamond by an agreement binding Diamond to remain clear of those areas previously allotted to Bryant and - 72 - May, but no longer restricting the Operations of the British concern. The new agreement provided for the exchange of technical :information and for the non-exclusive cross-licensing of patents. .It seems quite likely that the changes were more of form than of substance. The British MonOpolies and Restrictive Practices Commission at least suggested that the covenant continued without fundamental alteration. Diamond admitted that "match machinery, processes or inventions were made available until about 1923."5 The triangular nature of understandings among the Swedish, British and American interests in the world's match industry had been manifest before World War I. Two years after the creation of the Swedish Match Company by Ivar Kreuger in 1917, J. John Masters and Company, Limited, had control of its interests and holdings in the United Kingdom. At the same time, individuals of Swedish nationality or origin held 52.5 per cent of the shares in Masters. Ivar Kreuger's holding‘was 32.5 per cent. This grouping comprised three of the 317 match manufacturers in the United Kingdom. Bryant and May «controlled seven in 1920, and obtained control of six more 'through its acquisition of Maguire, Paterson and Palmer, Limited, in 1922. The seventeenth concern ceased operations. Bryant and Hay and Swedish Match had thus corralled British match production. The British firm's 1922 purchase brought it 100 per cent interest in the Canadian Splint and Lumber Corporation, Limited, of Pembroke, Ontario, thereby assuring a valuable supply of match splints of Canadian poplar and expanding its activities in the - 73 - Canadian market.6 The British Match Makers' Association, formed in 1905 by the seven main producers in the United Kingdom to safeguard their common interests, to regulate prices and output, and to establish quotes within a pooling scheme, had been a precursor of the more formal consolidations of the early twenties. All its members were to become integral parts of the Bryant and May organisation by 1922. The rising imports into the British market required Masters to make substantial compensation payments to the British manufacturers under the terms of a 1920 Agreement. That agreement had been arrived at in the same year as the Diamond Match Company President Fairburn's I'Peace Treaty with the Swedes.'I The main provision was the shar- ing of the British market, 18/32 going to the Bryant and May interests, 5/32 to the British factory of Masters and 9/32 to Continental interests of Swedish Match. Two important modifica- tions occurred in 1923. The price fixing and pooling arrangements were altered to count independent Continental imports in excess of 1,250,000 gross as sold by Swedish interests for purposes of compensation. With no competition between the British Match iMakers' Association and Masters from 1921 to 1926, but with Masters having to make substantial payments because of imports from independent Continental factories, Swedish Match reduced this external competition by buying up the main competing plants. The second significant change was the establishment in 1923 of a more direct relationship between the British Association and the Continental affiliates of Swedish Match by means of the joint use! Estella n . - 74 - financing of a Swiss company, Société Financiére pour l'Industrie, for the purpose of acquisitions in all phases of match production and distribution.7 The elements of the match triangle, especially the Swedish and British, were becoming more and more closely into rlocked . The year 1927 marked the termination of the 1920 Agree- ment and meant that the Swedish Match Company and Bryant and May had reached a point where they "must either collaborate or else embark upon a prolonged and exhaustive struggle"8 in those markets where both were operating. Vital changes in status had taken place during the seven years. The operations of Bryant and May in various parts of the British Commonwealth and in several Latin American countries had been extended. The energy of Ivar Kreuger had impelled the Swedish Match Company along a course of unremitt- ing expansion of particular interest in at least two respects. Entry into the Canadian market was accomplished by the purchase from Rockefeller interests of the World Match Corporation, Limited, of Berthierville, Quebec. Entry into the domestic market of the Diamond Match Company came chiefly through the International Match Corporation and its diverse holdings. The rapidly rising match imports into the United Kingdom increased pressure upon Bryant and May from the Swedish element of the world industry. Th fusion of the twin interests of the British industry by the formation of the British Match Corporation, Limited, in 1927 brought together financially the United Kingdom companies of Bryant and May and of Masters, representing Swedish Match, and - 75 - resolved some conflicting interests. British Match acquired the shares of both Bryant and May and Masters. Swedish Match received 30 per cent of the shares in British Match; the shareholders of Bryant and May received the other 70 per cent. The Diamond Match Company's holdings of Bryant and May shares had been greatly reduced by sales to British stockholders, so that Diamond received 5 per cent of the shares in British Match in exchange for its re- maining shares in Bryant and May. British.Match and its two subsidiaries, Masters and Bryant and May, entered into a trading agreement, with a term of 25 years, with Swedish Match. Its impact may be best viewed in the light of the several transfers of property consummated at that time.9 Swedish Match obtained the resources of Bryant and May in Italy and Japan, and its share in Socihtt Financi‘re pour l'Industrie. Bryant and May acquired control of the Australian lbderal Match Company of Sydney by obtaining some shares from the Swedish Match Company, which retained a minority interest. Swedish Match also retained a minority interest in Bryant and May (PrOprietary) Limited of Melbourne. 'Acquisitions from Diamond enhanced the South American position of Bryant and May. The entire capital of the Werld Match Corporation passed from Swedish Match to Bryant and May. That was an important piece in the assembling of the Eddy Match Company to create a match monopoly in Canada. It was but one aspect of the reconciliation of the conflicting interests of the leading match producers of the world. Of the original nine directors of the new Canadian company, two, - 76 - C}. W. Paton and C. E. Bartholomew, represented British Match and liryant and May, two, W. A. Fairburn and B. C. Snead, represented IJiemond Match and two, Ivar Kreuger and F. Atterberg, represented Ehwedish Match and International Match. The two Swedish quality- :ing shares were transferred to a nominee of Diamond on September 225 1932, following the death of Ivar Kreuger and the bankruptcy of the International Match Corporation. With masterly under- statement, official British reports described the 1927 arrange- ments. "This industry is largely dominated by a trust headed by the Swedish Match Company.'10 Considering the consolidation of British operations, Bryant and May was "said to maintain friendly relations with the Swedish Match trust."11 The newly created cor- porate relations, achieved by extensive transfers of assets and with at least the facilitating acquiescence of Diamond, were strongly supported by new trading arrangements.12 Against a background of existing agreements, some of which involved the American member of the triangle, Swedish Match and British Match, the latter considering itself the "junior partner," entered into general trading agreements in 1927. Although it had a stated term of 25 years, "it was the intention of the parties that their association should be permanent.'13 The 1927 Trading Agreements covered the manufacture and sale of matches by the parties and their associates, dividing and sharing markets, co-operating in technical information and providing for the supply of machinery and materials. That Swedish Match was to be the chief source of technical information and machinery and materials ‘fifi 2...”. NM... 4.. M. - 77 - was recognized by the assignment as the Quid 229 ggg of more than 40 per cent of its holding of British.Match shares. Handling the two Irish markets in separate, subsidiary agreements, the 1927 Agreements assigned to British Match 51 per cent of the British Isles, the British Commonwealth outside Asia and Brazil. The Canadian market was shared with Diamond through the Eddy Match Company. Varying arrangements embodied the sharing with Swedish Match of Australia and New Zealand, Trinidad, Argentina, Colombia and different parts of Africa. Swedish Match was assigned 49 per cent of the market of the British Isles, Continental Europe, Asia and the remainder of Spanish America. There was to be no en- croachment on the agreed assignments. Even accepting Diamond‘s denial of compliance with its agency agreement with Swedish Match, allowing Diamond's eXplanation of having no export trade on the grounds that it "could not profitably or successfully export matures," and recognizing that, whether or not in accord with any agreement, Diamond's withdrawal from Latin American concerns usually meant a transfer of interests to Bryant and May, the 1927 financial and contractual arrangements comprised a g; £2239 comprehensive allocation of world markets and interests among the three principal match manufacturers.1‘ Subsequent to and in spite of the 1927 Trading Agree- lmnts and the separate understandings between Bryant and May and Diamond and between Swedish Match and Diamond that had been reached in the early years of the twentieth century, Ivar Kkeuger had embarked upon an ambitious programme of penetration 1M. x IOI hM..N,1L.¢J. as" - 73 - into the United States market. The formation of the Diamond Match Company of Delaware, which held the stock of the Operating company, was the instrument by which a direct interest in the leading American producer was acquired by Swedish interests, though not amounting to control. One third of the outstanding shares of the new holding company were sold ”to bankers with the expectation by William A. Fairburn that Kreuger would purchase tl'm same.‘ Although Diamond denied that the transaction was undertaken on the condition of the renewal of the 1920 Agency Agreement, which had replaced the original BOB Agreement, the 350,000 shares were sold in 1930, the agency agreement was renewed that same year for four years, and the Diamond stock was discovered in 1932 among the holdings of the bankrupt International Match Corporation, pledged by Kreuger as collateral. His death did not impair the agreement.15 Negotiations for a further renewal of the agency agree- Ilent now due to expire on December 31, 1931., were begun in the middle of that year in Jb’nko'ping between the Treasurer of Diamond and the new Swedish Match President, who had formerly been in charge of operations and sales. One result of the discussions, which culminated in a renewal, was that Swedish Match agreed not to purchase the Federal Match Company from the trustee in bank- ruptcy of International Match, clearing the way for its later ac- qhieition by Diamond interests. It was but another confirmation of the frequent experience that ”penetrations by Smdish Match 1n‘terests into the United States mrket led ultimately to the 31.33.3133!» _ _ . Ni J .v - '79 - extension of the power of the Diamond Match interests."16 The agency agreement was renewed in 1935 for an indefinite term. world War II obscured the situation and the 191.6 Consent Judgment interposed a legal barrier with respect to certain further agree- ments and exclusive agencies. That barrier comprehended also all past arrangements, including among many others, the 1901 Agreement with Bryant and May, the 1903 Agreement with Swedish Match and its several successors, the 1920 Agency Agreement, the 1930 Renewal Agreement, the 1934 and 1935 Agreements and the tentative 1939 Agreements.” After March 12, 1932, it was disclosed that, contrary to agreement, British Match shares had been pledged as security against a personal loan to Ivar Kreuger. That provided the occasion for British Match to press for an immediate revision of terms in its favour. It had been making substantial payments to Swedish Match for exceeding its trading quote in the British Isles. A 1932 Supplemental Agreement raised the British Isles quota for British Match from 51 per cent to 55 per cent. During this period, the Kindersley family, Sir Robert and his son Hugh, who occupied in succession the position of Chairman and Managing Director of ‘ Lesard Brothers and Company, Limited, participated actively in the reorganisation of the Swedish Match Company, which sustained its durability. In 1946 Hugh K.M. Kindersley became Deputy Chairman of the British Match Corporation and a director of the Swedish Match Company on the recommendation of Swedish Match; he Succeeded Arthur Hacking as Chairman of British Match. The - 80 - reorganisation plan placed two English representatives on the twelve man board of Swedish Match. In contrast to the original four Swedish Match nominations on the twelve man board of British Match, 'two of the ten present directors of the British Match Corporation are of Swedish origin."18 In 1938 the existing British-Swedish agreements were replaced by a new one running until the end of 1961. Each of three separate parts was considered an aspect of the single whole, setting out the essential give and take nature of the 1938 Trading Agreements. The 1932 sales quotas for the British Isles were -retained. Compensation payments by British Match had averaged £93,500 per year since 1927. The new agreement provided similar compensation payments, except that British Match would not be liable if its excess were the result of the failure of Swedish Match to supply quantities in response to orders received. Competitive matches involved a lower rate of payment. There was fixed a limit of £37,500 on the total compensation payable in any one year. British Match was required to make a further payment outside the limit, whether or not Swedish Match handled all orders received, on sales exceeding both the agreed 55 per cent and its own sales average for the preceding three years, based upon the excess over the greater of those two figures. As a moving average calculation was used, the more compensation paid in one year, the higher the sales level permitted the following year before another compensation payment would be required. Swedish Match undertook not to manufacture matches, materials or - 31 - machinery in the British Isles, unless a protective duty were im- posed rendering, in the cpinion of the Swedish Match, undesirable the continuation of match exports to the British market. After a mandatory discussion, a failure to agree would give Swedish Match the right to manufacture in the parts of the British Isles con- cerned. British Match had the sole right of manufacture and sale in Canada and Brazil, and a share in the markets of Argentine, Colombia and Uruguay. There was to be British-Swedish co-operation in all other parts of the British Commonwealth outside Asia.19 The British Match Corporation had organised the two Irish markets independently of the 1938 Trading Agreements by way of arrangements carried out by Bryant and May. An agreement re- garding the Irish Republic was completed in 1938. Northern Ireland was dealt with in a 1939 agreement. Each Irish company ‘was to confine its activities to its domestic market; Bryant and May was to refrain from offering similar types of matches in the Irish markets. Bryant and May nominated two directors on each 'board. The English company received stock in each company in ex- change for goodwill and trade marks. Its stock interest was *expanded to £9 per cent of the voting power in Maguire and Peterson (N.I.), Limited, and to 31 per cent in Maguire and Person, Limited, of Dublin. That scheme of things was significant in the consideration of the British Isles as a unit in the 1938 Trading Agreements with the Swedish Match Company.2o Australia and New Zealand were handled in‘yet another ‘Hay. Bryant and May, Swedish Match and two subsidiaries of I. - 32 .. Bryant and May agreed that the Australian companies should buy a high proportion of their materials requirements from the Swedish Match Company or pay Swedish Match a commission on purchases from elsewhere. They would pay Bryant and May a £5,000 annual con- sulting engineering fee. They would not export and would purchase all matches from either Bryant and May or Swdish Match. Swedish Match was to pay Bryant and May [.0 per cent of am commission regarding materials received from the Australian companies. Bryant and May was to remit an annual £1,200 of its consulting engineering fee to Swedish Match. British Match interests and Swedish Match interests were to pay each other 10 per cent of any price received from matches sold to the Australian companies. British Match was granted an option on any Australian shares that Swedish Match night purchase, and in turn agreed to secure Swedish Match re- presentation on the boards of directors of the two Australian companies. Any Australian business was to be conducted through the two companies.21 The two New Zealand match manufacturing concerns were affiliated with Bryant and May, Bell and Company, Limited, being a Subsidiary formed in 1910 and New Zealand Max Vesta Company, Limited, being 50 per cent owned by Bryant and May. Their combined Output did not meet the local demand. British Match was to have 35 per cent of the market, counting both the local production and British Match imports, and Swedish Match was to have 15 per cent of the New Zealand market. Compensation was to be paid on sales in excess of these quotes at a rate roughly equivalent to the profit. - 83 .- Reportedly 50 per cent of match imports into New Zealand were from independent sources.22 The 1938 Trading Agreements went beyond the 1927 Agree- ment with respect to technical co-Operation and the supply of machinery, bringing into the system two German match machinery producers, Maschinenfabrik A. Roller of Berlin and Badische Msschinenfabrik und Eisengiesserei. At its inception in 1917, Swedish Match, through Ivar Kreuger's original Kalmar Trust, Uhited Swedish Match Factories, Limited, had obtained control of the two Swedish concerns responsible for the development of the Swedish continuous match machine. Their capacity met the Swedish demand for machinery but could not meet the heavy export demands arising from the foreign expansion of the Swedish.Match Company. In 1919 Swedish.Match had therefore entered into an agreement with the two German firms, obtaining the rights to their entire output and guaranteeing an annual order of an agreed minimum value. The agreements expired in 1924, but were renewed in 1926 because of further eXpansion of Swedish Match. The depressed conditions of 1930 made difficult Swedish Match absorbing the German output. That year Bryant and May assumed responsibility for one quarter of the financial obligation of Swedish Match, perhaps as a ggig Egg ggg,for the benefitsreceived from such machinery arrangements under the terms of the 1927 Trading lgreement. In 1931 Swedish Match gained control of Badische. Bnyant and May assumed one quarter of the holdings of Swedish Match in the German concern, disposing of them five years later.23 - 34 - The world's three leading match producers were all in- volved in another matter regarding match machinery. That Joint Operation resulted in the output of an American match machinery manufacturer being denied to competitors of Diamond, British Match and Swedish Match. The Bell Machine Company of Oshkosh, Wisconsin, had supplied a temporarily independent Canadian match company with machinery in 1931. In 1934 the Alliance Sales Cor- poration of New York, acting on behalf of the Diamond Match Company without Bell being aware of that relationship, entered into an agreement for the purchase of Bell's match business with rights to use in Canada and the united States Bell machines, patents, trade marks and designs. Alliance was to pay 86£,000 and 10 annual payments of $50,000 each. The Bell Machine Company agreed not to manufacture or sell matches or machinery in Canada or the united States for ten years. Alliance also had an cption to extend the agreement for an additional five years and to purchase similar rights for other countries. Within a month the President of Diamond wrote to the Chairman of Bryant and May and of British Match, describing the unusual ability, originality and resourcefulness of the Bell family, and pointing out that, through Alliance, Diamond had been able to "nip in the bud" well financed and ambitious plans which would have cost Diamond ”a vast amount of money.” In his capacity as a director of Bryant and May and of British Match, wn. A. Fairburn strongly re- commended that British Match take up the option on Bell's foreign rights at a cost of an initial payment of 825,000, with $5,000 - 35 - of that being recoverable from Diamond, and of 10 annual payments of $20,000 each, with $5,000 per year being recoverable from Diamond. By November of 1931. Bryant and May had entered into an agreement with Alliance to that effect. The Bell rights, includ- ing those granted to it under license by a second Oshkosh Company, ‘the Pins-Ihrigh Company, were available through sub-license from Alliance to Diamond, Lion, Ohio, Eddy and Bryant and May. British Match subsequently obtained the co-Operation of Swedish Match to assume 50 per cent of the commitment of British Match. Prior to the Alliance agreement, Bell had supplied machinery to an independent Canadian company, in which Bell held a stock interest, to a new South African company, and to the first new firm to enter production in the United Kingdom after the creation of the British Match Corporation. In oral evidence before the British MonOpoliss and Restrictive Practices Commission, British Match stated that "the effect and purpose of the agreement with the Alliance Sales Corporation was to deny machinery to its competitors and to those of Swedish Match."2l‘ In 1937 Union Allumettiere, S.A., a Bekaan subsidiary of the Swedisthatch Company, entered into an agreement with a iBelgian match company, S.A. Fonderies Generales pour l'Industrie 'Allumettihre, to restrict the Belgian company to producing Machinery only for its own match factories. The Belgian company ‘was to receive 10 annual cash.paymsnts in compensation. In negotiating for a renewal in 191.7, Swedish Match kept in mind its obligations under the terms of the United States Consent - 86 - Judgment of 1946 and insisted upon exempting the United States or ending the agreement. The agreement terminated in 1948. British Match had been willing to assume 25 per cent of the cost, as requested by the Swedish Match subsidiary in 1947, but was prevented by the refusal of the Bank of England to permit the necessary trans- fer of currency. Its share would have averaged £1,374 annually. The British Match Corporation attached importance to this matter 'because of the possibility of exporting match machinery to its ‘Brazilian market.25 Although competition from independent producers in the 'United Kingdom is insignificant, some aspects of such activity are illustrative of the strength of the position of British Match. YIhe formation in 1928 of the United Match Industries, Limited, ;placed independent match output at 0.6 per cent of the total IBritish market, domestic and imported. With the appearance of the Nbrth of England Match Company, Limited, in1933 and of the Anglia Match Company, Limited, in 1934, the independent share of the total British market rose to a maximum of 4.1 per cent in 1937. The other United Kingdom concerns, one of them being the Co-operative Wholesale Society, Limited, considered entering the match industry but did not succeed in doing so. The Co-operative encountered difficulties regarding technical information and modern machinery. A letter in 1931. from the President of Diamond to the Chairman of Bryant and May set out clearly the problem of the second firm: install, ...I: - g7 - Dear Sir George, I have arranged to have friends employ Mr. ... on some experimental work that has nothing whatever to do with the British Match Industry and will not effect to the slightest degree any of the operations abroad in which you are interested. My friends have had to reach a definite understanding and make a confidential agree- ment with Mr. . . ., which under no condition must be given publicity either here or in Britain. They have obligated themselves to pay him $600.00 per month. It is understood that Mr. . . . may be called from the United States to work for . . . Ltd. (an English com- pany), and if he is called to go to England to do work for these people with whom he has a prior contract, he will not be paid by my friends. It has also been agreed, however, that he will tactfully and earnestly work to discourage . e . Ltd., that he will do nothing to get out of his contract with . . . Ltd. which would an- courage them to hire some other expert or have machines made fer than elsewhere. If he succeeds in discouraging . . . Ltd. and in getting out of his obligation to these peeple, then he will work exclusively for my friends for a period of three years and during this period of time will not do any outside for any other interest whatsoever. Mr. . . . has told my friends that he personally is tired of the English company, who have been continually deceiving him, putting him off, and have been unable to date to get responsible people on your side to go forward with matters as promised and outlined. Mr. e . . thinks that in the near future that he will be able to drOp all connections with . . . Ltd. and that . . . Ltd. will cease to exist as a living match producing possibility. Very cordially yours, (Signed) W.A.Fairburn lube remaining paragraph of the letter raised the question of British Match contributing to the $600 monthly expense. British Match agreed to remit one third, which was the payment that Diamond was making, and continued the monthly payments of 3200 ‘until May, 1943. That was an ingenious old man of the sea for the Btruggling English company to carry. The touch of irony in the .3lgiflaiigufl. " V - 33 - complaint of the hired and disguised interlOper that the company was deceiving him was surely noteworthy. Some of the actual competition was removed in 1937 by the United Match Industries entering into an agreement with Bryant and May. The independent share in 1938 drOpped to 2.3 per cent. It did not again reach A [per cent and stood at 2.5 per cent in 1951. Whenever the United Match Industries secured extensive business for them, they en- countered competition in the form of a better price usually offered by the Standard Match Company, Limited, for matches of identical quality sold at a reduced profit. Standard was a subsidiary of S. J. Moreland and Sons, Limited, one of the subsidiaries of Bryant and May. It became inactive in 1949.26 Regarding commercial espionage, the British Commission expressed the view that the methods of British Match and its associates went "beyond those normally employed in business." isuppliers dealing both.with the British Match.group and with the few independent firms frequently kept British Match informed about enquiries from competitors. An interesting variation came into being with the 1929 purchase by British Match of an independent match importer. The owner was to continue to manage the enter- prise for 15 years, retaining the shares as trustee for British Match. There was a £500 penalty in the event of any disclosure destroying the semblance of independence that was being main- tained. He received an annual salary of £2,000 and hit the mark by I keeping up friendly relations with competitors of British Match. Free of any suspicion of his actual connection, he was able to d I e e . l. . . . A 4 J .l . s t wl -, . I a . . L 3 4. . A l .u 1 . A _ . . O t . 0'. e f t .I y , . w a . l . e a ,- n I} e V . . A ,. . r o l . o a l 4; Ar . an 'e V .‘I v 1‘ I v a . l .... .l . y I e r . fl . e e . a e ’ at t . n . a . e\ I p D e . . a Z i . a I t i . . ' A e s v K. . i . . . ._ - 39 - obtain "much valuable information." The dominant position of the British Match group provided exceptional opportunities for collecting information from a wide variety of informants.27 From 1940 to 1949 Statutory Orders governed the dis- tribution of matches in the United Kingdom. The staff, with one exception, was provided without expense to the Government, by the British Match group of companies. The Matches Controller had an advisory committee, the chairman of which in 1941 was the Chair- man of Bryant and May. In that advisory capacity and stating 'thet it was not an order, the Chairman of Bryant and May recommended that the North of England Match and Anglia Match charge the maximum allowed to provide a uniform price for a particular type of match. Customers would not always be able to obtain their preferred brand, and hence price uniformity would fhcilitate the working of the Control. To fix the maximum prices ‘the costs reviewed were those only of Bryant and May, representing a little over half of the industry output and one of the higher (most situations in the industry. The supposedly regulated firms appeared actively engaged in both the formulation and the admin- istration of the regulations.28 Russian imports have been the strongest “competitive“ element in the British market. From 1928 until choked off by ‘Jorld War 11, they represented up to 11.5 per cent of the British Ilarket. That peak was reached in 1934. A subsidiary of the United liatch Industries was the British agent for Russian matches during Q period of falling prices from 1934 to 1937. In 1937 the sole - 90 - British agent for Vsesojuznoje Objedinenije "Rasnoexport” of Moscow became Swedish Match. The United Match Industries and its subsidiary had become affiliated with British Match in 1937, when British.Match had acquired about 49 per cent of the voting power in United. The 1937 Russian-Swedish agreement limited Russian exports to the British market to 2,100,000 gross (144 boxes of 50 matches each -- 7200 matches) a year and assigned to Swedish ‘Match the right to fix resale prices. When Swedish Match trans- ferred, by the terms of the 1938 Trading Agreements, the sole agency for Russian matches to the British Match Corporation, the United Match subsidiary, Continental Match Distributors, Limited, continued to handle Russian imports. British Match obtained a guaranteed profit and the right to fix resale prices. British Match assumed responsibility for 45 per cent of any compensation payments Swedish Match might have to make to Rasnoexport in lieu of Russian shipments, as provided for in the 1937 Russian-Swedish agreement. Such payments ranged from £4,323 to £17,359. World War II closed off all shipments and the agreement was not renewed upon its expiration in 1942.29 Match imports, all from Swedish Match sources, reached the historic low of 1.5 per cent of the British market in 1944. After the war, import sources of matches accounted for 24.7 per cent of the British market by 1947. Roughly 10 per cent of the imports were from independent sources, a negligible amount being Russian. About one third of the British market was supplied by importa_ by 1952, independent sources accounting for 16 or 17 per - 91 - cent of the imports or Just over 1,000,000 gross boxes. Less than 250,000 gross were Russian in origin. A new Anglo-Russian trade agreement would allow up to £500,000 worth of Russian match im- ports in exchange for British woolen and worsted textile eXports. That would amount to about 2,500,000 gross boxes, compared with a peak pre-war importation from Russia in 1934 of 2,172,545 gross, introducing a measure of competition. Speaking in the House of Commons in June of 1953, the Right Honourable R. Wilson spoke of the Anglo-Soviet textile-match trading arrangement as ”a very good opportunity of breaking down the monOpoly of the British Match Corporation."30 That avenue, however, might be more carefully described as the way to sporadic politico-economic rivalry rather than the highway to enduring competition. Alter- ations in the composition of the foreign trade sector of the British match supply might leave barely touched the fundamental structure of the monOpolistic domestic industry. The formation of the Eddy Match Company inil927 had dramatised the alliance of the world's leading match manufacturers. lEach member of the match triad, Swedish, British and American, was represented on the board of directors of the Canadian company. The Suedish Match company had agreed to withdraw from the Canadian market, which was to be occupied solely by Eddy; Bryant «and May or British Match and Diamond were to share the market, ‘Hhich was at the same time British and North American. There was ‘corporate embodiment of the rationalisation of the world's wooden utch 1mu8trye M11511??? ills—so .3314} f - 92 - The conduct of Bryant and May and its extension, British Match, gave kaleidoscopic illustration, always changing aspects of unchanging components, of the means of achieving and maintaining monopoly power. The recurrent ebb and flow of power among the members of the match triangle introduced change in their numerous arrangements. The results, however, were but variations on a theme, not shattering the spirit of the dream nor diverting the fixity of purpose. The earliest relationship of the Swedish industry with the British market involved the curbing of competition by an exclusive agency agreement. Its scape was widened later with the appearance of a British trade association. Such relatively flexible schemes were soon embellished with more enduring stock acquisitions, setting aside competition in both national and international markets. Joint ownership buttressed market-sharing agreements with their elaborate provisions for exclusive areas, divisions, quotas, compensation payments and price fixing. Two basic causes, force majeure and the waxing and waning of the power of the co-Operative parties, gave rise to revisions of the details concerning the fundamental theme of not competing. The 1938 Trading Agreements between the British Match Corporation and the Swedish Match Company provided fer reviewing the agree- ments I'in view of the complex nature of the match trade . . . and the constant changes occurring in it and also because conditions and circumstances beyond the control of either party may require revisions to be made herein in order that the spirit of this Agreement which rests upon harmonious co-operation may be gang“..- . mind-aw 1 . .. - 93 - preserved . . ."31 The cartel weakness for internecine warfare did mean an occasional market invasion, although not leading to any wide- spread destruction of the triad's interests. The Diamond Match Company's 1895 entry into the British market with a factory at Liverpool, for example, led shortly to Diamond obtaining a majority stockholding in Bryant and May. As the shares were gradually disposed of, the longer run effect was the important addition to the manufacturing facilities of Bryant and May. The destruction of the plant by German bombing in werld War II made the result less enduring than it would otherwise have been. The immediate effect of the Swedish Match penetration of the United States market in the 1920's was mounting market pressure on the Diamond Match Company. After the death of Ivar Kreuger, the ultimate result was an extension of Diamond's influence over additional American match producers. Several anticompetitive measures were especially sig- nificant in that they both sustained co-operation among the existing members of the industry and prevented entry by potential competitors. These measures included the pooling of technical information, the cross-licensing of patents and controlling match mmchinery production, excluding outsiders. An example of a similar control of raw material sources was noteworthy. From 1929 Britisthatch controlled, as a subsidiary or as an associate ‘with the majority of its board of directors appointed by British ‘Match, the sole United Kingdom producer of sesquisulphide of i e a 4.. ...g ..5....__.a£._ [111.1 .. .~. .1 . V: .I.fl!~ ...“ V, - 94 - phosphorus and of amorphous phosphorus. The claim of British Match that materials were not withheld from independent match manufacturers raised two significant points. The independent buyers of splints, chlorate of potash and phosphorus derivatives paid higher prices, as much as 77 per cent more, than did the British.Match companies. The sole supplier of sesquisulphide of phosphorus paid Bryant and May a commission on its total United Kingdom business, including sales to the independent match firms.32 Some less frequently used and more commonly condemned devices demonstrated that monOpolising influences permeated the entire industry. "Fighting brands' played their accustomed r81e on occasion against a new entrant. A technical expert, under prior contract with a potential competitor, received regular pay- ment from two members of the match triad on the understanding that he would give disheartening advice to render the independent con- cern infirm of purpose. That was the hiring of a saboteur to smuggle in 'eXpert pessimism." A rather wider use of commercial espionage brought to British Match much valuable information. Government regulation of the British match industry, introduced early in the war in 1940 and continued in some form until 1951, laid bare vital problems arising from an attempt at regulating monopoly. Even more critical than the difficult matter Of prices and costs was the fundamental question of the intrinsic Iotivation of the regulating staff. The personnel of Matches Control was recruited with one exception from the British Match companies. was the true allegiance of the regulators held by , an..H§fl;lj.m-wdj\21 n. '..1i.w...«v\.. 4 , I 7 . a . . . v . . v . n. .U a , . e ‘ ~ sci 4 4 u I . ... .1 .y, . 1 . u u a . s I ,v‘ a . . . v C e o, . . ‘ 1e 1‘ . . x u . - 95 - their lifetime connection, likely to be renewed at the disband- ment of the Control Office, or by the transitory regulating organisation? The death of Ivar Kreuger removed an impelling force Ifor the rationalisation of the world's wooden match industry and Opened up the possibility, perhaps even the likelihood, of a «crumbling of’the monOpolistic structure. Financial advantage, however, which had been the cynosure in the creation of the cartel, kept the edifice intact. The continuance of the Swedish Match Company, which had been more crucial than British Match in build- ing the world-wide monOpoly, meant continuing monOpoly gain. That greater prospect of recovering handsomely from the bankrupt- cies of some of the Swedish Match interests brought immediate response from the numerous creditors and stockholders. The strenuous efforts by many prominent persons, exerted on an international scale, toward the restoration of the durable Swedish Match empire met with signal success.33 Whether or not“ the historic conduct of British Match and its predecessor Bryant and May was typical in all instances of the general policy, the behaviour did demonstrate the effect- iveness of the means employed both to achieve monopoly and to retain it. The British actions were by no means either unique or always original within the industry. They had often been carried out in concert with one or both of the other leading match producers. Each member of the match triad, Swedish, British and American, was from time to time the instigator of one or more of ailmlbsilgills.1.flla fl .L . . _ 1:151vu‘. - 96 - the many schemes of monopolising that have been described. The greater relevance of the British pattern of behaviour rests upon the fact that the British Match Corporation has always been the majority stockholder in the Eddy Match Company and has therefore had the uninterrupted ability to determine and direct the activities of its Canadian subsidiary, although active American management was characteristic of Eddy during much of its existence. '3: timid? ...... ...: 3.. l 12in: ‘ . ; iii. to .. -97- THE POSITION OF THE BRITISH MATCH CORPORATION IN BRITISH AND WORLD MARKETS ‘jBiamond Match ‘Former Bryant and» Swedish Match Company May Shareholders Company c l c _ v f 5% 65% /30$ BRITISH MATCH corroai'rxou - 1923 95-99% British Production _ 1L \ ’ BRYANT AND MAI J. John Masters \----4 19013 Diamond's British Factory 19133 S. J. Moreland and Sons ' 19163 M. J. Morgan and Company 19223 Maguire, Paterson and Palmer . . . . . . . minority . . . . . . . Maguire and Peterson of Dublins 31% Maguire and Peterson (N.I.) 49% A Sociét‘ __\ Financ it re 5 ‘ I pour l'Industrie 19373 United Match Industries 49% -—-25“'-—?[E_ddy Match Co. - 1927' I 63% ~-~-----’ Canadian Match . (z—‘ -itgzid_Me.t_ciz___ ’—-- \ ——————————— 2.3. Eddy factory ‘ Dominion Match .‘ [Companhia Fiat 97$ ,pa Lux (Brazil) I : 1927 o/ ’ \L i L ______ ‘ __________ _/’ 2/3 ‘9l018 Fosforera Columbiana centre 1927 [Pederal Match Co. Pty. (AustraliaZFE‘--"J M.A 3.x E T A L L O C A T I 0 N Qiglggg_flgtgh British Match Swedis Mat 3 British Isles 3 United States 3 British Commonwealth 3 Continental Europe 3 outside Asia 3 Asia 3 Canadax 3 Trinidad 3 3‘ Australia - M.Z. 3 3 Brazil 3 Spanish America 3 Argentina 3 3 Colombia 3 3 Africa 3 Match in 1956. x Diamond sold its interest in Eddy . \I ,r I i A A, . .. v. a .\‘ v o‘e- . A ‘ .1; ..r . i t ‘ .. re! .s A . .i I. 1 9 . ., r . .... 1. . . - _ I 7. 3 . .— ... . ., . a. a c , .V ._,L 3 9‘ i, gli‘; _L Hing It 0. a! ., . t C 1 . I. x. .H . f s I l- I‘ 5 \ . . r a .1. 3...»!!‘3 ,_ t .. r a. '| IL we r )r L t. .t r e U . u ' .. . . V .‘a i .. T V I n O r. r . . \ n I . . r O I c 2 e \ \ vply A J 1 t r r a.‘ C ea ea . . t V. c n. . . I.) t . e, t \. -ovcn-a .0 O. Q. 1. 2. 3. A. 5. 7. 8. 9. 10. 11. - 98 - £32m, Ch. 1, p. 12; Che 2, p. 23a Canadian Match Report, p. 7. British Match Report, para. 16, 20. Isaac F. Marcosson, "The Match King," Saturdgz Evening Post, Oct. 29, 1929, PeLe supra, ch. 2, p. 26. Parliamentary DebatesI House of Commons, Apr.20, 26 and 27, 1371, cols. 1414-16, 1723, 1775-76. New York Times, May 24, 1927, p. 26. Supra, ch. 3, p. 48. British Match Report, par. 20. Marcosson, p. 233. United States of America vI The Diamond Match Compggy et a1. April 9, 1946 Civil No. 25'397, U.S. District Court, S.D.N.Y., Complaint, pars. 40, 41; Answer, pars. 40, 41. £22££3 Ch. 33 P0 470 British Match Report, para. 26, 75, 96. Canadian Match Report, p. 14. ‘ Civil No. 25-397, Answer, pars. 35, 99. EEpQrt of , Sub-Committee Appointed g: the Standing Committee on the Investigation of Prices to Enguire into the Price of Matches (end. 924 3 1920), p. 10. British Match Report, pars. 19, 22, 122, 125. supra, ch. 2, p. 29; ch. 3, p. 49. British Match Report, para. 18, 23, 24, 138, Appendix 2. Civil No. 25-397, Complaint, par. 51; Answer, par. 51. British.Match Report, par. 28. IEE£§3 Che 3' PP. 48'503 Ch029 Po 36- British Match Report, pars. 26-28, 30, 32, 37, 138, Appendix 11s Canadian Match Report, p. 9. Civil No. 25-397, Complaint, pars. 54, 55, 57, 58; Answer, pars. 54’ 55, 57, 58, 59a Balfour Committee on Industry and Trade; Factors in Industrial and Commergial Efficiency, Part I of a Survey of Industries, H.M.S.O., London, 1927, p. 114. Balfour Committee on Industry and Trade, p. 85. .1114?! gal-......iialia _ 313. 315. 1L6. 3L7. 18. 19. 20. :21. :22. 23. 24. 25. 226g flflflzfi, Che 3, PP. 499 50s British Match Report, para. 31, 66, 72. Canadian Match Report, pp. 14, 15, 18. Eddy Match Case Transcript, vol. 12, pp. 2902, 2911, 2913. Civil No. 25-397, Complaint and Answer, para. 54, 55, 57, 58. British Match Report, par. 35. British Match Report, pars. 26, 27, 29, 32, 35, 36, 40, 48. Civil No. 25-397, Answer, para. 56 and 57. Civil No. 25-397, Complaint and Answer, pars. 67, 68, 70-73, 713, 75-78e Fortune, May, 1939, p. 170. New York Times, June 24, 1932, p. 27. supra, ch. 3, p. 61. Civil No. 25-397, Complaint, par. 88; Answer, pars. 79-84, 86, 87, 88; Final Judgment, pars. 3-5, 15, Appendix A. New York Times, Dec.4, 1932, II, p. 5. pupra, ch. 2, p. 34. British Match Report, pars. 33, 37, 48. New York Times, Nov.30, 1932, p. 27. , Jan. 7, 1934, II, p. 7. Mar. 6, 19349 P. 90 Mar. 10, 1934, p. 3. Apr. 6, 1935, p. 27. May 24, 1935, p. 31a .... British Match Report, pars. 34, 49, 51, 65, Appendix 4A, sec. 12. British Match Report, para. 40, 41. British Match Report, par. 66. British Match Report, par. 67. Ihp Timeg, Sept. 29, 1955, p. 14. supra, ch. 2, p. 26. British Match Report, pars. 77-83. British Match Report, par. 85. Canadian Match Report, pp. 38, Civil No. 25-397, Answer, per. 105. 102. British Match Report, par. 88. British Match Report, para. 38, 138-41, 144, 145, Appendix 7. 147, 199, (x 27. 28. 29. 30. 31. 32. 33. ‘34. - 100 - British Match Report, pars. 133, 148. British Match Report, para. 14, 142, 166. British Match Report, pars. 42, 130, 131. British Match Report, Appendix 5. Parliapentary Debates.gHogse of Commopp, 25 June 1953, cola. 2076-77. ”More Red Matches,” Economist, Aug. 1, 1953, p. 346. British Match Report, Appendix 4. British Match Report, pars. 118-23, 127, 128, Appendix 3. supra, Ch. 2, pp. 349 35) 38, 39a British Match Report, par. 89. ‘ i! 1 Chapter 5 The independent growth of the English Common Law, indig- eanous and less and less influenced by Roman and Canon Law, stemmed :in great part from the judicial reforms of Henry II. The Assize <>f Clarendon in 1166, marking the institution of itinerant .Justices who would shortly be making almost yearly visits through- <>ut the realm, marked a turning-point. The growth of the Common ILaw, by precedent from year to year based on the successive decisions of the king's judges, had well begun.1 The vigour of 'the opposition of the common law to monopoly and restraint of ‘trade gives it relevance for this study. In the common law lay ' the origin of the right to compete.2 That vigour was much evident during the reign of Queen Elizabeth, who had become pleased with the abundant treasure to be found in royal grants of monOpoly. One such grant gave a courtier Edward Darcy, in return for an annuity, the sole right to make playing cards in England for a term of 21 years. In spite of that royal monOpoly grant to Darcy, another man,Allen, caused playing cards both to be made and to be imported. In the - 102 - resulting lawsuit the monOpoly license was declared unlawful. ‘There has been little improvement on the statement concerning the monOpoly problem found in that case. The sole trade of any mechanical artifice, or any other monOpoly, is not only a damage and prejudice to those who exercise the same trade, but also to all other subjects, for the end of all these monopolies is for the private gain of the patentees; and although provisions and cautions are added to moderate them, it is folly to think that there is any measure in mischief or wickedness: and, therefore, there are three inseparable incidents to every monOpoly against the commonwealth. First, that the price of the same commodity will be raised, for he who has the sole selling of any commodity, may and will make the price as he pleases. . . . The second incident of a monOpoly is, that after the monopoly granted, the commodity is not so good and merchantable as it was before: for the patentee having the sole trade, regards only his private benefit, and not the common wealth. Third, it tends to the impoverishment of divers artificers and others, who before, by the labour of their hands in their art or trade, had maintained themselves and their families, who now will of necessity be constrained to live in idleness and beggary. Trhe apposition of the common law to monOpoly is here focussed lipon monOpoly created by an act of the ruler. Private efforts at :restraint had been and were being equally condemned. If there ‘were to be restraints on trade, they were to arise in Parliament. That staunch position was reinforced in the reign of James I by the famous Statute of Monopolies, which declared, "all MonOpolies . . . are altogether contrary to the Laws of this Realm, and so are and shall be utterly void and of none Effect, and in no wise to be put in Use or Execution." Provision was made that persons 'hindred, grieved, disturbed or disquieted" by monOpolies I'shall recover Three Times so much as the Damages which he or they sustained.'4 In less than 100 years a breach 11"" - 103 - ‘wes made in the apparently impregnable well against monopoly. Reynolds had leased a bakery to Mitchell for five years 33nd undertaken not to carry on the trade of baker during that time \vithin the parish. There was a penalty of £50 for breaking the agreement. Mitchell brought suit because of Reynolds returning to lacking. The defendant pleaded that the bond was void because it rose a restraint on trade. The court held the bond and its res- traint good, declaring That to obtain the sole exercise of any known trade throughout England, is a complete monOpoly, and against the policy of the law. That when restrained to particular places or persons (if lawfully or fairly obtained), the same is not a monOpoly. That it is lawful upon good consideration, for a man to part with his trade. That no man can contract not to use his trade at all. ‘Voluntary restraint of a man's working his lawful trade was firmly defended by the court in these words, '. . . a man may, by his own consent, for a valuable consideration, part with his liberty."5 1A parish was a narrow confine to a monopoly, but it was wider than a ban. That smooth sailing did not lie ahead for mon0poly was manifest in the middle of the eighteenth century in a matter con- cerning separate pr0prietors of salt works in Droitwich. They had lnade an agreement, under penalty of £200, not to sell salt under 1a certain price which exceeded the price then received for it. Although the articles of agreement had been subsequently cancelled, the court granted an information regarding the affair. Lord Mansfield declared, that if any agreement was made to fix the price of salt, or any other necessary of life (which salt emphatically was), by peeple dealing in that commodity, the Court would be glad to lay hold of an Opportunity, from what quarter soever the complaint came, to shew their sense of the crime; and that at what rate soever the price was fixed, high or low, made no difference, for all such agreements were of bad conse- quence, and ought to be discountenanced.6 There had not yet been any giving ground with respect to fixing prices by agreement, an activity of considerable fascination to many engaged in various businesses. The frequent calls on Adam Smith in defense of private enterprise being left to its own devices make most illuminating some examination of the Scot's observations on merchants and menu- facturers. He considered that, although they had frequently persuaded others that their interest was the public interest, the merchants' judgment was actually much better regarding their own interest and, at the same time, was not always given with the greatest candour. Concluding them to be an order of men "who have generally an interest to deceive and even to cppress the public, and who accordingly have, upon many occasions, both (Seceived and Oppressed it,“ Adam Smith held that any preposal :from dealers nought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but ‘with the most suspicious attention." The idea of some restraints being valid, prepounded in the case of the bakers,7 had had no discernible effect on his 1776 appraisal of the merchant and competition. The interest of the dealers, however, in any particular branch of trade or manufactures, is always - 105 - in some respects different from, and even Opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefét, an absurd tax upon the rest of their fellow- citizens. The champion of free enterprise was thus renewing the plea for competition and sounding the alarm against restraint of trade at the close of the eighteenth century. Private firms could well be ‘left free of government interference whenever competition had destroyed their separate abilities to “deceive and oppress'I the ‘public. Bis firm charge to view with the "most suspicious attention' preposals from dealers would have come to he sometimes dishonoured by the public's gullible assent. The confines of the validity of a partial restraint were gradually being widened by the shifting Opinions of the iBritish justices. A late eighteenth century common law case concerned a surgeon and his assistant. The defendant Mason had been taken on as an assistant to a Thetford surgeon, to remain so at the pleasure of the plaintiff, under a £200 bond not to :practice himself within ten miles of the town fbr fourteen years after leaving the service of the surgeon. Dismissed after two years, Mason did not keep his undertaking. The court ruled for the plaintiff, holding the bond good in law. The court's con- ‘viction in the matter was expressed in the words of the chief Justice: w . t J 1 c J . .3 r . .