International Harvester Co. v. Kentucky, 234 U.S. 216 (1914)

U.S. Supreme Court

International Harvester Co. v. Kentucky, 234 U.S. 216 (1914) International Harvester Company v. Kentucky

No. 276, 291, 292

Argued April 23, 24, 1914

Decided June 8, 1914

234 U.S. 216

ERROR TO THE COURT OF APPEALS

OF THE STATE OF KENTUCKY

Syllabus

An antitrust criminal law may not necessarily be unconstitutional merely because it throws upon men the risk of rightly estimating what is an undue restraint of trade, but to compel a man to guess what the fair market value of commodities manufactured or sold by him would be under other than existing conditions is beyond constitutional limits.

The antitrust provision of the Constitution of 1891 and of the Acts of 1900 and 1906 of Kentucky, as construed by the highest court of that state, are unconstitutional under the Fourteenth Amendment as offering no standard of conduct that it is possible to know in advance and comply with. 147 Ky. 564; id., 795; 148 Ky. 572, reversed.

The facts, which involve the constitutionality of antitrust provisions of the constitution and laws of Kentucky, are stated in the opinion.

Page 234 U. S. 219

MR. JUSTICE HOLMES delivered the opinion of the Court.

The plaintiff in error was prosecuted, convicted, and fined in three different counties for having entered into an agreement with other named companies for the purpose of controlling the price of harvesters, etc., manufactured by them, and of enhancing it above their real value, and for having so fixed and enhanced the price, and for having sold their harvesters, etc. at a price in excess of their real value, in pursuance of the agreement alleged. The judgments were affirmed by the Court of Appeals. 147 Ky. 564, id., 144 Ky. 795, 148 Ky. 572. The plaintiff in error saved its rights under the Fourteenth Amendment and brought the cases here.

The law of Kentucky in its present form is the result of the construction of several statutes somewhat far apart in time and of seemingly contradictory import. It was argued that construction could not take the place of express language in a statute, and Louisville & Nashville

Page 234 U. S. 220

R. Co. v. Central Stock Yards Co., 212 U. S. 132, 212 U. S. 144, was cited for the proposition. But the case gives no sanction to it. The point there was that a defect in a law could not be cured by precautions in a judgment -- not that what seemed a defect could not be cured by the construction given to the words by the court having final authority to declare their intent. We follow the Kentucky Court of Appeals in taking what they derive from the legislation of the state as if it were embodied in a single act.

The history in brief is this: by an act of May 20, 1890, agreements for the purpose of fixing or limiting the amount or quantity of any article of merchandise to be produced or manufactured, mined, bought, or sold, as also combinations by corporations with others to put the business of the combination under control with intent to limit, fix, or change the price of articles of commerce, or in any way to diminish the output of such articles, were made punishable by fine, imprisonment, or both. Carroll's Kentucky Statutes §§ 3915-3917. In 1891, a new Constitution was adopted by the state, by § 198 of which it was made the duty of the General Assembly

"from time to time, as necessity may require, to enact such laws as may be necessary to prevent all trusts . . . from combining to depreciate below its real value any article, or to enhance the cost of any article above its real value."

This was held not to repeal the earlier statute. Commonwealth v. International Harvester Co., 131 Ky. 551, 566. But Kentucky grows tobacco, and the farmers were dissatisfied with the prices that they were able to get, being oppressed, as they alleged, by a combination of buyers. So, on March 21, 1906, a statute was enacted that made it lawful for any number of persons to combine the crops of wheat, tobacco, corn, oats, hay, or other farm products raised by them for the purpose of obtaining a higher price than they could get by selling them separately. Session Laws 1906, c. 117, p. 429. And later, by an act of

Page 234 U. S. 221

March 13, 1908, not only was the legality of these last-mentioned combinations reaffirmed, but they were protected by injunction, and the sale by or purchase from the owner contrary to his agreement was punished by a fine.