‘ . 1 fl . . . 1 . . . . 0 'x r O . .4 . 1 .w . ... . I . . u .3 I , r u r . -. . . L . 1 a t . ’\ _ V i . f O 1 . r v . . '- a I 1 1 U V . U 1 I V. 1 v I t e, A r t I . . . . I _ $1.. ralfl. sushi-...»l-sllts . lean-“1.. all... ”-4,. .x . x 4 ‘ “I"V ~ m“ V: - 106 - This question has been at rest ever since the case of Mitchell v, Reynolds. A bond in restraint of trade cannot be arbitrarily taken, and without consideration; some consideration must appear. But here, the plaintiff being established in business as a surgeon at Thetford, the defendant wished to act as his assistant with a view of deriving a degree of credit from that situation; on which the former stipulated that the defendant should not come to live there under his auspices and steal away his patients: this seems to be a fair con- sideration for the bond. Then it was objected that the limits within which the defendant engaged not to practice are unreasonable: but I do not see that they are necessarily unreasonable, nor do I know how to draw the line. Neither are the public likely to be injured by an agreement of this kind, since every other persop is at liberty to practise as a surgeon in this town. ‘The common law was displaying some of the characteristics of shifting sand, moving in a changing environment. A further ex- tension of the valid bounds of particular restraints was accomplished within a decade in a case involving London attorneys.10 4A practising attorney relinquished his business and recommended his clients to two other attorneys for the valuable consideration of two separate £1,000 payments and seven yearly payments of .£600. He agreed not to practise within London and 150 miles thence. The larger space and unlimited time may have been thought by the court a gpig ppp,gpp for the more handsome con- sideration. That issue was not raised. The contract was held valid. Three years earlier the law had taken a different turn in regard to two important questions -- monOpoly and the vesting riginal cost of £300 although they were not then worth half that. I?Or that Jollyfe "assumed he would not then any longer keep a Inercer's shOp in Newport." Re nevertheless did and Broad claimed SZSOO damages. One justice dissenting, the court rejected a medieval .judgment that a similar obligation was void, because an element of caompulsion made it inapplicable in this case, and held the shop- lmeepers' agreement good at law for three specific reasons: first, ‘the arrangement was voluntary; second, there was valuable con- sideration; and third, the restraint was confined to a particular Inlace. The plaintiff was awarded £40. That judgment was affirmed lay the justices and Barons of the Exchequer in 1621,14 just two Jrears before the enactment of the Statute Of MonOpolies. The American court had thus reached back for common-law support of its decision much further than was the custom of its (contemporary English counterparts. Running a stage from Boston to IFrOVidence was the subject of the Massachusetts suit. Joseph IRierce had bought for $290 the stage-coach, horse and "privileges benefit and profit" of the defendant, who had been running a stage. For $1 Stephen Fuller had agreed, under penalty of $290, not to :run a stage any longer. Such an agreement was held valid in ‘these terms: Bonds to restrain trade in general are unquestionably bad, as tending to create monopoly injurious to the public. But bonds to restrain trade in particular places may be good, if executed for a sufficient and reasonable consideration. . .1!- :su...a..!1314iflflfi . r - lll - The public appear to have no interest in this question. If the plaintiff did not run his stage, the defendant might run a stage; for it could not be in Opposition to the plaintiff's stage. And it iisindifferent to the public, which of these run a stage. The common-law acceptance of partial restraints of trade was clearly operating on both sides of the Atlantic. Only the precept of Allnutt v, Inglis might mitigate the apparently ominous outlook for competition seen in the Massachusetts court's declaration that the ”public appear to have no interest in this question." That [precept might demand only "a reasonable reward," thereby avoiding the "absurd tax" warned against a generation earlier by Adam {Smith. Such a contingency was not before the court. Two cases, one Canadian and one American, decided in 1871 contrasted the divergent deveIOpments of the common law. An 1844 act of the Houses of Parliament was significant in the Canadian judgment, which extended still further the area in which monopolistic elements might lawfully Operate. That act, effective ion July 4th, abolished in Great Britain the common-law offences of "forestalling, regrating, and engrossing."16 Its influence on the Icommon law was felt in Ontario, which was soon to incorporate in its statutes the Imperial Statute of MonOpolies of James I. It \das perhaps honoured more in the breach than the observance; the life of the Statute of MonOpolies has been long rather than ‘Vigorous. The Canadian Salt Association, comprising 7 companies, had been formed as a domestic sales cartel for the mutual protec- tion of the member companies and for selling salt on terms such “11.....sz . lisp..." .. ._ _ _. v . . .t-‘I.’ - 112 - as to secure as far as possible a fair share for their invested capital. All salt produced was to be sold through the Association. A suit was brought against a member selling outside the group. The defense rested upon the agreement being against public policy because it tended to a monOpoly and was in restraint of trade. The opinion of the court will be quoted in some detail to mark clearly the position that "successive decisions of the king’s (and the queen's) judges" had established. It is out of the question to say that the agreement which is the subject of this bill had for its object the creation of a monopoly, inasmuch as it appears from the ' bill that the plaintiffs and defendants are not the only persons engaged in the production of salt in the province, and therefore the trade in salt produced here by other persons, and in salt imported from abroad, will remain unaffected by the agreement, except in so far as prices may possibly be influenced by it. The objection on this head is rather that the agreement has fer its object the raising the price of salt, and for that reason is illegal, as constituting the old common-law offence of "engross- ing,” or at least is void as being against public policy. The common law which was so severely applied in this case (referring to The Kinggv, Waddington) has since been abolished in England by the statute 7-8 Vic., 0.24; and although I have been unable to discover that any similar legislation has taken place in this country, I cannot suppose that a law which would strike at a vast number of transactions which, with manifest benefit and profit to the community, are daily being entered into without the least suspicion on the part of those engaged in them that they are doing wrong, would now be applied as part of our common law. . . . I must therefore con- clude that long usage has brought about such a change in the common law since the decision in The King v. HaddiggtonI that even if it could be said that the object of the parties to the agreement in question here was to enhance the price of salt, the contract would be neither illegal nor against public policy. Wars I to hold this agreement void on any such ground, I should be laying down a rule, which if applied, would cause great inconvenience in trade, and one, the necessity for which would at this day be discountenanced by all public and scientific opinion. - 113 ' I think a distinction would be found in the consid- eration that here the article, the price of which was to be regulated, was not to be purchased in the market, but was actually to be produced by the parties themselves, and this product they could not be compelled to part with except on their own terms. Then the object of the agreement was not unduly to enhance the price, but as it is expressly alleged in the bill, to enable the parties by concerted action to combat an attempt on the part of foreign producers and manufacturers unduly to depreciate it. I know of no rule of law ever having existed which prohibited a certain number (not all) of the producers of a staple commodity agreeing not to sell below a certain price -- and nothing more than this has been agreed to by the parties here. frhe contract was held valid. As long as some remained outside, ‘the number in such an agreement, be it 20 or 2, was irrelevant. lIt was a partial restraint of trade by equal partners, with no one submitting to the will of a majority. The court had sustained freedom of contract against freedom of competition on the grounds that a contract should not be made void on an opinion of public policy.” The successive judges had carried the common law very :far indeed in two and a half centuries. They had heralded the ilegislative banishment of the common law across the Atlantic and ihad ignored the napping watch-dog from the days of James I. Adam Smithis admonition to view business proposals with the "most auspicious attention" went unheeded. The American case of that same year turned its attention to the coal industry. Five Pennsylvania coal firms had made a contract to divide the two coal regions they controlled, thereby acquiring control of the entire market for bituminous coal in northern Pennsylvania. The court's decision expressed a position in sharp contrast to that of the Ontario court and more in - 114 - keeping with the English judicial position Of the previous century. TThe following part of the opinion begins speaking to the allegation 'that the purpose of the agreement was lowering costs. This is denied by the defendants; but it seems to us it is immaterial whether these positions are sus- tained or not. Admitting their correctness, it does not follow that these advantages redeem the contract from the obnoxious effects so strikingly presented by the referee. The important fact is that these companies control this immense coal field; that it is the great source Of supply Of bituminous coal to the State Of New York and large territories westward; that by this con- tract they control the price Of coal in this extensive market, and make it bring sums it would not command if left to the natural laws of trade; that it concerns an article Of prime necessity for many uses; that its operation is general in this large region, and affects all who use coal as a fuel, and this is accomplished by a combination Of all the companies engaged in this branch _of business in the large region where they Operate. The combination is wide in sCOpe, general in its influence, and injurious in effects. These being its features, the contract is against public policy, illegal, and therefore void. Trhe court indicated that it felt there was a "baleful influence" Eigainst the public in restricting supply and raising prices. It tiddressed itself also to the question of a distinction between in- ciividual and collective acts. The effects produced on the public interests lead to the consideration Of another feature of great weight in determining that illegality of the contract, to wit, the combination resorted to by these five companies. Singly each might have suspended deliveries and sales of coal to suit its own interests, and might have raised the price, even though this might have been detrimental to the public interest. There is a certain freedom which must be allowed to every one in the management of his own affairs. When competition is left free, individual error or folly will generally find correction in the conduct Of others.18 Trhat decision indicates an awareness that combination may set running riot against the public those individual hindrances, which . . L :11 a .1 . v . . v o l A _ A I I , . I u, I A a . . . t . ... - l H J . v , . c . ’ . v. a . . e . a . . v v I . y A i w , I. . . . I O I v . a. .. . 1 a I v o n o . . . ‘ Ox \ r o v t l a r I . . 9 o o x . . .. . 1 A . O . . 4 4 fi p t v . t l v . . 0 . . e i o I. o w . . I n ' . .\ . .v . . 4 I O. . , . . V. v a . (I . . x o . o . l J I 4 ’ A . . . . ..l I a O. y A . a! l4 ., . .:..a. p... - 115 - m1<>u1d be separately and unaided by concerted action of small avail. 713119 combined danger goes beyond the simple sum of the little dangers. "The combination is wide in scOpe, general in its influence, and injurious in effects." At this same period the 1870 Constitution of the State of lEllinois had declared "all elevators or warehouses where grain or (ather property is stored for a compensation, whether the property ‘tw kept separate or not, . . . to be public warehouses." An act of ‘the legislature the following year set maximum rates for storage and handling. Munn and Scott Operated a warehouse, public under ‘these legal circumstances, in Chicago without the proper license Ior bond; they charged rates higher than those established by the 1871 law. The lawsuit was an attempt to put into effect the ‘business proposition that government interference was not to be countenanced. The 14 Chicago grain warehouses, owned by about 30 persons, were controlled by 9 firms, which.had got into the knack of charging agreed rates that were published each year. The court maintained that '. . . it is apparent that all the elevating facilities . . . may be a 'virtual' monopoly." Setting forth that the common law supported the Illinois legislation, the court held that the facts of the situation, irrespective of constitution or law, endowed the business with a public interest. The power to regulate under such conditions was explained by the court. Undoubtedly, in mere private contracts, relating to matters in which the public has no interest, what is reasonable must be ascertained judicially. But this is because the legislature has no control over such a contract. SO, too, in matters which do affect the public interest, and as to which legislative control . 1...: n!" I‘\. -116 - may be exercised, if there are no statutory regulations upon the subject, the courts must determine what is reasonable. The controlling fact is the power to regu- late at all. If that exists, the right to establish the maximum of charge, as one means of regulation, is implied. In fact, the common-law rule, which requires the charge to be reasonable, is itself a regulation as to price. Without it the owner could make his rates at will, and compel the public to yield to his terms, or forego the use. That was certainly an acceptance of the common-law position in 1800 in Allnutt v. Ingliszo and possibly an extension. It was an Old legal principle given new effect. The common law was now appear- ing to be in more vigorous Opposition to monOpoly and its attendant abuses in the United States than in Canada. The successive British decisions were continuing their design of grander provinces Open to particular restraints of trade. ‘An 1880 decision of some interest covered the whimsical but pro- .fitable world of champagne. It was sought to restrain by injunction 1! nephew, departed from the family importing firm, from represent- ing any other champagne house for 10 years. That scheme had earlier enjoyed the nephew's approval. He was now, however, look- dllmg to other champagne provinces. The court denied him in these terms, enhancing the maps of particular restraints: There is no absolute rule that a restraint of trade which extends to the whole kingdom is void. The question Of extent is really a question of reasonableness, and the reasonableness must vary with the facility of the means of communication. If a trade is carried on over a wide extent, either through a whole country or through a whole continent, there is nothing unreasonable in the restraint being equally extensive.21 An injunction restrained nephew Rousillon from importing champagne into Britain for 10 years. The entire world of champagne was encompassed now by the accomodating common law. afigmui‘flflr‘ ; w . . .._> nl‘vi In. ., r 9 n x . A: v. a c F , u. a .1 .., Lina - 117 - A more notable historic figure played a part in impel- ling judicial attention tO the broad affair of conspiracy. Charles Stewart Parnell and his colleagues showed no concern for restraints of trade; they had more active involvement in conspiracy. The court outlined the tenet that a combining converts private wrongs, with their customary civil remedies, into public wrongs which enter the criminal sphere, extending properly tO the prevention Of their recurrence. That principle has relevance, of course, in a study of Canadian, or American, policy toward the entire problem of monOpoly and of trade restraints in particular. On the question of the law of conspiracy, the court stated, . . . it is not intended to confine the definition to an act that would in itself be a crime or an Offence; but that law extends to and may embrace many cases in which the purposes of a conspiracy, if done by one only, would not be a criminal act, as for instance, if several combined to violate a private right, the violation Of which would be wrongful if done by one, though not in itself criminal. . . . Conspiracy has been aptly described as divisible under three heads-~where the and to be attained is in itself a crime; where the object is lawful, but the means resorted to are un- lawful; and where the object is to do injury to a third party or to a class, though-if the wrong were affected by a single individual it would be a wrong but not a crile. ' In contrast with American antitrust action, which may move for- ‘uard by either civil or criminal proceedings, the Canadian anti- combines policy is effected Only through criminal proceedings. TThe basic statute lies in the Criminal Code, a field reserved to ‘the Dominion Government. There is found in the "cease and desist" 'orders and the consent decrees of the United States more flexibility, which may, of course, bend more than one way, in accomplishing the L1,!- ~.L gig I... .... .run. .‘vl - 118 - prevention of a recurrence of acts or arrangements that have been established as undesirable. Before entering further, however, into the statutory means of carrying out public policy, it will be useful to sum up the legal and judicial position regarding monOpoly and restraint of trade, and to sketch the economic developments, which prevailed at the time Of the historic enactment of the original Canadian and American laws. The English common law ban on all restraints of trade, arising in medieval times, had become less than universal. Its denunciation of monopolies created by government had received statutory support. From lack Of application that statute of James I was becoming drastically weaker, perhaps moribund. At the very moment monopoly was being declared against the public interest because it brought about higher prices, poorer quality, and the reduced incomes accompanying unemployment, particular restraints of trade were being found valid--but a slight breach in the defence of competition. The issue generally concerned a private, restrictive contract and was usually raised by the aggrieved ;party seeking enforcement. The violator, in an aptly cunning way, often sought refuge in the defense that the restraint was against ;public policy and therefore void. Such a finding by a court unant the contract was unenforceable and, by way of'a prize for the ruse, not actionable. In spite of its apparent temptation, that course of action for the repudiator was not too frequently ‘wise; the justices were accepting without compunction restrictions ‘of wider and wider compass, especially in affairs between vendor - 119 - and purchaser. The aggrieved ones had neglected their Latin, gayggt empto . Valid restraints were simply being extended as trade was ranging further and further. At least by the early nineteenth century American judges were adopting a similar line of reasoning. New state laws defining areas of conspiracy were at the same time introducing new limits to the sOOpe of restrict- ive covenants that would be enforced. Aside from that mild check, the courts persistently found valid contracts in restraint of trade, once they were satisfied that the terms were reasonable in regard to the interests Of the parties; they did not find such contracts against public policy and hence void, even though reasonableness with respect to the public interest was declared criterion in such cases. From the mid-eighteenth century when the activities of ‘the Droitwich salt producers had elicited Lord Mansfield's dictum ‘that agreements fixing price, high or low, "were of bad conse- r decry the Price of any Goods or Merchandise."23 The outright - 120 - banishment Of these sturdy curtailments to the monOpolists came about in large part through default, by the customarily severe penalties being imposed less and less frequently. Historians have been typically silent on the r810 that the rising business interests may possibly have played in this statutory repeal of the common law. There may have been differences between the interests Of Ibusiness and the public interest.24 After a seemingly hOpeful but fruitless search for a like repeal in his country, a nineteenth century Canadian justice, in another “salty“ case, drove Off the common law protection against enhancing price on the grounds that otherwise too many current transactions would be affected. He fortified that astonishing position with the Observation that monOpoly could not have been the object Of the 20 salt producers concerned, because it had not been completely accomplished. As well as being left unhindered in their combining, the Ontario salt manufacturers were thus praised implicitly fOr their unquestioned ability to reach their self-appointed goals. And an extra pathway was shown to prospective monOpolists--producers are distinguished from mere marketers in that the former may do as they like with their own manufacture. The beginning of the nineteenth century in England saw the firm establishment of the principle that private prOperties enjoying government franchises -- duty-free warehouses, docks and the like -- were vested with a public interest. As long as that public interest survived, because of the particular use Of the private prOperty, regulation was the right, if not even the duty, ‘ ... . 41,. In”. -I\ - 121 - of the government or the courts in order to prevent the private levying Of Adam Smith's "absurd tax.“ American adOptiOn of that precept took on much wider significance, holding that private property, not always endowed by government with any special position, once invested with a public interest because of its economic position or an apprOpriate use, was clearly Open to re- gulation, extending to the specific form of price control.25 In some contrast to the nineteenth century Canadian position, there were American decisions setting forth that the act of combining made unlawful some acts that would in an individual have been detrimental to the public but nevertheless not preventable. The combining was the essence of the offence. English agreeing, restraining, and combining continued space only mildly checked by judicial rulings; many former bans had become ghosts. Adam Smith's powerful indictment of the governmental interferences of mercantilistic times unleashed strong forces worshipping his "unseen hand." The mood of the time leapt over his stern warning of the likely conflict of interest between business and the public. But for him competition was the gigg gua nog of uncontrolled private enterprise; that was what des- troyed the ability of individual businesses effectively to deceive or Oppress the public. That vital heart of the rationale of free enterprise was overlooked. As any lingering suspicion that private good and public good do not necessarily melt into one general good waned, the early restraints on the corporate form of conducting business were discarded. The English consolidation in - 122 - 1845 Of laws regulating companies was silent on the crucial matter of one company owning shares in others.26 In the United States, almost at the very moment the trust device, so vastly useful in promoting monOpoly, was being weakened in the public interest, the State of New Jersey broke new ground in 1888, in what was to become a competition in laxity among the states, with a law permitting a corporation to own stock in other corporations. The holding company had been born. The knell of the Old companion Of monopoly truly sounded the debut Of a sturdier ally -- an unheeded tocsin for the public. That was also the year of a Congressional investigation Of trusts. Although the first great wave Of combining in the United States was to come at the turn of the century, the early ones were much in evidence before the Sherman Act. To cite but a few for illustrative purposes -- Pennsylvania coal had fallen into the hands of a few by the 1870's; the Standard Oil trust controlled about 90 per cent of the industry by 1882; the "meat trust" was catalytic in the Congressional action that produced the Sherman Act; the Diamond Match consolidation Of virtually the entire industry soon after 1880 was a phenomenon described by ‘the Chief Justice of the State of Michigan as "destructive of free institutions” and "repugnant to the instincts of a free people." ‘British combination was to be essentially a twentieth century phenomenon, although it is of interest to note at least a single nineteenth century achievement. The first British joint-stock industrial consolidation was the Salt Union of 1888, which had - 123 - acquired control of 90 per cent of the industry in the United Kingdom. Much had been done since the Droitwich pronouncements of 1758. Strong beginnings had been made in Canada in such products as newsprint, coal, groceries, barbed wire, coffins, and in fire insurance, although the first flood of combinations was to come at the end Of the first decade Of the twentieth century.27 The process of monopolising was under way. There was no automatic governor, which would halt the process as it accelerated. If the results were inimical to the public interest, then com- bining to achieve those results would necessarily be criminal in a world Of Anglo-Saxon legal history. Did a remedy lie in the common law indictment of criminal conspiracies? MonOpoly and its denunciation had been living in the world together too long to make tenable the thesis that an adequate remedy could be found in the common law. The proscriptions needed to be more definite and exact, independent of the shifting economic outlook of the judges. Legislation should define the crime and prescribe the penalty.28 3. 4. 5. 9. 10. 11. 12. 3L3. Z1.5. JLéu, 21:7. 3L8. 319. :20. 21. 22. - 124 ' C.W. Previte-Orton, The Shorter Cambridge Medieval History, 2 vols., Cambridge University Press, England, 1952, pp. 606, 805 et passim. Vernon A. Mund, Government and Business, Harper and Brothers, New York, 1950, p. 56. Darcy 1. Allen (1602) (Moore, K.B. 671) 77 E.R. 1260 at 1263. (1623) 21 Jac. I, 0.3. Mitchell v. Reynolds (1711) (l P. Wms. 131) 24 E.R. 347 at 349-500 The King v.ANorris et a1. (1758) (2 Keny. 300) 96 E.R. 1889. ggpgg‘ ch. 5, p. 103. Adam Smith, An Inguigy into the Nature anZCauses of the flgglth Of Nations, J.M. Dent and Sons, London, 1910, pp. 231-32 (Book I, Chapter x1). Davis vI Mason (1793)(5 T.R. 118) 101 E.R. 69 at 70. Bunn v, 03y (1803) (4 East 190) 102 E.R. 803. Ihe Kigg v. Weddingjon (1800) (1 East 143) 102 E.R. 56 at 67. £3259, ch. 5, p. 102. Allggtt v. Inglig (1800) (12 East 527) 104 E.R. 206 at 210. Broad v, Jollyfe (1619) (Cro. Jac. 596) 79 E.R. 509. Pierce 1. Fuller (1811) 8 Mass. 223 at 225 and 227. (1844) 7-8 Vic., c. 24. Ontario Salt Co. v. Merchants Salt Co. (1871) 18 Ont. Gr. 540 at 541-44 et passim. Morris Run Coal Co. 3.4Barclay Coal Co. (1871) 68 Pa. 173 at 184-87. Mung v, Illinois (1877) 94 U.S. 113 at 114 and 131-34. 2222i: Ch. 59 P0 107- Rougéllog:v.gfiousillon (1880) 14 Ch. D. 351 at 355-56. The Queen v. Charles Stewart Parnell et al. (1877-82) 14 Cox 0.0. 508 at 513. 113. 335. £26“ 2?7. 2N3. -125 - (1844) 7'8 Vice, 0. 24, 5.4. supra, ch. 5, pp. 104-105. “Lord Hale and Business Affected with a Public Interest," Harvard Law Review, March, 1930, p. 759. (18‘5) 8-9 V160, Ca 16. A variety of economic history books. flighaggson v. Buhl et a1. (1889) 43 N.w. 1102 at 1110. Report of the Royal Commisgion on Price Spreads, Ottawa, 1935, pa 280 Report of the Royal Commission in re the Alleged Combinatigg Of Paper Manufacturers gnd Dealer; (1902) 1-2 Edw. VII Sessional Paper NO. 53. Arthur M. Allen, "Criminal Conspiracies in Restraint of Trade at Common Law," Harvard Law Review, May, 1910, p. 548. instills-...? ..s- .. p Chapter 6 The absence of any significant British legislation cOp- ing with either monopoly or restraint of trade for more than another half century leaves uninterrupted further examination of the course of the common law, obdurate in the face of rapidly changing economic conditions. The American and Canadian enact- ments, giving expression to the rising concern Over the increas- ing concentration of economic power, seemed to have no discernible impact upon British opinion. There was to be, on the other hand, (considerable impact upon the Canadian scene originating at the trommon law. Early Canadian legislation in this field was to have but slighteffect upon the course of the common law in Canada. English common law was to be especially influential for many more years, because of the fact that the House of lords remained the highest court of appeal in the Canadian judicial system. A decision in 1892 added considerably to the effective scope of valid restrictive covenants, continuing in England that particular aspect of common law develOpment at a time when '1 .i‘ - 127 - Canadian and American legislation was attempting to impose narrower limitations on monOpolistic activities. The suit con- cerned shipping. A shipowners' association, which excluded some shipowners, was regulating schedules and sharing cargoes. It Offered a 5 per cent rebate to shippers for using only ships be- longing to members of the association. On suitable notice members were at liberty to withdraw from the association. One of the excluded shipowners, the Mogul Steamship Company, brought an action, alleging a conspiracy to injure that company. The associated owners had sent extra ships to ports of the Far East where Mogul was looking for business, and Offered reduced rates which were for Mogul unremunerative. It was admitted that this procedure was for the Object Of preventing competition. The judgment of the Court is instructive regarding the common law position. And, upon a review of the facts, it is impossible to suggest any malicious intention to injure rival traders, except in the sense that in proportion as one withdraws trade that other people might get, you, to that extent, injure a person's trade when you appropriate the trade to yourself. The Court considered that line Of argument to be a sufficient reductio ad absurdum to dispose of it as a suggestion of unlawful- ness. The scheme of the shipowners was held to be the lawful carrying out of the lawful Object Of protecting and extending trade and increasing profits. An uncritical appraisal Of price- cutting in combination was set out by the Court. All commercial men.with capital are acquainted with the ordinary expedient Of sowing one year a crop of apparently unfruitful prices, in order by driving ...Hufirsmsnlnlllr in“... .1 I. . ...v. ... 1. i. ..nIIA. .rl .. - 128 - competition away to reap a fuller harvest of profit in the future; and until the present argument at the Bar it may be doubted whether shipowners or merchants were ever deemed to be bound by law to conform to some imaginary "normal" standard of freights or prices, or that law courts had a right to say to them in respect of their competitive tariffs, "Thus far shalt thou go, and no further." There is nothing in the evidence to suggest that the parties to the agreement had any other Object in view than that of defending their carrying-trade during the tea season against the encroachments of the appellants (Mogul) and other competitors, and of attracting to themselves custom which might otherwise have been carried off by these competitors. That is an Object which is strenuously pursued by merchants great and small in every branch Of commerce; and it is, in the eye of the law, perfectly legitimate. There was silence with regard to the economic distinction between Such conduct on the part of an individual and on the part of a monopolistic combination. The Mogul Steamship Company was denied rener} The next British judgment Of note followed in two years. A patentee, in consideration of £200,000 paid to him, transferred 1113 business and patents to a company manufacturing guns and ammunition with the stipulation that he would not engage, directly (Ir indirectly, in such business for 25 years, except on behalf of 'the purchaser. Regardless Of the agreement the seller made busi- iness arrangements with another manufacturer, whereupon the first company sought to have the contract enforced. Reversing the trial judgment, the Court Of Appeal upheld the agreement on the basis that it was no wider than necessary for the company's protection and not injurious to the public interest. The Judicial Committee .. : e.flb~.i.jld; ..u ......th - 129 - (of the Privy Council, recalling that as late as 1793 a county town and 10 miles round was so wide as to be unreasonable but noting also that restrictions may agree with the area in which the ;protection is required, sustained the Court of Appeal and held the agreement valid in a judgment that was to be frequently cited in the future. It appears, however, to me that the time for a new departure has arisen and that it should be now authori- tatively decided that there should be no difference in the legal considerations which would invalidate an agreement whether in general or partial restraint Of trading. These considerations, I consider, are whether the restraint is reasonable and is not against the public interest. In olden times all restraints of trading were considered primfi facie void. An exception was introduced when the agreement to restrain from trading was only from trading in a particular place and upon reasonable consideration, leaving still invalid agreements to restrain trading at all. Such a general restraint was in the than state of things considered to be of no benefit even to the covenantee himself; but we have reached a period when it may be said that science and invention have almost annihilated both time and space. Consequently there should no longer exist any cast- iron rule making void any agreement not to carry on a trade anywhere. The generality of time or space must always be a most important factor in the consideration of reasonableness though not per se a decisive test.2 Widening commercial activity could bring justification for broader and broader restraints of trade. Recalling that the eighteenth conduct of salt producers had elicited a court dictum against price-fixing gives special interest to a later lawsuit involving salt. A combination, successor to the Salt Union Of 1888, regulating the supply and keeping up prices, had practical control 0f the inland salt market in England. The Electrolytic Alkali Company, not a member of the combine, agreed to sell to the combination 18,000 tons of salt Iw qu‘JH ..Td “ .4, .1N.Junq..ll$ a.— r n ...nps.n\l ‘ r w - 130 - each year for four years at a fixed price and to produce no other :salt for sale. It then sold salt in violation of the contract, en- suing the salt combine to sue for the enforcement of the restrictive agreement. The outsider's defence was weakened by the failure to :rnise directly the question of an illegal contract and the reliance (on evidence showing illegality as against public policy. Court :rules of procedure meant that illegality could enter only if the plaintiff's case indicated that the contract was 3mm illegal. frhe trial judge held the agreement valid. A majority of the Court <3f Appeal ruled the contract void on the grounds that it had to be :read with the agreement to combine. It was then quickly seen to 'be part of a schema for securing a monOpoly and therefore unlawful. It further appeal to the House of Lords resulted in the restoration (of the trial judgment holding the contract enforceable. Although ‘that decision rested partly upon the procedural matters raised by 13he bumbling defence omitting material evidence which could not JLater be introduced, there was another important element, re- tniniscent of the Qatario Salt case:3 In the present case there was no attempt to establish a real monopoly, for there might have been great competi- tion from abroad or from other parts of these islands than the part which was the field of the agreement. TDhe rules of procedure prevented the presentation of evidence that [night upset that judicial conjecture, once the original pleadings 'began with the fatal error of omission.‘ The decision was to be cited on several occasions without qualification. A decision be- comes a precedent, whether or not the barristers were the most able i . . . .4 g 58% - 131 - in the realm. Scant import was attached here to the impact upon a potential competitor of the element of combining or conspiring by the members of the shipping ring. There was evident an insensi- tivity to the substantive change in the effect of an act, such as sending in more ships, because of it being in concert, not individual. That the courts, making decisions at common law, would more closely circumscribe the restraints that might be enforced between employer and employee, than those between buyer and seller, was demonstrated in a 1916 judgment relating to the manufacture of hoisting machinery in the United Kingdom. The individual in question had worked for the country's leading concern since leav- ing school at the age of 15. After some years he was in their employ as an engineer under contract, which required the company giving him 4 months' notice and which bound him for 7 years after the and of his employment with the company not to engage in any business connected with the sale or manufacture of hoisting equipment in the United Kingdom. There was a further provision that he was to divulge no company information to outsiders. After leaving the company, he worked for a French competitor when he was unable to find non-competitive work. He joined a Manchester competitor before the 7 years had elapsed. The company then started an action to obtain an injunction preventing him from continuing his new employment. It subsequently dropped its claim under the clause against divulging information. The trial judge declared the restraint reasonable with regard to the firm because of the - 132 - special nature of its work, and one that he would enforce between vendor and purchaser. The restrictive covenant was nevertheless unreasonable with respect to the man and prejudicial to the public and therefore not enforceable. Two appeals left the trial judg- ment untouched, the contract void. Extended quotations from the final judgment illustrate the court's outlook regarding several matters. The initial attempt of the company to bring a claim on the grounds of information being divulged entered the judgment in a prevocative way, suggesting to prospective monopolists the 'wisdom of not trying too hard. The matter, though to a great extent immaterial, since the appellants admit they cannot establish that any breach of this covenant was committed by the respon- dent, or even threatened, is not without some significance inasmuch as it tends to show that what the appellants desired from the first was that the respondent should be restrained from using in the service of some other employer that skill and knowledge which he had acquired by the exercise of his own mental faculties on what he had seen, heard, and had experience of in the employ- ment of the appellants themselves. There was considerable concern eXpressed over the way in \ahich the contract has sought to deprive Saxelby of his most lapprOpriate means of livelihood; in that context the breadth of the restriction was deemed 'oppressive.‘ If that is what is meant, then such Oppression, if it existed, does not concern him alone. The general public suffer with him, for it is in the public interest that a man should be free to exercise his skill and experience to the best advantage for the benefit of himself and of all those who desire to employ him. And, in cases like the present, the public interest in res- pect of such restrictions and the interest of the covenantor if they are not coterminous certainly overlap. In giving recognition to the strife between the rights . .- a. . I... juafluaxflafi 1.“. . . “...... - 133 ' of competition and of contract, the court stated that "no person has an abstract right to be protected against competition per se in his trade or business.‘ The onus of establishing the reason- ableness of a restraint rests on the person so alleging; that having been satisfied, the onus of establishing that such a contract is injurious to the public and hence void rests on the person so alleging. The court drew a definite distinction be- tween a sale involving goodwill, which is enhanced in value by restrictive contracts, and the employer-employee relationship. Trade secrets, the names of customers, all such things which in sound philosophical language are denominated objective knowledge--these may not be given away by a servant; they are his master's property, and there is no rule of public interest which prevents a transfer of them against the master's will being restrained. 0n the other hand, a man's aptitudes, his skill, his dexterity, his manual or mental ability-~all those things which in sound philosophical language are not objective, but subjective--they may and they ought not to be relinquished by a servant; they are not his master's prOperty; they are his own prOperty; they are himself. There is no public interest which compels the rendering of those things dormant or sterile or unavailing; on the contrary, the right to use and to eXpand his powers is advantageous to every citizen, and may be highly so for the country at large. UDhis discountenancing of restricting the availability of a man's 1balents to advance himself and the welfare of the community offers In contrast to some decisions that have already been examined. frhs court stated the basis underlying cases concerned with restraints, which may shed some light on the apparent inconsis- tencies: . . . when such an agreed restraint is made the basis of a claim for injunction, (1.) it is not enough to table the agreement; (2.) facts and circumstances must be set forth which would warrant the law being invoked, - 134 ' and the statement of these facts and circumstances must set out the specialties affecting the relations of parties, or the particular necessities of the case, so as to overcome the presumption which the law makes in favour of the free disposal of one's own labour; (3.) if such facts and circumstances be relevantly set forth, the onus of proof is upon the party averring them to satisfy the Court of their sufficiency to overcome the presumption; while (4.) as the time of the restriction lengthens, or the space of its Operation extends, the weight of that onus grows. ‘ 'Ihe attention of the court was directed more closely to the problem (of monopoly by the citing of Mitchell v. Reynolds (1711) 24 E. R. 347 at 350: The true reasons of the distinction upon which the judg- ments in these cases of voluntary restraints are founded are, let, the mischief which may arise from them, let, to the party, by the loss of his livelihood, and the subsistence of his family; 2ndly, to the public by de- priving it of an useful member. Another reason is, the great abuses these voluntary restraints are liable to; as for instance, from corpor- ations, who are perpetually labouring for exclusive advantages in trade, and to reduce it into as few hands as possible; as likewise from masters, who are apt to give their apprentices much vexation on this account, and to use many indirect practices to procure such bonds from them, last they should prejudice them in their custom, when they come to set up for themselves. Ila holding out that case to be the “most outstanding and helpful £3uthority,” one of their lordships described the decisions vary- ing, at least on the surface, over the years in terms of the Iprecedent laid down by the judgment in Mitchell v. Reynolggz These principles, my Lord, are far-reaching and enlightened. In my opinion they may have been now and than in the course of hese two centuries obscured; they have never been lost. ‘That might almost be taken as an announcement of the revival of the earlier common law indictment of restraints of trade after a 4, ...N A - 135 ‘ 'time Of obscurity so great as to seemingly fOreshadow oblivion. lFor although a partial restraint was approved by the court, it ‘was narrowly construed. The dangers of voluntary restraints of 'trade were described by this "most outstanding and helpful authority" to include the perpetual efforts of corporations to secure exclusive advantages and to confine the industry to as few hands as possible. In spite of these resounding pronouncements, the common law was shortly to play no part at all during the creation of such vast consolidations in the 1920's as Imperial Chemical Industries. Direct acquisition of competing properties 'uas not to come under the indictment of conspiring to eliminate competition. The next landmark case faced the significant economic question of freedom of entry but was, unfbrtunately for the de- sirability of a concise judgment on that specific issue, clouded by the parties coming to court with unclean hands. The National Federation of Retail Newsagents, Booksellers and Stationers was f the latter. Failing action by any such attorney-general deemed required by the Governor in Council, the Solicitor-General might Ibermdt an action. That did not prove to be a source of useful activity. The special remedies with respect to customs and ;; underlining supplied. - 201 - patents were continued. The two acts of 1919 were repealed. The inadmissibility of evidence produced during an investigation at any subsequent criminal proceeding was a defect of the law. A year prior to the passage of the Combines Investigation Act the Attorney-General for Ontario had brought "an action23 of a very novel kind," against the Canadian Wholesale Grocers Associa- tion, seeking a declaration that the defendants had entered into a combine, in violation of section 498 of the Criminal Code and of the common law, the dissolution of the combine and an inJunction to restrain the defendants from acting to continue the combine or to continue unlawful price agreements. A testimony to the dura- bility of the causes for the agitation in the 1880's came from the fact that charged with entering into understandings with the wholesale grocers were the only two Canadian manufacturers of starch.24 The court ruled that none of the alleged restrictive arrangements were actionable at common law and went further to strike down the plaintiff's plea for an inJunction, on the grounds that no public or private right existing independently of the provisions.of the Criminal Code was invaded or threatened -- that is, even granting the acts were crimes under section 498, every crime is not necessarily also a tort.25 In dismissing the civil action, the court stated that it would be imprOper to make a .finding in regard to the possible criminality of the acts charged. That was to settle the matter of inJunction for some years. Under the first Registrar, Harry Hereford, three Iinveatigations examined conditions in regard to fruits and AV ,C [Q - 202 - vegetables in Western Canada, coal in Winnipeg, and potatoes in New Brunswick. There was a finding of no combine with respect to coal, a detrimental combine in the fruit and vegetable busi- seas, and an aggressive market development for potatoes by one Guy B. Porter, which was working against the interests of the growers. After receiving a submission from the Minister of Labour the Attorney-General for New Brunswick took no action; neither was there action by the Dominion government. Upon receiving submissions from the Minister regarding the fruit and vegetable situation in Western Canada, the western Attorneys-General requested a Dominion prosecution which was successfully undertaken, bringing a conviction of A officials and 4 companies of the Nash organisation from Minneapolis. The machinery of the new combines legislation had worked effectively. The Jobber-broker relationship was closely scrutinised and found detrimental. The original complaint had been by 6 residents of British Columbia. The convictions, however, rested upon fraud and secret commissions, not upon section 498 or the Combines Act. Each company was fined $25,000 and each individual $25,000 and l day!s imprisonment. British Columbia and Saskatchewan passed legislation governing sales on consignment, and the Bash organisa- tion was reportedly Operating solely as a jabbing concern.26 A former personal secretary to Prime Minister W. L. Mackenzie King became the new Registrar in the autumn of 1925. F. A. McGregor's first report made a finding of no combine in tin sale of bread in Montreal. A second 1926 investigation into the - 203 ' marketing of fruits and vegetables in Ontario was conducted by a commissioner, Lewis Duncan, who had done a similar work in Western Canada. Although he found no contravention of the Combines Act, he reported that certain marketing conditions and practices were prejudicial to the interests of producers and consumers. The remedy was provided by the Ontario Fruit and vegetables Consign- ment Act of 1927.27 There was sufficient flexibility to effect some remedies without litigation. An investigation begun by the Registrar in 1926 into the acti:ities of the Proprietary Articles Trade Association (PATA), a group of manufacturing and retail druggists, led to certain im- portant constitutional questions. Although the.Minister of Labour supported the Registrar, to avoid possible criticism after PATA complaints about fairness be appointed in 1927 L. V. O'Connor, whose report as commissioner was made public in October. Both the Registrar and the commissioner reported a combine. Prices had been raised and were likely to be raised again. PATA, the Attorney- General for Quebec, the Attorney-General fbr Ontario, the Amalgamated Builders! Council and the Amalgamated Clothing Industries Council challenged the constitutional validity of the anti-combines laws. To clarify the situation more speedily the Governor in Council referred the question to the Supreme Court of Canada. The unanimous ruling was that both the Combines Investigation Act and section 498 of the Criminal Code were igtgg mg the Parliament of Canada under the reservation thereto of 'The Criminal Law, except the Constitution of Courts of Criminal - 204 - Jurisdiction, but including the Procedure in Criminal Matters.'28 The first three named of the challengers in the Supreme Court reference carried the matter to the Judicial Committee of the Privy Council. The Boggg of Commerce case was distinguished in that the finding of invalidity had arisen from the provisions of the 1919 acts relating to fair prices, not to combines. The Privy Council affirmed the decision of the Supreme Court, finding that section 498 and most of the Combines Investigation Act were supported under section 91 of the British North America Act, head 27, "The Criminal Law,‘ and that the remedies regarding customs duties and patents were supported under heads 3 and 22, "The raising of’Money by any Mode or System of Taxation' and I'Patents of Invention and Discovery." The Committee spoke to the issue of the regulation of trade and commerce: The view that their Lordships have expressed makes it unnecessary to discuss the further ground upon which the legislation has been supported by reference to the power to legislate under s. 91(2) for “The Regulation of Trade and Commerce.“ Their Lordships merely propose to dissociate themselves from the construction suggested in argument of a passage in the judgment in the Board of Commerce case under which it was contended that the power to regulate trade and commerce could be invoked only in furtherance of a general power which Parlia- ment possessed independently of it. No such restriction is properly to be inferred from that judgment. The words of the statute must receive their proper con- struction where they stand as giving an independent authority to Parliament over the particular subject matter. But following the second principle noticed in the beginning of this judgment their Lordships in the present case forbear from defining the extent of that authority. They desire, however, to guard them- selves from being supposed to lay down that the present legislation could not be supported on that ground.29 It is unfortunate that their Lordships did not face the issue - 205 - directly by basing their judgment at least in part on that power. PATA, comprising about 160 manufacturers, 28 wholesale druggists and 2700 retail druggists, was using resale price main- tenance as its principal weapon, apparently little impeded by the .sr11.r court ruling330 that the restrictive contracts involved were unenforceable. More than 600 articles had been covered in the first price list of PATA. The severe conclusions of the Registrar may be summarised. The effect of the PATA was worse than price enhancement. It restrained the drug business, stereotyping distribution, militating against lower prices, confirming in some cases excessive costs of distribution and selling, penalising the passing of reductions in operating costs on to the consumers, and consequently should be restrained from continuing such conduct. Although the courts had removed any doubt about the validity of the laws, no action was taken regarding PATA on the basis that it was reported the harmful activities had ceased.31 Criminal prosecution and conviction did not always have an enduring effect, possibly because of the lack of the relatively easy route back to court provided by injunction. Slightly more than 20 years after the conviction under section 498 of 2 associations in the plumbing business,32 the professional skills iof Louis H. Singer, K.C., were applied to reinvigorating a more ior less dormant association of plumbing and heating concerns for ‘mn organisation fee of $7,500. After the formation of the Canadian Plumbing and Heating Guild, in 1928 a second association, the Amalgamated Builders' Council, was registered under the Trade . 206 - Unions Act. For directing 3 organisations Mr. Singer received "approximately $40,000 by way of salary, in addition to his expenses." Regarding the Amalgamated Builders' Council, the trial judge held that, ”from its operations it is clearly evident that the purpose of those responsible for its creation and Operation was to avail themselves of any immunity provided by this Act [Trade Unions Act7, and, if possible, evade the provisions of the Combines Investigation Act and the Criminal Code."33 The final outcome of several cases34 was the imposition of a total of $45,200 in fines, the placing of 11 individuals each under a yearls suspended sentence, and the judicial finding that proceedings under the Combines Investigation Act are "incompletely privileged." The registrations under the Trade Unions Act were cancelled at the end of 1929. The conducting of the successful prosecutions by the Dominion government had been at the request of the Attorney- General for 0ntario.35 Of the remaining reports begun during the Liberal admin- istration, one found no combine in bread-baking, one culminated in a prosecution and conviction and one in a prosecution and ac- quittal. Sixteen electrical contractors in Toronto, seven imperating as companies and mine as individuals, associated together in the Electrical Estimators Association, and seven of their representatives were charged under both section 498 and the Combines Act concerning restraint of trade, enhancing prices, and preventing or lessening competition.36 Their chief device was submitting "average tenders,‘ based on the prime cost estimates of - 207 - the members, with an addition of about 17 per cent for overhead and 10 per cent for profits. Such a bid was necessarily always higher than would have obtained with open competition. The element of fraud did not enter the case, although there seemed to be an analogy with Rex v, Simingto .37 Although he found the parties guilty on several counts, the trial judge held that they actually constituted a single offence. Choosing to impose the penalties under section 32 of the Combines Act (where the limits are greater) and stating, “The penalties ought not to be vindictive, but they should be substantial, and under all the circumstances, particularly in view of the prosecution of the Master Plumbers in 1905, and the result of that prosecution, they ought to be exemplary," the judge nevertheless imposed no single fine greater than $2,500 -- a weak example, a mild punishment. The fines totaled $26,500. The case dealing with the motion picture industry38 was the first instance of a difference between the reporting of a combine by the Registrar or a commissioner and the subsequent court decision. The charges were of the customary conspiratorial nature. The parties concerned were exhibitors or distributors and their joint association. As the largest individual customer of the distributors, Famous Players Canadian Corporation was seen to possess a special measure of economic power; that was not, however, particularly relevant to the question of conspiracy. The judge was not satisfied that Famous Players was receiving such a degree of “first run protection“ as to work to the - 203 - detriment of the independents. His remark that, "While Famous Players was enjoying a first run and protection afterwards with one film of a certain picture there was nothing to prevent some independent exhibitor having the same privilege with another film of the same picture in some other district,‘ did not evince com- plete understanding of the economic implications of such schemes. A case was not made to support the alleged conspiracy; all parties were acquitted. The Conservatives returned to office under the leadership of R. B. Bennett, K.C., in 1930. The preparation of 6 reports by the Registrar during the S-yeer Conservative government showed a sharp movement away from publicity as an instrument in combatting combines. Four of the reports were never published. The Attorney- General for Ontario secured the conviction of 15 persons, each of whom was fined $100, connected with a combine in the manufacture of baskets and wood veneer containers for fruits, vegetables and meats. The prices of radio tubes throughout Canada were greatly reduced after an investigation; the Attorney-General for Ontario took no action on the advice of counsel. Nothing came of the studies of gasoline distribution in Ontario and of rubber footwear. 4A report on leaf tobacco, finding no violation of the law but setting forth evidence that the growers were at a serious dis- advantage in their relations to the buyers.39 Although submitted to the Minister on April 21, 1933, ‘the Registrar's report on anthracite coal was not published until 1936, after the Liberals had returned to office. Before the - 209 - report's appearance, two successful prosecutions, involving a total of 10 companies, had been completed. To continue an his- torical anecdote, begun in Edmonton in 1907,‘0 one counsel for the Crown was Louis S. St. Laurent, K.C. That there was some cause for scrutiny of the coal importing business had been urged in the usually tranquil Senate in 1932. Senator Rodolphe Lemieux had stated information reported by a high government official. Coal was $5.30 a ton landed in Montreal; after screening and deliver- ing, the public was paying 816 or $17. His suggestion that the increase was extreme may have been especially interesting to one of his colleagues.41 Senator Lorne C. Webster, "reported to have had an income of more than a million dollars a year in the late 1920's,“2 was an active moving force in the corralling of British coal imports into Canada. The Minister of Labour defended the policy of withholding publication on three grounds: the technical point that it was not mandatory because the inquiry had been by the Registrar not a commissioner, there might be some industice if the courts subsequently found no offence, and in the event of an offence publication might give aid to the offender. Prime Minister Bennett displayed the true nature of these arguments a year later by declining to publish the report site; the companies concerned had been convicted.‘3 The significance of the two coal cases“ involving Senator Webster lay in the feet that one of the charges against the 11 companies (one of which was found not guilty) came under lthe Combines Act, section 2, sub-section (l)(b), which dealt with a - 210 - acquisitions operating or likely to Operate against the interest of the public. For the Ontario and Quebec market no domestic anthracite was available and supplies were imported from the United States and, at somewhat lower prices, from the British Isles from'Uelsh and Scottish fields. Until the government embargo of February 28, 1931, Russian imports were also available. That the companies, with the exception of the Webster-owned St. Lawrence Stevedoring Company which was acquitted, had acted in concert “to unduly limit the facilities for transporting, supplying, storing 'and dealing,‘ and 'to have the effect of preventing and lessening competition in the purchase, barter, sale and supply of coal and coke," in contravention of section 498, and, further, in contra- vention of the Combines Act, because of the detrimental preventing and lessening of competition, was firmly established in both suits. five companies of the webster group were fined a total of $30,000; the other five were fined a total of $16,500. Evidence in court showed clearly that Senator Hebster had played a most active part in the many negotiations entered into for the establishment and maintenance of control of the market. At the same time, however, the court rejected the argument that the acquisitions operated or were likely to operate to the detriment of the public. Common ownership of several companies was ruled hot to come under the legislative ban of section 2, subsection (1)(b). The acquisition of the various coal retail fir-s was not brought under the ban of the Combines Act for two reasons. First, some had been acquired to protect accounts '_‘ - 211 - receivable. Second, the acquisition of a few of more than 400 retailers in Montreal could have but small effect on the trade. The purchase of a Toronto concern through an intermediary whose connection with Senator Webster was unknown to the seller des- troyed the element of conspiracy. There seemed still to be few difficulties in the path of enlarging one's control of a market by purchase. Two cases45 relating to the provincial regulation came to decisions analogous with that of Nebbia vI New York. A province may impose thorough-going regulations on an industry, in- cluding price-fixingby a public board, licensing, and the punishment by fines of violators of the regulations. A suit to determine points of law in regard to specific damages, in addition to damage simply as a member of the public, allegedly suffered by a firm because of the actions of an alleged combine, brought out the court opinion that, '. . . the Combines Investigation Act does not in any way contemplate, nor was it the intention of Parliament, to confer any private right of action." When it is remembered that we have a dual legis- lative system, the Parliament of Canada possessing exclusive Jurisdiction over criminal law and the Provincial Legislature exercising sole Jurisdiction over property and civil rights, I think it is plain that the Parliament of Canada in passing this Act [Combined intended it to be an exercise by it of the power to legislate with respect to crime and criminal law and that it did not intend to interfere with the provincial Jurisdiction over prOperty and civil rights.46 In 1934 Hon. H. H. Stevens, Minister of Trade and - 212 - Commerce, was appointed chairman of a Royal Commission on Price Spreads, which had begun five months earlier in February as a Special Select Committee of the House of Commons. In 5 of the 6 by-electicns during the year Liberals were elected. Wm. Walker. Kennedy succeeded to the chairmanship of the Royal Commission upon the resignation of Hon. H. R. Stevens in October from the Commission and from the Cabinet. Affairs were in a turmoil for several months. The Report noted that the most intense periods of con- solidation had been times of prosperity; the most active periods were 1910-12 and 1924-30. In commenting, "The facts support the view that the real motive of many consolidations was financial gain to the professional promoter and investment dealer," the Commission cpined that, I'. . . the 'promoter' of a refinancing scheme is not entitled to the reward of an entrepreneur, but Iarely to the modest brokerage customarily payable to a broker who acts as intermediary in the sale of a property from one party 'to another.'47 In summary, the Commission observed that the severity of unfair practices was increased by depression, the strong enlarged ‘their dominance in depression, the presence of monOpoly and oligo- poly was leading to price-fixing with production adjusted to 'whatever sales were then possible and was creating an aversion to :price competition, the disappearance of many small independent units and the ending of a free entry and exit in regard to the market was destroying smooth adjustment in the economy. All these - 213 ' ,problems were worsening the difficulties arising from the exist- ence in Canada of one-resource areas, severe seasonal variations in output, and the high cost of a vast area sparsely settled. The growing separation of control from ownership in large com- panies was noted. Increasing concentration was cited in tobacco, asbestos, petroleum, nickel, cement, meat packing, agricultural implements, and cotton textiles. Rayon was a 2-firm industry. Powerful associations in the rubber industry fixed prices of foot- wear and tires. The basing point system of pricing used by such firms as Canadian Industries Limited was condemned as a mono- polistic practice. The Commission contended that competition driving out the inefficient was needed to correct the 20-year long excess capacity in flour milling. It went further in stating, after an examination of the fact that milling firms controlled a majority of the baking concerns, that the local bakery was the most efficient because it avoided high costs of delivery and selling. A The recommendations of the Royal Commission were many. A Securities Board should be created to effect greater disclosure, to protect capital by prohibiting dividends being paid out of capital, and to prevent stock watering. To replace the legal fiction that ownership means control it was stated, "we feel that the whole trend of law should be toward putting the managers and directors in a trustee capacity, with respect to all security holders." The B. N. A. Act should be amended to give the Dominion exclusive Jurisdiction over companies or, as a second -214- best, Dominion-Provincial co-operation should establish uniform company law across the country. Pointing to the sufficient warn- ing in the N. R. A. experience, the Commission warned against preposals for industry self-government. In some situations monopoly might require complete regulation or government ownership, in others state action might be able to restore competition. For the vast Jungle of imperfect competition in between these two, there was a need of price control or profit restriction. Because of the possibility of some far-reaching social changes being irreversible, a warning was sounded for government intervention to move with caution. The anti-combines law should be made more certainly applicable to monOpoly. Where the restoration of competition is unlikely or undesirable, there should be a commission to regulate the monOpoly, supervise government authorised price agreements (in spite of the warning about the R. R. A.), and conduct economic inquiries. In Annex 8 the Canadian Manufacturers' Association urged the outright repeal of the Combines Investigation Act or, failing that, the weakening of its provisions. Hon. H. R. Stevens held that the combines legis- lation was clearly ineffective against mergers, and wanted tax penalties to counter the maldistribution of wealth. He put the matter plainly in the House of Commons, "Constitutionally, politically, and nominally, Canada is a democracy, but actually Canada is ruled by a plutocratic autocracy.‘48 The 1935 legislation that followed agreed with the spirit of the depressed times rather than with the spirit of the - 215 - report. It stressed those elements noted by the Royal Commission which focussed upon “unfair practices.n The requirement that reports be published was repealed altogether. Criminal proceedings must be confined to the Criminal Code 23 the Combines Act in a particular situation. The office of registrar was eliminated. Responsibility for the Act passed from the Minister of Labour to the. Prime Minister. The responsibilities and functions of the registrar were placed in the hands of the newly constituted Dominion Trade and Industry Commission, composed of the 3 members of the Tariff Board. [New activities included the supervision of commodity standards, the conducting of economic studies, and both instigating prosecutions in cases of "unfair” competition and holding fair trade conferences. After a full investigation in regard to the latter, the Governor in Council might approve in- dustrial agreements designed to combat “wasteful' competition, and the Trade and Industry Commission was charged with the continuing supervision of such agreements.49 Slightly more than 3 weeks be- fore the passage of these acts, J. L. Ilsley, a member of the Royal Commission, had brought the attention of the House of Commons to the failure of N. R. A. in the United States, and had warned the members that the provision for the approval of restrictive industry agreements would weaken Combines administra- tion.50 Price discrimination was brought under the ban of the Criminal Code by the addition of section 498A, which.read as follower - 216 - Every person engaged in trade or commerce or indus- try is guilty of an indictable offence and liable to a penalty not exceeding one thousand dollars or to one month's imprisonment, or, if a corporation, to a penalty not exceeding five thousand dollars, who (a) is a party to, or associates in, any trans- action of sale which discriminates, to his knowledge, against competitors of the purchaser in that any discount, rebate or allowance is granted to the purchaser over and above any discount, rebate or allowance available at the time of such transaction to the aforesaid competitors in respect of a sale of goods of like quantity and quality; (b) engages in a policy of selling goods in any area of Canada at prices lower than those exacted by such seller elsewhere in Canada, for the purpose of destroying competition or eliminating a competitor in such part of Canada; (c) engages in a policy of selling goods at prices unreasonably low for the purpose of destroying competition or eliminating a competitor. The constitutionality of all the 1935 legislation was being tested in the courts in less than a year. The Supreme Court sustained section A98A, sections (b) and (c) unanimously and section (a) in s 4 to 2 decision, the dissenters noting the silence of that section in regard to competition, under the power of Parliament over the criminal law.52 That opinion was affirmed by the Privy Council.53 The Supreme Court declared ultra vires 3 different sections of the Dominion Trade and Industry Commission Act. That permitting restrictive agreements to be approved by the Governor in Council was not supported by the criminal law power or by the power to regulate trade and commerce. That decisions‘ stood because it was not appealed. The other 2 sections, dealing with the establishment and administration of a national f‘ - 217 - trade mark for commodities under the name "Canada Standard," were struck down as an attempt to create a novel civil right. Upon appeal the Privy Council reversed that judgment. Their Lordships held that the novel civil right, most similar to a trade mark, found obvious support under Parliament's power to regulate trade and commerce.55 Some things were possible under head 2 of section 91 of the B. N. A. Act. Thus had the judiciary destroyed the only substantial change from pro-1935 ways. In less than 3 months the new Liberal administration put through the repeal of the combines amendments but left in force the new section 498A. The combines work returned to the Minister of Labour with its administrative head raised to the status of commissioner. The restored 15-day publication requirement would now apply to all reports of combines investigations. In addition to the enhance- ment of the position of the head of combines investigation, the work was further strengthened by making evidence obtained during an investigation admissible in criminal proceeding under either the Combines Investigation Act or section 498 and 498A of the Criminal Code.56 The former private secretary of the Prime MUnister, P. A. McGregor, who had been the Registrar, was appointed the first Commissioner. Between the inactive period arising from the judicial testing of constitutional issues during 1936 and 1937 and that engendered by wartime controls, 3 industries were investigated -- tobacco products in Alberta and elsewhere, paperboard shipping containers and related products, and Western Canadian fruits and . r r I 7‘ s . - .. ' 0 OK | a e b ‘4 - 218 - vegetables. Two successful prosecutions followed the shipping containers report. Two individuals and 23 companies were fined a total of $176,000. Eight individuals and 28 companies in the tobacco busi- ness were fined a total of $221,500. On appeal by all but one company which had been fined $15,000, the convictions were quashed on technical grounds, partly matters of procedure. The affair was to be aired several years later in the House of Commons during a discussion of means of improving the combines legislation. A. L. Smith, x.c., who had been one of the Crown prosecutors when charges were laid under section 498 of Criminal Code and who had been taken off the tobacco case before its conclusion, described the part played by J. C. McRuer, later appointed Chief Justice of Ontario, who was paid by the federal government to continue the prosecution. '. . . He was thrown out of court on a much simpler problem than arose in the dental case.‘ A stay had been entered in the case and, "following that, this new charge [under the Combines Investigation.Act7 was laid by this great man; but the appeal told him what every law student knows, that a stay is not the end of a prosecution, and you cannot prosecute a man twice for the same thing and at the same time. So the tobacco case was lost."57 The case58 dealing with the business of fruits and vegetables in‘Uestern Canada was under the "monOpoly" provision of the Combines Act. By it a "merger, trust or monopoly“ means "one or more persons who has or have purchased, leased or otherwise acquired control over or interest in the whole or a part of the (m - 219 - business of another. . ." Two companies, Dominion Fruit, a whole- sale and jobbing subsidiary of Western Grocers, and Lander Company, packers and shippers, had dealings which the Crown attempted to show brought Dominion Fruit Limited under the indict- ment of the Act. The ownership of the shares of Lender Company was: a. s. Staples (director of Lender Co.) . . . 4,593 A. D. Lander (director of Lander Co.) . . . 4,522 9,186 A. McCallum (director of Dominion Fruit) . . 186 R. a. Staples (in trust for Dominion Fruit). 2,000 9,186 Speaking to that, the judge said, I'The ownership of one-half the shares in a company, does not give control of the company, and, in my opinion, does not give any control of the company's business which is an asset or property of the company."59 He held further that a shareholder has no legal interest in the business or pro- party of a company in which he holds stock. Several English cases were cited in support of that view. There were no charges against the companies in regard to a combine by "actual or tacit contract, agreement or arrangement." All the accused were found not guilty. world War II placed the Combines Commissioner in the anomolous office of Enforcement Administrator of the Wartime Prices and Trade Board which, in the paramount interest of more easily managing wartime controls, encouraged concerted industry action -- m phenomenon not peculiar to the Canadian scene in time of war. Anti-combines activity had come to a standstill with the termina- tion in February of 1942 of the shipping containers and tobacco cases.60 The experience of almost 2 decades was examined in an - 220 - economic study, which noted the lack of a consistent policy to- ward competition, greater effort, both public and private, exerted to curb competition than to prevent combination, and the Canadian tendency to assume consolidation to be beneficial and, conse- quently, to concentrate on attacking conspiracy. The future possibilities of action were suggested. .The limited effectiveness of the Combines Act is not due to inherent weakness. The machinery of the Act is well conceived, it has been fully sustained in the courts, it has been sympathetically and ably administered. The difficulty is that both Liberal and Conservative governments, for political reasons, have not favored too vigorous enforcement of the Act, and have not given the administrators either the definite encouragement or the larger staff necessary for effective action. If these requisites were provided, the Combines Investigation machinery could perform important work in that sector of the economy within which competition is still possible. 1 The next chapter will describe in part the more bountiful times experienced by Combines Investigation in the postwar world. - 221 - l. U. P. M. Kennedy, "The Judicial Process and Canadian Legislative Powers,‘ Washington University Law QuarterlyI Feb., 1940, p. 215 et pgssim. 2. (1867) 30-31 1110., (3.3. 3. DebatesI House of Commqng, May 19, 1921, vol. 4, pp. 3603-11. 4. Debates, House of Commons, Mar. 16, 1922, vol. 1, p. 139. ucou , May 17, 1922’ V01. 2, pm 19020 uncn ’ Jun. 1’ 1922, V01. 3, p0 23950 5. Debgtgg, Housg of Commons, Mar. 17, 1922, vol. 1, pp. 200-201. 6. Report of the Royal Commission on Price Spreads, King's Printer, Ottawa, 1935, p. 28. 7. Debates, House of Commons, June 2, 1922, vol. 3, p. 2428. 8. ---- , Mar. 8, 1923, vol. 1, p. 992. 9. ---- , May 7, 1923, vol. 3, p. 2520. 10. ---- , May 7, 1923, vol. 3, p. 2529. ll. ---- , May 7, 1923, vol. 3, pp. 2533-35. 12. ---- , May 7, 1923, vol. 3, p. 2552. 13. Eugrg’ Ch. 7, ppe 172-173. 14. Debates, House of Commong, May 7, 1923, vol. 3, p. 2556. 15. --"’ , May 7, 1923, VOIQ 3, p o 2562. 16. ---- a ’ May 8’ 1923, V01. 3, p. 2576. 17. ---- , May 8, 1923, vol. 3, p. 2582. u r8, Che 8, pe 194s 18. DebatesI Reuse of Commons, May 8, 1923, vol. 3, p. 2586. ems. 011- 9. p. 226. l9e £2223, che 7, p. 168. 20. Debateg, House of Commons, May 9, 1923, vol. 3, pp. 2613, 2627 et passim. 21. Debates, House of Commons, May 8, 1923, vol. 3, pp. 2602—09. 22. (1927) Revised Statutes of Canada, 13-14 Geo. 5, c.26. um“...- --._ a e an. _ . .-¢ -. . - ...u—ot “ (Q 23. 25. 26. 27. 28. 29. 31. 32. 33. 35. 36. - 222 - ttorne -Ge cral for Ontario v Canadian Wholesale Grocers Association (1922) 52 O.L.R. 536. 22s_2130s 5430 We , 5105.108 e John A. Ball, Jr., Canadian Anti-Trust Legislation, Williams and Wilkins 00., Baltimore, 1934. Qanadian.innaal_flszias. 1925-26. pp. 283-8£ and 526-27. ---- , 1926-27, p. 296. Cagada zear Book, 1927-28, pp. 768-69. neg, v, Sigiggtgn gt al. (1926) 45 C.C.C. 249. Qaaasi.xiar_§22k. 1927-28. p. 769. Re Combines Investig_tion Act gnd S, 598 of the Criminal Code (1929) 2 D. L.R. 802. anada Year Book, 1929, p. 763. Canadian Annual Review 1926-27, p. 279. Pro rieta Arti 1e Tr do so iatio v Atto - er 1 tg;_gggggg (1931; A.C. 310; (1931) 2 D.L.R. l at 11. 122:3. ch. 7: PP- 174-175. Eaassiaa_iaasal_§axias. 1926-27. p. 296. u re, Ch. 7, pp. 176-177. 35;, v, Sigger et a1. (1931) 0.3. 202 at 211. 1 am ted Builders' Con 11 v McGre or (1929) 36 O.W.N. 344. Lg re Singer (1929) S.C.R. 614. £s_§__s__ in er 1929) 52 C.C.C. 243 (2nd application - writ - habeas corpus). Rex v, Sigger et 31. (1931) O.R. 699. Belzea v, The King and Weinraub v, The King (1932) 2 D. L. R. 88. 39; v, White et a1. (1932) unreported (Ontario Supreme Court 'Connor v Waldron (1932) 57 C.C.C. 268; (1935) 63 C.C.C. 1. Gordon Waldron was the investigating commissioner.) anaga Year Book, 1932, p. 672. Personal submission from the Combines Investigation Branch, July 6, 1956. Eaaasiaa_iaasal_§sziss. 1929-30. pp- 199. 3;; v, Alexander Ltd, gt al. (1932) 2 D.L.R. 109. 37. 38. 39. 40. 41. 42. 43. £5. 46. 47. 48. 49. 50. 51. 52. - 223 - guprg, ch. 8, p. 202. Rex v, Famous Players et a1. (1932) 58 C.C.C.50. C nada Ye r Book, 1933, pp. 790-91. Canadian Annual Review, 1933, p. 452. Personal submission from the Combines Investigation Branch, July 6, 1956. e rs, ch. 7, p. 177. Canadian Annual Review, 1933, pp. 186 and 451-52. Debates, Senate, 1932-33, 00t.21, 1932, p. 57. Alan Phillips, "The Unknown Man Who Bought the Globe and Mail," Maclean's, Apr. 30, 1955, p. 12. Debates, House of Commons, 1932-33, May 3, 1933, vol. 5. p. 4539. fig; v, Canadian Impprt Co, et a1. (1933) 61 c. c. c. 144. Rex v, Canadian Import Co.,et4p_. (1935) 3 D. L. R. 330. British Coal Corp. et al. v. The Kipg (1935) 3 D. L. R. 401. The Kipg v, Hartt apg Adair Goal 0 . (1935) unreported. fipptt & Adair Coal Co, v, Th9 King (1935) unreported. flex 1, Simoneau (1935) 65 C.C.C. 19. Cpgpgy v, The Kipg ex rel, wood (1937) 69 C.C.C. 219. Trappport Oil Co, v, Impprial 0;; Ltd, at g . (1935) 63 C.C.C. 108. fippppt of the Royal Commission on Price Spreads, King's Printer, Ottawa, 1935, pp. 31 and 33. op, cit., pp. 261-63. Canadian Annual Review, 1934, pp. 38-41, 54-56 and 468. Debates, House of Commons, June 11, 1935, vol. 4, pp. 3515 and 3517e Combine; Invggtigation Act Amendment Act, 1925, 25-26 Geo. 5, c. 54. Thg Dominion Trad; gng Industrngommission Act, 1935, 25-26 GOO. 5, 0. 59a Debates, House of Commons, June 11, 1935, vol. 4, pp. 3525-28. (1935) Statutes of Canada, 25-26 Geo. 5, c.56. In the Matter of a Reference as to the Constitutionalipyo of section 598A of the Criminal Code (1936) s. c. a. 363. .‘ I 9 - -. O O I C _., a 0 I o O . . O O 53. 54. 55. 56. 57. 58. 59. 61. - 224 - e - ral gor Canada (1937 A.C. 368. I; a Mgtter of a Referencgigs to the Constitutionalitz of the Dominion Trade and Industgz Commission Act (1936) S.C.R. 379. ttorn -General for Ontario v Attorne -General for Cane a £19375 A.C. 405. Combines Investigation Act Apendment Act, 1937, l Geo. 6, c. 23. Debates, House of Commons, Nov. 14, 1949, vol. 2, pp. 1762’630 Rex v, Staples et pl. (1940) A D.L.R. 699. op cit., 703. Container Materiglg Ltd, et al. v, The Kipg (1942) 1 D.L.R. 529. Rex v, Impgrial Tobacco Co.,et a1. (1942) 1 D.L.R. 540. Lloyd G. Reynolds, The Control of Compgtition in Canada, Harvard University Press, Cambridge, 1940, p. 171. Chapter 9 About a year before the end of the war a competent observer outlined some of the prospects of combines investiga- tion.1 Of special interest were two points -- one concerning the problem of full employment and one regarding merger or amalgama- tion. On the first he said, I submit, however, that there is a strong proba- bility that restrictive practices such as are becoming more and more rife in the modern economy are probably more serious deterrents to the achievement of ”full employment" than has been generally recognized, and that the Combines Commission has a part to play in the post-war "full employment“ policy of the Canadian government. There seems to have been little made of this, if only to rally public support to the work of the Commission. There was some- thing of the outlook of Janus toward bigness -- efficiency and concentration of economic power. But looking more sternly at the prospect of private power becoming greater than that of the state, the author spoke of the possibility of requiring Parliamentary approval, by means of a private bill, of an acquisition of stock or assets of a competitor, wherever the - 226 - resulting control would exceed some specified percentage of the industry. The problems of equity in dissolving mergers dictated prevention as far as possible. His recommendation of a quarter of a million dollar budget for effective operation of the Commission would not be met for 8 years. Near the conclusion of the war the Combines Commissioner stated that a vital part of the job of changing from war to peace would be the reconversion of men's minds, from dependence on government to self-reliance. ”Producers, distributors, and con- sumers will have to be weaned away from a war-time attitude of dependence upon government for protection from all kinds of economic gales and storms and even high winds. Government itself, including civil servants, will have to help in the process of de- centralizing and depaternalising."2 Some of his remarks have since taken on particular import in the light of later events connected with flour milling. Be warned, Surely it is obvious that the problem of monopoly in the years ahead of us is not going to be made any easier by reason of the particular kind of recognition and impetus that has been given to trade organisations in the war years. My own apprehensions are allayed to some extent when I think of the hundreds of trade associations that have operated for years in Canada with great credit to themselves, helpfulness to their members, and advantage to the Canadian public. But a great deal has happened in this field since 1939, and even since 1941. He may well be concerned lest the restrictionist philosOphy which is inherent in these emergency controls should motivate such strongly organised groups to certain types of action that are not at all appropriate to a system of free enterprise. MonOpoly and monopolistic practices could be off to s new start; and every element in the country, govern- ment, business, labour, the farmer, and the man on the street should be alive to the possibilities and the dangers of it in the post-war years. It is a more - 227 - serious problem than it was even pre-war."3 Four and a half‘years later Mr. McGregor was to make a special con- tribution to increasing the public awareness of the problem of monOpolistic practices. The Commission's first postwar report, Canada and Integ- pgtional Cgrtglp,‘ surveyed 3 classes of cartels -- those affecting Canadian imports, those confining Canadian manufacturers to the domestic market, and those involving participation by Canadian eXporters. The report spoke against any attempts to sort out cartels according to any immediate advantages or dis- advantages to Canada and urged adaption of policies of reviving and expanding world trade. Although there was no specific intent of following the study with prosecution, as there often is in single industry studies, of the many fields covered there were subsequent investigations and convictions in flat glass, matches, -fina papers, and coarse papers (not newsprint). The total of fines in the 4 cases was $429,000. In 1946 combines work was transferred to the Minister of Justice and the tenuous but lingering connection with the Dominion Trade and Industry Commission was severed. Provision was made to prevent the Combines Investigation Act from depriving any person of "any civil right of action.‘ The Commissioner was, from time to time, to make studies of monOpolistic practices in Canada and report to the Minister;5 that seemed to cover such matters as the recent examination of cartels. In 1949 the Ontario Court of Appeal dismissed an appeal - 228 - by the Crown from a directed verdict of acquittal, after trial by judge and Jury, of 18 companies in the dental supply business, 7 as manufacturers and 11 as dealers.6 The case had turned upon the admissibility of evidence. The court found that the Crown had offered too little direct evidence and had relied too heavily upon inferences that might be drawn from what evidence was directly proved. The Court of Appeal spoke to this question at some length: No witness was called to prove any by-laws, resolu- tion, minute or other corporate act of any of the accused having any relation to the making or carrying out of or acting upon any agreement such as is charged against them as a conspiracy. No witness was called to prove what persons occupied official positions in any of the accused companies, or to prove that any person had been appointed to act for, or to represent any of the accused in respect of any of the matters charged against them. No witness was called to prove the handwriting of any person upon any letter or document that pur- ported to be signed by such person, nor to prove that any such person had authority to sign such letter or document on behalf of any of the accused.7 There were many more examples cited. The trial Judge had noted further that there had been no actual proof of corporate existence throughout the period in question -- 1930 to 1947. The critical impact of that judgment on the enforcement of combines legislation was well stated in the Canadian Bar mm} The effect of the Judgment was that, The signature on the document of the president or general manager or other officers is not in itself proof of the position or of the authority of these officers without further proof. . . . there must be further proof that the writing of the letter was authorized by the company or that someone having authority to bind the company had knowledge of the sending of the letter or of its receipt or of its content. ‘ - 229 - Conspiracy, . . ., can rarely be established by direct evidence and agreements in restraint of trade even more rarely. Such agreements are made in secret. To the extent that they are reduced to writing, they would certainly not be recorded in the minute-book of a company. Nor would a company by by-law or resolu- tion authorize an officer or employee to enter into such agreements. Direct evidence would require the testi- mony of co-conspirators and officers of the accused companies who may themselves be co-conspirators. The law must take cognizance of the fact that, al- though there may be little or no difficulty in applying the existing rules to small local companies in which the ownership, management and direction of the business are vested in one or two persons, it may be impossible to apply these rules effectively in the case of the modern large corporation which must of necessity act through many persons with authority in different branches of the business and in different geographic areas. In spite of an adverse report,9 the evidentiary difficulties pre- sented by the outcome of the Dental Goods case decided against a prosecution of firms in the cptical goods industry. Patent actions in the Exchequer Court of Canada, started in 1943 before a 1946 amendment to the Combines Act had provided for that court preventing the use of a patent or trade mark to further a combine or conspiracy in restraint of trade, resulted in findings that they were valid. The court rejected the Crown's argument that they suffered from lack of novelty or subject matter. It was officially reported that licensing restrictions were withdrawn after the publication of the report on cptical goods.10 From the Report of the Royal Commission on Prices11 some‘ significant points may be noted. After observing that there were both competitive and oligOpolistic industries in Canada, the Commission considered that there remained a legacy from the f", - 230 - concerted efforts of wartime -- a tendency to less enterprise. It was evident that some business groups had moved from a world of pagimum price regulations to one of privately fixed pipimum profit margins. The Commission eXpressed its concern over "the growing tendency toward monopolistic competition through brand names and special advertising, price leadership by a few large firms in an industry and resale price maintenance whereby the manufacturer sets the retail price for his product." It placed itself in opposition to resale price maintenance, partly on the basis that it had been found detrimental to the public interest in combines investigations in regard to proprietary articles, tobacco, dental supplies, cptical goods, and bread. That there was growing concentration in bread-baking, with many examples of control by milling companies was soon to be of special concern. Less than 5 months after the general election of June 27, 1949 had returned the Liberals to power, the Combines Commissioner, F. A. McGregor made a signal contribution to publicity in com- bines work, which had been so often praised by his late chief, W. L. Mackenzie King. He resigned. His memorandum with the re- signation attacked proposals that would weaken the effectiveness of anti-combines activity -- removal of commissioner initiative in launching inquiries, limiting the requirement of publication, and any provision for exempting certain restrictive agreements after prior approval. Such were unlikely to enter the House of Commons in the white light of publicity engendered by his resignation.13 That the combines question was entering many homes - 231 - across the land may be exemplified by the Sapgpgay_fligpp, which dealt with the affair in 5 successive issues, extending over a period of 6 weeks. A week after the Hon. Stuart 8. Carson, K.C., Minister of Justice, had tabled the flour milling report of Mr. McGregor in the House of Commons following the resignation, its editorial contended "that McGregor was registering the boldest protest he could against the frustrating circumstances in which he has been placed for many years, notably, I think, in 1930-35 and in 1945'49. In other words, I imagine the flour milling rebuff was just the last straw, not necessarily any bigger than some of the earlier straws.'14 A fiercer mood was eXprsssed on the point that the report, dated December 29, 1948, had been withheld, the legal requirement of publication notwithstanding, until after the election in June. In that act, ”this Government has been guilty of deliberate defiance of the law, by the very men sworn to administer it. This is an offence that ought not to be forgiven."15 Only Parliament could bring a Minister to task; that Parliament made no such move. The Parliamentary storm was unleashed by the Minister of Justice tabling the report on November 7th. He had announced 4 days earlier that the Commissioner and a Deputy Commissioner, Ian MacKeigan, had resigned. The Rt. Hon. C. D. Howe, a member of the Cabinet from 1935, said that he had objected to the report dealing only with the period of wartime price control and the subsequent decontrol period, and, “Therefore I called the attention of the Minister of Justice to the situation and urged him not to table - 232 - the report without further investigation."16 It soon was revealed that the whole Cabinet had supported the violation of the Combines Investigation Act by the Minister of Justice. No attempt will be made to interpret a politician's use of "whole Cabinet.“ Mr. Howe went on to eXplain that there had been some representations to the milling companies by the head of the wartime prices and trade board. Mr. Garson used a different line of argument, suggesting difficulties in trying to prosecute. M. J. Coldwell described the situation confronting a small co-Operative of western farmers during the first year or two of the war. Until members of the British Parliament were made aware of the matter the small co-operative could obtain no overseas orders. He continued by saying, "In 1934 and 1935 these practices of combinations and price fixing were prevalent in this country among the milling interests, and I have no doubt that the same practices are continuing at the present time.'17 A member from the next province west added further illumination by discussing a 1938 encounter with Mr. McGregor. At that time, Solon Low was a member of the Alberta Cabinet and had discussed the alleged “tobacco combine with the Combines Commissioner, at which time “Mr. licGregor told him how difficult it was to get any encouragement from high places to institute these prosecutions, even where in- Quiry showed that there was a combine."18 More ominous notes raised the opinion that the govern- llmsnt had adOpted this course of action to obtain the resignation. 35t was also raised that the delay carried the entire affair beyond - 233 - the 2-year limit of the Criminal Code. There was no prosecution. J. M. Macdonell, before turning to a direct denunciation of the Minister of Trade and Commerce, Rt. Hon. C. D. Howe, attacked the Minister of Justice by recounting a bit of history. . . . what has been done, with one leap of the mind, carried us back to the Stuarts, particularly to the one Stuart who lost his head for suspending the law without parliament. It carries us back also to the declaration of the Bill of Rights, which, we should remind ourselves, is part of the law of this country. I suppose it is true to say that what this government has done has no precedent since the Stuarts. I have not been able to verify that, but I believe there is little if any precedent in the 'centuries which have elapsed for what the government has done. It is wise for us to remember the words already used in this chamber by a former Liberal leader, that it does not matter to a free people whether their liberties are invaded by a king or a cabinet.19 Once more there had been much sound and fury. Before examining the legislative action of that stormy session, there should be some additions in regard to the wartime administration of the flour milling industry, which affords a striking comparison with that found in the British match industry and referred to earlier in this study.20 C. H. 6. Short, the wartime flour ad- linistrator, was the president and managing director of the lake of the Woods Milling Company and, for many years, president of the flour millers' association.21 The option of a jury trial for corporations was abolished by a 1949 amendment. The weakness in the Combines Act disclosed ‘EEV the Dental Goods case was corrected by the addition of a new Section to the Act. It made an action by any agent of one ‘|arty and had announced his desire to dispose of many of his 1‘ if“) u r - 244 - business interests to free his time for his new work. The evidence available does not permit an assessment of the degree to which the possibly inflated values, which Often accompany a merger Of monOpoly proportions, attracted the man controlling the most significant match-making facilities in the country. In any event Hon. R. B. Bennett's actions during 1927 were at least no impedi- ment to the plans Of the world's match triad and were at best highly catalytic in bringing about the complete achievement Of their design on the Canadian scene. It was a year for bringing greater stability and harmony into the market relationships of the American, British and Swedish concerns. That there existed at least some vague awareness Of the international entanglements of the match industry was seen in newspaper reports before the announcement Of the new company that control was going to the International Match Corporation.3 The Official statement that the new merger, Eddy Match Company, was to be headed by George W. Paton, president of Bryant and May, elicited 2 interesting comments in a Toronto newspaper. Although.perhaps not entirely accurate in detail, the first hit the mark rather well. "There must have been a good deal of .friendly bargaining between the great corporations which divide ‘the world's match business among them in order to arrive at such a result. The Diamond Match Company, for instance, controlled the (Benedian Match Company at Pembroke, and the World Match Corpora- tion was controlled by the Swedish Match Corporation [5197." The editorial approval of Bennett “enlisting British capital" for - 245 - the Canadian economy did not tell the complete story. Bryant and May invested $2,425,000 to Obtain complete control Of world Match from the Swedish interests represented by International Match and Vblcan Match. At the time Of the trial of Eddy Match in 1951, the president of E. B. Eddy touched indirectly on trade war problems of the oligOpolists before the merger by stating that keen fbreign competition in the 1920's had Imade it impossible to carry on the match-making end of the firm.“ Apparently the original negotiations were conducted by R. B. Bennett, acting for E. B. Eddy, and Ivar Kreuger, acting for World Match and Canadian Match. The resulting “Draft Agree- ment" Of October 4, 1927, was an important element in the ultimate settlement. Bennett's accompanying letter revealed some- thing of the background of E. B. Eddy Company and showed his active part in the negotiations. In writing to Kreuger, he said in part, The fact is that it is not improbable that the prefer- ence shares will be divided between the International Paper Company, that is Mr. Drury and his associates and myself. The International desire to sell their shares fOr cash. . . . If you will execute one of the agreements and send it back to me, I will arrange my plans so as to permit Of my going to England and completing all details in connection with the organization of the new Company - in fact I could go into the whole matter with the British Match Trust's solicitors . . . For all its match business assets, including goodwill, E. B. Eddy received $28,000 in cash, the entire 30,000 Eddy Match 6% pre— vifisrred shares, and 9,600 of the 120,000 common shares. circuitously and eventually the preferred shares were held, - 246 .- 20,750 by Diamond Match, 5,000 by Bryant and May, and 4,250 by British Match. An outside interest, the Gatineau Power Company of Ottawa, came ultimately into possession Of 4,700 of the common shares; Bryant and May acquired 3,430 and Diamond 1,470. Acting as exclusive sales agents during the first year of Operations Of Eddy Match was the last active part played by the paper company.5 An important amendment to the Bennett-KrOUger arrange- ments was effected by a firm protest from the president Of Diamond that World Match had been assigned by the negotiators too import- ant a position in the Canadian industry. He argued strongly, that, "as a power in the Match business of Canada, no fair-minded analyst could rate the World Match CO. at more than one-fourth, or, at the most, one-third of the Canadian Match Co., and considering all the factors involved of good~will, facilities, trade connections, dominance in the trade, volume of business, manufacturing ability and facilities, such as are included in the contemplated merger, we would rate the three Companies about as follows: Eddy 50, Canadian Match 38 to 40, World Match 10 to 12." That indicated clearly that it was essential to acquire the match business from the outside interests of E. B. Eddy Company. Mr. Fairburn's letter of December 9 to the chairman of Bryant and May, urging a greater interest in the new company for Canadian Match, shed further light on the part played by R. B. Bennett. "The whole preposition,‘ dictated by Mr. Bennett, is permeated with gross laumiliation for the victor and the ultimate survivor - if the “trade war continued - and, as far as the Match business of Canada - 247 - is concerned, the Canadian Match Co., due primarily to our efforts, has positively gained the upper hand, and our position would have become increasingly dominant during the next year or two." Such was the Diamond reaction to a letter Of November 17, 1927, from the head Of Bryant and May to B. Chandler Snead, a New York lawyer, counsel for Diamond and a kind Of liaison officer for the American and British match interests. The remaining common shares Of Eddy Match had been assigned, giving effect to the Bennett-Kreuger Draft Agreement, 63,000 to World Match and 47,400 to Canadian Match, in which Diamond had a minority interest.6 Of four alternative prOposals Offered by W. A. Fairburn, the first recommended that Diamond Obtain a 25 per cent interest in the new Eddy Match Company. That this was agreed to by Bryant and May was shown by entries in the Eddy Match share register fOr September 22, 1928. The original assignment Of stock in February of that year had followed the outline of George W. Paton's letter Of the previous November, providing Diamond with a holding of 15,118 shares. In September the transfer by nominees of British .Match and Bryant and May to nominees Of Diamond Match of another 14,882 common shares Of Eddy Match raised the Diamond holding to 25 per cent of the total.7 Subsequent events showed that Diamond had undertaken the active management of Eddy Match, following lanother suggestion of W. A. Fairburn. The former match companies were dis solved. A memorandum with Paton's November letter, outlining the Ierposed stock distribution, summarised the financial commitments . . ‘ . d. ' . t ' O V. . l o o ‘ l . a . I ' e I » . . ' H ‘v . ‘ ' .. .r -.. ’ c ‘ ‘ I I ‘ . x . . >_ 1 ’ Ly . - V \ 'l v ‘ t | ' ‘. . I x E “ - 243 - in Eddy Match at its formation: 30,000 preference shares given in part consideration for The E. B. Eddy Company assets 3 3,000,000.00 Cash to The E. B. Eddy Company 28,000.00 ' 9,600 ordinary shares to the E. B. Eddy Company at $41.67, value assigned thereto on books of new company 400,000.00 Cost of World Match Corporation assets to Bryant and May 2,425,564.18 Cost of Canadian Match company to stockholders 1,226,606,25 ota ' 8 7,648,171.13 The memorandum, attached to the letter which must have been written 7 at least 10 years earlier, went on to show that “the judgment of the officers of the two companies‘ZBryant and May and Diamond? who formulated the plan and participated in its execution, was valid- ated by subsequent happenings. The previous large losses of the old companies were immediately converted into substantial profits. . . . More than $2,500,000 and in excess of one-third - was assigned by the directors of the new enterprise to a non- depreciable asset, good will; leaving about two-thirds allocable to current and depreciable fixed assets."8 The inflated values of certain assets acquired by Eddy Match, in the assembling of facilities with a daily capacity of 120,000,000 matches,9 became, in 1937, the object of scrutiny by the Department of National Revenue. To assist Mr. Snead in handling the matter, the assistant secretary of Eddy Match pre- ;pared an analysis of certain assets values and depreciation . s Q I e . I . ‘\ ° ’ e o 5 C P O a r , \ I ‘ _I ~ . e . . . . e - \ I .~ I . D . l b r . A C Q q I A . l a . I . »- a \ O , ' I e . . . . - 249 - reserves, as they appeared on the books of the predecessor companies on December 31, 1927, and on the books of Eddy Match on January 1, 1928. The total "write upn amounted to $813,205.25; the depreciation p23 carried over to the Eddy Match books aggre- gated $854,461.04. Within that total of $1,667,666.29 there was mute evidence of the consummate skill of R. B. Bennett -- $1,075,285.03 was attributed to land, buildings and equipment of E. B. Eddy. In commenting later on the adjustment, which would not in any event cover a small $22,296.26 ”write up' of Deseronto land, required by the government, the Eddy Match assistant secretary, H. Hart, stated the situation plainly: In short it is our cpinion that a careful and thorough investigation might well have raised the present ad- Justment of $840,000.00, much closer to the original requested adjustment of $1,645,000.00. . . . It is a well known and obvious fact that these assets were overvalued - or water - as of January 1, 1928, and all that has happened is that the Department has placed these assets on a reliable and sound footing backed by tangible values which should in fact have been done for taxation purposes in 1928. Two months later, on July 7, 1938, a by-law was enacted reducing the paid-up capital of the company by $842,100.17, from $5,000,000 to $4,157,899.83.1° That action left undisturbed goodwill of $2,600,000.00 ;patents, rights, trade marks and formulae of $401,447.50. Their status was clearly outlined by W. A. Fairburn in early 1944. Again, the item of Patents, Rights, Trade Marks, Formulae andeood Will, aggregating over three million do1lars, is nothing but plain "water", and is not worthy of even being called an intangible asset, for it represents merely the difference between high values placed on certain tangible assets and the total sum of money paid to acquire the prOperty. - 250 - In the same letter Mr. Fairburn turned his attention to the Berthierville prOperty, which had not been "written up“ from the values given by World Match. The Plant Account is outrageously high considering manufacturing facilities and the cost in normal times of duplicating the manufacturing capacity. As far as their utilization is concerned, the Berthierville buildings, showing at around $968,000 after depreciation, stand out like a sore thumb, for in the ultimate this plant is more of a liability than an asset and I would like to see three-quarters of a million dollars taken off this one capital asset.11 In December of 1943 Mr. Fairburn had reacted vigorously to the president of Bryant and May raising the possibility of an extra dividend on the common stock. There was reference to the company's market position and the effect thereon of highly in- flated asset values, and the record of substantial earnings and dividend payments. A statement covering the first 19 years of Eddy Match Operations showed total net earnings for the period of 811,824,604.66. Dividend payments amounted to $10,020,000.00 -- $3,420,000.00 on the preferred stock and $6,600,000.00 on the common.12 After referring to the $3,000,000 of "water," Mr. Fairburn said, . . . The value of the Eddy prOperties and all tangible assets is probably not in excess of $5,000,000, although I believe the books show a value of about $8,400,000. If it had not been for the financial setup arranged by Sir George and others and my positive desire to make no criticism of it and if I had not known that you wanted to obtain all the dividends possible from your investment in Eddy, I should have urged many long years ago that the sum of $300,000 a year be taken from Surplus and Earnings and utilized to make the Balance Sheet a healthy one by the squeezing out of the "water" that is so conspicuously evident. The Eddy Company is in a position today where it - 251 - could not possibly meet severe, competent and intelli- gently handled competition; it has been protected in its Operations and has shown good earnings and paid big dividends, but I have always felt that the setup should at sometime or other be handled with courage and the company put in shape so that all of its assets would be real and based on appraised values, . . . The combined net earnings fer the next 9 years, ending December 31, 1955, totaled $7,578,423. The unbroken dividend record was main- tained at the same level; the majority of the preferred shares were redeemed. By October 31, 1956, goodwill had been reduced by $1,845,018. Earned surplus amounted to $2,004,971, which marked a considerable increase from the $835,144.89 on December 31, 1946.14 The record supports the Crown's allegation that, 'not- 'withstanding the excessive price paid to acquire the monopoly position, and inflated expenditures made to retain it by acquisi- tion of independent competitors, Eddy Match, in addition to paying substantial dividends, had reduced the amount by which goodwill was carried on its books by a substantial amount and accumulated a substantial surplus."15 Before examining the company's conduct in regard to independent producers which appeared from time to time, there should be some recounting of the power of Eddy Match at its in- ception to control prices. The oligOpolistic trade war in the Canadian match industry prior to the Bennett-Kreuger agreement of Cbtober 4, 1927, had brought about significant price reductions, twith concomitant operating losses for the companies -- especially Iiorld Match. That the eventual exit of one or more producers “K>u1d likely bring about higher prices in no way detracts from 1 ' A s l . ‘ Y , » p . a . v . 9 ' v C t ‘I L .- . x w A, 5 u . . » r , . . . b A ,7 I t I - 252 - the conclusion that the actual price increases which quickly followed the October agreement showed the power over the market of a mere common purpose, even before it was translated into a com- mon, consolidated corporate unit. A comparison of prices on three different dates illustrates the changes in price as the unifying of action in the industry proceeded. The prices are for eastern Canada, as far as the head of Lake Superior, on a case basis.16 July 7, 1227 CANADIAN MATCH Matches, Excise Jobbers Net Sales Tax Tax _Qash Cost Resale MaplO Leaf 4'8 $3.63 $4.32 $3.00 $9.45 Blue Ribbon 4's 3.68 4.32 8.00 9.45 (144 boxes) Maple Leaf Pocket 3.85 2.70 6.55 8.00 (720 boxes) Royal Safety 3.85 2.70 6.55 8.00 (720 boxes) Octobe£_22. 1927 CANADIAN MATCH Maple Leaf It" 4093 4032 9.25 n.a. Blue Ribbon 4’s 4.93 4.32 9.25 n.a. Maple Leaf Pocket 4.72 2.70 7.42 n.a. Royal Safety 4.72 2.70 7.42 n... E. B. EDDY Buffalo '- -- 9.25 '- Dominion 4's -- -- 9.25 '- Owl 3's 4.15 2.25 ‘6.40 -- (100 boxes) Eddy Safety 5.66 2.70 8.36 -- Januagz Q, 1928 Maple Leaf 4's 6.00 4.32 10.32 11.91 Buffalo 6.00 4.32 10.32 11.91 Maple Leaf Pocket 5.10 2.70 7.80 9.00 Owl 3's 4.32 2.25 6.57 7.71 Royal Safety 5e66 2.70 8036 9065 - 253 - On the common "kitchen“ matches the jobbers' net cash cost had been increased in two stages by $2.32 per case, which was the largest advance. It may be noted that the fame of "Eddy Safety" had seemingly permitted those matches to sell at a premium, which was eliminated by the amalgamation by increasing other safety match prices. That the October price lists were the outcome of co- Operation between the "independent" companies, E. B. Eddy and Canadian Match, was made evident by a letter of October 25, 1927, from E. B. Eddy which discussed some differences which remained, and raised the question of resale prices. The letter was for the attention of E. P. Miller of Canadian Match, who was to become the sales manager of Eddy Match. We dul received your letter of 24th. instant, with enlosures sig7 as stated and wish to say that we found your lists very completely made out which facilitated our task of checking them and made the job comparatively easye In 8.0. we note you will not show on our list the price of "Maple Leaf 4's l44s.As [sig7yexplained we allow the Trade in B.C. a trade discount of 12 1/2% from the face of the invoice and 3% quarterly loyalty discount and we shall continue on this basis until we go into the matter of re-sale prices in a general way. We have O.K'd and return herewith your lists and it is to be hOped that we will get our printed lists off to our Branch Managers and Agents by Thursday evening the 27th.instant, . . . We should like to say how much we appreciated your co-Operation in this entire matter and your readiness to lend assistance in lining up the new prices. . . . . The separate elements of the Canadian match industry were begin- ning to work together to procure some measure of monOpoly gain, even before the merger was completed. - 254 ' Eddy Match circulars of February 1, 1928, announced a change, with no price changes involved, in the method of quoting prices to enable the same list to provide both the jobbers' cost and resale prices. After eXplaining the way to calculate net cash cost from the invoice or resale price, E. P. Miller, sales manager for Eddy Match, urged support for the scheme from the Jobbers: For the past few years there has been a demoral- ized market on matches, and many Jobbers have sold matches at very small profits. In naming the resale prices on the enclosed list we have done so with the idea of providing a satisfactory profit fer Jobber handling our brands of matches. We realize there are various brands of matches, purchased at old prices, in the hands of jobbers who may be inclined to sell these at prices below the resale prices named by us for brands of the same size, style and pack. We would point out to such Jobbers, however, that they should immediately place on such brands, prices in accordance with the resale prices named in our February lst price list, in order to prevent a demoralized market after February 1st. An unissued memorandum, apparently setting down some of the think- ing of the officials on the problem, bearing the same date, indicated that Eddy Match, while recognising the possible weakness in not providing for control of retail selling prices as well, was not then prepared to carry the scheme that far.18 The final details of the match consolidation, such as the numerous stock transfers required, had not been completed before Eddy Match turned its attention to the elimination of an insig- nificant competitor, whose output never accounted for more than 00.35 per cent of Canadian production. The process of elimination was neither long nor difficult. Although the general manager of - 255 ‘ Eddy Match had indicated to the vice president of Diamond in February of 1927 that he was little concerned with the possible competition of the Aurora Match Corporation, the company followed a different policy. The purchase of all its assets by Eddy Match was completed on May 12, 1928, for a total expenditure of $27,500, including a commission of $3,000 and legal fees of $1,500.19 No particular tactics were required in this situation. - 256 - 1. Kenneth Lunny, "Matchmaking Past and Present,“ Canadian Chemical Processin , June 20, 1952, p. 54. C. J. S. Warrington and R. V. V. Nicholle, A History of Chemistry in Canada, Pitman, Toronto, 1949, p. 351. White Phosphorus Matches Act, (1914) 4-5 Geo. 5, c. 12. Debates,_House of Commgng, Mar. 17, 1914, vol. 2, p. 1756. Canadian Match Report, pp. 9, 15. su ra, ch. 2, p. 28. 2. Canadian Match Report, pp. 14-15. supra, Ch. 4, pp. 72'73e 3. Globe, Dec. 22, 1927, p. 1. Financial Post, Dec. 16, 1927, p. 6. 4. Globe, Dec. 22, 1927, p. 8; Dec. 23, 1927, p. 4. Eddy Match Case ngnscript,'vol. 5, p. 751. Pul and Pa er Ma azine of Canada, April, 1951, p. 72. 5. Eddy_Match Case Transcri t, vol. 5, pp. 724-31; vol. 12, pp. 2891-2902, 2906, 2952, 2959, 2961, 2965, 2968. Canadian Match Report, pp. 16, 18. 6. Eddy Match Case Transcript, vol. 5, pp. 756-64. 7. 22._g;£., vol. 5, pp. 826-27; vol. 12, pp. 2936-39. 8. Op, cit., vol. 5, pp. 751-53. 9. 9122;, Dec. 22, 1927, p. 2. 10. Eddy Match Case Transcript, vol. 7, pp. 1460-61, 1668; vol. 12, pa 3038e ll. op, cit., vol. 7, p. 1652; vol. 9, p. 2172. 12. Op, cit., vol. 10, p. 2602. 13. 02. Cit.’ V01. 9, pp. 2165.%. 14. Op, cit., vol. 10, p. 2602. Prospectus, Eddy Match Company, Limited, Dec. 19, 1956, regarding the disposal by Diamond Match of 66,938, common shares (after the subdividing 2 for 1), pp. 3-4. 15. Eddy Match Case, Factum of the Respondent, vol. 3, p. 541. 16. Eddy Match Case Transcri t, vol. 5. Pp. 718-22, 785-90. 1?. Op, cit., vol. 5, pp. 732-33. I. - 257 - 18. Op, cit., vol. 5, pp. 791-96. 19. Op, cit., vol. 5, pp. 809-22; vol. 8, p. 1939. Chapter 11 The second potential competitor was much more substantial and brought forth the use by Eddy Match of severaliechniques to impede the new company's growth. Although incorporated on July 30, 1928, the Columbia Match Company of Canada did not enter into production until 1929. During its short career of less than 4 years, the output of Columbia Match rose from 7.36 per cent to 14.35 per cent of the total domestic production.1 Its appearance was clearly of much.greater significance to Eddy Match than Auror: Match had been, prior to its outright purchase by Eddy Match. Characteristic of the similarity between the conditions of a dquoly and those of military warfare, of major importance in the struggle is information about the rival or enemy. On occasion the distinction between commercial intelli- gence and commercial espionage may be a fine one. One device em- ;ployed by Eddy Match argues that the managing group felt their ‘methods had strong elements of spying, not usual in ordinary business dealings. They were certainly not confining themselves - 259 - to ”comparison shopping." Five shares of Columbia common and five shares of Columbia preferred were purchased following an Eddy Match directors' meeting in the spring of 1929. Shareholders have available a good deal Of information with respect to their company. The details of this arrangement were handled by the general manager of Eddy Match and B. Chandler Snead, who, in addition to his res- ponsibilities with the British and American members of the world match triad, was the deputy chairman of Eddy Match. The "secret service' nature of the stockholdings in Columbia Match was made apparent in one of Mr. Snead's letters. In regard to the five shares Of Preferred and Common stock of the Columbia Match Company purchased by us or in our behalf some time ago, would say that I had not been advised that this purchase had been actually made although the advisabilit of doing so was discussed by Messrs. Drury, Woodruff former general manager of Eddz7 and myself at our Directors Meeting last spring. It was agreed that it would be well for the Company to purchase this stock and Mr. Drury offered to arrange the purchase for us in the name of a dummy - such ownership to give us the privilege of examining the list of stockholders and other corporate records » Of the company as well as entitling us to receive all statements and reports, etc. . . . A few weeks later Mr. Snead received a report on the matter from the assistant secretary of Eddy Match. Upon the request of the general manager, the assistant secretary wrote to Mr. Drury asking about the Columbia Match certificates. She wrote to Mr. Snead, 'we have now received one Certificate covering five shares of Preferred Stock of Columbia Match Company, and one Certificate covering five shares of Common Stock. . These have been endorsed by Mr. E. Langueduc, to whom 7} - 260 - ' they were issued, and we have now placed them in our vault.‘I It must have been encouraging to the management of Eddy Match to find that they could rely for a catalytic performance upon a member of the minority group in E. B. Eddy, as they had once been able to rely upon the majority shareholder, Hon. R. B. Bennett. There was a touch of irony in the fact that the establishment of this "secret" source of information was directed against the sales efforts of the vice president of Columbia Match, P. A. Conway, who had formerly been the sales manager of World Match.2 This device, however, played a minor part in the campaign. The chief weapon was selective price cutting -- confined to a region or to a brand as the situation demanded. National in scope, Eddy Match could proceed from a position of great strength to take losses, if need be, in whatever direction the new company was making headway. Attempting to become established in the face of consumer acceptance of well known brands was likely to necessi- tate Columbia offering lower prices to induce the trade to handle the matches at all. Although there did not later appear to have been any use made of them, the surviving stocks at Berthierville of matches of the World Match Corporation were considered by E. P. Miller, the sales manager of Eddy Match.3 It was decided to use Blue Ribbon matches as a "fighting brand" to meet Columbia wherever necessary. The Eddy Match sales supervisor for western Canada described to E. P. Miller some difficulties in maintaining the Eddy Match price structure. All of the Jobbers to whom we offered Blue Ribbon were very pleased and assured us that they would not worry . 261 . over Columbia Matches. While we placed before them very strongly the fact that these Blue Ribbon Matches were only to be used where they found competition from a cheap match, nevertheless it will be a hard thing keeping them from selling them wherever it is possible. As you will notice in Mr. Persse's letter, Vancouver and Fort William are not at the present time to get the Blue Ribbon deal and I sincerely trust that it will never get into British Columbia. As you are aware, Blue Ribbon are getting altogether too much sale at the present time.‘ Mr. Persse was the president of Tees and Persse Limited, the Eddy Match representative fOr western Canada. The problem of a fight- ing brand being a two-edged sword was evidently a serious problem at that time. Most of the advantage of geographic price dis- crimination is lost by too great a widening of the territory. A confidential circular from Tees and Persse to its managers stressed the importance of confining the use of Blue Ribbon to meet Columbia competition and of preventing the area of their use from spreading.5 To close the regular channels of distribution to Columbia Match was the purpose. Mr. Miller acknowledged that this did not require prices as low as Columbia's because the greater volume would compensate the jobber.6 Although he expressed the belief that the trade in Saskatoon would co-Operate on the above arrangement, the western sales supervisor went on to say, . . . the more I talk this with the Tr de the more I feel that the loyalty discount ifyzsic the only solu- tion to our problem for all the Jobber express the desire to get 10% and they would be perfectly satis- fied. On top of that the loyalty discount would mean that they could not purchase opposition goods and that in itself would stOp Opposition goods from securing any business on the territories. There is - 262 - no doubt that the whole Trade feel that they do not want to handle anything but Eddy's Goods and any solution to this problem that woulg show them the 10% would have the desired effect. There was throughout this period an effort by Eddy Match to obtain the co-Operation of the jobbers in setting minimum prices, rather than simply a policy by Eddy Match of naming minimum resale prices. The company's procedure in combatting Columbia was a blending, involving an element of self-contradiction forced upon Eddy by any successes Of its rival, of working toward the establish- ment of minimum resale prices and of using regional price cutting or "fighing brands" at the same time, and of'promoting exclusive dealers, by means of "loyalty" discounts, to close important channels of distribution to Columbia. The pattern was followed anywhere in the country that conditions indicated the long run profitability of its use. That Eddy Match was able to exert considerable control over prices, in spite of price cutting to curb the growth of Columbia and regardless of the depressed economic conditions in the early thirties, may be seen in a 1932 letter from Eddy Match to one of its Maritime representatives. In reply to your letter of April 12th., our price list of April 8th does not include BLUE RIBBON brand of matches. We have never listed this brand, and as you know, we are using it to meet competitive prices. The price of Blue Ribbon is the same as that of all number four sizes, $12.91 less the usual dis- counts, and the 50¢ special allowance will apply. In the light of the worsened economic conditions, a $1.00 higher list or resale price in 1932 compared with the $11.91 price of 1929 was an impressive advance. In addition to the ”fighting ~263 - brand" allowance of 50 cents a case, Eddy Match on occasion gave an advertising allowance per case, especially to larger handlers. These flexible elements of pricing had apparently enabled the company to carry out its campaign against Columbia Match without causing its general price structure to crumble. With its general price level higher than in 1928, Eddy Match was nevertheless able to provide a lower net cash cost to jobbers whenever it deemed conditions warranted such action.9 News of the bankruptcy of Columbia Match reached the Montreal Office of Eddy Match on February 6, 1932. Eddy Match be- gan quickly to cancel special discounts and to withdraw any unusual allowances, thereby raising their own receipts. The continuing of Columbia Operations for a few months in receivership meant a repetition of price reduction from time to time under the pressure in different areas from the liquidation of stocks of Columbia matches.10 The best interests of the creditors of Columbia dictated an effort to dispose of the business intact. In a letter to the creditors, found in possession of Canada Match and during the investigation delivered by arrangement to the Crown by E. P. Miller, the trustee explained that, . . . negotiations have been carried on with a certain syndicate for the acquisition of the business which, if successful, should result very favourably to the creditors. . . . . . . Therefore the dividend to the unsecured creditors is dependent on the success of the negotiations being carried on for the sale of the business as a going concern. The syndicate had the appearance of being an independent group. - 264 - In a letter to the western Canadian sales supervisor on May 18, 1932, Mr. Miller told of the sale of Columbia's assets and hinted strongly at a new device to discourage competitors from entering the match business in Canada. For your information and use conservatively, the sale of the assets of the bankrupt Columbia Match Company was ratified to-day by the courts to the Falkirk Company. The point in connection with the matter is that, we understand, the stockholders of the bankrupt Columbia Match Company got nothing and that the investors in this company have practically lost all of their money. I do not think it would do any harm to impress this on any prospectors in a Match business in Canada, as certainly, the experience of the investors in the Columbia Match Company would show that they made a very poor investment, and if anyone tries to float a further stock-selling scheme for shares in a Match company, the more they know the unfertunate result of the in- vestors in the Columbia Match Company, the less Opportunity anyone will have to raise funds in the future. You will understand that I would not want you to make any Radio speech about this and I am depending on you to use your best judgment in speaking of this, but the only reason I am asking to do this is that we do not wish to have anyone in our organization deliberately spread propaganda about the mistrtune Of others, even though the statements are absolutely true. 2 The matchmaking facilities at St. Johns, Quebec, which had been purchased by Falkirk, obviously represented the possibility of re- newed competition. If, however, the Falkirk Company were not independent, the situation would assume a different complexion. The background of that ostensibly independent company was revealed by the sale, on December 31, 1932, of all Of the assets at St. Johns to the newly fermed Commonwealth Match Company for the sum of $424,000. One of the 6 nominees designated by Falkirk to be allotted Commonwealth stock in part payment for the Columbia facilities was the Gore Company. Its allotment was 70 per cent of- -265 .- the preferred shares and 70 per cent of the common. The $300,000 of 6 per cent Commonwealth bonds were to be delivered to the order of the vice-president of Falkirk.13 One of the other nominees was Philip B. Keyes, treasurer of Eddy Match.and then vice-president, treasurer and manager of Commonwealth Match. Two letters received by him from B. Chandler Snead during the summer of 1933 made the affair fairly clear. They both con- cerned semi-annual interest payments on the Commonwealth bonds. I have now received from Bryant and May and enclose herewith the following coupons in the total sum of $6,300., due July 1st, of the Commonwealth Match Co., Limited, . . . It will be in order for you to remit in this amount to Bryant and May in care of Mr. Joseph H. C. Reed, purchasing a draft on London in Pounds equivalent to six thousand three hundred Canadian dollars ($6,300.00) at the present rate of exchange.14 The second letter dealt with the remaining 30 per cent of the Commonwealth bonds. With respect to the interest owing by Commonwealth on $90,000.00 of its 6% bonds, first, please have the Company make this semi annual interest payment to you as owner of the bonds and, secondly, send me a New York draft payable to the order of The Diamond Match Company for the American equivalent of this interest payment.1 If Mr. Keyes were not the nominal holder and Diamond Match the beneficial owner, that transaction would be in the reahnof pure fantasy. Bryant and May and Diamond Match were now, and seemingly had been from the time of the original sale of Columbia assets to Falkirk, assured that the matchmaking facilities in St. Johns would not be a means to the entry of rivalsin the match business in Canada. The Bryant and May-Diamond control of Commonwealth, with I. - 266 - Diamond exercising the active management, was uninterrupted. The movement of Diamond's 30 per cent through the procession of com- panies, outwardly independent, Ledburn, Hilton, Pan-American Match, Universal Match, up to the acquisition of Commonwealth by Valcourt Company, was described in Chapter 3. All the ownership changes were merely nominal. For example, a meeting of the directors of Commonwealth Match in 1947 at the time of its ac- quisition by Valcourt, a wholly-owned subsidiary of Eddy Match, made evident that the Gore Company had been an instrumentality of Bryant and May. The evidence was brought ferth by a resolution of the Commonwealth directors, THAT the transfer on the books of the Company of 700 Preferred Shares from the Core Company to Valcourt Company, Ltd., and 7,000 Common Shares from the Core Company to Valcourt Company, Ltd., be and the same is hereby authorized and approved and the Secretary of the Company p2 and hereby is authorized to so transfer said shares. That Bryant and May were throughout the beneficial owners was well supported by documentary evidence, including the sending of dividend payments from Commonwealth to Bryant and May through an intermediary, Provincial Wood Products of Saint John, New Brunswick.17 The attorneys for the companies in appeal described the persistent efforts to conceal the true ownership as "elaborate. and often admittedly ridiculous."18 These elaborate attempts at concealment would hardly seem ridiculous to the active manager of the efforts, Diamond Match, because that company lived in the shadow of the ban of the Sherman Act. Contending in appeal that such a situation was not - 267 - illegal, the attorneys for the appellant companies freely admitted that Eddy Match and Commonwealth "were from the outset owned and controlled by the same outside interests.“ It was a pervasive, extending to the establishment by Diamond, apparently in its r61e of active manager in behalf of Bryant and May and itself, of production quotas for Commonwealth. Although there was consider- able variation from year to year, at least as great as from 55,000 cases in 1936 to 40,500 in 1940, the annual output from St. 'Johns under Commonwealth was kept consistently below the average output from the St. Johns facilities when under the control of Columbia Match. The average for 3 years of independent Operation had been slightly more than 2,900,000,000 matches; the maximum, in the final year of independence, had been 3,750,000,000. During the first sevenjyears of Commonwealth Operation, the annual average output at St. Johns was about 1,900,000,000 matches; the peak out- put was nearly 2,35o,ooo,ooo.19 The American and British interests were maintaining important excess capacity in the Canadian market, which would always be at least potentially a significant weapon. With commercial espionage in a minor r816, Eddy Match had used fighting brands and special discounts, allowances and rebates, which were Often of a confidential nature for the pre- sumable purpose of bringing the least disturbance to the generally maintained price structure, successfully to eliminate its com- petitor, Columbia Match Company. Recognising that the financial elimination of a competitor does not c0pe entirely with competitive threat of the physical existence of matchmaking -268- facilities, the American and British owners of Eddy Match ac- quired "secretly" those facilities from the receiver in bankruptcy. The acquisition removed any competitive threat. The secrecy in- volved questions of the law for one of the participants. There may also have been some value assigned to having an ostensibly independent company in the industry to blunt somewhat charges of monOpoly. The monOpolist may also have found useful his command of excess capacity in the industry. - 269 - 1. Eddy Match Case Transcripfi, vol. 8, p. 1939. 2. Op. cit., vol. 5, pp. 855-58. Canadian Match Report, p. 22. 3. Eddy Match Case Trppscript, vol. 5, p. 838. 4. Op, cit., vol. 5, pp. 843*44. 5. gp._pi§., vol. 5, pp. 845-46. 6. op, cit., vol. 5, pp. 851-52. 7. op. cit., vol. 5, pp. 853-54. 8. Op, cit., vol. 5, p. 907. 9. Op, cit., vol. 5, pp. 875, 883, 885-86. 10. Pp, cit., vol. 5, pp. 887, 894-95, 898-99, 916-17, 896. 11. Op, cit., vol. 5, p. 900. 12. pp._git., vol, 5, p. 915. 13. Op, cit., vol. 11, pp. 2857-58, 2861-62, 2866. 14. may vol. 5, p. 1023. 15. pp, cit., vol. 5, p. 1024. 16. Op, cit., vol. 11, p. 2835. 17. op, cit., vol. 8, p. 1796. 18. Eddy Match Case, Appellants' Factum, p. 57. 19. 121g. Eddy Match Cgse Transcript, vol. 6, p. 1311; vol, 9, pp. 2069-70; vol. 8, p. 1939. Chapter 12 A third rival, Canada Match Company Of Hull, Quebec, had been formed before the second had ended in bankruptcy. A match- making machine had been secured from the Bell Machine CO. of Oshkosh, Wisconsin.1 Canada Match output accounted fer 3.48 per cent of domestic production at the time that Columbia was going into bankruptcy.2 This was one of various efforts to restore match manufacture to the city of Hull after the closing of the E. B. Eddy factory in 1928. Eddy Match soon turned its attention to the activities of this new rival. Although the basic pattern of market behaviour continued, there was an important shift in emphasis which produced interesting variations. Working toward the general reinstatement of its April price list on ”kitchen" matches of $12.91 list and $10.54 net cash cost to jobbers, Eddy Match was withdrawing, during the summer of 1932, some of its temporarily reduced prices, which were sometimes as low as $8.35 to the jobbers. However, within a few weeks small jobbers who had been handling Canada matches were raising a - 271 - problem. A new fighting brand North Star was made available by Eddy Match at $8.75 per case to the jobbers. The sales manager exerted a continuing influence to confine North Star sales to com- batting Canada Match and to limit, as far as possible, the effect on other Eddy brands. His policy was outlined in a letter of September 15, 1932, to a Toronto customer. We do not quite agree with the statement in the first part of'your letter that there is a lot of competition by North Stars against Eddy's other brands. There is no possible way that North Star brand can compete against our regular brands of matches, first, because it is not the same grade of match, and secondly, because we are not going to manufacture a sufficient quantity of them so that they could greatly affect business on regular brands, . . .3 North Star was to be used to deal with limited competition from outside brands. As the rivalry was intensified both Blue Ribbon and Maple Leaf were made available at a special 50 cent allowance, $10.04 to jobbers. That the difficulty of maintaining the general price structure was thereby increasing was evident. A letter re- ceived by Mr. Miller in October put the matter in these terms: 'we understand our French friends are not meeting North Star prices in all cases, and believe to-day the competition against Eddy's other brands by North Star is becoming more pronounced and will be impossible to control before long." By December Eddy Match had introduced a new fighting brand, Bull Dog, and Offered a price of $8.25 per case on both of the recent fighting brands. Canada Match reported to a firm in London, Ontario, that month, "we can quote you Canada matches at $9.15 net per case. We understand Eddy Match are selling Bull Dog at $8.25 net per case, but it is - 272 - impossible to us to meet this price. We have been told that they are selling this brand only by small quantity at the time.‘4 Rather than price reductions simply to meet competition, a position constantly referred to in Eddy Match correspondence, that seemed to be a clear example of lowering prices to eliminate a competitor. Whether it was an intentional though occasional weapon or a tactical error because of limited commercial intel- ligence, such price cutting did not ferm the core of Eddy's attack on Canada Match. Every effort was made to confine lower Eddy prices to restricted areas and to fighting brands. The concen- trated effort was on 2 other monOpolistic weapons, exclusive dealing and resale price maintenance, which were closely inter- woven. Comments addressed tO Mr. Miller in 1932 by a Maritime wholesaler in regard to sharp departures from maintained prices illustrated a widely held view: There seems to be always somebody taking the joy out of life. If it isn't one thing, its [5197 another, and some people seem to be anxious to work fer nothing, or are able to sell merchandise cheaper than other firms. We hope this condition will correct itself sooner or later and thqy will wake up to the fact that they are working for nothing. There is no fun in that for anyone, either manufacturer, jobber, or retailer; and nine times out of ten, the retailer who buys merchandise today at special prices, is passing it on again at special prices to the consumer--sometimes foolishly, and he gets very little thanks from all those who participate, and the final result is that nobody has made any money except possibly the consumer, who has saved a few cents. If all hands would lighten up a little - both the manufacturer and the jobber, and the retailer would spend more time on merchandising rather than on buying, things would improve with a jump and become much healthier-mm"5 There was a denial of the desirability of price competition, the - 273 - social advantage of economising in distribution, and the purpose of production being consumption. That the end of the depression did not mark the end of the idea of agreeing to maintain prices is evident from the recent history of resale price maintenance and its unqualified support in certain influential quarters, exemplified by the current stand of the Canadian Manufacturers' Association.6 On June 30, 1932, instructions from Mr. Miller to the western sales supervisor made clear that Eddy was already trying to induce distributors to handle its products exclusively. He said, ”you may continue the 25¢ special allowance on OWL matches to David Spencer Ltd., in view of the fact that this chain store is giving us their exclusive Match business, and in order to be in a position to hold this, I think it better that we continue this special allow- ance for the time being.'7 A wider profit margin was available to those handling only Eddy matches. By November, Mr. Miller was advising a Halifax firm, In order to show our willingness to work with you one hundred percent and also our appreciation of the increased business you have given us, . . ., we will give you the fifty cents per case rebate on what BLUE RIBBON matches you include in the car. We would ask, however, that you keep this matter strictly confid- ential between the writer and yourself, and would ask also that you do not allow this fifty cent rebate to reflect in your re-sale price, but take this as an extra grofit, which we feel sure you will be willing to ace Although forced by competition from time to time to accept lower resale prices, it was evidently Eddy Match's purpose to widen the profit margins of distributors so as to induce them to concentrate their efforts on the company's products. - 274 - In many instances this relationship between the jobber's profits and their purchases of Eddy matches only was stated very plainly in the face of direct competition from Canada matches. Every dealer that Eddy could convince by means of the extra profit to refuse to handle rival matches represented a narrowing of the distribution channels open to Canada Match. In a detailed account of his meeting with one of the large Winnipeg jobbers, the western sales supervisor for Eddy Match provided useful illumination in regard to prevailing conditions. The representative of the Canada Match 00., '. ., is now in the city and has offered Macdonalds the Winnipeg firg7 a price of $7.75 delivered at any Manitoba point on Canada 3's. Mr. Crawford opened the box and said they were good matches, and I must admit that they were, in fact I would almost swear that they had our Blue Ribbon splints in the box. The wood is beautiful wood and the match is the same size and colour as our Blue Ribbon. . . . The Canada Match price was quite low and, at the same time, the quality of the product was obviously much better than Eddy Match persistently implied in their contacts with various dealers. After stating emphatically that his complete knowledge of the match block purchases of Canada Match gave him an accurate idea of that com- pany's output, and Quoting an Eddy Match price of $8.44 net on their competing Owl brand, the western sales supervisor said to Macdonalds' official, Of course Mr. Crawford, you realize that there is more enters into this than the 38.44 price, and that you are getting a deal that only is allowed providing you handle exclusively Eddy's Matches.9 The firm was convinced to continue its exclusive handling of Eddy's matches in spite of the substantially lower price on Canada - 275 - matches. To assure the Jobbers a profit attractive enough to exclude other matches Eddy Match needed to be Operating under an umbrella of maintained prices. A comprehensive resale price maintenance programme would be difficult in the face of substantial quantities of like quality matches being available to retailers at much lower prices. That could be solved by choking off'the competitor's access to the normal channels of distribution. Thus were wed exclusive handling arrangements and a firm resale price maintenance policy. A 1932 contract letter brought the two aspects of Eddy's problem together in a 3-year agreement. In return for your entire Match business from date to October Blst, 1935, the Eddy Match Co. Limited agree to sell you their various brands of matches at their list prices in effect at point of purchase from time to time, less their regular discounts in effect from time to time. Providing you signify your acceptance of this Contract by placing your signature hereon, the Eddy Match Co. Limited will allow you, during the life of this Contract, a special confidential discount of 5% (five percent) on all Red and White brands supplied, and a special confidential discount of 2% (two percent) on all Eddy Brands supplied.10 That was explicitly an exclusive contract. To permit jobbers a profit that would induce them to observe the contract there had to be a stable resale price or Eddy faced a crumbling price structure thereby reducing its own profits. To sustain prices 22g volume of sales, equally important to the company, there had to be at least a shortage of low-priced matches. Effective resale price maintenance was implicitly an essential element in making the exclusive contracts profitable for manufacturer, wholesalers, and retailers. Once enough distributors agreed to the policy, Canada Match would no longer be able to obtain sub- stantial business by means of offering lower prices; in addition to price discrimination, more damaging to Canada than to Eddy, Canada Match would be encircled by unraceptive dealers, once the latter had been persuaded by Eddy that they could enjoy the enhanced profits on a long term basis. Express recognition was given to resale price maintenance in 1934 by Eddy Match and its pseudo competitor, Commonwealth. They adOpted a uniform policy of offering a 35¢ per case special discount to any jobber maintaining a minimum selling price on 3;; sales. Eddy Match described the policy as, . . . an effort to eliminate the varying prices . . . of matches from jobber to retailer, and . . . to help and protect our distributors from the necessity of sacrificing profit, . . . and eXplained the resale price of 39.50 in terms that might still serve as a warning to be wary fer those entrusted with the enforce- ment of a ban on the practice. (underlining supplied) Please understand that this $9.50 price is the suggested minimum, and is named in an effort to eliminate lower unprofitable prices which have been existing in some territories, and if adhered to, will result in improved profitable prices for distributors; however, it does get prohibit the sgle of these brands below the 39.50 price, but we feel certain that all distributors will be vitally interested in this or a higher price in order that they may obtain the thirty-five cents per case rebate offered fer this co-operation. A.'suggested' price might well be, in some instances, the perfect device for keeping the letter of the law, while denying its sub- stance. The 1934 producer-Jobber arrangements were improved in - 277 - 1935. The resale price was raised to $9.75 per case and the jobber discount for maintaining that was increased to A per cent on a list price of $9.43, which was equivalent to 37.72¢, com- pared with the 35 cents of the previous year.12 That the enhanced profit margins resulting from the re- sale price maintenance were proving effective for the purpose of Eddy Match was certain. The policy was being continued and there were examples, reaching the attention of the company's sales manager, Mr. Miller, of distributors declining to handle Canada matches, offered with a price advantage to the buyer of 56 cents per case. His comments on such an occurrence to the Maritime re- presentative of the Eddy Match were informative of his outlook. As I understand it, the Canada Match Company has not named resale prices in the Maritime Provinces; therefore, in consideration of our naming resale prices and co-operating with the jobbers in the territory, none of the Jobbers should consider the sale of Canada matches, and if they do they will break down the profitable prices that are now existing in the territory, and I understand that this is the position that Jones, Schofield, Hathaway are taking with re- ference to this quotation, and they are absolutely Another possible weakness that might develop in a ban on resale price maintenance was illustrated by the position of the T. Eaton Company in 1935. Mr. Miller was advised that, The T. Eaton Co. Limited state they are not permitted to sign any declaration re price maintenance, etc. They are quite willing to observe any consumer resales which may be named - in fact Just recently Mr. Holmes instructed Lethbridge and Medicine Hat stores that resales of which we advised them must be respected on family size matches of any make. lur. Miller's suggestion that the head office sign for all branches 1‘ 4‘ - 278 - brought out the matter even more clearly. . . . the trouble is that it is Eaton's Head Office who refuse to sign, and state that it is a very strict policy of the firm that they will not sign any agree- ment regarding maintenance of price. They will give their word to observe a minimum, and will observe it, their attitude being that if their word is not good enough there is no point in their putting their signa- ture on a document. 5 It was decided that under those circumstances they.were entitled to the rebate; the discount was for price maintenance in reality not for signing a pledge. If that method of an unwritten promise were widespread, the banning of resale price maintenance would face serious obstacles in the courts. Without using the ultimate weapon, the boycotting of a dealer who did not live up to the price maintenance requirements, Eddy Match had gradually built up a fairly firm price structure, higher than necessary to continue a profitable Operation. In res- ponse to the idea of an imposition of some penalty on the recal- citrant, Mr. Miller had stated the position of the company. . . . if we could only make a penalty that would apply against any jobber that did not keep to the arrangement, everything would be O.K., but of course we cannot do this, although our friend Ossie Marrin could tell us how it could be done with his little black book, but you know that we cannot possibly consider such drastic action as this and can only hope that the jobbers will sincerely co-operate . . . 6 Although it was not stated in that case that the deterrent to more drastic action was a question of the law, that aspect was expressly considered two years later in 1934. A British Columbia jobbers' association had requested a resale price agreement. Mr. Miller explained to the association that "any attempts to control - 279 - prices on all brands of matches, to be successful, would result in an agreement that we are advised would be illegal. . . . It is veryreadily recognized that any price policy, other than one that will absolutely bind all manufacturers and all wholesale dis- tributors, is of little value in protecting the jobbers' profit, and as to draw up such an agreement is difficult against existing law, it is very questionable whether any such agreement should be entertained.-17 At the same time Mr. Miller put the matter even more plainly to his western sales supervisor, stating that, "owing to the Combines Act in Canada, it would be illegal for us to combine with the jobbers and other manufacturers of matches to fix a re- sale price or prices,'18 In response to receiving a copy of that second statement of the problem, the vice-president and sales manager of Diamond Match said, I have noted cOpy of your letter to Mr. Nickerson [Ebdy Match western sales supervisor? of October Blst, referring to the demand made upon you to make an effort to fix resale prices on matches in British Columbia. I think the stand that you have taken is logical and preper and I hope that you will be able to sidestep making any such attempt. Of course you have no objections to jobbers making this effort thru the Candy Association of [5197 they care to do so, but it is certainly advisable for you to keep out of such arrangements. 9 Eddy Match, in pursuing its monopolistic practices, was clearly endeavouring to keep within the law -- prima facie a commendable procedure. Against the background of Eddy Match, it was also illustrative of a sharp awareness on the part of the company that there were many points of conflict between its monopolistic - 280 - purposes and the competitive purposes of the law. Rather than ending price fixing efforts, however, the influence of the Combines Act was to Eddy Match to proceed circumspectly. In spite of his words of caution in October and November of 1934 and his statement of January 5, 1935, to Mr. Nickerson repeating the cpinion that the Combines Act made unlawful a price maintenance policy, Mr. Miller continued to work indirectly to achieve such an end. A January circular from the firm represent- ing Eddy Match in western Canada set out "Jobbers Resale Prices." Eddy Match was resorting to a veiled suggestion implying that "no jobber should buy matches from a competitor who does not provide them with a resale printed price list and a policy that will pro- tect their profit." Writing to the western sales supervisor in March of 1935 about the problem of resale price maintenance, Mr. Miller said, I think that you and our brokers in Western Canada will be able to point out this to the trade so forcibly that the customers in Western Canada will not buy matches from any other match manufacturer who does not provide a policy equal to ours for the protection of their profit, and will go as far as to refuse to handle matches from any other match manufacturer who does not provide such a policy. Having rejected the use of a boycott against jobbers who failed to maintain prices, Eddy Match's persistent efforts had brought about a situation where the distributors were prepared to boycott a jproducer who did not assist in the maintenance of prices.20 The only significant difference of the two methods seems to be that the tsecond takes longer to accomplish. Although there was thought to lme some legal distinction, it was apparently only one of detection. - 281 - There may actually have been little difference in the long-run economic effects. The first means would have meant an earlier monOpoly control and probably antaarlier appearance in court. The second method meant a later establishment of monOpoly control and, probably, a longer time before appearance in court. To whatever extent legal penalties do not remove monopoly gains, the deterrent of the Combines Act had a useful economic effect in bringing Eddy Match to the second method of maintaining prices. The profits may have been still too large, but they were at least not for so long. An important contrast with the Columbia Match situation was that, during its years of independent operation, Canada Match enjoyed a net profit, except for the first 9 months. That the struggle with Eddy Match had curtailed those profits was seen in a comparison with the results obtained after the company's acquisition by Eddy Match in 1936.21 Canada Match was not driven to bank- ruptcy by the intensive efforts of Eddy Match. Toward the end of 1934 efforts were made to purchase a majority of the shares in Canada Match. The negotiations were handled by the sales manager of Commonwealth Match on behalf of Eddy Match and with thelanowledge and agreement of Diamond Match. The 313 shares acquired at approxi- mately $160 per share would have given Eddy Match control of the company with its 620 shares outstanding, except that at the time of the negotiations additional shares had been issued to other individuals. The 313 shares were held by nominees of Eddy Match - 282 - and the Commonwealth sales manager, who had conducted the purchase, was kept out of the picture. He was instructed the following year to turn over the shares to B. Chandler Snead. The vice- ‘president of Diamond Match sent out the instructions concerning the Canada Match shares. Apparently under some financial scheme with Diamond, the president of Canada Match, J. W. Charette, resigned.22 With Eddy Match holding a substantial minority interest in Canada Match, E. R. Miller, sales manager of Eddy, took an active part in attempting to obtain the balance of the shares in Canada Match and saw arrangements completed in January of 1936 for the purchase at $225 per share of the 726 shares not already held by nominees of Eddy Match. The new president of Canada Match had explained to Mr. Miller that the shareholders had entered a pool- ing agreement, which had been signed at the suggestion of Senator CStdK There was also involved an undertaking by them not to have anything to do with the match business in Canada for a period of 20 years. The total cost of acquiring the 1,039 shares of Canada Match, which included the extra shares issued during the earlier negotiations, was $213,715.31.23 The interest of the Diamond Match Company was indicated by its auditor advising the Canadian accountants for Eddy Match.of the desirability of treating the necessary financial entries as inconspicuously as possible.24 Again hiding from view the complete affiliation of another former rival, Eddy Match began the active management of Canada Match in January of 1936 by raising the company's prices. (C - 283 - Its price lists were now prepared by the office of E. P. Miller. On his instructions Canada Match introduced a price maintenance policy in May of 1936. Canada Match now paid 25 cents per case on sales to Eddy Match, which had assumed the position Of sales office for that company. Production and sales quotas for Canada Match were established by Eddy Match withlittle variation from year to year, until they were increased at the time production ceased at the St. Johns plant in 1949, when the prOperty was sold for $165,000. Canada Match was then producing some of the brands that had formerly been manufactured by Commonwealth.25 The growth of another rival had been deliberately curbed by the market behaviour of Eddy Match by devices similar to those which had driven Columbia Match into bankruptcy. As Canada Match was able to continue to earn small profits, Eddy Match then eliminated the concern as a competitor by acquiring all the stock of the company. Eddy Match emerged again as the sole match producer in Canada, with that fact concealed by its Operation of both Commonwealth and Canada as ostensible competitors. There was no variation in the result for the consumer -- there were increased prices. 1. 2. 3. 4. 5. 6. 7. 9. 10. ll. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. - 284 - Canadian Match Report, p. 38. Eddy Match Case Transcript, vol. 8, p. 1939. op, cit., vol. 5, pp. 901, 929, 932, 934. Op, cit., vol. 5, pp. 936, 942-44, 1017. Canadian Match Report, p. 45. Eddy Match Case Transcri t, vol. 5, pp. 947-48. pgpgg, ch. 9, p. 239. Eddy Match Case Transcri t, vol. 5, p. 923. op, cit., vol. 5, p. 952. op, cit., vol. 5, p. 965. Op, cit., vol. 5, p. 951. Op, cit., vol. 5, pp. 1033-34. op, cit., vol. 5, pp. 1089, 1092. Op, cit., vol. 6, p. 1094. Op, cit., vol. 6, p. 1190. 0p, cit., vol. 6, p.1193. Op, cit., vol. 5, p. 993. 92, cit., vol. 5, n. 1050. Op, cit., vol. 5, p. 1052. Op, cit., vol. 5, p. 1053. Op, cit., vol. 6, pp. 1060-64, 1095-96. Canadian Match Report, p. 122, table 16. Edd Match Case Transcri t, vol. 3, p. 471; vol. 6, pp. 1068, 1113, 1272; vol. 7, pp. 1637-38; vol. 12, p. 3118, Eddy Match Case, Factum of the Respondent, vol. 2, pp. 218-19. supra, Che 3, ppa 51'52a Edd Match Case Transcri t, vol. 6, pp. 1111, 1269-71; vol. 7, pp. 1615, 1642. - 235 - 24. Op, cit., vol. 6, p. 1273. 25. Op, cit., vol. 3, pp. 473-75, 482, 484; vol. 4, p. 583; vol. 6, pp. 1278-79, 1281, 1286, 1288, 1293-1302, 1305“O6; vol. 9, pp. 2108-2109, 2253; vol. 10, 2438-44; vol. 11, p. 2850. Eddy Match Case, Factum of the Respondent, p. 250. Chapter 13 A minority of the Canada Match stockholders had not en- tered into a restrictive covenant with respect to engaging in the match business in Canada. In the spring of 1936 a new Hull match company was formed by J. W. Charette, the original president of Canada Match, and several others, including some shareholders of Canada Match, presumably some of those not bound by the restric- tive covenant. The new company faced the co-ordinated competition of Eddy, Commonwealth and Canada, rather than the problems of entering a 3-firm industry. The Federal Match Company was to have an independent existence for less than 4 years. The location of Federal in the same city as one of the Eddy group greatly facilitated commercial spying. From Canada Match "intelligence" reports reached Mr. Miller in Montreal with great frequency; there were times when the reports were daily.1 They dealt with such matters in regard to Federal as rate of production, the quality of the product, and the destination Of the shipments from the factory. There were more imprOper sources - 287 - of information than the employees of Canada Match. Some one from Minds and Dauche, for example, provided information regarding the use by Federal of the cases supplied by that company.2 Canada, from a lumber company employee who had talked with somebody in the foundry where Federal's match machine had been made, learned of that company's investment in order to commence Operations and of its trade policy to sell 25 cents per case under Canada Match.3 Plans of Federal to alter its policy were quickly communicated to Mr. Miller. For instance, he learned that Federal was considering a box of 150 matches.4 Whenever the sales manager of Eddy Match was informed Of the destination of a Federal shipment of matches, be promptly warned his representative in that area, thereby laying the basis for effectively combating the competition of new supplies from Federal.5 Although remarks deprecating Federal matches continued to be circulated among the jobbers, Eddy Match had been made aware, through its spy network, that Federal matches were of excellent quality, superior to the product of Commonwealth.6 That this espionage was found valuable to Eddy Match was indicated by its extension to western Canada, where there was no physical proximity to assist such an Operation. The western sales supervisor played an important part in collecting information and forwarding it to Mr. Miller in Montreal. Employees of shipping companies, both steamship and railway, proved particularly useful sources of what surely must be deemed confid- ential information. An illustration of the procedure was given by - 288 - a letter to the western sales supervisor from the Winnipeg broker- age firm which represented Eddy Match in western Canada. Following up our check on Federal activities, we were advised by the C.N.R. that since Federal started shipping West, Tyson's Storage have had about 600 cases come along in pool cars, part of which were sent to MacKenzie Storage in Winnipeg, some went to Calgary, and approximately 150 to Saskatoon. We questioned the Saskatoon shipment, but the railway company asked us to leave it with them fbr a day or two as it is somewhat difficult for them to secure definite information since these goods had been enclosed in a pool car from the East, which was con- signed to the Tyson Storage Co. We had the Canada Steamship Lines go through their boat manifests and they tell us the only shipment they handled was 50 cases Bluebirds weighing 1400 lbs. which were shipped by the Federal Match Co. Hull, loaded on a Canada Steamship Line boat in Montreal June 19th, and consigned to H. J. Lockwood, Winnipeg. That is sufficient comment on the commercial morality of the parties concerned. 7 That the wide travels of the western sales supervisor had enabled him to establish direct sources of confidential in- formation may be seen in a letter from him to the sales manager of Eddy Match. Just as we were closing my railway friend phoned me and gave me the following contents of the Fox car: 250 c/s Federal 3s 250 c s Perfection 33 200 c/s Federal Pocket 30's 200 c/s Coronation " 30's 100 c s Bluebird 3s L.S. This, as you will note, amounts to 1,000 c/s and not 1,100 c/s as reported and the car was consigned to Slade, Freight Collect. I was very careful to find this out and also the matches are billed by Fox and not National Brokerage Company and these were put in - 289 - Slade's storage warehouse, . . .8 "Fox" was the code word for the Federal Match Company.9 The amount of detail found in that letter was not unusual fer the reports that were constantly being received by Mr. Miller. Approximately 2 months before the acquisition of Federal by Eddy Match a letter to the Western sales supervisor from Mr. Miller showed both his anxiety at a failure in spying and the fierceness of the rivalry against Federal right up to the end of its independent existence. What is worrying me is that these shipments going out in this way, seems to indicate that these people are able to sell some of the matches which they have shipped to Winnipeg, and it is unfbrtunate that we have lost our check on these matches and are therefore in the position that we do not know how many of them are being sold. You know pretty well the position we are in with reference to this concern, and while they are un- doubtedly in a very precarious position, if they can sell matches in Western Canada (at which point they can get higher prices than they can at any other point in the Dominion'), they might be able to carry on their business for some time on Western sales alone if they are able'MD dispose of any such quantity as has been shipped into the territory in the last two or three months. It is therefore quite important that we see to it that they cannot sell these matches. . . . Furthermore, if they could sell this large quantity of matches or if there is any possibility of them doing so, considering that they are trying to keep their plant running apparently from Western sales, we may have to throw discretion to the winds and supplg all the Swan [3 new fighting brand introduced in 1939;;7 matches that the Jobbers will buy on the basis of $8.00 per case, or maybe lower, and I am making this state- ment because it is extremely important that these I It was quite the general rule with all the match companies that sales in Western Canada yielded a higher factory net for the pro- ducer. The Jobbers' cost in the West usually exceeded that in the rest of the country by pppp than the transportation differential. "I - 290 - people do not put over their preposition by going to Western Canada and selling matches in volume, which is indicated by the large shipments they have made in January and February, and also another car Of 1,100 cases which is now being loaded. The important thing at the present time is to prevent the liquidation of tpise stocks into the Western Canada market, . . . The final struggle against Federal Match came in western Canada because vigorous price cutting in other areas had curtailed severely sales of Federal matches. The situation in the Maritimes had resulted in the withdrawal by Eddy of a comprehensive pro- gramme of resale price maintenance, in its Offering pl; brands of matches at lower prices to combat the inroads being made by Federal, and, in some instances, in Eddy Match adopting the practice of making direct sales to some retailers.12 During this period of competition with Federal Match, the 3 Eddy companies, Commonwealth being an affiliate with the same owners as Eddy Match and Canada being a subsidiary by reason of it being owned by the Valcourt Company, which was formed in 1937 as a wholly owned subsidiary of Eddy Match for the purpose of acquiring the stock of Canada Match at the written down value of $103,900,13 co-Operated on fighting brands against Federal Match. They continued their efforts to keep the use Of fighting brands confined as much as was permitted by the outside pressure from Federal. A means to that end was a narrower profit margin for the jobbers because the 4 per cent resale price maintenance discount was not allowed on the fighting brands.14 With special emphasis in western Canada, but by no - 291 - means confined to that area, extra allowances were given to cer- tain large retailers such as, for example, the department store chain, Woodward's, and the grocery chains, Safeway and Loblaw Groceterias.15 It was stated by the Eddy Match western sales supervisor that the brands handled under that arrangement were often sold as “Loss Specials."16 Eddy Match, stressing the policy in western Canada, set retail prices from time to time. A good example of that occurred with respect to Commonwealth matches. They were offered at a lower net cost to jobbers on the basis that they would be sold to the ultimate consumer at the same price as the higher cost Eddy brands.17 A 1937 marketing innovation by the Federal Match Com- pany, when it brought out a box of 30 matches selling for 1 cent, engaged the direct attention of W. A. Fairburn, president of Diamond Match and Managing Director of Eddy Match. Writing to the company's general manager in Pembroke, Ontario, he said, Will you please obtain from E. P. Miller, samples of Federal Match Company CORONATION brand, which I understand are selling for one cent per box; the box being a rather large size but carrying only a 30 count? As soon as you receive all the information which you desire in regard to this Federaltrand, will you please make a very careful estimate of cost, giving the information to no one except me personally, and comparing the cost of reproducing the CORONATION brand at an Eddy factory with our regular No. 0 Pocket size? I understand the Federal CORONATION brand is selling to the jobbing trade at prices from $8.00 to $8.55 per case, which it would seem, after deducting Sales and Excise Taxes, gives the Federal a revenue of from $4.71 to $5.22 for 10 gross of boxes. Miller maintains that this 30 count box is not profitable and he says "We bank on Federal not being able to make a profit at the prices on which they are selling them; - 292 - in fact we believe they are taking a loss." For your information, will say that I am advised that Federal sold 670 cases of CORONATION brand dur- ing May and T.J.R. vice-president and sales manager 0 the Diamond Match Comps advises that "E.P.M. sales manager of Eddy Matc has estimated that Federal must be losing $1.00 per case.“ I would like to check up E.P.M's. and T.J.R's. statements:in regard to Federal losses on their sales of one cent 30 count matches. Hence call upon you for help in checking costs comparative withtaur standard No. 0 size18 The careful checking was being carried out by the man who had pro- vided a financial incentive to promote the elimination of Federal by advising Mr. Miller at the end of 1936 that Mr. Miller would be paid an additional bonus beyond his 810,000 "total compensation from all companies, . . . if the Federal Match Company disappeared as a competitor during the year 1937."19 The reply W. A. Fairburn received showed the large difference in efficiency Of Operations between the Eddy Match facilities at Pembroke acquired from the Canadian Match Company and those at Berthierville acquired from the World Match Corpora- tion, and also indicated that the Federal Match Company was not necessarily producing and selling their 1 cent matches at a loss. . . ., we have gone very carefully into the cost of the "Coronation” brand. We find that if this brand was made in an Eddy factory on the same basis as I understand Federal are using, 1.6. making boxes, caddies, etc. by hand, the cost would be as follows: Pembroke - $4.81, Berthierville - 5.60 Consolidated - 5.22 all per case of 1,440 boxes. These costs include of course overhead of Eddy factories as at present in effect. Costs of 10 gross (1,440) No. 0 Pocket size for - 293 ’ the six months ending June 30th, 1937, are as follows: Pembroke - $3.57 Berthierville - 5.04 Consolidated - 4.1620 Further information in response to W. A. Fairburn asking what would be the cost at Pembroke, calculating Federal overhead, which he suggested could be estimated from Canada Match figures, and using the facilities there which were producing the pockate size, suggested strongly that Federal was earning a profit on its 1 cent matches. The Pembroke cost was estimated at between 33.15 and $3.38 per case, depending upon the type of packaging.21 Eddy Match attempted to meet that competition with its pocket matches at 5 cents for 2 boxes to avoid a changeover; in the course of the struggle in the Maritimes the Eddy matches were eventually offered at 1 cent a box.22 In spite of the combative efforts of the 3 Eddy companies against it, the Federal Match Operated at a profit and had built up a surplus of just over $42,000 in a period of 4 years.23 That this could be accomplished during a time of prolonged price cutting was evidence of the exceptionally high level of profits that could be and were maintained whenever the Bryant and May-Diamond companies were able to restore their monOpoly control. It may be further noted that the output of Federal was relatively small, never accounting for more than 10 per cent of Canadian output.24 In May of 1940 all the Federal shareholders formally Offered. to sell out to Valcourt, the wholly owned subsidiary Of Eddy Match Company. They undertook, as a condition of acceptance, - 294 - not to engage, directly or indirectly, in the manufacture of matches in Canada for a period Of 20 years. Valcourt accepted and acquired all the stock of Federal Match for the sum of $136,500, which was $300 per share.25 As the value of the issued capital and surplus at the time of purchase was $87,823.08, the Eddy Match interests were apparently prepared to pay a high price, which involved more than $48,000 described by one Eddy official as "good will or nuisance value” investment, to eliminate its only domestic com- petitor. The excessive charge was written Off at the end Of 1943, as had been done with earlier acquisitions containing "water."26 It is of interest to note that shortly after the "nuisance value" or goodwill had been capitalised in 1940, the assistant secretary of Eddy Match, in his justification of the transaction, said, "It is a fact that goodwill did and does exist in Federal. This can be demonstrated by the Company's earnings prior to purchase and mathematically proven to betrue."27 Upon its acquisition by Valcourt, the Federal Match Com- pany came under the active direction of E. P. Miller, sales manager of Eddy Match. It had already been his task to deploy the market forces in each new struggle against another entrant. He was now actively directing Eddy Match, Commonwealth Match, Canada Match and Federal Match, with considerable assistance and sometimes (directives from Diamond Match officials, including the president, ‘W. A. Fairburn. A Diamond subsidiary, Industrial Management JEngineers, and its subsidiary, Management Engineers of Canada, ‘were actively engaged in liaison work between Diamond and the Eddy - 295 - group of match producers, and in putting into effect certain policies emanating from Diamond in its r819 of managing the Canadian firms on behalf of the principal stockholder, Bryant and May. Efforts to conceal the actual relationship persisted. That was clearly demonstrated in correspondence between the chairman of Bryant and May and the president of Diamond. The British request for detailed information concerning the Canadian companies was introduced with an explanation to Mr. Fairburn: As you no doubt are aware, a report on Company Law Amendment was recently submitted to Parliament by the Cohen Committee. It is not anticipated that their recommendations will become law until late in 1948, but when such is the case there will be many ways in which this Company will be affected. Principally, we shall be concerned with the presentation of accounts, which, broadly speaking, will involve the publication of much more infOrmation than has been considered advisable hitherto and we shall also have to publish a consolidated Balance Sheet and Profit and Loss Account. It is our intention, therefbre, to avail our- selves of the present interim period to prepare annually, but not for the time being to publish, Consolidated Accounts, which will be drawn up in accordance with the principles recommended by the Cohen Committee in their Report.2 Arthur Hacking Of Bryant and May, in outlining the required informa- tion, placed the Canadian companies, including the Canadian Splint and Lumber Corporation which it had acquired at the time of gaining control Of Maguire, Paterson and Palmer prior to the 1927 agree- ments and the fbrmation of British Match,29 in three groups -- Eddy Match Company Limited, Federal and Canada Match Companies, and Canadian Splint and Lumber Corporation Ltd. and Commonwealth Match Company. l‘ - 296 - Stating that the assistant secretary of Eddy Match would handle the details, Mr. Fairburn, in reply to the British request, described a means of collecting the information clandestinely. Mr. Hart, at Pembroke, will handle all details in correspondence with duly deput zed Bryant and May officials, and w. A. F. Jr., $011 of w. A. Fairburp7 with the co-operation of others intimately connected with Canada, Federal, and Commonwealth Operations, will for- ward tO Mr. Hart at the Pembroke office all the material he needs. I have used Mr. Miller, whose office is at Montreal, tOgether with Mr. Duffey of Industrial Manage- ment Engineers, Inc., and Management Engineers of Canada, on several matters and W.A.F. Jr. will act as liaison officer in bringing the material in proper shape, through the various auditing firms, to Mr. Hart for incorporation in the final consolidated reports. You probably know that Canada and Federal have no dealings or correspondence whatsoever with the management of Eddy Match, and Commonwealth has no direct dealings or contact with anyone connected with Eddy, Canada, or Federal. The situation in regard to Canadian Splint and Lumber is simple, as that is a direct wholly- owned subsidiary of Bryant and May, and Mr. Hart has the records of that company in all its phases, as he has of Eddy Match, except, of course, that Canada and Federal are considered as being owned by a subsidiary company of Eddy (i.e., Valcourt), and no reports of the operations of these two companies go directly to Eddy; as a matter of fact, I do not think that Mr. Hart has ever seen a Balance Sheet or Statement of Earnings of these two little Hull companies. Absolutely nothing in regard to the Operation of Commonwealth Match has ever reached the Office Of Eddy Match at Pembroke. e . . That position, in the face of the continuing co-ordination of the policies of the different companies, seemingly relied upon the fine distinction between communications on plain white paper and those using company letterheads. In eXplaining to Mr. Fairburn the details of the pro- cedure that was going to be followed, Mr. Hart, assistant secretary of Eddy Match, indicated that he was accustomed to the - 297 - policy of concealment. The above organization has been built up on the basis of getting complete information to B. & M. now and in the future as speedily as possible and at the same time preserving our present position of de- centralization of records so far as is possible and total avoidance of direct contact. In this connection it occurs to me that it might be much more preferrable for me to have some letter heads printed with my own name, using the Pembroke post office box as an address, rather than use the company lstterheads for letters which must mention other companies even when such companies are not specifically designated. . . .31 Federal Match had clearly become a member of the Eddy group, which was carrying on its policy of concealing the true relationship be- tween the various components. The monOpoly position that had been again restored by the acquisition of Federal was to be enjoyed until after the conclusion of World War II. The acquisition of Federal Match in 1940 by the Eddy interests reestablished monopoly in the Canadian manufacture of wooden matches. It would appear that the shareholders of Federal had been induced to sell out, partly by the "stick" of severe market competition by the Eddy companies and partly by the "carrot" of an excessive price paid for their holdings. The effects followed the usual pattern. Fighting brands were withdrawn and prices were raised; for example, the case cost to jobbers rose from $7.00 to 88.85. One Federal letter, 7 days after the end of its independent existence, gave a disarming explanation that the price increase was "due to the sudden change in price on raw materials which enter into the manufacture of matches." Its production of one cent boxes was halted and its general output was ~298 - curtailed. Federal began payment of a 25 cents per case sales commission to Eddy Match, as Canada had done upon its acquisition.32 Some comments by the sales manager of Eddy Match with respect to the one cent box affair, which had been a most inten- sive struggle in the Maritimes, illustrated a monOpolistic view- point at least to some degree, against the background of the production costs worked out for W. A. Fairburn and the fact that both Federal and Eddy Match and its associates operated profitably every year. In reply to an inquiry arising from discovering some of the one cent remnants of the price war, Mr. Miller said, we have not manufactured any of them for the last four months and do not intend to do so. You will undoubtedly appreciate how foolish it would be for us to put out a box of matches and sell at a loss so that the jobber and retailer could make a large profit, especially so when the Coronation match is off the market and there is no box of matches at the present time anywhere in Canada that is being sold at this ridiculously low price of one cent for a large box. We certainly are going to make an endeavour to confine our sales to our regular brands of matches, both in the household size and the pocket sizes, and especially so in the Maritime Provinces where we have sold both the Little Comet box and the North Star matches at a substantial loss to ourselves, and if the truth is known, we, as the manufacturer, have been the only peOple that have not been making some money on matches in the last year or so, and we certainly hope we shall be able to change this situation so that we can at least make a reasonable profit.33 That was apparently an exaggerated statement of the fact that the struggle with Federal had brought a sharp reduction in the profits earned by Eddy Match and by Canada Match. 12. 13. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. - 299 ' 'Eddy Match Case Transcript, vol. 6, pp. 1323, 1331'33, 1336‘37, 1341’43, 1368’770 op, cit., vol. Op, cit., vol. op. cit., vol. Op, cit., vol. op, cit., vol. Op, cit., vol. Op, cit., vol. pp, cit., vol. Op, cit., vol. pp, cit., vol. Op, cit., vol. Op, cit., vol. Op, cit., vol. 1519, 1551-52, Op, cit., vol. 12, 6, pp. 1332-33. PP. 1341-43. p. 1716. PP. 1351-53. p. 1645. p. 1539. p. 1972. pp. 429-31. p. 1841. pp. 1969-70. pp. 1868-69, 1877-78, 1887. pp. 3052-55. p. 1366; vol. 7, pp. 1433, 1466-67, 1490, 1694. 8, 2251, 2434, 2533. pp, cit., vol. Op, cit., vol. Op, cit., vol. pp, cit., vol. op, cit., vol. Op, cit., vol. Op, cit., vol. Op, cit., vol. Canadian Match 9: 9, 7, 9. pp. 1883, 1885, 1898; vol. 9, pp. 2216, 1986. pp. 1987’ 2013, 2019-20, 2135-37. 1491-92. p. 1576. p. 1497. p. 1515. pp. 1542-45, 1548. p. 1980. Report, p. 132, Appendix III. Eddy Match Case Transcript, vol. 8, p. 1939. I, I] - 300 - 25. Op, cit., vol. 12, pp. 3059-62. 26. my, vol. 9, pp. 1991-92; vol. 11, pp. 2824-28. 27. op, cit., vol. 9, p. 2045. 28. Op, cit., vol. 10, pp. 2534'37. 29. en ra, ch. 10, p. 243; ch. 4, 72. Canadian Match Report, p. 14. 30. Op, cit., vol. 10, p. 2538. 31. Op, cit., vol. 10, p. 2557. 32. Op, cit., vol. 4, pp. 582, 584; vol. 9, pp. 1978, 1983-84, 1995-96, 2145-46; vol. 10, PPo 2432-33. 330 09‘ Cite, V01. 9, p. 20500 Chapter 14 Net profits before taxes were greatly enhanced during wartime for all members of the Eddy group, which continued to hold a monOpoly in the Canadian manufacture of wooden matches, al- though only the physical output Of Eddy Match itself showed any significant increase,1 The next challenge to that monopoly position appeared early in 1945 with the incorporation of the Western Match Company on Vancouver Island. That some consideration of the question Of locating a factory in western Canada had arisen early in the history Of Eddy Match was shown by a 1929 letter from the first general manager of that company to W. A. Fairburn, the company‘s managing director. Regarding the erection Of a Western factory, I had understood all along that this was settled fact, and had discussed same with Mr. Paton,‘[Eryant and May7'and with Mr. Bennett, and on several occasions with your- self as being one Of the activities which was to be started in the early Spring of 1929. With reference to the fUnds for same, I wish to advise you that at the present time there are ample funds available, due to the fact that Eddy Match Company, Limited, have on hand at the present time $350,000.00 in cash, most Of which has been worked - 302 - out of inventory, and there is no reason why this amount should not be increased from inventory, due to the fact that for the past six months, in order to take care Of the moving period from Hull to Berthierville, we have built up a larger supply of finished matches than it is our intention to carry as regular stock. Mr. Keyes and Mr. Larson are leaving fbr the West to complete any investigating that I felt had not been thoroughly done when I was out there, in order to better place myself in a position to determine the location. I think I had expressed to you at an earlier date that my preference from the investigation so far would be Red Deer rather than Calgary. I would appreciate hearing from you, after the investigation is made by Mr. Keyes and Mr. Larson, whether or not I shall proceed to determine the location, or whether you wish the reports placed before you and same discussed with me before any definite step is made. Wish to say that my Opinion regarding the policy of building in the West has not changed up tO the present time. The only action that apparently resulted from these investigations was the purchase Of some land. That the matter was examined again was seen in correspondence between the vice-president of Diamond and Mr. Miller. The discussion seemingly arose at the instigation of Diamond. Mr. Reynolds outlined the problem. I think we should be forehanded and figure out what would be necessary in the way of a factory located in British Columbia, probably Vancouver, in case of necessity. Naturally we do not want to build a factory out there unless forced to do so, but I think if Snyder seriously considers building a factory in Vencouver we should beat him to it. I do not believe we ought to consider the Red Deer location, and I understand you agree on that point. Will you kindly do a little figuring as to what territory would be supplied from a factory located -303- in Vancouver or elsewhere in British Columbia and let me know the quantity in gross that could be profitably made and distributed from such a factory? Please understand there is norice of $9.75 per case which had been established at the request of jobbers themselves. As you know, there was a Convention held in Montreal last week at which jobbers from all terri- tories were represented. The writer had a meeting with the representatives of the Maritime Provinces, all the territories being represented, and all being in agreement with the policy which is outlined in the - 322 - enclosed circular. They agreed to this one hundred per- cent, and it is at their request that this policy is being put into force. The 39.75 resale price provides a reasonable profit, and from the eXpressions of the gentleman who attended the meeting, we do not believe there is any doubt but what the price will be maintained. If it is not, and the jobber does not sign the enclosed letter quarterly, he will, of course, lose the 4% discount which i; offered for his co-operation on the $9.75 resale price.1 There need not have been a recording of the meeting or of its con- sequences. The programme would still have involved a conspiring by the distributors with the manufacturer to fix prices. It was less overt than a l'Gary dinner" because the individuals had assembled in Montreal for other purposes than the fixing of the price of matches. It was but an example of the magic of verbal agreements in that their proof is much more difficult. Such schemes would not necessarily erode the effectiveness of enforce- ment; they would at least increase the costs of enforcement. Although Eddy Match has consistently been able to re- establish its monOpoly of wooden match manufacture in Canada, the longest period in which the company enjoyed that same position in regard to book matches was from the bankruptcy of the Columbia Match Company of Canada in 1932 until 1938. There then appeared two independent producers of book matches -- Book Match Manufacturers Limited, Toronto, and Strike-Rite Matches Limited, London. Another, apparently connected with Strike-Rite, began during 1946. That was Premier Matches Limited, Montreal. More recently a fourth book match manufacturer, D. D. Bean (Canada) Limited, commenced business in St. Cesaire, Quebec. It would - 323 - appear to be connected with D. D. Bean and Sons of Jeffrey, New Hampshire, producers of book and safety matches. Book matches have been becoming more important in the total match output in Canada, now accounting for something more than 40 per cent. The Combines Commissioner reported that while "Eddy Match has en- deavoured to push the sale of wooden matches, in which it had a monOpoly, in preference to the sale of book matches, it is also evident that Eddy Match had beencietermined to maintain or improve its position in the book match field. The fact that Eddy Match:is the only manufacturer able to supply both wooden and book matches gives it a position of advantage in making sales to the distributive trades."16 The strong contrast to the Celloghgne case seen in the Eddy Match case makes less significant the production of book matches. -324- sunra, ch. 11, p. 266. Eddy Match Case Transcript, vol. 7, pp. 1689-92. cp, cit., vol. 0p, cit., vol. op, cit., vol. op, cit., vol. 0p. cit., vol. 0p, cit., vol. 0p, cit., vol. cp, cit., vol. op, cit., vol. Canadian Match 00, cit., vol. cp, cit,, vol. 0p, cit., vol. 11, pp. 2846-50; vol. 12, pp. 3093-96. 9. 9. 5: 99 9. pp. 2067-68. pp. 2261; vol. 12, p. 3117. P. 834. pp. 2022-23, 2203, 2210-11. Po 2034. p. 2038. p. 1321. p. 1720. Report, pp. 102-104. 8. 8. 5. pp. 1837, 1338, 1840. p. 1860. p. 997; vol. 6, pp. 1086-87. Canadian Match Report, pp. 99—101. [I Chapter 16 Just at the time that a monopolistic situation was created in the Canadian wooden match industry by the acquisition of Dominion Match of Deseronto, Ontario, by the E. B. Eddy Company in 1922, the world match triad entered the Canadian industry, Bryant and May and Diamond Match as partners in the Pembroke enterprise and Swedish Match by itself at the Berthier- ville site. By the subsequent formation Of the Eddy Match Company in 1927, the British and American interests, clearly with the agreement of the Swedish interests, obtained monopoly power by intention. That they vigorously exercised such monOpoly power continuously was demonstrated by the ensuing history of Eddy Match. In economics, monopoly power and its exertion were in the hands of the Eddy Match Company. At law, in 1951, Eddy Match and its subsidiaries, Commonwealth Match, Canada Match, Federal Match and Valcourt Company, were charged with having been parties or privies to or knowingly assisted in the formation or Operation of a combine within the meaning - 326 - of the Combines Investigation Act, to wit: a merger, trust or monOpoly which, during the said period, sub- stantially or completely controlled throughout Canada, excluding Newfoundland, the class or species of business in which they were engaged, to wit: the busi- ness of producing, manufacturing, supplying or dealing in wooden matches, a commodity which may be and then was the subject of trade or commerce, which merger, trust or monOpoly has Operated or was likely to Operate during the said period to the detriment or against the interest of the public, whether consumers, producers or others. The Crown provided the following details in setting out particulars of the charge: 1. The actual corporate relationships existing between Eddy Match and the other indicted companies in spite of any Outward appearance to the contrary. 2. The numerous techniques used by the accused companies to further their monOpolistic purposes, including: (1) Close surveillance of competitors of the Accused by directors, officers, employees, servants or agents of the Accused and by officers, employees, servants or agents of storage and transportation companies on behalf of the Accused in order to secure informa- tion in regard to such matters as financial status and Operations, rate of production, quality of product, brand and type of product, selling prices, names of customers, and destination of shipments Of such competitor with the object of making sales by such competitor difficult or impossible. (2) Use of special discounts, rebates and allowances on wooden matches manufactured by the Accused, particularly tO large wholesale distributors, in order that such distributors would purchase and sell wooden matches manufactured and supplied only by the Accused thereby restricting sales of wooden matches manufactured or supplied by others. (3) Use of confidential prices below the advertised list prices of wooden matches manufactured and supplied by the Accused, particularly to large wholesale distributors, in order that such (A) (5) (6) (7) (8) ' 327 - distributors would purchase and sell wooden matches manufactured and supplied only by the Accused thereby restricting sales of wooden matches manufactured or supplied by others. The methods described in the foregoing sub-para- graphs (2) and (3) were generally used selectively, that is, only in areas where wooden matches manufactured or supplied by others were being sold or offered for sale. Exclusive dealing contracts with large wholesale distributors whereby such distributors in return for financial inducements agreed to purchase and sell wooden matches manufactured and supplied only by the Accused thereby restricting sales of wooden matches manufactured or supplied by others by closing Off large sections of the market to such others. Substantially increasing the manufacture, supply and sale of wooden matches manufactured by the Accused in a particular area where wooden matches to be manufactured or supplied by another manu- facturer were expected to be sold or Offered for sale but before such matches could be sold or Offered for sale in order to restrict sales Of such matches by such other manufacturer. Construction and Operation Of,a factory to manu- facture, produce and supply wooden matches in the same Province as a factory which was being constructed or Operated by another manufacturer to manufacture, produce and supply wooden matches in order to restrict the sale of wooden matches Of such other manufacturer. Use of special brands of wooden matches, described as fighting brands or price matches, manufactured and supplied by the Accused at prices lower than the advertised list prices of other wooden matches manufacturered and supplied by the Accused to restrict the sale of wooden matches manufactured or supplied by others. Efforts were always made to control and direct the supply and distribution of such special brands for the particular purpose for which they were introduced, that is, such special brands were used generally in areas where wooden matches manufactured by others were being sold or Offered for sale and as far as possible quantities of such special brands were manufactured (9) (10) (11) (12) (13) ' 328 - or supplied only in an amount deemed sufficient by the Accused to prevent or'seriously restrict sales of wooden matches manufactured or supplied by such others. . . . Use of certain regular advertised brands of wooden matches manufactured and supplied by the Accused at reduced prices in the same manner and for the same purpose as specialtarands hereinbefore described. Active promotion of agreements among large whole- salers on wholesale selling prices of wooden matches manufactured by the Accused. Throughout large areas Of Canada establishing and enforcing a policy of resale price maintenance at the wholesale level of trade. This included the establishment of minimum selling prices at which wholesalers were to resell wooden matches manufactured by the Accused in return for which such wholesalers would receive a specified rebate on wooden matches purchased from the Accused pro- viding they certified in writing at certain periods that they had resold such matches at prices not 'lower than the minimum prices named by the Accused. By this method the Accused have sought to induce such wholesalers to refrain from purchasing or reselling wooden matches manufactured or supplied by others than the Accused on the ground that preferred distribution should be given to wooden matches manufactured by the Accused who were an- deavouring to protect the profit of such wholesalers. Efforts were made through such wholesalers to have resale prices on wooden matches manufactured or supplied by others than the Accused established at or near resale prices established by the Accused with the object, which was realized, of restricting the sale of wooden matches manufactured or supplied by others than the Accused. Throughout large areas of Canada establishing and enforcing a policy Of resale price maintenance at the retail level of trade. . . . Outward Operation of Commonwealth Match Co. Ltd. as an independent manufacturer or supplier of wooden matches through involved efforts to conceal its interrelationship with the remaining Accused as hereinbefore described in order to conceal the substantial or complete control of the business "1 - 329 - of producing, manufacturing, supplying or dealing in wooden matches by the Accused. (14) Within the period mentioned in the formal Charge [between the 14th day of December, 1927, and the 8th day of September, 19597 all persons (all Of whom are companies) who have engaged in the business Of producing, manufacturing, supplying or dealing in wooden matches and who have been in existence at any time during the said period either have been acquired by Eddy Match Company Limited either directly or indirectly or through Valcourt Company Ltd. either by purchase of the assets or of the assets relating to such business or of the outstanding issued capital stock of such companies or have ceased to engage in such business through bankruptcy or otherwise. (15) At or about the time of certain such acquisitions either the companies concerned entered into agreements with Eddy Match Company Limited whereby they agreed not to manufacture or sell matches in Canada thereafter or for a specified period there- after or the shareholders thereof undertook to enter individually into a formal agreement with Valcourt Company Ltd. not to engage either directly or indirectly in the manufacture of matches in Canada for a specified period thereafter.2 There was no Objection made to these details nor was any request filed for their rejection. That such events had transpired was thus accepted at the trial. The law applicable at the time of the alleged offence imposed a limit of $25,000 on any fine that might be levied against a convicted corporation. There was no provision for a court order requiring convicted parties to provide information for a period Of three years after the sentence. There was provision neither for an injunction to prevent the continuation or repetition of an Offence nor for the dissolution of the merger, trust or monopoly. Those were some of the ways in which the combines legislation was strengthened in 1952. - 330 - From the enhancement of prices that quickly followed the creation of the Eddy Match monopoly the Court noted the chief events in the Canadian wooden match industry during the quarter of a century involved. That record embraced the absorption of Aurora Match, a company of 'trés faible proportions,"3 the driving into bankruptcy of Columbia Match and the secret acquistion of its assets at St. Johns, Quebec, in order to Operate under the name Of Commonwealth as an apparent competitor, the protracted market struggle against Canada Match, Federal Match and Western Match, in turn, and the subsequent acquisition of each at inflated prices, the continuing active management by Diamond and its agents, in accordance with its understanding with Bryant and May, and the use of Valcourt to carry out financial transactions. Judge Bienvenue stressed the uncommon business prac- tice between so-called rivals, Eddy Match and Commonwealth, of making reports available. Eddy had had access to any information concerning Commonwealth that was desired. On the matter of the secrecy surrounding the interrelationship, he said, If the relations of the said companies between themselves had a legal character, one may rightfully ask what motive impelled the interested parties to take so many precautions to conceal the communica- tions they had between themselves. A reading and a thorough examination of the documents filed leads to but one conclusion: these companies realized that their Operations and business practices constituted a violation of the law‘and their efforts were aimed at not letting anything leak out. On the question of commercial spying and secret and confidential reports on rival companies being forwarded to Mr. - 331 - Miller of Eddy Match, the Court expressed the view that All this certainly goes beyond the bounds of normal competition and can imply nothing else but a firm decision to eliminate the competitor absolutely. . . . A whole secret police system was set in motion. It is certain that if such business methods could be regarded as legal, commercial operations would become untenable. Attention was directed to the handsome earnings of Eddy Mitch and to the fact that "it always paid lush.dividends during both good and had years since its incorporation."6 Judge Bienvenue described the effect of resale price maintenance, a policy pursued by Eddy Match in the exercise of its substantial control of the production of wooden matches, in these words: Defendant Eddy, by means of cleverly conceived work, got into contact with groups of distributors who agreed with it to maintain resale prices. These agree- ments had the effect of closing the market almost hermetically fer products except its own. By the free play of competition, the price of matches would have had a tendency to drop. By means of a resale price policy set in motion by defendant Eddy through.agrae- ments with the distributors (Jobbers), the prices were maintained at a higher level than they would normally have been, and this precisely because of the maintenance of resale price enforced by deflndant Eddy o lMatters were so arranged that the distributors on occasion had to be content with smaller profits, leaving larger margins of profit to the retailers, always on the condition that only Eddy products were to be sold. The ramifications of defendant Eddy ex- tended to all areas of the country, with the exception of Newfoundland, so that all serious competition became impossible, leaving defendant Eddy in almost absolute control of the production and distribution of wooden matches. A fact revealed by the exhibits and which is a matter of astonishment is the following one: Common- wealth.Match, even before being absorbed by defendant Eddy, always concurred directly or indirectly in the business policies and methods advocated by the I. .332- management of defendant Eddy. The competition it seemed to practise was just "bogus" competition.7 The oral evidence, given entirely by officers of the various defendant companies, corroborated and in no wu contra- dicted the voluminous documentary evidence. Of special interest in revealing some of the connections with the world's match tried, that is with the British and American members, were the remarks of the Court concerning the testimony of the former manager of Commonwealth Match. witness P. B. Keyes, manager of Canada Match since March 1, 191.9, had previously been manager of defendant Comonwealth Match since January, 1933. He was hired in that capacity by Mr. B. C. Snead, legal adviser and director of defendant Eddy Match. The latter lived in law York. - Witness said he did not know under what authority he Ind been hired by a complete stranger to his com- perv, namely a law York lawyer, as manager of a Canadian compaw, defendant Commonwealth Match. The evidence shows that Mr. Snead was a legal adviser and the personal representative or I'contact man“ of defendant Eddy and a siseable group of English and American shareholders. Witness Reyes received instructions from persons strangers to the Cononwealth campaign, and among others from U. U. flows, for a time treasurer of the Diamond Match Co. of New York. Though in the employ of defendant Commonwealth Match, the same Mr. Keyes also received instructions from John C. Sebright, a New York lawyer and for a time secretary of defendant Eddy Hatch. Witness said he was unaware, which the Court does not believe, by virtue of what authority such instructions were given him by persons strangers to his company, and this fact, added to all the re- mainder of the evidence, reveals up to what point the officers of the subsidiary companies of defendant Eddy Hatch were kept under control.8 On the question of participation as a principal, which was surely the part played by Eddy Match, or merely as an r 333 ' 'assistant," the Court stated the position of the law in these terms: The legislator has established no distinction be- tween the principals and the accessories or collaborators when the matter has to do with an illegal combine, and he has put them on the same footing. Now, where the legislator has made no distinction, the courts cannot make any. Moreover, it is easily understood that in order to succeed in the prosecution of an illegal and such as that set out in the matter, it is necessary normally that there should be a concurrence and an agreement of different persons to bring-about and maintain a merger, trust or monopoly within the mean- 'ing of the law. It often happens that willing com- petitors apply themselves, for a consideration, to serve the ends sought by the author of the merger or trust. Moreover, in the examination and appreciation of the evidence relative to a charge of this nature, the matter to be considered is the and sought by the offender without regard to the actual and attained. Section 2, subsection (1) of the Act states expressly that every agreement, merger, trust or monOpoly is illegal when it has operated or is likely to operate to the detriment or against the interest of the public. Hence, it is immaterial in Judging such an agreement that it did operate or that it did not operate to the detriment of the public. The criterion to be applied is that of the very nature of the plan contemplated without regard to its result. The combine is illegal when the free play of competition is paralysed or likely to be. So will the legislator by an Act that does not lend itself to ambiguity, and so the courts have ruled on many occasions in a Jurisprudence reported at the end of this Judgment. In the established order of things, with our economic system, this same Act that governs us has determined that a sound, normal and free competition should Operate without the intervention of undue obstacles or impediments. The legislator also had in mind that no person, corporation or individual should be able to partici- pate or help with impunity in the formation or operation of an illegal combine, regardless of the motives that could have determined the formation of this combine, or regardless of the results obtained.9 - 334 - Following that plain statement of the law, the Court examined and struck down several arguments presented by the defence. One concerned whether or not wooden matches constituted a class of business. The defence argued that they were rather a part of the wider business of producing light or fire. The Court struck down that position in a few words to the effect that the production and sale of wooden matches was a class of trade or species of business “in which.defendant Eddy Match was principally engaged like most of the other defendants."10 The Court held tlmt resale price maintenance was banned by the provision against “fixing a common price or resale price,I which had been part of the law since 1923. speaking to the defence argument that there Ind been no detriment to the public, the Judge said, The defence, . . ., submitted that the combine, if it existed, did not Operate to the detriment of the public. . . . It is sufficient, once again, that the agreement, monopoly or merger was likely to operate to the detriment or against the interest of the public. In.this connection, whether the prices were in- creased or remained the same, which is not the case, such a consideration is immaterial in law.11 Confronting the defence argument that the corporations were not responsible for much that had occurred on the ground that the minute books of the said corporations did not contain the tenor of much that was disclosed in the correspondence filed as exhibits, Judge Bienvenue stated, It must be kept in mind that in a number of cases the signers of the letters took care to invite their correspondents to destroy the documents in ' 335 - question after having read them, which does not seem to have been done. There is no cause for surprise that one does not find in the minute books the text of the agreements or arrangements which could have been made by defend- ants. In the case of such offences, one seldom finds, if ever, concrete, clear-cut evidence of agreements the purpose of which is to create a monopoly or to operate it. It cannot be expected, especially, that such evidence will be found in the minute books of a company. Neither can one be expected to be in a position to establish that the officers of commercial corporations met and agreed in an explicit manner to organise a combine, a trust or a monopoly with a view to brush aside all competition. It is sufficient, as for any other criminal‘ matter, to be in a position to draw from the whole Of the evidence that an agreement, even tacit, was in fact concluded, that a common plan was conceived and set in Operation to violate the Act, regardless of the results obtained. Does the extensive evidence adduced by the Crown make it possible to come to the conclusion that this was the case? I must unhesitatingly answer in the affirmative. It does seem, in fact, that since its incorporation or shortly afterwards, the Eddy Match Company prepared a plan to cause the disappearance of rival industries, to absorb them if necessary, and in any case, to eliminate competition, in a word, that it took the necessary steps to remain alone or almost so in the wooden match trade and commerce, and this by using methods that the Act does not authorize.12 In a brief review of the Canadian Jurisprudence in the matter, Judge Bienvenue cited Rex v, Master Plumbers 3nd Stag! t Co-O tive sociation (1905) 14 D.L.R. 295, §g§_z. .Elligtt (1905) 9 D.L.R. 656, Heidman v, Shragge (1912) 46 S.C.R. l, uglinign Suppl: 99, y, I, L, Egbertson Manufacturing Co. Lt . (1917) 39 D.L.R. 495, Stggggg-figeb Builders Supply CO, at g1, v, The ggng (1929) 8.0.3. 276, Rex v, Singer et a1. (1931) 56 0.0.0. 68, Q 336 . Rex v, glexanggr gt g1. (1932) 57 C.C.C. 346, §£§a_!i_§2559£22 Innnrt Co, et 31. (1933) 6l C.C.C. 114 and in appeal (1934) 62 C.C.C. 31.2, and Contninnr Matnrinln Ltd, at 31, v, The King (191.2) 1 D.L.R. 529. These cases stressed that Parliament had established a my, to competition and that serious impairment Of the public interest in free competition came under the ban of the combines legislation. Judge Bienvenue referred also to a few American anti- trust decisions on the premise that, without binding our Courts in an absolute manner, there is no reason why United States decisions should not guide us to a degree, especially when they confirm the essential principles contained in our laws. Geo- graphical frontiers cannot dissociate similar laws enacted for igentical purposes and to counteract similar ills. 3 0f the passages he cited from M (1913) 229 0.8. 373 at 376, ‘nerican Colnnn nng Lnnbgr CO, gt n1, v, U, . (1921) 257 0.3. 377 at 400, 0,8, v, Conn Prodnnsn Refining C . (1916) 23‘ Fed. 96‘ at 1013, U,§, v, GI!!! gangs Towing 92. (1913) 208 Fed. 733 at 714, U s v Gr t t 1. (191.8) 331. U.S. 100, W (1889) 1.3 1m. 1102, mg, v, Aluminum Co, 9; gym (191.5) 11.8 Fed. 2nd 416 at 428. 431-32, and Q,S, v, National £239 2. (1945) 63 Fed. supp. 513 at 525, that from U,§, v, Grifgitn et 51. is perhaps most pertinent in regard to the actions of Eddy Match since its inception. The anti-trust laws are as much violated by the prevention of competition as by its destruction. . . . It a fortiori that the use of monopoly power, however lawfully acquired, to foreclose competition, to gain a competitivi‘advantage, or to destroy a competitor, 1. unlawful. - 337 - The relevance of the Alnninum case decision of Judge Learned Hand is Obvious. The Court concluded its survey with two long quotations from a Harvard Law Review article15 by Professor R. L. Raymond, commenting on the decision in Standnrd Oil v, 0,3. (1911) 221 U.S. 1. Two excerpts are particularly applicable in the Eddy Match case. The first recounted some of the monOpolistic devices employed. The combination continued to receive rebates and discriminations from railroads, made contracts with competitors in restraint of trade, indulged in local price-cutting, spying on competitors, and the opera- tion of bogus independent companies. Of course it arranged matters so that there was-no gompetition between its own subsidiary companies.1 The second dealt with the distinction between proper and improper methods of a corporation increasing its business. A corporation, whether it represents a combina- tion of not, may increase its business to any extent, even up to the point Of acquiring the whole of a given trade, if it does so not by interfering with the right of others to compete, but by means Of proper methods. Proper methods can be completely defined only after some decision which shall hold a combination legal. The fOllowing are Obviously proper methods: excellence of product, lowness Of selling price, efficiency of management, skill in marketing of product, and ability to attract the custom of the public by reason of the above methods and by advertising. To meet increased trade by prOper methods, a corporation, whether it represents a combination or not, may increase its capital to any amount, extend its plant to any size, and may purchase the plants of any persons or corpora- tions who are genuinely willing to sell. A corporation, whether it represents a combina- tion or not, may not attempt to acquire monopoly control. It may not increase its trade by interfering with the right of others to trade, that is, by killing Off or preventing the competition of outsiders by means of unfair methods. Unfair methods are many, O s I a ' . . ‘ - Q ‘ V I - I . 1 ‘ '. ‘ v I ‘ I ' I . . ‘ ‘ ‘ I ‘ . ¥ ‘ ‘ I. i ‘ r t e. .' I s . . i . . - . ' ‘ M A. A . m I ‘ e A I ‘ C A - 33g - and no general description can cover them all. Broadly speaking, they consist principally in acts which, standing alone, are not for the benefit of the corpora- tion but fer the purpose of injuring others. For example, to give three specific instances, to sell goods at less than cost, to pay a large sum for the plant Of a competitor and then abandon the plant, to expend money in acquiring sources of supply to an extent very much greater than is needed or can be reasonably needed in the future - are sets which, standing alone, do not benefit a corporation but injure it. Conceivably each Of these acts might be prOper to meet some special exigency. Probably, however, they are done respectively to kill off, to buy Off, and to keep off competition. All clearly represent a purpose to acquire monopoly control. Other acts suggested by these cases which.tend in varying degrees to show an imprOper purpose are: securing rebates from railways, spying on competitors, selling low in one place to meet local competition, uniformly or generally making contracts with persons whose . business is bought that such persons shall not compete fer long periods in the future, and the operation of bogus independent companies. In the same class fall naturally discriminations, such as refusing to deal with.competitors, or persons who deal with competitors.17 Much of that analysis could have been an apt description of the conduct of Eddy Match and its associates and subsidiaries. Such was apparently the view Of the Court. In conclusion Judge Bienvenue said that, From the very beginning of this long period of time, defendant made provision for the necessary steps to eliminate from the sphere Of activity of its trade and commerce every competitor already there or coming in to do business. To this end, defendant resorted to two different techniques producing the same results: 1. waging unfair, illegal and unjust competition to remove competitors; 2. Purchasing and absorbing the business of competitors. The fact that defendant, The Eddy Mbtch.Company, Limited, remained alone at the end in the wooden match - 339 ' industry is not an accidental occurrence, . . ., but on the contrary that was exactly the end that the defendant had in mind when it took the necessary steps to attain it. By acquiring all the competing industries and plac- ing them under its control, defendant Eddy Match Company,' Limited thus formed a combine, a trust or monOpoly as defined in the above-mentioned Act [Combines Investigation Ac37. This defendant acted in such a way, with the con- trol it exercised in fact in every part of Canada, with the exception of Newfoundland, that it would have been practically impossible for a new firm to establish it- self in this trade. It has been established that those. who were engaged in this trade were dislodged from same, defendant Eddy enjoying all the privileges attached to a monOpoly. . . ., I come to the conclusion that the Crown produced the necessary evidence in support of the said charge and of the facts alleged in the particu- lars, and that the five defendant corporations . . . in the fact of the evidence produced, have committed the offence mentioned in Section 32, paragraph (1) of the Combines Investigation Act, that is Chapter 26 Of the Revised Statutes of Canada, 1927, as amended. Consequently, I declare the said defendant corporations and each of them guilty of the said Offence.18 Eddy Match and Valcourt were each sentenced to the maxi- mum fine of £25,000: Commonwealth to a fine of $15,000; Canada Match and Federal Match each to a fine of $10,000. Costs were to be paid by the guilty parties in proportion to their respective fines. The total fines imposed on the Eddy Match group amounted to $85,000, a mere $550 greater than the $84,500 written Off the Eddy investment in Western Match in the same year that the last independent wooden match manufacturer had been bought out by Eddy at what was apparently an inflated price. Eddy's own appraisal of the excess eXpenditure ironically matched the fines imposed by the - 3‘0 - Court. I The companies entered nppeals both from the conviction and from the sentences. Of the fburteen or more chief points argued by the appellants, only those bearing particularly on economic considerations will attract the attention of this study. That will result in a selection from the decision in appeal which will concentrate the Court's view on matters of economic implica- tion.. In addressing itself to the argument that, by being charged with having been parties etc. . . . in the "formation 5;; Operation" of a combine, the companies were in fact charged with two separate Offences, the Court set forth its judicial view Of what Parliament meant to prohibit. Judge Casey, delivering the judgment of the Court, said that (underlining supplied) . . . the controlling element is detriment to the public, and unless it exists or is likely to exist, there is no combine, and the combination or the merger, trust or monOpoly is inoffensive. It seems then, that what P rliame t is tnn cauging gr 3h: gr en ting of thg liggl tinngg, detriment to th bl t o h he eof ch theme vs a no Ob cti ble. But the moment one has brought into existence the situations envisaged by section 2 then, if the element of detriment, either actual or likely, is present, the offence has been committed and it is a matter of indifference whether that detriment results from the fbrmation or Operation. It seems then that section 32 prohibits combine activity in any or all of its phases and that the words "formation or operation' are used to express in a comprehensive manner just this and not to create two separate offences.1 Thus was the Court of Appeal accepting the trial judge's tenet that the unfolding of a common plan was the essential element to - 341 - bring a situation under the ban of the legislation.20 were American courts to look to Canadian.decisions for guidance, there might well have been a different outcome in the Cellonhane case. On the question of what is to be included in a market the Court of Appeal said, It is contended by Appellants that the manufacture Of wooden matches is not a class or species of business. They say that the wooden match is device for producing light or fire and as such it is in competition with every other device designed to achieve the same end: vix., the paper match and the mechanical lighter. They argue that to limit the charge to wooden matches is to remove the case from the Operation Of the Statute, and they add that "evidence discloses that the manufacture, distribution and sale of wooden matches is not a class or species of business." It is true that the manufacture of lighting devices whatever be the type or kind, can be regarded as a general class of business which would include wooden matches. But it seems strange to suggest that within the general class there can not be as many type of businesses as there are species of devices. It is undisputed that Eddy Match and its three Operating subsidiaries made wooden matches and with the exception Of a minor paper match operation on the part of’Eddy Match and Federal, that they made nothing else. Certainly the making Of wooden matches was their business, and since this commodity can be distinguished from the other devices, such as mechanical lighters and the like, it must be said that the manufacture of wooden matches is a class of species of business within the meaning of section 2(1.)(b).21 That outlook represented a quite close confining of the meaning of a class Of business to the technical, physical or manufacturing aspects of the situation. There was no discussion of the subtleties of cross elasticities of demand, as a guide to defining the market. The Canadian law had approached that problem from the point of view Of the production situation rather than Of the - 342 - sales situation. 0n the crucial matter of "control" of the wooden match industry, the Court made several observations: it this point it may be remarked that the momentary appearance of Western did not disturb Appellant's con- trol to any appreciable extent. It is true that the appearance of this competition destroyed the complete control which had existed and which was later re- established. But that interruption was apparent rather than real and in any event it did no more than reduce the control from one which was "complete“ to one which was 'substantial.‘ Finally, it may be remarked that during the period imported matches were available in negligible quan- tities. These I disregard since so far'as can be Judged from the record, the importation of matches had no real influence on the wooden match industry in Canada. The evidence discloses that throughout the period, Eddy Match and its subsidiaries as they came into existence, - were under the control, in all phases Of their operations, of the same interests. It is true that they did not receive direct instructions in their daily Operations, but one need only regard the roles played; - by U. A. Fairburn, President of Diamond Match and Managing Director of Eddy Match; J. E. Duffey, President of Management Engineers and Management Engineers of Canada; and of’E. P. Miller, General Sales Manager of Eddy Match, - to realise that all five ippellants acted as a closely knit team; that they were under common direction and that their plans and Operations were fully coordinated. It is impossible to say that Appellants did not work as a unit or to say that their position in the industry did not give than control Of the industry or that they did not Join together in the exercise of that control. when a group of companies engaged in the same business are alone in the field; when they work to- gether as a unit; when they are free to supply the market or to withhold their product; when there is no restriction on the prices which they charge, save their own self-interest; when their freedom to exclude -343- individuals as customers is restricted only by their interpretation Of existing penal laws, then, by all normal standards, those companies are in control Of the business in which they are engaged. Economics and the law were of one accord in regard to the wooden match industry of Canada, and its monOpolistic structure. The appellants argued that withurespect to public detri- ment the law required the Crown to prove either actual detriment in the past or the likelihood Of detriment to the public interest in the future. That position was not fully accepted by the Court, especially concerning the appellants' plea that the |'likelihood" must relate to the future. The Judicial view was expressed in these words: By this Act Parliament seeks to prevent an evil which may result from certain practices. It does so by defining these practices and than by making them illegal if their adaption has resulted in an actual prejudice which may be demonstrated ("has OpOIGtOd'), or if by adopting them, a situation has been created which will probably result in prejudice ('likely to Operate"). The Crown than may make its case by showing one or the other. If it has established actual prejudice - and here I think that it has, - there is no difficulty. If, on the other hand it did not show actual pre- Judice in the past, it was free to show - and again I think that it did - that the merger, trust or monOpoly Operated by Appellants, as it existed at least during the period 1940 to 1946, was at that time and irres- pective of what may have happened subsequently, likely to Operate to the detriment of the public. The moment that this likelihood was established then there was proof that there existed, inihe past, the combine prohibited by the Act, and with this proof'the Crown's burden was discharged. . . . there can be no combine and in consequence, no Offence, unless their control was acquired or O l V o . - I I - v V C ‘ I . a I ~ . 0‘. . n 1 v -344.- exercised with resultant detriment, either actual or likely.23 Rejecting the appellants' argument that there had been no detri- ment, Judge Casey enunciated with approval the fundamental princ- iple "that everyone is entitled to the'bmnefits that flow from free competition." That was a close following Of the precedent of fig;- v, Elliott, first sustained by the Supreme Court of Canada in weionan v, Shragge.24 Anything which limits or restricts freedom of competition is thus an encroachment on that public right. At the same time however, it Parliamenfi? has refused to label as an evil to be avoided, all encroachments on the public right. Only those which cause or are likely to cause detriment are forbidden. But Parliament has not enacted as a condition sine qua non that actual detri- ment be demonstrated. If it had intended tO.dO so, it would not have added the words I'or is likely to.“ These words broaden the field of forbidden encroachments by bringing within that class those whose very nature creates a presumption that they will probably prejudice the public right. What we have here is the activity envisaged by section 2(A)(b), - the control of a class of business; a control that, as revealed by the evidence, excluded for all practical purposes, the possibility of any competition. Such a condition creates a presumption that the public is being deprived of all the benefits of free competition and this deprivation, being the negation of the public right, is necessarily to the detriment or against the interest of the public. This presumption however may be rebutted and it does not seem unreasonable to suggest that some "con- trols' might in exceptional circumstances be more advantageous to the public than if the business had been left free. But when faced with facts which disclose the systematic elimination of competition, the presumption of detriment becomes violent. In these circumstances, the burden of showing absence Of detriment must surely rest on the shoulders Of those against whom the presump- tion plays. Appellants made no defence and there is nothing in the record which comes to their aid. But in this case there is more than the simple -345.- fact that Appellants had complete control Of the class of business in which they were engaged. There is un- contradicted evidence that the leading actor - Eddy Hatch - deliberately set out to eliminate competition as it arose; that because Of its strength and resources it was able to do so; that each new subsidiary was given its role and played its part in the general plan and finally, that the five Appellants, all competition eliminated, were able tO give to the public the - products that they chose to make available, at the 2 price they chose to fix and through the channels they ‘ c. chose to use. . . . whether these acts [She practices used to further the monopolistic eng7'are "prohibited with panel conse- quences" does not concern me. In fect, since the existence of this particular combine is not dependent . on the criminality of the practices employed, I am "” prepared to concede that each of these practices, from this point of view, is indifferent. The importance of these practices lies in the fact that they testify with great eloquence as to the power which Appellants could and did exercise, as to their determination to be alone in the field, as to the helpless position of the public and, in short, as to the inevitability of the very evil which the Act seeks to prevent. Thus, although Canadian law had not banned all impairments of competition, many were brought within the scope of the legislative prohibition by means of the wide judicial interpretation given the 'likelihood" Of public detriment. Judge Casey added immediate- ly to the discussion of detriment that the Crown had proved actual detriment. 0f the practices from which the Court held detriment must be inferred, a few may be cited. The policy dictated to at least Commonwealth and Canada was that they buy certain supplies from Uniform Chemi- cal Products Of New York and this despite the fact that the same supplies could be bought more advantageously in Canada. In the absence Of an eXplanation it must be assumed that this needless extravagance was re- flected in the price Of the finished products and that it was borne by the consumer. Furthermore when one views this incident against the background of the group's corporate structure and ramifications it must be assumed that there were other instances where an extra profit was made by one company rather than by another and that the consumer made unnecessary contributions to the financial welfare of companies other than those whose products were being bought. 6 In examining the problem Of fighting brands, the Court spoke to the appellants' contention that they had introduced them only to meet competition after the provocation by competitors who under-sold at “low uneconomic prices,‘ Judge Casey said, "And yet there is evidence, that at least one of these companies, - Federal - against whom 'fighting brands' were used, Operated at a profit. It must be assumed then that Appellants could have done likewise and that they would have had they been obliged to meet competition. Having eliminated competition they effectively deprived the public or this benefit."27 The Court concluded further detriment from the case of “Northern Confectioners" being charged the full resale price after that small Winnipeg outlet Ind sold below the resale price. It had been Mr. Miller's way of handling a request from the western sales supervisor that the concern be refused matches. The price in- crease was shply a less drastic way of achieving the same result. The Court commented, Whether or not this customer depended on the sales of matches for a living seems unimportant. What counts is that Eddy Match could and would deprive him Of his source of supply and refuse him the right to do business as a jobber. With the record as it stands we are entitled to assume that this incident was repeated and that on each occasion it caused detriment to the individual and to those he was hoping to serve. 8 The Court of Appeal dismissed the appellants' appeal - 347 - from the conviction, and on the question of the sentences which the appellants submitted were excessive and illegal, found "nothing to warrant any interference with the amounts fixed by the learned trial Judge."29 The argument that condemning the appellants to pay the costs of the prosecution went against certain provisions of the Criminal Code was held to be unfounded by the g Court of Appeal, which cited its own ruling in Rex v, Canadian Import Co. at al. (1935) 3 D.L.R. 330, in which five coal companies were condemned to pay a total fine of $30,000 and costs. Leave to appeal to the Supreme Court of Canada was denied on December 22, 1953. The legal fact of there being a merger, trust or monopoly was thus one with the economic fact of there being a monOpoly in the Canadian wooden match industry. That result has been typical of Canadian combines cases since World War II. The impact of such legal achievements comprises the next tOpic of this study. 1. 2. 3. 4. 5. 6. 7. 9. 10. 11. 12. 13. 15. 16. 17. 18 . 19. 20. 21. -343- E h c ted t . ((1953) 101. c.c.c. 39; 21951-52; 13 0.12. 217 at 218. . W” 225-28. mg" 232. M" 276. M” 279. M" 283. M” 283-84. 92.43., 285-86. M" 287-88. ‘" M” 288. M" 289. 22:43.9." 290. Quit” 297. MW 263° Robert L. Raymond, "The Standard Oil and Tobacco Cases," hgag g! Revigw, vol. 25, Nov., 1911, p. 31. v d t h c n t t . (1951-52)13 0.3. 217 at 261.. 22. c;te, 265-66. 22.413... 297-99. sgg: Hatgh 92mg: Limitgg gt 11, v, The Queen (1951.) 1m C.C.C. 1 at 11-120 2222:. ch. 16. p. 335. egg; l_4_gtch Compggy Ligted gt al. v, The Queen (1951.) 109 C.C.C. l at 11.. Ms: 16'180 02. site, 19'20. m, Introduction, p. 2. 25. 26. 27. 23. r 349 - Egg; flgtgh Compggz Limits ed, at 31, v, Th9 99333 (1954) 109 C. C. 0.1 at 20-22. gp,_gi§., 23. 22‘_gi§., 23-24. gp‘_2i£., 24. g2‘_gi§., 25. Chapter 17 The M decision sustained the Canadian right to competition, first stated unequivocally in 1905 by Mr. Justice Osler in m v, Elliott,1 That this meant the price competition or the'economiat had been enunciated by the Chief Justice of Ontario in fig; v, Cgptginez Materiglg LtdI gt 3;. in the following terms: Competition from which everything that makes for success is eliminated except salesmanship is not the free competition that s. 498 is mainly designed to protect. It brings to the customer no Opportunity to buy at a lower price or on better terms, or to buy better or more attractive goods for the same money, and this is one of the principal benefits tO be had from free competition. The chief fector in increasing sales under conditions such as prevailed under this arrangement is mere salesmanship. Competition of this restricted kind resembles the competition one reads Of among the agents of one insurance company as to who shall write the most insurance in the year, all competition in benefits granted the persons insured being prevented by law.2 A 1957 decision of the Supreme Court of Canada reiterated that this right to competition may not easily be abridged within the law by stressing that, The public is entitled to the benefit of re compgtitiop, and the prohibitions of the act s. 498, I. . W L l r. ., p . l ' 4 m ; O i e 1' . s. § a A ‘ M v . _ ‘ . . , l . .. l " I ‘ I, a ' . 1 ' . A ‘ V . . '_ ' r ’ Q , . a ' t ... ‘ I a fi_ x . ‘ I a I . , ‘_ ‘ r. I l k . ,\ b 'J t" | i l v .' s a ‘ n . _ i ' . V, . ~ . e ' a I '1 ‘ o . ‘ a . . . . , , 7 ‘ . t . - t .~ .- -351.- now a. All of the W cannot be evaded by good motives. Whether they be innocent and even commendable, they cannot alter the true character of the combine which the law forbids, and the wish to accomplish desirable purposes constitutes no defence and will not condone the undue restraint, which is the elimination of the free domestic markets. It is my strong view that traders, manufacturers and producers cannot, as the law now stands, mono- polise a substantial part of the markets of the country in given industries, to promote their own business interests, and then set themselves up as public benefactors, by saying to the courts that the conspiracy was organised in order to as love the stabilisation of prices and production. HIV the elimination of competition is intended is innateriel, its elimination is the offense. The trial judge, however, in that same case acknowledged a much earlier Supreme Court decision, which ind introduced a possible qualification to a finding that competition had been unduly injured. It could, in some instances, have con- siderable importance because Of the part played in the Canadian economy by international trade. The judge noted that, As was pO nted out in E v oGe I:gg£g_§2£p. (1917) 54 B.C.R. 3817, it would be impossible to have a monopoly if those who manu- factured in Canada alone combined and the Canadian user was supplied not only by them but by goods imported into the Dominion.4 That matter will be examined further in dealing directly with the fig; ggtch situation. A judicial rejection of an administered price as a reliable criterion Of a reasonable price demonstrated another aspect of a firm adherence to the principle of competition.5 The comprehensive condemnation leads naturally to the expectation Of strong deterrents. It was not realised prior to the 1952 removal of the $10,000 and $25,000 ceilings on fines, $94-“, ' 352 - which had been imposed respectively by the Q;igiggl_§ggg and the Combines Investigation Act. A peculiarity of prosecutions sub- sequent to the amount of the fine having been placed at the discretion of the court has left the matter in the realm of con- jecture. That is one facet of another topic. As has been noted above the $85,000 fine imposed on the Eddy group of five companies ironically matched the excess price the controlling company was quite willing to pay in a single transaction in its long history of eradicating competitors. It must be regarded at most as a modest "poaching licence,‘ that is, a fee to carry out an unlawful act. The prime of monopoly profit has continued to far outweigh the possible penalty. What might well be termed diffidence in prosecution appears to have some importance in the weakness of the judicial deterrents to the crime of seriously impairing free competition. One aspect of that diffidence has been disclosed unambiguously in at least those prosecutions covering fins papers, coarse papers, electrical wire and cable, and wire fencing. Although the court proceedings followed the expiration of the ceiling on fines, which occurred on October 31st, 1952, the charges preferred by the Crown stopped at that date, thereby leaving the limits in effect. The Eigg_£gg§igg report was dated two whole years after fines were at the discretion of the courts. jAnother provision of the revised Original 0993 has removed the court's power to impose the payment of costs. The penalties may thus be lighter than was possible under previous arrangements, until such time as a prosecution r 353 ' comprehends a later period of time and a judge avails himself of the new discretionary power. That there cannot be a strong expectation of rising penalties peceggagiiz resulting from the unlimited range of fines may be illustrated by a recent decision concerning twenty-six service station operators who had agreed to raise the price of gasoline at the eXpiration of wartime controls in British Columbia. Adjudged guilty, they were fined 81 each -- a mild penalty in the face of an increase of between l.3¢ and l.6¢ per gallon.6 There is, however, a strong likelihood in many jurisdictions of more realistic fines on the basis of numerous past judicial pronounce- ments about the inadequacy of the penalty. An extended judicial statement in a case of the most flagrant nature and a brief parliamentary view will serve to intro- duce a further aspect of the prosecuting diffidence. They both speak to the question of imprisonment, which the law provides in combines cases under the Act or the Criminal Code. Judge J. Boyd McBride of the Supreme Court of Alberta pointed out that, during the months of this trial it behooved me to con- fine my attentions, as I did, to the evidence adduced me as to the accused corporations, but incidentally I learned much of the actions of their officers. Com- mercial corporations are well nigh indispensable in our economic system and it is elementary that they do no thinking themselves. As artifical legal entities created by and permitted to function under the authority of parliament or the provincial legislatures, each one acts through human agency, officers, directors and others, men who decide the corporation's course of conduct and see that it is carried into effect. Certainly there is a clear obligation that these men fulfil their offices so that the rights and powers conferred on corporations are not to be abused or used by having the corporations offend against the criminal law. - 35A ' Putting to one side any question of legal liability, the presidents, managing directors and certain other head office officials of the accused corporations and of the controlling corporations whom I have already mentioned had a moral responsibility in controlling and directing the actions of these accused corporations. Warnings against combines had been given and disre- garded. In the result, the accused corporations charged a course of conduct contrary to the criminal law of this country and quite deliberately continued on that course without deviating. In only two of all the Canadian cases against combines can I find the officers of the corporations empresely relieved of moral res- .ponsibility or, as it is called in these cases, moral turpitude, for the reasons I have stated. I am satisfied that as a result of the criminal conduct of the accused corporations here the public was mulcted of very substantial sums of money, both during the years of hard times and war times, for braad, l Vital fOOdStuffe e e e Parliament has established an economic imperative in sec. 498 of the Criminal nge buttressed by the sanctions there stated. The officers of the accused and other corporations I have mentioned and any others like-minded who may be operating in a similar manner, corporations dealing in foodstuffs or other articles or commodities of trade, need a blunt and stern warning. The Operation of sec. 498 of the 92g; is not confined to corporations; under it individuals may be and have been charged and convicted in the past. These men will do well to mend their ways. They need not feel comfortably secure behind their corporations. The arm of the law is long enough to reach out to them. If there be a conviction of any individual the punishment is not necessarily a fine; each convicted individual stands in the shadow of a jail sentence. Therefore, if for no other reason, let them pay regard hereafter to the rules laid down by parliament for the regulation of their corporations.7 His viewpoint was not carried into action because there were no individuals on charge before him, which has been the customary procedure with respect to corporations. usually been doing business in their own name. Expressing as stern an outlook, the remarks in the Individuals accused have " 355 - House of Canons were made soon after the trial judgment was de- livered in the Edgy Match case. It has been said that immediately after being fined the match people raised their prices, as did the glass peOple; that the raises were uniform and identical, and the consumers of Canada are paying the fine without the loss of a dime to those companies. I believe the penalties under this act are not adequate. There are all too many striped-pants directors who ought to be provided with striped coats and a number in addition at government expense. In that way the act could be enforced. There was at that time, of course, no provision for issuing an injunction nor for a court to require continuing information to be submitted to it subsequent to a conviction. Both have since be- come part of the legislation, although the latter requirement is seriously restricted to a three-year period. The behaviour of match prices from the end of 1951 is an answer to the parliamentary comments. Although the wholesale price of matches since the M conviction has not been at all times higher than it was before the trial, that condition has per- sistently prevailed in regard to the net realised by the manufacturer.9 Eddy Match has actually been continuously enjoying the situation implied by the counts in the House of Commons. It is not a matter that came under judicial review. To return more specifically to this facet of what has been called diffident prosecution, the judge in the recent Einnigg 931 case10 imposed on the relatively small concerns and individ- uals convicted the fines suggested by the Crown. He also turned his attention to the possibility of imprisonment and noted that, I Mai" “356- While the Egg provides that a term of imprison- ment may be imposed on individual accused the Crown has never, as I understand it, asked for the imposition of imprisonment.11 In most of the combines cases the human agencies by whose direction the convicted corporations have proceeded along their unlawful routes have been clearly culpable. The foregoing illustrations indicate that the difference of cpinion lies in whether the parliamentary sanction of imprisonment should be used. Failing that the corporation official is touched not at all; the individual businessman is touched by the fine. That will mean in some instances an important discrepancy in the extent of the deterrent wrought by judicial conviction. The danger lies in the fact that the deterrent is likely to be less relatively in the case of the large company, where the economic power to impair free competition is the greater. Granting that the day is at least approaching when the fines imposed will match rather closely the estimated monopoly gain, and barring any vengeful excess unfavourable to the con- victed, a complaint of financial duress may well be turned aside by the accustomed judicial handling of parties coming to court |'with unclean hands." Fines imposed with the design and effect of recovering the monopoly gain derived from the illegal elimination of competition by "combination, merger, trust or monopoly" will reach the actively guilty parties in situations similar to the Egg Match case, provided that the convicted are surely prevented froa a later recouping by means of additional administered price increases. If the industry structure and the attendant behaviour ' 357 - are not significantly altered, then there must continue some effective review of conditions in that industry. If there cannot be competition there cannot validly be a resignation to private licence with neither the restraints imposed by competition nor the responsible check afforded by public authority. It would be possible with the Eddy group to affect the level of dividend pay- ments to fbreign owners, formerly Bryant and May and Diamond and now Bryant and May, who have also controlled the Canadian policy, including the persistent violation of Canadian law. A similar situation has prevailed in other combines cases. There are probably even more situations, however, where the owners, thousands of small stockholders, exercise no important measure of control over the policies pursued by their companies. A genuinely punitive fine might again, as in the previous example, affect adversely the companies' dividend payments. But the punish- ment would not then be borne by those parties actually guilty of directing the corporations on a course of conduct prohibited by the criminal law of the country. The management in such cases has the control and hence the guilt; if the law is to sensibly deter further violations, the guilty must receive the punishment. The legal fiction that the shareholders can change the management whenever they disapprove of their Operation of the company does not answer this point. The usual stockholder's grip on the details of his company's activities is weak, possibly little more than his hold on the economic subtleties of combination and competition. His financial means rarely equip him to wage a successful proxy v 358 - fight. Under these circumstances the levying of a punitive fine on the company accused and convicted, borne by way of the dividend mechanism by shareholders having the most tenuous connection with the illegal conduct of their company, would clearly miss the mark. To deter the law must reach those who actively offend. In addition to the considerable impunity enjoyed by corporate officials because they are seldom indicted and, in any event, imprisonment is not asked of the court, and the tardy approach to the recent scheme of discretionary fines, a final aspect of diffidence in prosecution is displayed in the almost studied avoidance of a number of major Canadian industries, even in the realm of investigating to the stage of a formal report, quite aside from prosecuting, where there exists at least strong superficial indication of the possibility of combination or monopoly. An absence of free competition might be disclosed by a study of such industries as pulp and paper, aluminum, nickel, asbestos, gypsum, and a number of manufacturing industries. The first named appears to be a predominantly Canadian controlled industry. The dominant element in aluminum was originally the creature of the Aluminum Company of America, designed as a cartel instrument by its creator. A United States judicial decision was involved in the financial breaking apart of the two concerns. External influence is significant in the remaining three industries cited, as it is in several manufacturing fields. It is beyond the scope of this study to examine the implications in the fact that most of the output of the Canadian pulp and paper industry is - 359 - shipped to foreign markets, chiefly the United States. The rationale for whatever diffidence does exist may in part lie in there being substance to the allegation that the Canadian government has discouraged rather than encouraged com- bines prosecutions.12 Beyond the allegedly reluctant support of the government throughout the history of the legislation, it has been suggested that a major onslaught in fields where free com- petition is absent would engender ferocious opposition on the part of industrial leaders. It has been further held that the con- siderable public support for combines work vital to withstand serious attack on the legislation is by no means assured. These assumptions would dictate caution. It is nevertheless unaccept- able. The very existence of the combines legislation and its an- forcement agency carries the strong implication to the public that there is a continual coping with the monopolistic elements in the Canadian economy. The extensive storm intend out of the House of Commons brewed by the Minister of Justice improperly withholding the Ilgg;_fli1iing report, until the 1949 resignation of the Combines Commissioner forced its publicdtion, represented substantial public support for the work of combines investigation and pro- secution. Additional evidence of support has been revealed since world War II in the prompt response of Parliament both to recommendations of committees and to the disclosure in court proceedings of’defocts in the law. Parliament has greatly strengthened the law and has steadily increased the appropriation. ~360- Substantial increases notwithstanding, it remains in- adequate to an extent of great magnitude, because of the expenses of two major requirements for a genuinely comprehensive restora- tion and maintenance of free competition - a very great expansion of the number of able personnel available for the investigation and prosecution of combinations and monOpolies and the introduction of a thorough campaign of publicity. From the time of the introduction in the House of Commons of the 1910 legislation there has been much idle talk of the importance of publicity as an effective deterrent against impairing the public's right to competition. It has been idle in part because there has actually been so little publicity. The news reporting of a combines case has been custom- arily a mere outline of the judgment -- providing little detail as to what named companies have been engaging in what kind of unlawful market behaviour. Expert advice might determine that the ideal medium for reaching the public in order to bring a new awareness of the extent of the problem and to arouse wider interest and support would be advertising. That might well prove to be the most efficacious counterbalance to the steady flood of advertising pouring forth from convicted combiners and swiftly washing away 'any doubt aroused in the public mind in regard to the company's purposes and their relation to the public welfare. Such a campaign, together with the stiffer penalties now possible would do much to destroy the advantage of reduced publicity arising in cases of the accused pleading guilty. An example may serve to clarify the possible impact on the public and indirectly on the - 361 - industry of an effective advertising programme emanating, most likely, from the Restrictive Trade Practices Commission. In the Uegtern Bread case13 the chain bakers operating in that region of the country were convicted under section 498 of the Qgimingl dig and fined the quite inadequate, almost meaningless maximum of 810,000. From the maze of evidence and argument in the lengthy trial, two deviations from law and morality stand out. They would surely constitute a story of malevolence that would arouse public interest. The supplying of bread to hospitals and other institutiOns and to the armed services was handled by the bakeries so that the contract was rotated. These contracts were let by tender. Having agreed upon which bakery was to have the contract for the next period, the remainder submitted fictitious tenders to ensure that their "chosen one” received the business. Judge McBride described the scheme as being almost identical with that of the plumbers' associa- tion so bitingly excoriated by Clute, J. in Rex v. figster Plumbers, etc, Ass . (1907) 14 OLR 295, at 304 and 305. In his language, which has my full approval in its application here, it was a system of misre- presentation and fraud, a system of plunder comparable to meeting a man on the street and forcibly robbing him of his money. Clute, J. thought that, of the two offences, the robbery was the least offensive. I agree. Practices of this kind perpetrated by so-called reputable companies must be scathingly denounced by this court and I do denounce them. This system of dishonest trickery as carried out by the accused corporations here and others, in my cpinion, standing alone constituted an undue preventing or lessening of competition and would require and support a conviction of the accused as charged.14 The second outstanding deviation arose at the ending of wartime price controls. There was a "price increase of 3 cents per loaf -362- effected in combination and by eliminating competition, in September, 1947, uhile there were still on hand substantial stocks of cheap flour obtained under government subsidy at about half the price which prevailed for flour on the withdrawal of the sub- sidy, a neat and quite profitable transaction at public expense."15 The peOple of Canada, by will of their government, had paid the bakers by means of the subsidy, and had subsequently, by will of the bakers, paid again by means of an unlawfully administered price increase. That true story of modern brigandage brought into every Canadian home through modern communication methods might easily divert important consumer buying to the independent bakers. Such a structural change in the industry demand schedule would be a more meaningful remedy than penal consequences. Thus allowing only the competitive to win any prises for competition would simply be an instance of the disadvantages accompanying the possession of monopoly power.16 On the premise that Parliament has so far decreed that competition is to be the regulating force in the Canadian economy, except in wartime circumstances, some part of the effort in the direction of wider knowledge of the market could be devoted to recalling attention to the recurring theme of "compete or be nationalised."17 Should a sufficiently large segment of industry and of the public ignore that choice, the continued refusal of many concerns to obey Parliament's I'economic imperative" that free competition be maintained will strengthen those elements advocating public, not competitive, regulation of prices and output. ,Q - 363 - The so-called "rugged individualist is a strong, though unwilling and unwanted, ally of the socialist.I Stressing these alternative8 could reduce the number of violations of combines law. The Canadian wooden match industry, comprising only the convicted Eddy companies was not directly charged by the success- ful prosecution, except for the financial penalty reducing the rate of accumulation of reserves. Just at the time of the entry into the Canadian market of the world's match triad -- Swedish Match, Diamond Mbtch and British Match -- the industry had become a single-firm industry in the hands of E. B. Eddy. That condition was restored by the formation of the Eddy Match Company. The im- portant difference was that control had been shifted from Canadian hands to British and American ones, which are in many respects beyond the reach of Canadian law. The Diamond consent decree finally resulted in that company selling on the Open market its stockholdings in Eddy Match. The Canadian monopoly in the manu- facture of wooden matches has thus become the province of only the British member of the world's match trio. The question of imports may assume more significance with only one foreign match producer having a direct financial interest in the Canadian company. Canadian judicial decision has indicated that imports can account for a sufficient part of the supply available to Canadian users of the product so as to frustrate an attempt to convict a Canadian manufacturing combination or monopoly. 0f the three chief possible sources of imports of wooden matches into Canada, only one would establish economic validity to the prOposition that - 364 - substantial importing meant that there was not a monOpoly. Matches from truly independent producers in other countries could create meaningful competition although distinctly different in character from domestic competition with respect to at least balance of payments problems and national income and employment considerations. lMatches from "state-trading" nations, where a number of former Swedish Match factories are located, are of a different order because of the likelihood in the present international environ~ ment that the shipments would be sporadic. Matches from Swedish Match-British Match-Diamond Match sources might well represent some new effort at killing off or keeping off competition in the Canadian market. A sufficiently enduring disagreement between the members of the match triad could bring in elements of a bilateral monopoly struggle. It is an unlikely source of truly competitive matches. The customs duty was lowered in 1952, Imports of wooden matches have risen greatly in terms of percentage, though still accounting for less than five per cent of the Canadian total. Although there is no record of the import sources by companies, the matches are arriving principally from the United States, the United Kingdom and Italy. Independent companies exist in those nations and ggglg be the source of this part of the Canadian supply. It should be noted that 1956 was the first time in eight years that Sweden has not been either first or second among countries exporting matches to Canada. It couldxaot be con- sidered a beneficial effect of the 1951 conviction of Eddy Match - 365 - so far as Canadian industrial activity is concerned to have im- ports of wooden matches from the match triad displace those pro- duced in Canada. For example, Bryant and May selling directly in Canada rather than through Eddy Match would be in much the same position financially; some Canadian employees would be worse off. There would be nothing competitive in such a shift of production. Care to bring into prosecutions in circumstances similar to those outlined in section 2(4)(b) might ensure that Judicial attention would concentrate on the Canadian scene. That provision of the Combines Investigation Act states that,"Merger, trust or monopoly' means one or more persons who either substantially or completely control, throughout any particular area or district in Canada or throughout Canada the class or species of business in which he is or they are engaged; and extends and applies only to the business of manufacturing, producing, transporting, purchasing, supplying, storing or dealing in commodities which may be the subject of trade or commerce." There is a technological consideration of some importance in regard to the Canadian production of matches under competitive conditions. Six $100,000 machines Operating sixteen hours a day, five days a week and fifty weeks a year are capable of producing the Canadian output of matches which, without exporting as is currently the situation in Canada, to all intents and purposes meets the Canadian consumption. Three such machines operating continuously throughout the year would achieve the same output. It would hence appear that the Canadian industry is likely to have - 366 - excess capacity and strong monopolistic elements, even if the purpose to eliminate competition were absent. The steadily growing importance of book matches in Canada will continue to affect the position of Eddy Match, the sole producer of wooden matches and one of five producers of book matches. The four independent manufacturers of book matches con- fine themselves to that field, whereas Eddy Match produces both. Being the only source of both kinds of matches provides Eddy Match with extra market power over the more specialised book match firms. The evidence produced in the lawsuit demonstrated that Eddy Match exerted considerable influence with distributors. Unless the company is prepared, in spite of its past conviction, to remove the competition in book matches, that industry is likely to con- tinue to have competitive elements. Other sources of Eddy Match's special economic power, compared with the book match manufacturers, are its financial connection with Bryant and May and British Match, its increasing diversification into fields other than matches, and the continmtion of its strong trade connections, which were in large measure established and maintained by unlawful means with illegal purpose. Legislation that permitted more than a three- year surveillance of a convicted company would allow the early detection of any serious attempts to eliminate competition in the books match field. Even the three-year provision was not applicable at law at the time of the Eddy trial. the three-year stipulation is simply that an intending offender The most likely effect of will was it . - 367 .. Some guidance as to the Eddy Match policy that may be expected may be found in statements of the British Match view- point. At the time of the British Match Report the corporation held that the industry was competitive, regardless of the findings of the MonOpolies Commission. The type of competition referred to was revealed in a recent annual report which spoke to the problem of lower priced imports entering the United Kingdom. Competition, of course, affects only the prices quoted to the distributing trade, as the retail price of this type of box [5d box? to the public is the same in all cases, and we rely therefore on good quality backed by the natural preference of the British public for British goods to maintain the sales of our well-known Brymay and other brands. The report went on to describe the dividends from Canada as “particularly helpful and greatly in the national interest,‘I which is a particularly interesting analysis of monopoly gain. A private levy has been regularly imposed on the Canadian consumer resulting in more substantial British dividend receipts and capital accumulations, for which British Match is to be praised -- if a British shareholder is concerned. At a time when the company is embarking on a programme of diversification and modernisation, the report said of an £200,000 outlay for the latter, “the large re- serves built up in the past are more than adequate to finance this outlay."18 A final point of importance is raised by the fact that Eddy Match is a small part of a world picture of cartel ramifica- tions and domestic monOpolies, government or private, leaving only small sectors under competitive conditions. Most of the -368- monOpolistic elements that have influenced the Canadian industry are beyond the reach of Canadian law. There is little remedy in the fact that the Canadian government can affect imports, because that remedy is as restrictive as the world market allocation it- self. At the direction of the Minister of Labour toward the end of world War II the Combines Commissioner examined cartels as they affected Canada. He stated the problem and suggested the remedy in these words: Business firms, in the absence of international law on the subject, have been able to deve10p and ad- minister their own private systems of international law and regulations. This deve10pment has aided in carrying the results of industrial integration and combination far beyond the boundaries of individual states and makes it difficult fer any one country, particularly one largely dependent upon trade with others, tocievise effective measures to deal with them. Difficult or not, it is essential that effective measures be taken in Canada to the full extent of national jurisdiction and by collaboration with other countries to prevent the abuse of monOpoly power, whether such abuse is effected by national or inter- national combinations of business enterprise or by individual dominant concerns. The report accepted that it is essential to prevent widespread de- pression, national or international, as a vital element in any programme to further competitive forces in the economy. Some effort toward international action against monOpoly power was begun in September, 1951, with the establishment at the United Nations by the Economic and Social Council of an ad hoc committee "to study the question of restrictive business practices and prOpose to the Council, by March 1953, methods to be adapted by intermtional agreement for preventing business practices .. 369 .. which have an adverse effect on international trade."20 The 1953 report of the committee, comprising members from Belgium, Canada, France, India, Mexico, Pakistan, Sweden, the United Kingdom, the United States, and Uruguay, included a draft agreement which pro- vided for consultation and investigation. After consideration at the 16th Session of the Economic and Social Council that year, most members supported the draft agreement, but it was resolved that more information be gathered and consideration be resumed at the 19th Session in 1955. There was a decision then not to act, expressed by the statement that 'the time was not ripe for the adaption of the draft agreement."21 The Economic and Social Council reaffirmed its continuing concern in regard to the problem and directed the Secretary-General to continue to collect and summarise information on the subject. Thus there seems to be little immediate prospect for the kind of international action that would afford the only remedy in many cases.22 Detriment had been plainly set forth to the Council in the Report on Restrictive mains“ Practices in Internationgl Trggg.23 In summary, the Eddy Match case resulted in a reaffirming of the Canadian right to competition, which, at law, is not to be denied even on grounds of apparently comendable motives. It is the economi'st's competition of price; the administered price has been rejected as a sound criterion of a reasonable price. Although the Supreme Court decision concerning the Dominion Salt Agency in MacEwan v, Toronto General Trusts Cogp.2’* at least implies that substantial importing of a commodity, produced in Canada under - 37o . monOpolistic conditions, might absolve the domestic combination or monOpoly of a combines indictment, the usual vigor of stare gecigil in Supreme Court judgments may be mitigated by one or more of these considerations, pertaining to the §glt case: (1) section 2(4)(b) of the Combines Investigation Act condemns substantial or complete control in part or all of Canada of a particular class of (2) duty free imports exceeded Canadian production, 90 business; (3) relevant per cent of which was controlled by the combination; in a civil suit, the plaintiff had dealt with an intermediary and had been unaware of the existence of any combination; (1.) no price enhancement was proved, which fact has often been declared imaterial in combines cases. Economic conditions frequently rule out importation as a valid economic means of restoring competition in a national market in the face of a domestic combination or monopoly. Similar circumstance may and often do obtain in markets outside a particular Further, foreign monopoly may be and often is directly country. In that event the imports would related to the domestic situation. represent only a shift in sales from one monOpolistic unit to another. Structural change in the domestic industry could intro- duce competitive elements and would avoid certain adverse income and employment effects that might attend a sudden increasing of imports. The bringing together of new competitive influences in the domestic industry and of any compcetitive imports that may be available could validly claim active public support. In industries, much‘ma .the Canadian wooden match industry, where the output of the .. 371 - minimum technological unit of production bulks large compared with the national market, world competition, permitting and indeed facilitating free international trade in the relevant commodities, is the sips qua non of domestic competition. hportation as a remedy for local conditions of monopoly requires an effective international attack on cartels and other restrictive arrangements, World prosperity wherever competitive conditions do not prevail. Outside the is an underlying requisite in sustaining open markets. range of national law, the obvious route to such a goal is the renewal in the United States of efforts to obtain acceptance of international principles to cOpe with international restrictive business practices. For reasons good or bad, Canadian combines prosecutions have omitted asking for the penalty of imprisonment and have re- frained from exploring the new world of discretionary fines, where that penalty could be meaningful in terms of the monopoly profit enjoyed in the past. There is therefore no determination of how the courts will exercise that new discretion, although some judges have intimated strongly that they would have used such power had they possessed it. Though comparatively heavier than in may other combines cases, the penalty imposed on the Eddy Match group was relatively light in view of the decades of monopoly earnings. In the numerous situations unlike the Eddy‘Match condition of con- trolling shareholders, where corporate ownership and control are sharply distinct, there _is little assurance that the incidence of a fine will actually rest on the guilty. There may be a'shifting - 3'72 - of a fine imposed on corporate officials and a new incidence on the corporation, that is, on the stockholders, who wield no real There would be no such shifting of the penalty of im- control. prisonment. In spite of an early success25 where heavy fines were inposed because of fraud, subsequent prosecutions have notably avoided that line of indictment, even in those circumstances where fraudulent tenders were so flagrant a part of the monOpolistic scheme as to elicit judicial castigation.26 A too doctrinaire devotion to obtaining a "combines conviction' may have prevented the imposition of a sterner deterrent. The conviction and sentence of the Eddy Match group left unaltered the monopolistic structure of the Canadian wooden match industry. No other result could then be achieved under Canadian law. Control of the industry remains with the major Operating unit of British Match, which was itself created at the same time as its Canadian counterpart, Eddy Match, by the dominant world match producers for the same monopolistic purpose. The concern of the British Monopolies Commission that am fundamental change in the structure of the British industry would weaken it vis-d-vis Swedish Match27 adds force to the view that international action to curb monOpolistic practices is the wq to preserve and amend competition. There is a strong chain reaction from one restrictive scheme to another. Canadian law now permits the dissolution of a merger, trust or monopoly upon, or within three years of, conviction. There is yet no evidence that such remedy will be requested or that the appropriate court will comply with such request if made. -373- There have been court injunctions restraining convicted parties from the continuation or repetition of an offence. Dissolution enters more deeply the realm of property rights. Although res- training orders strengthen enti-combines law enforcement, therein lies a danger unless there is court surveillance, for more than three years, to ensure the early detection of am departure from That is a minimum. Complete full compliance with the order. compliance with the order does not guarantee more than that monOpolistic conditions are not being reestablished by those de- vices proscribsd in the order. As new means of eliminating competition may be devised and put into effect, there is perhaps also a need for continuing surveillance of convicted groups by Combines or Restrictive Trade Practices personnel. The procedure and results typified by the Eddy Match case stop far short of the requirements for the long run accomplishment of Parliament's economic imperative of free competition. There must be a greatly enlarged eXpenditure to increase the level of investigation, reporting, prosecution and conviction. The expan- sion of anti-combines work must proceed against a background of ever more effective communication with the Canadian public. All the remedies provided by law must be given full effect. Some have too long been honoured more in the breach than in the observance. Finally, a nation so dependent on international trade must impel great effort on the international level to cOpe with the restric- tive and monOpolistic conditions and practices which are quite beyond the reach of the domestic law of individual nations. 9. 10. 11. 12. 13. 15. 16. 17. .18. 19. 20. 21. 22. '374 " supra, Introduction, p. 2. (1941) 3 D.L.R. 11.5 at 167-88. figard Smith Paper Millg, Ltd. et a1; v. The Queen (1957) 8 D.L.R. (2d) 449 at 452-53. Regina v. Howard Smith Paper MillsL Limited st a_1_. (1954) 0.11. 51.3 at 575. Pé'loguin v, Latraverse (1919) 54 D.L.R. 181. Raging v. Morrey et a1. (1956) 19 W.W.R. 299. Rex v MacGavin Bakeries Limited et al. (No. 6) 1951) 3 WJLR. NeSe 289 at 319-20. Debates._House of Commons, 1951, 2nd Sess., Dec. 31, 1951, vol. 3, pp. 2403-04. See Appendix D, table 3. Regina v. D. E.Adams Coal Limited at al. (1957-58) 23 HoweRo 4190 Op, cit., 428 su ra, ch. 9, p. 232. Rex v. McGavin Bakeries Limited et gl. Rex v McGavin Bikeries Limited et a__1_. (1951) 3 w.w.R. (N.S. 289 at 315. Ibld. supra, ch. 9, p. 238 (view of the MacQuarrie Committee). supra, ch. 6, p. 155; ch. 8, p. 196; ch. 9, pp. 236-37. Economist, Oct. 1, 1955, p. 76; Sept. 1, 1956, p. 757. Canada and International Cartels, Report of Commissioner, Combines Investigation Act, Ottawa, 191.5, p. 65. gearbook of the United Nations, 1951, p. 53. earbook of the UnitedfiNatigns. 1955, p. 121.. E.g., supra, ch. 6, pp. 149-53; ch. 7, p. 173; ch. 8, pp. 194, 1980 - 375 - 23. Economic and Social Council, Official Records; Nineteenth W; 151/2675. United Nations. New York, 1955. 21.. u r , ch. 17, p. 351. 25. supra, ch. 8, p. 202. 26. E.g., master plumbers, ch. 8, pp. ll-lZ; western bread, Ch. 18, p. 12. 27. British Match Report, pars. 193-211.. Chapter 18 The Canadian match industry comprises the Eddy Match Company, the sole producer of wooden matches and the major prod- ucer of book matches, and a growing number of independent book match manufacturers, of which there were four in 1957. The Eddy name has been associated with the Canadian match industry since 1851, when E. B. Eddy inaugurated match manufacturing in the country. After the rapid appearance Of two dozen plants within twenty years there set in a steady decline in the number of match firms. By 1922 only the pioneer E. B. Eddy Comparv was still Operating. It was then that the world match triad entered the Canadian market. Bryant and May and the Diamond Match Company entered jointly with the formation of the Canadian Match Company. The Swedish Match interests made entry by the acquisition from Rocke- feller interests Of a factory at Berthierville, Quebec. Thus had a Canadian monOpoly of wooden match manufacture existed only momentarily. The Swedish controlled company had an accumulated - 377 - loss of more than $3,500,000 by the time the merger of Canadian match manufacturing facilities created the Eddy Match Company. The active oligOpolistic market struggle preceding the merger wit- nessed a substantial decline in the position of E. B. Eddy and a rapid increase in the outputs of the two new firms. At the time Of the 1928 merger the percentage shares Of the Canadian market held by E. B. Eddy, Canadian Match and World Match were respectively about forty, forty and twenty. Swedish Match accepted extravagant payment for its facilities and withdrew from the Canadian scene. British Match acquired majority ownership in the new Eddy Match Company which owned all the Canadian match producing assets. Diamond Match became the largest minority stockholder in Eddy Match and assumed the active management of the company. Three plants at Hull, Pembroke and Berthierville were in Operation. The well-known Eddy name had been transferred from the short-lived Canadian match monOpoly to one controlled by the British and American members of the world match triad. Match purchases in Canada have recently amounted to less than one-twentieth of one per cent of Canadian consumer spending. This may be compared with United States cigarette purchases amounting to almost two per cent of American consumer spending. In 1952, with Canadian consumer spending running at a level of $14,366,000,000 annually, $4,777,000 were spent during the year on matches. Match purchases are an inconsequential item in the household budget. The general demand for matches is highly inelastic. The various means of producing light or fire are Fifinre l . $9, 7 A c::s:::zrs;;isc:f 0:? ‘ “:13 :31? 0.11: 21mm MATCH PROIIT- 0T1 r71: .3. . . . . .. 1.1.3 .1 ’rn'th I. 3-: FEE-£38131. 0913131 --PTICN Lxfinlxllllni CAI L". 313.}? 3_ (current dollars) 1 32. 5" : a ’ a . O O 3, /. - O M g 3 e ..., , . . H - - .- a ‘ Sources: Doz'zinion Bureau of b’CaBlS'blCS and the Report or the Cornissioner, Cmfoines Investigation Act, on I-Zatchas. .13 .‘1 '. 4 {I 8.. it an CANADIAN MTG-i A Cumin: 9:25am, cczrsmr'rloz: 333332.15: PRODUCTIW (billions of current do_1:.r£ divided by 2) (millions > of dollars) Figure :3 {v I L ., ___ .37 J ' :17 CANADIAN PERSOUAL catsmrnou mmITURE .11. HZ) (billions of constant 1935-39 dollars) 3;.- \ 2 5 4 3 G J‘ k’) krfi I . T .‘ A 7' __ 'g'J'r-“q—m T—‘fl—‘T—‘W‘ " ' " ‘ g . . - l 1 . ~3- f 1 L T 7 ' ' ' ‘ . , A ,5- ‘17,..0' . .. . T -1 h. CusfrulLoCxI CE i ‘ 2 rt'IL‘Fh TT = . '1 ' "’\ '- ‘PT " ‘ 7.7 -' "a r: r - . v -. ' 8 ‘ lugs 24*.le Or CA;AD.:J1‘.;: ..hJCfl Phclw 110;} x :3 é .~ gum , -‘ 4—°--° hx ~~,- ~- _ ~ '1‘! fi'} f'F—‘-j i”- .5 ":. 'v ‘\-7’,"‘ 7 f ‘ : r 3 : bAsAs-L'UT 133.30-14.14 CG..::5~..P3.LC'J M~..:.).~.Tcli23 A . ‘ . ..I a 7 T .77.%; (constant 933-39 dollars) 4 : : t ‘ : i o - ¢ - ‘ ~+1~+~r« : ; z 3 ‘ ‘ l : : t ‘ i ‘ 't ; i f 6 ‘ 1 1 L IA_l ,_.,.' , _ --_l,s...l_ ”...".l .--.l..._._._._-_.#c- l .,__.i_ . _ A - . _ - - , . - ‘p . ._ . . . T“ - i 4 ‘ ¢ . . - 2 ‘ a 3 1: 1. 1 .I’ ; --—<> —- - ~——«‘—O~o - - - o - . o - o . . - --A - o * 3 , . + . iv * . , f ‘ i r r . r . ' s : ‘ ‘ ‘f ‘L L ‘ #7 § . ‘ l 1 A-Q-v ------ ——7$—-—v—- —o‘—- - —~ ~—-—— k 4 yr] . I T ' ' 4 I s ' ' l L I . . I L 1 i 1 I a .4_1}__.L__4 h, ,___,__+ , , l ......... o ...... , I . .. ~-a 1 . ¢ . . . . ‘ v 1 i 1 9 ‘ e ‘ ' o t o o ¢ u l ‘ f 1 4 4 —A v L iW7lH$ch4 . - - _ .- ..- JV ._ . .- - . -7 I ' ' ; ‘ T * ‘ ’ 4 f I I o o v a f ' v ‘ . ) g I 5 r . . . . .' . '. ; a : ' e - ' i 9 , g . . . , c , . t t , . a : 1 § -fi‘r— ¥ 4) 4___‘_ ------- 4 0 O J) o 0 o- . o- >—- .» - ¢ A . ; ---- - “q . . . . . ? ‘ t O ‘0 g $ 9 . . t ‘ 1 . . i o L s . . + . s . . 5 , 1 , I. I — Q + ‘ . t . o o p t . , ? . It , f z 1 . a 3 t f . t r f % . v t . 7* . ‘ i 4 f‘““”f’““ 7 “3 . j T. f.*% . T :#*°)“*"""M"#‘f""rV+ “i?‘*”““f ~ 5 t ‘ ‘ -4—— - +. T 7 . .—._ _. 779 - .. o - 9 -o —o A- § oooooo § ----- o o - ' - ~ ----- ‘ v f c i_ . ¢ - . 3 o o u 1 I . . q I 4‘ Ff*+*f-T—f—f‘"7‘f*“*'—“;* : 7‘ :"T“ ' ' 1 ‘ ' “ " " "'* 1 H“ I- +7 f < w - o .. 4 ¢ ——¢ 0 #«o o - +- - . o I - o . -‘ -. 0 ----- t i a o . - s ' v . a . . . . r__ * ¢ + v JV + +4 Fw—fi H+— -—¢— drc—v—o-o— -~—-—+ —— -7 ~ o——--Q — - ~ -o- o - - 4 I g . . . . t ~ a . . . ' . - o ‘ —“ —+- o——? 4-—-o~ 9 -— .— —. f *—§ -——-5 _. —9 - 9 -~ . - o 9 4 — u .I' a ...... .- - . . . ‘ g I r _;_ u g o L i— . 1 o . r . ‘ ‘ ‘ rm 0—— - ... .1 -.. I - . . . _+ ,- . L ...... - .. . ...... .. . . WORLD f . . b I a . 9 0 - 1 . o L.” ‘1‘ —‘ o «0 ~ —| - O- < O - ------- b-;~ o 0—0-~-| -- - . + s v | f., ; : l . . _ .1, I . wants . I: V A r v I; 7 i o -—-—- 7« ov» v—u 7A n.- ‘ o . . . a T . § . i . . . . . . r . . ; ~ . , , . g . { . ; , . . . n . I b _...._ ”—4—“? _.‘ _. . + , , , _ + . . f“ . . . ..l - _ . . i ‘ 0 + . . n + . . 9 + ‘ ' I . . "—‘ fa Y———o——+—v—--+ ' +--—+ - o - o o - o . . .;—. - .-- . - $ - § . I - ‘ ' 5 t ‘ I _‘ I -‘—-— l— —O-—0- —-& —- - +—- o -— ., - ¢ ‘ o o vo—o --- —— 9 T f r T v 1 0 I . . ' f I 5 ‘ ' l +——+ ; V L A g + A + v H” H - f $4>—-~-¢——;——~——o- - . _- 0 ~ ~ - < -+ ‘ ~T - - 4 *-*+ + f ¥ "“ *——4 ----- +—-~ b . «o— 4» _. -------- f 6 . ; . l I , I 0‘ o g . a L ' ' WFF—F— +"~‘— 4"“ L . . ‘ \ fl 1 o 0 _ ‘ N , - J- - ‘ ; . ; i Sources: Domlnlon screen 81 Statlstlcs and the negoru of . I I ~ 0 s ‘Q _ ~- 0 —-- . _ ..- .: . J- I I" .L ’ ' J. 7, l _l_ll_f_lq.cLl ,§ toe Comm1831oner, Lom'lnes lflVeSUlLaulon.ACU, on.raocnes. . ' i " - I " + 1 . . I __ I -' I 1 ._ I #0 .W‘ ' 378 - rather imperfect substitutes. The Canadian per person consumption of matches has followed an erratic decline, varying between 1800 and 3000 per'year. Continuing economic develOpment making more widespread the use of electricity, oil and gas will tend to reduce further the per person use of matches. The Canadian annual out- put of matches, fluctuating between nineteen and forty billions, has expanded less rapidly than the pOpulation. There appears to be little relationship between total match consumption and personal consumption expenditure, in monetary or real terms. (See figures 1 and 2.) . Book matches were first produced in Canada by World. Match. Columbia Match had also engaged in that field. Eddy Match undertook book match production with reluctance, having little or no interest so long as the profitability of making wooden matches remained as high or higher. After the bankruptcy of Columbia Match, Eddy Match was the sole producer of book matches until 1938. Independent producers quickly captured more than half the book match market. The swiftly increasing demand for matches during World War II and, in its early years, the rising prices of wooden matches witnessed a great expansion in the use of book matches. They were occupying a larger and larger share of the total match output, although the rate of growth has declined since the end of the war. (See figure 3.) That deve10pment presented to some extent a curbing of the monopoly power of Eddy Match. Its strongly entrenched hold, clearly achieved by design rather than by chance, on the normal ‘IJ ( .- . . . I --. .. ..r. .. . I . v. v. . . L y _ r . . O , . P. p ..l. 0.! 5w "T 7 "1er r" . _ - § - . I I v . __—kv v I D\ if n I. 1." fall!!! lJ¢.{f4.lO,.lllT¢.l-II14. III. «II :- w.«.:. c . IIIIII 4 IIIlll: lilt‘lll. . L .4 ———J in .._ _ ...I _ m y" 9*: t? 3 . -..; 7 ¢r~——— ————o—~—-——~—-« a o l .‘ 1 4; l J, l - l J l | l | L _ --. ;/.— I SS‘O _._ _..—_. _— 1) « ¢ 0 j. 0"" "" l 3 Y i : \Hhe—fl‘l fl 1 i 2 M“, I , __H +- I / 1 l f l “f i J 1 l l [- ! r 4 l l a E ° I 2: -..... e 1 I +-—--—— o Q 9 . b ‘ 0 0 ._. _ an; 11 TL ¢ ? : ./9 y ' Book MAT " PE RCENTA Combines Investigation.Act, on hatches. fl . , I e I 9 I I _ _L - I l e I I n J G Source: R port of the Corwl 'T EL ‘04?- A————— - - 4» ‘N,‘ / .1, O ALB .fifi DA? QFE Q o N . Tit-1'99 A til-00-0. v-OO o e . I I W] i I H .. -—~— -7va—-—'- - a 4 . LANAcianLlill Mann OUTPUT ' ,w_F—.—‘ _. - ~ h I. f 0 II‘I-I¢ 111111 I n I I. V II. lilllOlIIlllllL _ V H h . . _ O ._ . . m. a R l . ., l . . . #4 . M. . . t IIl‘I'Ilwlilollbl.-v 310511.! I. IIC_TOIIAYOOOD+OII¢.I ..- q .Illdlw v0.0- ’ o H n H . . lo .Il.v| A °m«\ _ l? l I. I 14‘ I . t rI [0 II b lvlll I+’.!IOIIUIAVIIIIIIIQIIIIO||Q||L . v _ . l l u . . m . . # _ _ _ H n _ . . . . — fl , i . _ . H o _ in. H i .i. I,IItIi : ..i .7 . i. . . .i. - 6N. h _ . H a m\ u m . . n _ . i i . H n. l , i . _ p H » frI F r y _ Q. 8 7 G 3 2 .... A ...“):4 x . h...’J q. _ ..a ..-..Iraae ..LLDsI IV C . J - 379 - channels of distribution was not, however, seriously impaired. It remained the only concern offering a full line of "kitchen" matches, safety matches and book matches. Jobbers, faced with the necessity of handling some Eddy products, might well be in- duced to handle all Eddy products. The growing importance of book matches seems to have arisen more from their increasing acceptance by Canadians than from a significant substitution away from wooden matches. No change in wooden match prices occurred during the years of most rapid expansion in the use of book matches. In the presence of wide acceptance of the book match, however, there is more likeli- hood of a higher cross-elasticity of demand between the two kinds of matches. In any event price competition has not yet appeared as an important factor in the book match field. Eddy is a dominant force in being the major producer of book matches. Evidence suggests that it occupies the position of price leader. A less aggressive policy has been flollowed with respect to rival book match manufacturers than has been the case with competing wooden match producers. Although there may have been unrecorded examples of predatory destruction of Canadian match firms during the latter part of the nineteenth century and the early years of the twent- ieth, the principal factor contributing to the decline in the number of firms was certainly the technological advance of the continuous automatic match-making machine. That greatly in- creased the economic plant size relative to the market. It is - 330 - not strange to find that the first firm maintakmd its initial lead. The restoration of monOpoly in the industry at the conclusion of the oligOpolistic market struggle in the 1920's was quickly followed by the exercise of that power by Eddy Match. Resale price main- tenance was instituted at once. Care was taken, however, not to give strict statement of such policy. It was hoped that jobbers would adhere to the resale price maintenance by being persuaded that their long-term profits would be thereby enhanced in contrast with the poorer results that would be obtained by handling lower- priced matches. Awareness of the illegality of price-fixing agreements restrained Eddy Match from a strict enforcement of re- sale price maintenance. Nevertheless the sales manager urged that the advantage be pointed out so forcibly to jobbers that they would not handle matches distributed without resale price maintenance. It was, in other words, his hOpe that the JObbers themselves would boycott the matches of rival companies. Avoiding an outright boycott to en- force its programme, Eddy Match was prepared.in some instances to charge its full resale price to an outlet that had been selling at less than the prescribed level. That proved quite as effective as an actual withholding of supplies. The Eddy Match sales manager considered it especially important to close the distributive channels in western Canada to Federal Match. That market was traditionally more profitable than eastern Canada because prices were customarily higher by more than the additional cost of de- livering in the western market. Table 1 shows the extra A‘lll' 'i l IIIIIIII‘ I! .I? profitability of western sales. Table 1. "Phantom freight" on western sales -- 1939.. Direct Sales Actual cost Extra cost "Phantom Expense and difference, to western freight" Freight Ontario and iobbers to per case points in ‘freight Eddy west. Canada prepaid) Ontario 27.7¢ -- -- -- Winnipeg 60.3¢ 32.3¢ 33¢ 5.7¢ Regina 55.2¢ 27.5¢ 57¢ 29.5¢ Edmonton 70.1¢ 42.A¢ 77¢ 3£.6¢ Vancouver 72.0¢ 44.3¢ 92¢ 47.7¢ Source: compiled from data in the Canadian Match Report. In contrast with general matchciemand, the demand for individual brands is elastic. The introduction in 1937 by Federal Match of a one cent box of 30 matches realised an expansion of sales sufficient to bring in Eddy with "fighting" brands at re- duced prices. Eddy had been selling two boxes of 50 matches each for five cents. Consumers were quickly substituting the cheaper Federal matches. Eddy Match estimated that the factory net to Federal lay between $4.71 and 85.22 per case of 1440 boxes. Eddy's cost, including overhead costs, would have been $3.57 at the Pembroke plant. Excluding the overhead costs of Eddy, the Pem- broke cost would have been from $3.15 to 33.38, depending upon the type of packaging. The lower-priced match of Federal was a profitable endeavour. Match prices were increased upon the formation of the Eddy Match monopoly and continued to rise during the depression of the 1930's. The nadir in 1932 of consumer spending in constant dollars was 82.8 per cent of the 1929 peak. The physical volume of Eddy sales declined by 1934 to 73 per cent of the 1929 - 382 - maximum. After a sharp reduction on the creation of Eddy Match, Canadian match production rose annually thereafter until 1932 to reach a level 111.5 per cent of the 1929 total. The Eddy Match share of the market was declining during this period. Consumers were responding to the availability of alternative brands at more attractive prices. The profits of the monOpoly, however, were less seriously eroded by the combination of depressed economic conditions, vigorous market rivalry with Canada Match, and its own high price policy. Its 1932 profits before taxes were 94 per cent of the 1929 figure; its profits after taxes were 91 per cent. Hith the exception of a one per cent decrease in 1930, which was in effect for a year, Eddy Match followed the policy of increasing the wholesale price of matches until 19A9. At that time there was a change from a specific tax to an ad valorum tax and a substantial tax reduction to 25 per cent of the previous level. The combines investigation was then in progress. A sub- stantial cut in the wholesale price that year nevertheless meant a further increase in the factory net to Eddy. With a single exception the factory net had increased with each change from the formation of the wooden match monOpoly to 1957. The exception covered the first four months of 1956, when a 5.6 per cent decline was realised because the lowering of the wholesale price had more than offset a tax reduction. That deviation from the accustomed policy of Eddy Match was removed in May of 1956. The next change restored the traditional pattern of wholesale price increases more than compensating for tax increases. (See figure A.) 0 g; lF’UI‘e Y_'\ J. I60 PR“ 10--- .I..\ IIIO I I It II IIT II. I II I III II I 11].. III 1' IIIIIIIIII IIlIIIlI IIII IIII III I. II I Ille—III'. Irt . m PL ._ .- .X; . . - . V .- I . .j . W p . _ - . -.IILIIIT. II-w +l.o,l-|l_el“’99 1 .I .w It. - II .. -.-x m . . s _ l _ - ... _ u . nu . H . u .. . H r. _ Av .. : . III I . 5 P _ 0: l:IIJ m H II . . . m . W .. -.. . _ H , _ w . 5 ._ I :I- I I- I- I I II III... I I .m =4. . n“ I n I” 0 . A” . C .- n». IfII . ...... w. I 3 o _ .. . D. I t m MW . _ 1.. . 0 Mm i I MI III I III-II- II I . ... I .r» . mh ._ I.M“WW-lem ...... I I I- “w mm III n1. _ l. .. . _. WEWIilnw .. WA_W an . I r. .h . . _ r. I... o 14. V1. .0 . c a m IL 0. .. C we . n i ..... I . II. I“ . . C ., fies-MESH i . -u ..H H elm CT..C . w . : . . ” HA To mw nt r9 mm . . .. . h Eu .1 —."“ $1 fim Wm 7U WW * THJJI . WI, .;... - * +U _ al ...m1IIn I i . . .- K ----- .Tu a . fit.» HI..— .A v 1 ”ML. . . . . ‘ . . . l r ”3U x Cris-Ar...d : g. I . I II- I.._i _ A L .2 C I. +- . _ 6% ...-I4 m a _ a m w m ..A. ..... .. n a mu- ? mm I I } III I- . III! e I _ 3 m. .II. mu . . . . e. um ml um . . L . . . II C m _. _ ... 1H HIE... ._ _ . a m I but. “...-....I. VIIHH.-HI..,H-.IHHHH .- 34min».- ......... . I - __._ “ a - “up D .H.w flWfiH L ....... - .. . . . . . E q. _fiw. . fl ”4“ “a.* :.._.HH.. . ._ . . . . . . m . . . . . . H F a . _« rHrlflthb-I-Inh A.” i q+fl WI fl v4 . Hm a ”v“..*.. . . u.... H . _ . _ H M n _.M _ . . H . » . ._ _.;;_:::_:: i i :: f 3 EEE :1:.: :141: :1: __ u L w L g _ a _ i? .1 223.5.>_A_ 3x I 14., .. d p 3 I. '31. .DIDDD ...IU IUD...- C J nth: ul U-ZIP_K(OOJI.IU. Wox - 383 - The Eddy Match price to jobbers has increased less rapidly than general Canadian consumer or wholesale price indexes. Taken in conjunction with tax changes, however, the company's price policy is not evidence of a monOpolist dedicated to a life of com- fort and ease. The basic rapacity of the price policy is revealed by the fact that the factory net has risen more rapidly over the years than the wholesale price of matches or the general Canadian price indexes. That Eddy Match kept its price increases to a more modest pace than that of the general price indexes may be a mod- est tribute to the ever-present likelihood of new entrants. At least the cases of unprofitable Columbia Match and of profitable Federal Match demonstrate that rivals have contributed to an absolute decline in the net profit of Eddy itself and of the Eddy group of companies. (See figure 5.) Toward the conclusion of the Columbia-Canada rivalry, Eddy accomplished a substantial increase in its factory net at the time of changing from a four-hundred match box to a three-hundred match box. Its price cut by no means matched the reduction in quantity. The next enhancement in the factory net followed quickly the acquisition by Eddy Match of Federal Match which reestablished the Canadian wooden match monopoly. (See figure A.) That monopoly power remained sufficiently strong so that Eddy effected some price increases in the face of most of its wooden match rivals, thereby pennitting the steadily rising factory net. At the beginning of World War II book matches accounted for less than three per cent of Canadian match sales.~ Prior to 1 t 0"... Wm, ‘AD- .. u. s. «. 1 ‘;;%W-.— *4. m, *a J".- . 4 ‘ Jxes uwatgvu ALCU: on. i | 1 1 ONWEA L - 334 - the advent of price control at the end of 1941, rising wartime de-; sand for matches permitted price increases and considerable gains in the consumption of both wooden and book matches. This new threat to its entrenched position was met by Eddy Match «pending its output of book matches, thereby limiting the decline in the Eddy share of Canadian match production to relatively small pro- portions. In 1939 the last year of the independent Operation of Federal Match the Eddy share was Just over 89 per cent. The elimination of Federal Match as an independent company raised it to 98 per cent. The wartime book.match growth reduced the Eddy share to 90 per cent by 1945. (See figure 3.) A mrthsr eight per cent of the market was lost by Eddy in the first decade following the war. The profit experience of Eddy Match highlights the strength of its monOpoly power. During the great depression the profits before taxes of Canadian manufacturing companies fell from their 1929 peak of 259 million dollars to a 1932 loss of six million dollars. The Eddy Hatch.peek in 1930 of 783 thousand dollars, which was an increase of more than one hundred thousand dollars over the 1929 profit before taxes, was followed by a de- cline to 637 thousand dollars in 1932. That was more than 80 per cent of the 1930 peak profit figure and 94 per cent of the 1929 level. The exertion of monopoly power did not go unrewarded. A rough criterion by which to judge the extent of the monopoly return of Eddy Match may be found in the profit experience of the three major successors to the American Tobacco Trust. The (I. .. ‘ (c . I K 1'4 . V I t I, n o 1. I. x . . \ ‘ ..D p . . no a .. . x... . a .l n . ~ . cc , e ... e . , .L . u 1 J a o. _ . . I . . s r. H . e . .V . v\ - .. . . J v . . . - . n M. ... | 5 x», ... b N n s i . {l la 0) . I . .1 . . n u . . s I . V .s s a (3 . n A I . \ .. t , A , . as . a I .u E . . (a .1 r o I... ‘ I l .. .. O fl ,V- .A . \. . s , n . . I . v D syn, I: r.... as i C I 'I O , . . s . 0 if .A k .0 V. v ‘ v _ a. .\ . 1 . I a 4 ;.I 4 s. 1- \I .V I}. . i ¢ . t s , . . a O r , \ . .. . . _ V a \J 3 , s U 1. . _ ..4 .J . . .A w. . I. . u 4 . .. s f . v‘ IL. . I . r - e . . . u, r '1 ~‘ 3; I vi a. .. 335 .. match and cigarette industries are both characterised by a more elastic demand for particular brands than for the industry output as a whole. In both instances the monOpoly return suggests more a problem of income distribution than of economic efficiency. The structure alternatives in the Canadian wooden match industry seem to be monOpoly or oligopoly. There appears in the American cigarette industry the third possibility of monopolostio competi- tion. Not present in the Canadian wooden match industry during the period of comparison were two restraints on monopoly return affecting the American cigarette industry -- heavy advertising outlays and whatever caution was engendered by the United States monopoly conviction in 191.1. In spite of those restraints and the threat of new entrants and sporadic outbreaks of rivalry, the latter two eXperienced in Canada as well, the profit level in the American cigarette industry continued greatly in excess of that enjoyed by manufacturing in general. Eddy Match's greater element of monopoly power, at times complete, brought to it a monOpoly return consistently equal toor greater than the level enjoyed by the American cigarette producers. The profit comparison in Table 2 demonstrates the high degree of monOpoly profit realised by Eddy Hatch. - 386 - Table 2. Certain Canadian match and United States tobacco profit ratios. Eddy Match Company Tobacco Trust inflated deflated successor assets assets companies Net profit after taxes as a percentage of net tangible assets: 1912-1941 14.7-20.0 1928-1939 10.9 15.3 1940-1947 10.9 15.2 1942-1947 8.9-12.0 Net profit before taxes as a percentage of net tangible assets: 1931-1941 17.3-23.8 1940-1947 21.0 29.2 1942-1947 15.8-20.1 Source: compiled from the Canadian Match Report, the Egg; Match Case Transcript and R. B. Tennant, I'The Cigarette Industry,‘ in Walter Adams (ed.), 2h; §tructure of American Industry, rev. ed., Mac- millan, New York, 1954. As investment income eacheyear was not available as an separate item, it was included in the Eddy Match net profit figures. In those years when it could be distinguished, the ratios differed by two to four per cent. Compared with the 14.7 to 20.0 per cent realised by the major successors to the American Tobacco Trust over a more extended time period, during the first twelve years Eddy Match realised a return after taxes of 10.9 per cent on its net tangible assets, which were highly inflated. Removal of the I'water" claimed by the Department of National Revenue presents a return for 1928-1939 of 15.3 per cent, which is remarkably close to the experience of two of the three American companies. Although the - 387 - next period shows a significant decline for the American com- panies, Eddy Match maintained the same rate of return in the face of higher wartime taxes. It must be noted that during the first period Eddy Match was engaged in market struggles pursuant to the elimination of Columbia Match, Canada Match and Federal Match. The company enjoyed a wooden match monopoly during World War II. The ratios involving net profit before taxes reveal more clearly the extent of Eddy's monopoly power. On the basis of the inflated asset values the company's return rose from 12.5 per cent to 21.0 per cent of net tangible assets, whereas the American companies experienced a decline. The 29.2 per cent wartime return for Eddy Match was significantly higher than the American experience. That the market strategy of Eddy Match, effective as it was in eliminating rivals, did not seriously erode its profit margins is shown by Table 3, which examines ratios of net profit before taxes to net sales excluding excise taxes. Compared with the American tobacco companies averaging from 21.2 to 27.0 per cent during the period 1931-1941, Eddy Match averaged 36.3 per cent during the depression period 1930-1934. That was also a time when Eddy was in combat with Columbia Match and Canada Match. High wartime demand and a complete monopoly of Canadian wooden match output raised the Eddy margin to 43.1 per cent for the years 1942-1946 in contrast with the decline experienced by the American companies. l7 -388.- Table 3. A comparison of ratios of profits to sales for Eddy Match and American tobacco companies. Eddy Match Tobacco Trust Company successor companies Net profit before taxes as a percentage of sales: 1930 32.1 1931 29.7 1932 36.8 1933 39.4 1934 43.5 1930-1934 36.3 1931-1941 21.2-27.0 1942 45.0 1943 45.9 1944 44.9 1945 41.5 1946 38.0 1942-1947 17.9-18.5 Net profit after taxes as a percentage of sales: 1942-1946 21.0 Net profit after taxes, excluding investment income, as a percentage of sales: 1942-1946 18.4 Source: see Table 2. Except where noted the Canadian figures of profit include investment income, which is excluded from the American profit figures. An addendum to the details already examined of the unre- lenting aggression of the Eddy Match Company against entrants into the Canadian wooden match industry concerns advertising. It appears as a minor weapon. Eddy Match has devoted its rather considerable efforts and talents to sealing off the channels of - 339 - distribution from rival brands by the enticement of excessively handsome jobber profits as a reward for exclusive dealing. The company apparently estimated it was futile to attempt to build up strong brand loyalty to induce consumers to buy major Eddy brands at "regular" prices instead of lower-priced rival brands. Rather than choosing extensive advertising as a means of diverting consumer buying away from the cheaper brands, Eddy used its market power to curtail the actual availability of such matches. Removing the lower-priced alternative was apparently considered more effective. Advertising allowances to "loyal" distributors have been a relatively minor element in company strategy. An example from the campaign to eliminate Western Match will illustrate the place of advertising. In 1948, for two Eddy-controlled companies, Canada Match and Federal Match, labour and materials accounted for 80 to 85 per cent of the cost of sales. Selling expenses amounted to nine or ten per cent with more than 60 per cent going to commissions fOr direct selling efforts. The advertising expendi- ture for Canada Match in that year was fifty-seven dollars. That is trivial for a net sales total of $139,106. ' The minor part played by foreign trade in the Canadian match business is not immutable. The wide fluctuations in the past with respect to both imports and exports (see figure 6) may be in part eXplained by the strategy of the various members of the world match‘triad. Since the tariff reduction following the combines conviction of Eddy Match and its associated companies, imports have increased steadily. Although many of the imported Figure 6 serene Rare: . Russia 1 ,0 H mi-"__¢___/d_-_ - , , , . . .. i i f. . V.\ H W _ . _ .. _ _ i . . _ i/._ i m _ . _ u .01.]! _ _ ,_ e _. ‘|‘. Iii. . _ , . J ...... I.‘ --. rile.17-91-3490.---...3..-o.- 14R - I»? .e a- + .. 2-. .-.1 e I . . . . . .o I. .4 . . . l. Illa-1.6.. tel. .Iell Ilsl- ‘tllsl “AMI . _ O . . . . . \ nae-useless". 1 III u P v _ _ _ _ _ _ \ ‘. IlsltI-IQII' Y“. _ . fl _. . “ ‘A‘wlfi a. b r w . x w . .. _ aal‘als‘l‘llel _ _ _ ._ i E L _ .+\e_1aa! T u _ _ _ f . \ W4! . fl * . w . h . a“! . a) r. 8 “but, _ L _ - .3. c in.“ i cu.A . . e; i . Ru M“ C . . H . . : A m. n _ w L K C S _ _ , _ e30. . . _ a _ _ I A a... , i-_+. - - 0.-.»? . .H . ..e3 u Yale o. v . -.H. QM .T” i a . . .L . m 2.. _ w m _ i .7 H m“ . _ N “new _ ,_ _ _. _ _ . e, e a- . ,. : .\\...- : e _“i _ M“ ......a.._ ---v. w e;n . M .II. to»: _ ‘l‘l‘t‘ 8:1". . _ _ _ ....._......--_ __ . . 4...]...th _ W Minn, _ A .Li...\.\ . v. . . p... .Jl. . 4. mwwm 4mm _ _ i e m a -1 L ‘ _ e “I i “A: . l . . . S h 0 vl n _ . _ \‘I‘ ..- . II. . .‘ . L“ . c _ _ ‘I‘ . , 4(4144wrr . tut-4“ 1 .o . -.-I- .2! 1 - - 3 2 L _ fl _ _ ... ..H... (c H ./ £7. 1 ._ _ ..7 4 1e . v _ _ . ... ~ .' - ’ f5... c. : x ,. . ... .._ l _ - 390 - matches are I'luxury" types and total imports remain a small part of the total Canadian consumption, they do nevertheless represent a growing element of competitiveness. Increases in Canadian match exports would offset any unfavourable impact on employment in the industry arising from the expansion of imports. The 1946 United States consent decree signed by Diamond Match and others enjoined Diamond from voting its Eddy Match shares. The American company has since sold its interest in Eddy Match by a public offering of the stock. That may mean that the United States market is a more likely goal for Canadian match eXports. Aside from international tax differences and any continuing agreement regarding market allocation, British Match is likely to be interested in any sales expansion of Eddy that is not directly competitive with sales of the .British company and its other subsidiaries. Such expansion of output would use up some of the excess capacity in the Canadian industry. A recent sharp decline in exports indicates the difficulty of even maintaining foreign sales of Canadian output. Three plants Operated by Eddy Match produced the Canadian wooden match output. Until there has been a considerable expansion of the domestic market and/or a significant increase in exports, three firms would appear to represent thefeasible economic maximum for the industry, if not in fact more than the maximum in the light of existing excess capacity. Such an oligopoly could not be relied upon to bring about lower prices of a lasting character. Except perhaps for sporadic price-cutting, which might well lead to a reduction in the number of firms, intelligent behaviour without . ‘ s ‘ 3 1 r . . u - 391 - collusion on the part of oligopolists will accomplish a monopoly price and output level. There would be in addition the likelihood of large advertising expenditures, which have so far not plagued the industry. That is a wasteful means of limiting profits. Upon the basis of the judicial condemnation of most of the methods used by Eddy Match to gain and retain business, members of an oligopoly in the match industry would be impelled to engage in large-scale advertising because of legal considerations, if not also economic. Relative ease of entry has been characteristic of the match industry. That and excessive profits within the industry have led to a procession of entrants. The rather quick elimination of each new entrant has left the excessive profits only slightly disturbed. If the combines conviction and penalty have made Eddy Match more diffident about eliminating future rivals, it might seem reasonable to expect an increase in the number of wooden match manufacturers in the country. It is not, however, clear that past entrants were induced simply by the expectation of large annual profits. Except for Columbia Mbtch, those who so far have completed the cycle of entry and exist have realised an annual net profit and a capitalised share of eXpected future profits. The latter has taken the form of excessive payments for their match-making properties. Eddy Match may be deterred by its conviction from con— tinuing that policy in the future. If the expected annual monOpoly profit alone were insufficient to induce entry, new wooden match firms would not be probable. The dissolution of Eddy Match would seem the most feasible way to change the industry from monopoly to r 392 - oligOpoly. It is not a recommended line of action. The possible gain in progressive stimulus from the rivalry of several firms in an oligOpoly is not sufficiently compelling to justify the change, which would involve the risk of a more wasteful allocation of re- sources in expanded advertising expenditures. Five plants and five firms create the Canadian book match output. Eddy Match is dominant by reason of its share of the book match market and of it offering the only complete line of wooden and book matches. Evidence indicates that its price leadership has been accepted by the other book match manufacturers. Eddy Match has apparently withheld from this field the aggressive tactics it has employed against every rival in the wooden match field. Al- though only a further offence would open the legal avenue to divestiture, the divestment of the Eddy Match book match facilities at Berthierville would introduce important change in the competitive structure of that field with no significant cost changes. There would be a curtailment of the monopoly power enjoyed by Eddy Match in its dealing with the distributive trades. A dominant firm would no longer set wooden match prices and dominate book match pricing. Further expansion of the book match share of Canadian match sales would place additional restraint on the exercise of monOpoly power in the field of wooden matches. The present legal barrier to such a development being forced upon Eddy Match is a difficulty. In addition to lessening the monOpoly power of Eddy Match without incurring other economic disadvantages, the removal of Eddy Match from the book match field would separate to some extent the pricing ' 393 ' policies concerning the two kinds of matches. Not introducing more brands would avoid adding to the inventory problems in distribution. There remains to be considered a matter of income dis- tribution. ApprOpriations of monOpoly revenue by the original creators of Eddy Match cannot now be recalled. Similar apprOpria- tions by those eliminated from the wooden match industry by Eddy have also been incorporated in the present investment commitment of Eddy. It continues to realise unusually high profits. As there is diffused ownership of only a small part of the stock of Eddy Match, the company's monOpoly gain furthers income concentration. The bulk of the dividend payments of Eddy accrues to British Match, an outside monopoly owner. That vested interest in monopoly profit is more readily attacked than would be a similar interest vested in many small domestic shareholders. To limit future profits and not to distort match production, a suitable device would be a fixed tax on the company to divert to public use some measure of the excessive monOpoly earnings. It would amount to a special govern- ment levy on match consumers. It is more tenable to have them assume an extra share of their own government's activities than to have them contribute unduly to the income of the British creator of the Canadian monOpoly. The Operation of the wooden match field by a crown cor- poration as a government monopoly would permit passing on the elimination of monOpoly revenue to the consumers of matches in the form of lower prices. The special levy on match consumers, which - 394 - would remain if a private monOpoly continued with its profit lowered by a lump sum tax, would be avoided. The economic sound- ness of such a programme adds little to the slight probability of political acceptance. That monOpoly profits have been too large for too long has not proven to be a vote-catching prOposition. Assuming a surmounting of the present legal barriers to the Berthierville plant divestiture and to the discriminatory taxing of a monOpoly after a combines conviction, the economic performance of the Canadian match industry might well be improved by the separation of wooden match and book match.production and by a fiscal reduction in the monOpoly profit of the wooden match industry. Any future introduction of wide-scale advertising, with its misallocation of resources, would call for additional measures to prevent a deterioration in the economic perfbrmance of the match industry. Annual consu Swedish Match Company 1938 Output: in el 1931 Control of 7 1932 Output had d Sweden: Year 1956 1955 1954 1953 1952 1951 1950 1947 1942 1937 1932 1929 1927 leading exporting nati Sweden -- 78,800 Belgium -- 27,900 Austria -- 20,750 Finland -- 10,750 Italy -- 8,800 Japanese exports: Potential exporters: - 395 - Appendix A HQElQ_MflE£2_QEEE (millions of matches) 1927 -- 3,228,425 (about 100 factories in more than 30 nations) Sweden -- 90,000 sewhere --360,000 5 per cent of the world's match trade. eclined to 50 per cent of 1929 output. Value of Output Quantity (million kronor) EXported -- 80,000 44 70,000 45 64,800 46 69.400 56 75,500 56 82,800 39 78,800 24 " 7 -- 16 -- 21 -- 41 -- 37 -- one: (1950 quantities) U.K. and Overseas, Indonesia, France Overseas. U.K., Venezuela, Belgian Congo Pakistan, Peru, France Overseas. France and Overseas, U.S., Saudi Arabia, UeKe Venezuela, U.K., Pakistan, France. 1923 -- 290,000; 1922 -- 240,000. (80 per cent controlled by Swedish Match) Czechoslovakia and Russia, and the eastern EurOpean nations where Swedish Match.once controlled match factories -- Bulg Lithuania, Latvia Netherlands OXpor aria, Rumania, Jugoslavia, Hungary, Poland, , and Estonia. ting potential -- 4,325. ' 396 - mmmus The United States (millions of matches) Annual consumption: 1955 -- 500,000 1935 -- 404,000 1927 -' 365,000 Annual production: Percentage in Year Total Book matches 1954 433,160 65.8 1950 454,596 52.7 1947 496,438 47.1 1939 419,707 ’- 1933 371,119 16.5 1932 306,724 18.8 1930 249,631 20.6 1929 310,653 15.6 1927 300,000 -- Annual imports of safety matches: Percentage from: Percentage of Year Total Sweden Japan Russia U.S. Output 1935 13.840 -- -- 44 -- 1933 22,712 15 70 13 6.1 1932 18,484 53 8 19 6.0 1931 23,011 " " " 7e4 1930 29,239 -- -- -- 11.7 1929 76,151I -- -- -- 24.5 x in anticipation of a tariff increase. Average annual value of imports: 1936.40 -- $270,000e 1931-35 -’ 860,000e Number of establishments: 1954 -- 20 1931 -- $19 1929 -- 21 1927 -- 25 Diamond Match Company: 1954 sales of $21,200,000 amounted to 35 per cent Of the United States match business. Five plants with total floor space of 1,660,000 square feet, made up of areas in separate plants of 600,000 sq. ft., 330,000 sq. ft., 320,000 sq. ft., 235,000 sq. ft. and 175,000 sq. ft. In 1935 it was reported that the company's “plants alone are said to be fully capable of supplying all domestic needs." All, - 397 - Appendix C The United Kingdom (millions of matches) Table 1 Annual consumption: . Percentage of Grand Total: HOME PRODUCED IMPORTED Grand By British By Swedish Year Total Total Match Group Total Match Group 1955 126,000 66.8 -- 33.2 -- 1954 126,100 68.0 -- 32.0 -- 1953 126,290 72.6 -- 27.4 -- 1952 123,500 78.0 -- 22.0 -- 1951 137,500 65.7 63.2 34.3 28.5 1950 131,300 67.2 64.8 32.8 29.2 1949 138,700 69.7 66.1 30.3 25.6 1948 124,000 72.7 68.9 27.3 26.9 1947 118,000 75.3 71.7 24.7 22.3 1946 102,300 93.6 90.4 6.4 6.4 1945 84,800 94.7 91.4 5.3 5.3 1943 84,940 98.0 94.2 2.0 2.0 1942 91,200 92.9 89.2 7.1 7.1 1941 97,300 86.8 83.6 13.2 13.2 1940 126,900 70.1 67.3 29.9 25.4 1939 160,400 56.1 53.4 43.9 38.0 1938 140,300 55.9 53.6 44.1 33.5 1937 142,800 54.0 49.9 46.0 36.3 1936 142,800 54.6 51.4 45.4 35.7 1935 139,200 56.1 53.1 43.9 33.1 1934 135,600 57.3 54.2 42.7 30.0 1933 132,900 57.6 55.0 42.4 31.0 1932‘ 130,300 60.0 56.8 40.0 31.6 1931 142,100 53.9 51.9 46.1 37.5 1930 141,600 53.4 52.7 46.6 38.2 1929 140,100 52.6 51.7 47.4 37.4 1928 135,900 51.1 50.5 48.9 43.0 1927 141,500 42.0 -- 58.0 -- 1926 ---‘ 50.0 -- 50.0 -- 1925 --- 54.0 -- 46.0 -- 1924 --- 58.0 -- 42.0 -- 1923 --- 61.0 -- 39.0 -- 1922 --- 67.0 -- 33.0 -- 1921 --- 72.0 -- 28.0 -- 1920 '"'"' 29cc -- 31.0 -- 1919 --- 88.0 -- 12.0 -- 1918x --- 99.0 -- 1.0 -- 1917I --- 65.0 -- 35.0 -- 3 United Kingdom production increased 86.5 per cent from 1917 to 1918. - 393 - Table 2 Origin of match imports Country 1951 Sweden 17,900 Norway 4,500 Italy 1,800 Finland 500 Netherlands 250 Austria 150 (Austria-Hungary) -- Denmark -- Latvia -- Czechoslovakia 3,100 Russia 2,200 Poland 1,409 Total 47,200 1913 38,900 20,200 5,000 3,600 1,800 1.00 2,800 72,700 Number of establishments in 1952 British Match group 9: North Of England Match Company 1 l Anglia Match Company Magnet Match Works 1 x one closed in 1955 because of growing fer- eign competition. The annual Eddy Match dividend has accounted for 10 to 15 per cent of the annual income of British Match. Prior to World War II, which ended Russian imports, matches imported from Russia amounted to from 333 to 11.5 per cent of the United Kingdom market. Since UOrld War II: Iron Curtain Year Countries 1955 7,000 1954 6,500 1953 5,700 1951 ~- 1950 -- 1947 -- Russia only Match Production NO. of Sales Value Year Plants at Factory t 1957 8 --- 1956 7 --- 1955 7 4,285,000 1954 7 4,767,115 1953 7 4,795,051 1952 7 4,776,896 1951 7 4,231,000 1950 7 3,655,875 1949 7 4,078,662 1948 10 4,160,395 1947 10 4,027,846 1946 10 3,440,665 1945 7 3,050,771 1944 7 2,619,234 1943 7 2,420,973 1942 7 2,478,318 1941 7 2,168,859 1940 7 1,842,194 1939 7 1,894,768 1938 6 1,688,229 1937 5 1,949,369 1936 5 1,491,935 1935 4 1,516,898 1934 4 1,605,204 1933 4 1,613,367 1932 4 1,212,019 1931 4 2,073,726 1930 3 1,645,545 1927 3 1,874,707 1926 3 1,943,795 1925 3 2,054,640 1922 3 2,923,998 1921 2 --- 1901 5 312,655 1891 12 434,953 1881 22 511,250 1871 24 229,137 Abbreviations: ' 399 - Appendix D Canada Table 1 Wooden Match Imports 3 125,115 95,406 85,705 53,651 40,073 29,236 11,093 15,472 0 54 3,750 5,629 12,533 41,444 81846 9,322 4,769 41440 9,378 24,074 29,491 4,312 1,053 1,066 2,559 ‘ 34,407 49,661 86,463 37,861 42,847 Chief Sources US US US Sw Sw Sw Sw Sw US US US US US US Ja US US BK US US US US Sw Sw Sw UK It Sw It Sw UK US No US NO only US It It US only UK only only HK Ru Ja Ru US HK Ja HK HK Ne US UK HK Ne Ja Ge UK Ja UK Ja Ja Be US Ja US Ja Wooden Match Exports M C303 13 US C>C>C>C>CD Chief arkets only 800 PM only 16,981 Ne 73,729 Ne 148,769 Ne 29,788 Ne 183,873 Ne 100,342 Ne 112,180 93,875 15,026 7,683 2,491 PM Be Ne 508 PM Be UK 644 PM Be Jm 733 PM US Ba 1,121 PM Be Ne 1,296 Ba Ba-Barbados, Be-Belgium, BG-Brit. Guiana, BM-Brit. Malaya, Ce-Ceylon, Eg-Egypt, Ge-Cermany, HK-Hong Kong, It-Italy, Ja-Japan, Jm-Jamaica, Ne-Newfbundland, No-Norway, NZ-New Zealand, EM-St. Pierre and Miquelon; Ru-Russia, Sw-Sweden, UK-United King- dom, US-United States. - 400 - Table 2 (millions of matches) Year Fiscal Mar.3l Percentage Share of Total Output: 1923-39 Total . Calendar Canadian Canadian Match 00. Names of 1940-55 Output E.B. Eddy Match World Match Independents 1923 26,768 76.31 16.43 7.10 1924 26,021 73.89 17.32 8.76 1925 24,039 63.21 24.13 12.66 1926 21,920 43.87 37.95 18.18 1927 28,747 43.52 41.44 15.03 Aurora 1928 27,318 40.94 39.81 19.25 ' Eddy Match Company (Subsidiaries and Associates) 1929 20,032 99.65 ' shut 1930 23,927 92.54 Columbia 1931 24,510 86.64 ' 1932 25,993 82.17 ___:____Canada 1933 22,132 90.73 ' 1934 22,299 90.71 ' 1935 19,428 88.93 ' 1936 20,892 86.46 ' 1937 19,949 96.58 Federal 1938 21,461 91.97 ' Book Match 1939 23,042 89.22 ' Strike-Rite 1940 24,250 (approx.) 98.00 (approx.) Book M. ' 1941 24,070 ' 96.00 ' ' ' 1942 30,010 ' 93.00 ' B M S-R 1943 28,740 ' 94.00 " ' ' 1944 29,030 ' 91.00 ' ' ' 1945 34,600 ' 90.00 ' ' ' 1946 37,560 ' 92.00 ' ' ' (Western (Premier 1947 40,260 ' 72.00 ' " " Pr West. 1948 34,270 ' n. a. ' ' ' ' 1949 36,800 ' n. a. 1950 35,370 " 88.00 (approx.) " ' ' 1951 35,530 " 88.00 . I n n 1952 35,590 ' 84.00 " n I u 1953 36,140 ' 83.00 " n I a 1954 35,100 ' 84.00 I u I I 1955 31,590 " 82.00 n a a a 1956 no as no a. I I I 1957 n. a. n. a. " ' ' Bean 1940 until 1946, when Western Match began operations. In the production of wooden matches the Eddy Match group had an absolute monopoly from the acquisition of Federal Match in Since the closing down of Western in 1949 the Eddy Match group has had an absolute monOpoly of wooden match manufacture in Canada. firms compete with Eddy in producing book matches. Four - 401 - Table 3 Price Per Case3 of Household Matches Date July Oct. Jan. Feb. Mar. May June Apr. Apr. May June July Feb. Apr. July Sep. Jan. Apr. Aug. Apr. Apr. Jan. 1927 1927 1928 1928 1929 1930 1931 1932 1934 1936 1940 1941 1948 1949 1950 1950 1951 1951 1951 1952 1954 1956 May 1956 May 1957 Wholesale 3 8000 9.06 10.11 10.11 10.11 10.01 10.32 10.54 8.68 8.87 10.17 10. 50 11.50 8.16 8.17 8.52 9.40 10.32 10.78 10.42 10.42 9.84 10.36 10.92 Excise and Sales Taxes 4.63 4.67 4.72 4.62 4.52 4.42 4.73 4.94 3.73 3.92 5.10 706.151.1000 0 O O HHHHMNNHH O Manufacturer's Net 3 3.37 4.39 5.39 5.49 5.59 5.59 5.59 5.60 4.95 4.95 I From 1922 until 1934 household matches were generally sold in boxes containing 400 matches. sizes have been packed 144 boxes to the case. 1951: 1952: paperboard, paper matches wooden matches paperboard for matches paper matches wooden matches Customs Rates (%) British Preferential 17 17 10 i7: 7 1/2 7 1/2 A box containing 300 matches has been used from 1934 until the present time. Both Most Favoured Nation General 22 1/2 35 20 25 15 35 15 35 10 25 Year Ended Dec. 31‘ 1928 1929 1930 1931 1932 1933 1934 1935 1936 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 Net Profits before Taxes, 1928-1947 - 402 - Table 4 (thousands of dollars) Eddy Match 485.9 677.2 782.6 709.5 636.9 736.8 756.7 7&‘7 816.0 817.0 656.3 709.3 867.2 1,034.2 1,322.8 1,44003 1,421.1 1,463.1 1,412.3 928.7 Canada Commonwealth Match! Match (1.9) Loss 3.3 25.4 19.0 22.8 12.3 22.1 807 -" 15.9 29.9 40.4 37.5 24.5 47.8 26.1 45.9 33.0 47.7 41.8 56.2 48.5 55.4 48.9 64.2 53.6 63.7 50.0 590‘ 48.9 54.7 26.7 34.3 Federal Match 0 e e o NWCWbNWC 88888888 x Befbre Eddy Match acquired complete control of Canada Match in 1936, the latter company's fiscal year ended January 31. Table 5 Net Sales of Eddy Match Company, Excluding Excise Taxes Iear 1930 1931 1932 1933 1934 1942 1943 1944 1945 1946 Sales 32,440,140 2,389,730 1,729,626 1,869,184 1,740,101 2,938,313 3,139,150 3,167,153 3,519,669 3,708,059 .l r 1 VI I 1' I . .. s\ o 8.. . O . u . I c y .. I I)\ y s r . \ O I O I C I l s! I n ' .. . . . ... a l. e . . . a V .1 m 1 s a I s s -403- Appendix E The Combines Investigation Act as in force in 1950 at the end of the period covered by the charge in the Eddy Match case contained the following provisions applicable in that case: Section 2. (1) Every one is guilty of an indictable offence and liable to a penalty not exceeding ten thousand dollars or to two years imprisonment, or if a corporation to a penalty not exceeding twenty-five thousand dollars, who is a party or privy to or know- ingly assists in the formation or operation of a combine within the meaning of this Act. Section 2a In this Act, unless the context otherwise requires, (1) "Combine“ means a combination having relation to any com- modity which may be the subject of trade or commerce, of two or more persons by way of actual or tacit contract, agreement or arrangement having or designed to have the effect of (a) limiting facilities for transporting, producing, manu- facturing, supplying, storing or dealing, or (b) preventing, limiting or lessening manufacture or production, or (c) fixing a common price or a resale price, or a common rental, or a common cost of storage or transportation, or (d) enhancing the price, rental or cost of article, rental, storage or transportation, or (e) preventing or lessening competition in, or substantially controlling within any particular area or district or generally, production, manufacture, purchase, barter, sale, storage, transportation, insurance or supply, or (f) otherwise restraining or injuring trade or commerce; or a merger, trust or monopoly, which combination, merger, trust or monopoly has operated or is likely to Operate to the detriment or against the interest of the public, whether consumers, producers or others. (4) “Merger, trust or monOpoly" means one or more persons (b) who either substantially or completely control, through- out any particular area or district in Canada or through- out Canada the class or species of business in which he is or they are engaged; )l. 7.||1. llllllllila, -404- and extends and applies only to the business of manufacturing, producing, transporting, purchasing, supplying, storing or dealing in commodities which may be the subject of trade or commerce; ' Section 32A. (8) (b) (e) (1) In this section "agent of a participant” means a person who by a document admitted in evidence under this section appears to be or is otherwise proven to be an officer, agent, servant, employee or representative of a participant, "document" includes any document appearing to be a carbon, photographic or other c0py of a document, and I'participant" means any accused and any person who, although not accused, is alleged in the charge or indictment to have been a co-conspirator or otherwise party or privy to the offence charged. (2) In a prosecution under section thirty-two of this Act or under section four hundred and ninety-eight or section four hundred and ninety-eight A of the Criminal Code: (a) (b) (o) anything done, said or agreed upon by an agent of a participant shall prima facie be deemed to have been done, said or agreed upon, as the case may be, with the authority of that participant; a document written or received by an agent of a participant shall prima facie be deemed to have been written or received, as the case may be, with the authority of that participant; and a document proved to have been in the possession of a partic- ipant or on the premises used or occupied by a participant or in the possession of an agent of a participant shall be admitted in evidence without further proof thereof and shall be rima facie evidence: (1) that the participant had knowledge of the document and its contents; (ii) that anything recorded in or by the document as having been done, said or agreed upon by any participant or by an agent of a participant was done, said or agreed upon as recorded and, where anything is recorded in or by the document as having been done, said or agreed upon by an agent of a participant, that it was done, said or agreed upon with the authority of that participant; (iii) that the document, where it appears to have been written by any participant or by an agent of a partic~ ipant, was so written and, where it appears to have been written by an agent of a participant, that it was written with the authority of that participant. - 405 - (Note: The trial Judge ruled, and was upheld by the Court of Appeal, that section 39A, enacted in 1949 to overcome certain difficulties raised by the decision in the Dental Goods case, Rex v Ash-Tam 1e Co et a1. (1949) 93 C.C.C. 267, was procedural and therefore retroactive.) - 406 - Sources of Appendix information: Appendix A - The Statesman's Yegr-Book, Macmillan, London (various years). Yearbook of IntergationalZTrade Statistics, United Nations, New York (various years). The Sweden Year-Book 1228, Almqvist and Wicksells Boktryckeri A.B., Stockholm, 1938. Chemical Trade Journal and Chemical Egginegr, Aug. 29, 1924, pp. 240-42, John Missenden, "The World's Match Industry," Steuart M. Emery, "Our Lowly Match Has Rounded Out a Century," New York Times, Nov. 27, 1927, X, p. 5. NOV York Times, Gets 26, 1955, pa 30s British Match Report, pars. 134-35; appendix 11, table 5, p. 128. U. 8. Tariff Commission, Rgpgrt to thg ngsigent cg Mgtches, No. 94, 2nd Ser. 1935, U.S. Government Printing Office, Washington, p. 15. Diamond Match casg, Civil No. 25-397, Complaint, par. 37. Appendix B - U. 8. Tariff Report on Matches, 1935, pp. 3, 11, 13, 23. U, SI Census of Manufactures 1254, vols. I and 11, U. S. Government Printing Office, Washington. Statistical Abstract of the United Stgtgs, U. S. Government Printing Office, Washington (various years). "Billions of Matches," Barron's, Nov. 3, 1952, p. 11. "The Diamond Match Company: A report for the investor," Blyth and Co., New York, 1955, pp. 7, 9-10. Appendix C - Table 1: British Match Report, appendix 5, p. 117; appendix 11, table 1, p. 12‘s Monthl D eat of Stati tics, Central Statistical Office, H.M.S.O., London (various issues). Parliamentagy DebatesI House of Commons, 21 Feb. 1956, cols. 26-250 Economist, Sept. 1, 1956, p. 757. Table 2: British Match Report, para. 20, 134, 7; appendix 9. Times, Sept. 29, 1955, p. 14. Appendix D - Table 1: The following Canadian Government publications for various years: Chemicals and Allied Products in Canada. General Review of the Manufacturing Industries of Canada. The Miggellgggous Chemical Products Industgz. Trade of Canada. Canadian Match Report, table 1, p. 10. a I I I u . n e I a . I . o. D\ o u a . . t e l\ . e v a s . e I a . O p Q a . . a . u I e , p. a. Q I I 7 -407- H. McLeod, Canada's Chemical Industries, King's Printer, Ottawa, 1947. supra, ch. 10, p.242. Table 2: The Miscellaneous Chemical Progucts gndustgy (various years). Canadian Match Report, table 2, p. 69; table 4, p. 100. Edd Match Case Transcri t, v01. 8, p. 1939. Canadian Trade Index 1257, Canadian Manufacturers' Association, Toronto. Table 3: Canadian Match Report, pp. 106-107. Excise Tax As} (from 1948 to 1957). Wholesale prices of matches, 1948-58 - personal submission from the Prices Section of the Dominion Bureau of Statistics. Canadian Almanac and Digectog[(1951 and 1952), Cepp Clark Co., Toronto. TabIe 4: Canadian Match Report, tables 11, 15, 16, 17; pp. 114, 119, 122'3e Table 5: Canadian Match Report, tables 11 and 12; pp. 114-15. Calculations were made from those data. - 403 - Bibliography Books: John A. Ball, Jr., Canadiap Appi-Trust Legislation, Williams and Wilkins 00., Baltimore, 1934. Wendell Barge, Cartels: Challen e to a Free World, Public Affairs Press, Washington, D.C., 1944. V. W. Bladen, gp Introduction to Political Econogy, University of Toronto Press, Toronto, 1951. Allen Churchill, The Incredible IVar erugpr, Rinehart and Co., New York, 1957. Victor 8. Clark, Histcgz cg Manufpctures in the United Statep, McGraw-Hill, New York, 1929, Vol. III. Archibald 010w and Nan L. Clow, The Chemical Revolution, eBatchworth Press, London, 1952. W. Friedmann, Law and §ocia1 Chapge in Contempgrgpz Britain, “' Steven and Sons, London, 1951. J. K. Galbraith, The Great Crash 1222, Houghton Mifflin, Boston, 1955. Hal bu 's Laws of E land, gen. ed. Lord Hailsham, 2nd. ed., Butterworth and Co., London, 1939, vol. 32. Proctor W. Hamel, Years of Plunder: A Financigl Chronicle 0; 9;; Times, Harrison Smith and Robert Haas, New York, 1935. Ervin Hexner, International Cartels, Sir Isaac Pitman and Sons, Iondon, 1946. 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Yamey, “Restrictive Trade Practices Act, 1956," Public Law, Winter, 1956. "Lord Hale and Business Affected with a Public Interest," Harvard Law Review, March, 1930. Sidney Hertzberg, "Aftermath of the Kreuger Crash,I Current Histogy, Nov., 1933. L'Illustration, 26 Mars, 1932; 30 Avril, 1932. W. P. M. Kennedy, I'The Judicial Process and Canadian Legislative Powers," Washipgton University Law Quarterly, Feb., 1940. Labour Gazettp, Nov. 1912. “ ——__--. 1". "F'IIIQA 7 -‘10- Kenneth Lanny, "Matchmaking Past and Present,‘I Canadian Chemical Processipg, June 20, 1952. F. A. McGregor, "Control of Prices in War and Peace -- Some Contrasts,‘ University of Toronto Commercial Jo 1, May, 1945. I. M. MacKeigan, "Notes on 'Patents in Relation to Monopoly," Canadian Jouppg; of Economicg and Political Science, Nov., 1946, quoting the §gcopg Interim Repor . Maclean's, Dec. 15, 1949. Isaac F. Marcosson, “EurOpe and America: An Interview with Ivar Kreuger,‘ Saturday Evenin Post, April 2, 1932. Isaac F. Marcosson, l'The Match King”, Saturd Ev ni Po t, Oct. 29, 1929. "Match Industry in the U. K.,' Chemécal Age, May 23, 1953. John Missenden, ”The World's Match Industry", Chemicgl Trade Journal and Chemical Epgineer , August 29, 1924. Moogy's Manual of Investments: Banks/ Insurance Co oppgpies Investment Trusts! Real Estate. Fipan nce and Credit Compapigp. Moody's Investors Service, New York, 1935. Moogy's Manual of Investments::;pdustr;g1 Securitieg, Moody‘s Investors Service, New York, 1928, 1932, 1934, 1937, 1938, 1941, 1943: 19480 New York Times, May 24, 1927. Oct. 24, 1929. Mar. 13, Apr. 17, May 6, June 24, June 30, July 1, July 24, Sept. 28, Nov. 30, Dec. 4, 1932. Apr. 28, June 23, Sept. 22, 1933. ‘ Jan. 7, Mar. 6, Mar. 10, June 7, 1934. Apr. 6, Apr. 23, May 24, July 3, Sept. 13, 1935. Feb. 29, Apr. 23, Apr. 28, May 15, May 26, June 6, June 17, June 19, July 14, July 21, 1936. Jan. 28, Feb. 5, Mar. 7, June 10, July 13, July 30, July 31, Aug. 4, Aug. 21, 1937. May 29, June 9, 1938. June 13, July 29, 1939. Apr. 19, 1949. Aug. 22, 1951. Oct. 26, 1955. New Yorker, Oct. 11, 1947. Alan Phillips, "The Unknown Man Who Bought the Globe and Mail," Maclean' 3, Apr. 30, 1955. Pulp and Paper Magazine of Canada, April, 1951. Robert L. Raymond, "The Standard Oil and Tobacco Cases," Harvard Law Review, Nov., 1911. 299 Statesmen's gear-gook, Macmillan, London (various years). W. W. Swanson, "Curbing the Combines by Boards of Investigation," Queen's Qparterly, April, May, June, 1910. 2p, Swegen Year-Book 1222, Almqvist and Wiksells Boktryckeri A.B., Stockholm, 1938. Time, Oct. 28, 1929. . ’iriflqusll-nulm - 411 - The Times (London), June 6, June 26, Sept. 17, 1953. May 26, 1954. Sept. 29, 1955. Times (Victoria, B.C.), Jan. 18, 1945; Aug. 18, 1945; Sept. 30, 1946. o. G. v. (Oswald Garrison Villard, Ed.), ”The Failure of Big Business," The Nation, May 25, 1932. W. T. Wells, M. P., "The Attack on MonOpoly," Fortni ht1 , AU8., 195‘s I'British Columbia's First Match Plant," Western Business 5nd Indust , Nov., 1946. Max Winklar, "Playing with Matches: The Rise and Fall of Ivar Kreuger,‘ The Nation, May 25, 1932. John H. Wuorinen, "Kreuger‘s Vanished Millions,“ Current Histopy, May, 1932. Publications of the United Nations and federal governments: Balfour Compittee on Industgy and Trade; Fggtors in Industrial and Commercial Efficiency, Pgrt:;:of p_Survey of Industries, H.M.S.O. , London, 1927. Canada and gpternapgppal Cartels, Report of Commissioner, Combines Investigation Act, Ottawa, 1945. Canada Year Book, 1927-28; 1929; 1932; 1933; 1947; 1950. Chemicals angzgllied Products in Canada, Dominion Bureau of Statistics, Ottawa. (various years) Economic and Social Council, Officig; Records;_Nineteenth Session, Supplement No, 2A; E/2675, United Nations, New York, 1955. Qgperal Review of the Manufacturigg_1ndustries of Canada, Dominion Bureau of Statistics, Ottawa. (various years) H. McLeod, Canada's Chemical indugtries, King's Printer, Ottawa, 1947. Matches: gpvesti ation into an Alla ed Combine in the Manufacture, Distribution and Sale of Matches, Report of Commissioner, Combines Investigation Act, Ottawa, Dec. 27, 1949. The Miscellapgoup_Chemica1 Products Indust , Dominion Bureau of Statistics, Ottawa. (various years) Monthly Digest of Statistics Central Statistical Office, H.M.S.O., London. (various yearss thical Goods: gpvestigation into an Alleged Comb;ne ;n the flgnufactpge and Sale of Opticpl Goods in Cppagg, Department of Justice, King's Printer, Ottawa, 1948. Raport of the Committee to Stpdy Combines Legislation and Interim Repprt on Resale Prgce Maintenance, Queen's Printer, Ottawa, 1952. Report of thd Roygl Commisggon in re the Alleged Combinppgpn of Papgr Manufacturers gnd Dealers (1902) 1-2 Edw. VII Sessional Paper No. 53. ‘ 412 - Repart of the Royal Commission on Prices (0. A. Curtis, Chairman), 'King's Printer, Ottawa, 1949. Report of the Royal Commission on Price §preads, King's Printer, Ottawa, 1935. 'Report of the Royal Commission on the Tobacco Trade of Canada,I Sessional Pa are, 1903, 3 Edw. 7, No. 62. figport of a Sub-Committee Appointed ay app Standipg_Committee 0a ape Investigation of Prices to Engaare iato the Price of Matches (Cmd. 924; 19207. "Report on Restrictive Business Practices in International Trade,” Economic and Socia;;Coapcil Official Records: Nineteegap SessionI Supplement No. 35: E72675, New York: United Nations, 1955. fiaport on the Supply and Export 02 Matches and the Supply of Match-Makin Machine , Monopolies and Restrictive Practices Commission, B.M.S.0., London, 12 May, 1953. U. 3. Tariff Commission, Re ort to the P esident on Matches, No. 94, 2nd Ser. 1935, U. S. Government Printing Office, Washington. Statistical apstract of the United States, U. 8. Government Printing Office, Washington. (various years) Trade of Canada, Dominion Bureau of Statistics, Ottawa. (various years U, S. Census of Manufactures 1225, vols. I and II, U. 8. Government Printing Office, Washington. Yearbook of International Traaa Statistics, United Nations, New York. various years) Yearbooa of the United Nations, 1951; 1955. Law cases and reports (cases involving the sovereign are arranged according to the name of the other participant): a. ina v D R Adams 06.1 Limited at .1. (1957-58) 23 W.W.R. 419. Rex v.2a1exapger Ltd, at al. (1932) 2 D.L.R. 109. Allnutt v, Inglis (18003712 East 527) 104 E. R. 206. Amalgamated Builders' Couacil v. McGre or (1929) 36 0.W.N. 344. Ihe Kiag v. aperican Optical Co at al. 1950) Ex.C.R. 344. The Qaaen v. American Tobacco Co. of Canada (1897) 3 Revue da Jurisprudence 453. - Rex v. Ash-Temple Co, et_al. (1949) 93 C.C.C. 267. ttorne -Ge ral for British Columbia v._4ttorneyeGeneral gor Canada 21937) A.C. 368. Attornay—General fo Ont rio v Attorn -General for Canada (1937) A.C. 405. ttorne -Genera1 fc Out 0 v C nadi n Wholesale Grocers Association 1922 52 D.L.R. 536. Rex v, Beckett et al. (1910) 20 D.L.R. 401. Belyea v. The Kiag and Weinraub vI The Kiag (1932) 2 D.L.R. 88. -413 a re th Bear of Commerce Act 1919,,and the Combines and Fair Prices Act, 1212 (1922) 1 A. C. 191. British Coal Corp. et al.,The King (1935) 3 D. L. R. 401. British Nylon Spinners v, Imperial Chemical Induatries (1952) 2 111 E. R. 780 (c. Ki) Broad v. Jollyfe (1619) (Cro. Jac. 596) 79 E. R. 509. Bunn v. Guy (1803) (4 East 190) 102 E. a. 803. Rex v, Canadian Import Co. at g; (1933) 61 c. c .c. 114, (1935) 3 D.L.R. 330. Cher v The Kin ex rel Woo (1937) 69 C.C.C. 219. Rex v, Clarke 1907 14 C.C.C. 46 and 57. 5a Combines Invastigation Apt and S, 428 02 the Crimina; Cage 1929 2 D.L.R. 802. Rex v, Container Materials Ltd, at a . (1941) 3 D. L. R. 145. Container Materials Ltd. et al, v. The King (1942) 1 D. L. R. 529. In the Matter of a Reference as to the Constitutionalit of ction 528A of the Criminal Code (1936) S. 0.3. 363. Darcy v, Allen (1602) (Moore, K. B. 671) 77 E. R. 1260. DQ'iB VI Mason (1793) (5 To a. 118) 101 Ea Re 690 United States of America v The Dia and Match Com a at al. (April 9, 1946) Civil No. 25-397, U.S. District Court, S.D.N.Y., Complaint; Answer; Judgment. lp_a Matter of a Reference aa to tha Constitutionalit of the Dominion Trade and Indust Commission A t (1936) S.C.R. 379. n._and s. Drapers v. Reynolds (1956) 3 411 E.R. 814 (C.A.). Eddy Match Caaa, Transcript; Appellants' Factum; , Factum of the Respondent. Rex v, Eddy Match Company, Limited et .1. (1953) 104 0.0.0. 39. Ed Match Com a Limited et al v The use (1954) 109 C.C.C. 1. Rex v, Elliott 1905 9 0. L. R. 648. Rex v, Famous Players et a1. (1932) 58 0.0. C. 50. The Kipg v, ongo'119o7) 13 c. c. c. 415; (1908) 13 0.0 .c. 428. The Good ear Tire and Rubber Co of Canada at 1. v. The Queen (1956) S. C. R. 303. Hately v, Elliott (1905) 9 o. L. a. 185. The King v, Hartt and Adair Coal Co. (1935) unreported. Hartt and Adair Coal Co. v. The King (1935) unreported. Regina v, Howard Smith Paper Mills, Limited at al. (1954) 0.x. 543. Howard Smith Pa r Mills Ltd at al v The ueen (1957) 8 D.L.R. 2d 449. Rex v, Imperial Tobacco Co._et:a;. (1942) l D. L. R. 540. Rex v Ma;Gavin Bakeries Limited et al. (No. 6) (1951) 3 w. w. R. (N. S 289. The King . Mouionog; (1907) 18 C.C.C. 185. flax vz Master Plumbers and Steam Fitters Co-Oparativa Association 1905 14 O.L.R. 295. Rex v Master Plumbers and Steam Fitters Co-onagative Association 1907 14 O.L.R. 307. Mitchell v, Reynolds (1711) (1 P. Wms. 181) 24 E. R. 347. a ‘14 - Mogpl Steamship Co. v. McGregor.,Gog_and Co. (1892) A.C. 25. Ragina v, Morrey et a1. (1956) 19 H.U.R. 299. (Herbert) Morris. Ltg._v. Saxelby (1916) 1 A.C. 688. Morris Run Coal Co. v. Barclayfipoa1:go. (1871) 68 Pa. 173. Essa v,AIllinois (18771 94 U.S. 113. Nordenfelt v._Maxim:§ordenfelt Guns and Ammunition Co, Ltd. (1894) A.C. 535. 22! King v. Norris et a1. (1758) (2 Keny. 300) 96 E. R. 1189. North Western Salt Co v Electrol ic Alkali Co. (1914) A.C. 461. O'Connor v, Waldron 1932 57 C.C.C. 268; 1935 63 C.C.C. 1. Ontario Salt Co. v. Merchants Salt Co. (1871) 18 Ont. Gr. Ch. 540. The ueen v Charles Steuart Parnel t 1. (1877-82) 14 Cox 0. c. 508. P610 uin v Latraveree (1919) 54 D.L.R. 181. Pierce v, Fuller (1811) 8 Mass. 223. Ezpprietagy Articles Trade Aasociation v._Attorney-General for Canada 1931 AeCe 310; 1931) 2 DeLeRe 10 Richardson v Buhl at a . (1889) 43 N.W. 1102. Rousillon v Rousillon (1880) 14 Ch. D. 351. Salomop v. Salomon and Co. (1897) A.C. 22. Shragge v, weidman (1910) 20 Man. R. 178 and 188. x v Simi ton et a1. (1926) 45 C.C.C. 249. Rex v Simoneau (1935) 65 C.C.C. 19. In re Si or 1929) S.C.R. 614. a. Singer (1929) 52 C.C.C. 243. Rex v, Sipger et a1. (1931) 0.R. 202. Rex v, Sipger at al. (1931) 0.R. 699. as! V. Staples et_§le (1940) L DeLeRe 6990 Sorrell v Smith et a1. (1925) A.C. 700. Stearns v. Avegy (1915) 33 O.L.R. 251. éteuart v. Thorpe (1916) 27 C.C.C. 409; (1917) 36 D.L.R. 752; (1918) 49 D.L.R. 694. Transport Oil Co, v, Imparial Oil Ltd, at al. (1935) 63 C.C.C. 108. The Kipg v. Uhlemann thical c . (1950) Ex.C.R. 142; (1952) S.C.R. 143- United Shoe Machine Co of Canad v Brunet et 1. (1909) A.C. 330. United Shoe Machinery Co. of Canada v, Laugendeau and Drouin (1912) 2 D.L.R. 77. Vancouver Malt and Sake Brewipg Co, v, Vancouver Breweries (1934) A.C. 181. The Kipg v, Haddipgton (1800) (1 East 143) 102 E. R. 56. Wampola_and Co. v. F. E1‘Karaago. (1906) ll O.L.R. 619. wampoie et al v L ona‘11904) 25 Que.S.C. 390. Heidmap v. Shragge 1912) 46 S.C.R. 1. Ra; v. White et a1. (1932) unreported (Ontario Supreme Court). Wyatt v. Kreglinger and Fernau (1933) 1 K.B. 793. - 415 - Canadian and British (designated "0.x.") statutes: (1623) 21 Jac. 1, c.3. (U.K.) (1844) 7’8 Vice, 0. 21‘. (UoK.) (1845) 8-9 Vic., c. 16. (0.R.) (1867) 30-31 Vic., c.3. (U.K.) Aa_Act to Amend the Combines Investigatign Act, (1946) Statutea of gasses. 10 Geo. 6, c. 44. Combines investigation Act Amendment:aa3, 1935, 25-26 Geo. 5, c. 54. Combines Investigation agt Amendment Act, 1937, 1 Geo, 6, c. 23. Comganies Act, 1252, 10-11 Geo. 6, c. 47, s. 18. gag Dominioa Trade and Indust Commission Act, 1935, 25-26 Geo. 5, e. 59. Excise Tax Act (from 1948 to 1957.) Monogolies and Restrictive Practices (Inguigz and Control) Act, w, 11-12 09°. 6, C. 660 UOK. Monogoligs and Restrictive Practices Commission Act 1 , 1-2 Eliz. 2, c. 51. ZU.K.$ ' Patents Act, 1902, 2 Edw. 7, c. 34, s. 3. Patents and Designs £22: 1907, 7 Edw. 7, c. 29. Patents and Designs Act,i;25§, 12, 13-14 Geo. 6, c. 62, as. 16-24. Patents. DesignsI and Traga Marks Act, 1883, 46-47 Vic., c. 57, s. 22. Restrictive Trade Practices Act, 1956, 4-5 Eliz. 2, c. 68. (U.K.) (19065 Revised Statutes of Canada, 5-6 Edw. 7, c. 146. (1927) Revised Statutes of Canaga, 13-14 Geo. 5, c. 26. (1889) Statutes of Canada, 52 Vic., o. 41, s. 1. (1897) Statutes of Canada, 60-61 Vic., c. 16, s. 18. (1892) §3atutes of Canada, 55-56, Vic., c. 29. (1899) Statates of Canada, 62-63 Vic., c. 46. (1900) Statutes of Canada, 63-64 Vic., c. 46. (1903) Statates of Canaga, 3 Edw. 7, 0. A6. (1904) Statutes of Canada, 4 Edw. 7, c. 17. (1910) Statutes of Canada, 9-10 Edw. 7, c. 9. (1919) agatutee of Canada. 9-10 Geo. 5, c. 37, c.45. (1935) Statutes of Canaga, 25-26 Geo. 5, c. 56. (1946) §£atutes of Canada, 10 Geo. 6, c. 44, s. 9. (1949)(2nd Sess.g Statutes of Canada, 13 Geo. 6, c. 12, as. 2, 3. (1951)(2nd Sess. Statutes of Canada, 15-16 Geo. 6, c. 30, s. 1; (1952) 1 Eliz. 2, c. 39. White Phosphorus Matches Act, (1914) 4-5 Geo. 5, c. 12. Canadian and British legislative proceedings: Debates. House of Commons, May 18, 1888; Apr. 8, 1889; Feb. 6 1889; Apr. 22, 1889; Apr. 21, 1890; Aug. 4, 1904. (1909-10) Debates, Houaa of Commons, vol. 2, Jan. 18, 1910; vol. 4, Apr. 12, 1910. i I! .o . ‘w—‘I- n—u -416- Debates,,House of Commons, Jan. 28, 1914, vol. 1. Debates,_House of Commons, Mar. 17, 1914, vol. 2. Debates, House of Commons, May 19, 1921, vol. 4; Mar. 16, 1922, vol. 1; May 17, 1922, vol. 2; June 1, 1922, vol. 3; Mar. 17, 1922, vol. 1; June 2, 1922, vol. 3; Mar. 8, 1923, vol. 1; May 7, 1923, vol. 3; May 8, 1923, vol. 3; May 9, 1923, vol. 3. Debates, House of Commons, June 11, 1935, vol. 4. ’Debates,,House of Commons, 1949 (2nd Sess. ), Nov. 7, 1949, vol. 2, Nov. 14, 1949, vol. 2, Nov. 22, 1949, vol. 2, Dec. 9, 1949, vol. 3: 1951, (2nd Sess.), Dec. 31, 1951, vol. 3. Debates,_HQaae of Commona, Feb. 21, 1950, vol. 1. Debates, Senate, 1932-33, Oct. 21, 1932. Joint Committee of the Senate and the House of Commons on Combines Legislation, House of Commons, 1951 (2nd Sess.), Minutes of Proceedings and Evidence, No. 4, Nov. 22, 1951. ‘ Jourgals, House of Commgaa, 1888, vol. 22, Appendix (No. 3). Parliamentary Debates, House of Commons, Apr. 20, 26 and 27, 1871: 25 June, 1953. Parliamentagz Debates House of Commons, 5 April, 1954, written answers, col. 9; 3 Feb. 1955; 18 June 1953; 25 June, 1953, 22 Oct. 1953; 21 Feb. 1956. Parliamentary Debates, House_g; Commona, 21 Feb. 1956. Parliamentagy Debates, House of Logaa, 29 April, 1948. Sessional Papers, 1902, 1-2 Edw. 7, No. 53. Miscellaneous: The Diamond Match Company: A Report for the laggstor, Blyth and Co., Inc., Oct. 1955. Prospectus, Eddy Match Company, Limited, Dec. 19, 1956, regarding the disposal by Diamond Match of 66,938 common shares (after the subdividing 2 for 1). "Match". Encyclopaedia Britannica, 1952, vol. 15. Personal submission from the Combines Investigation Branch, July 6, 1956. Eaglesale prices of matches, 1948-58 - personal submission from the Prices Section of the Dominion Bureau of Statistics, Ottawa 0 Canadian Manufacturers' Association: Eighty-Seventh Annual General Meeting: Report of the General Manager, Canadian Manu— facturers' Association, Toronto, 1958. 41.1 t . \ .1" ' u < I 4 h ’ _~ 1 men use can RODM USE ONLY