When the Court of Appeals came to deal with the Act of 1890, the Constitution of 1891, and the Act of 1906, it reached the conclusion, which now may be regarded as the established construction of the three, taken together, that, by interaction and to avoid questions of constitutionality, they were to be taken to make any combination for the purpose of controlling prices lawful unless for the purpose or with the effect of fixing a price that was greater or less than the real value of the article. Owen County Burley Tobacco Society v. Brumback, 128 Ky. 137, 151; Commonwealth v. International Harvester Co., 131 Ky. 551, 568, 571-573; International Harvester Co. v. Commonwealth, 137 Ky. 668. The result seems to be that combinations of tobacco growers are held to do no more than restore an equilibrium that has been disturbed by a combination of buyers (Owne County Burley Tobacco Society v. Brumback, 128 Ky. 137, 152; Collins v. Commonwealth, 141 Ky. 564), whereas, if prices rise after a combination of manufacturers, it very nearly is presumed that the advance is above the real value, and that there is a crime. International Harvester Co. v. Commonwealth, 144 Ky. 403, 410-411.

The plaintiff in error contends that the law as construed offers no standard of conduct that it is possible to know. To meet this in the present and earlier cases, the real value is declared to be "the market value under fair competition, and under normal market conditions." 147 Ky. 566. Commonwealth v. International Harvester Co., 131 Ky. 551, 576; International Harvester Co. v. Commonwealth, 137

Page 234 U. S. 222

Ky. 668, 677-678. We have to consider whether, in application, this is more than an illusory form of words, when, nine years after it was incorporated, a combination invited by the law is required to guess at its peril what its product would have sold for if the combination had not existed and nothing else violently affecting values had occurred. It seems that, since 1902, the price of the machinery sold by the plaintiff in error has risen from 10 to 15 percent. The testimony on its behalf showed that, meantime, the cost of materials used had increased from 20 to 25 percent and labor 27 1/2 percent. Whatever doubt there may be about the exact figures, we hardly suppose the fact of a rise to be denied. But, in order to reach what is called the real value -- a price from which all effects of the combination are to be eliminated -- the plaintiff in error is told that it cannot avail itself of the rise in materials, because it was able to get them cheaper through one of the subsidiary companies of the combination, and that the saving through the combination more than offset all the rise in cost.

This perhaps more plainly concerns the justice of the law in its bearing upon the plaintiff in error, when compared with its operation upon tobacco raisers who are said to have doubled or trebled their prices, than on the constitutional question proposed. But it also concerns that, for it shows how impossible it is to think away the principal facts of the case as it exists, and say what would have been the price in an imaginary world. Value is the effect in exchange of the relative social desire for compared objects expressed in terms of a common denominator. It is a fact, and generally is more or less easy to ascertain. But what it would be with such increase of a never extinguished competition as it might be guessed would have existed had the combination not been made, with exclusion of the actual effect of other abnormal influences, and, it would seem, with exclusion also of any increased

Page 234 U. S. 223

efficiency in the machines, but with inclusion of the effect of the combination so far as it was economically beneficial to itself and the community, is a problem that no human ingenuity could solve. The reason is not the general uncertainties of a jury trial, but that the elements necessary to determine the imaginary ideal are uncertain both in nature and degree of effect to the acutest commercial mind. The very community, the intensity of whose wish relatively to its other competing desires determines the price that it would give, has to be supposed differently organized and subject to other influences than those under which its acts. It is easy to put simple cases, but the one before us is at least as complex as we have supposed, and the law must be judged by it. In our opinion, it cannot stand.

We regard this decision as consistent with Nash v. United States, 229 U. S. 373, 229 U. S. 377, in which it was held that a criminal law is not unconstitutional merely because it throws upon men the risk of rightly estimating a matter of degree -- what is an undue restraint of trade. That deals with the actual, not with an imaginary, condition other than the facts. It goes no further than to recognize that, as with negligence, between the two extremes of the obviously illegal and the plainly lawful, there is a gradual approach, and that the complexity of life makes it impossible to draw a line in advance without an artificial simplification that would be unjust. The conditions are as permanent as anything human, and a great body of precedents on the civil side, coupled with familiar practice, make it comparatively easy for common sense to keep to what is safe. But if business is to go on, men must unite to do it, and must sell their wares. To compel them to guess, on peril of indictment, what the community would have given for them if the continually changing conditions were other than they are, to an uncertain extent; to divine prophetically what the reaction of only partially determinate

Page 234 U. S. 224

facts would be upon the imaginations and desires of purchasers, is to exact gifts that mankind does not possess.

Judgments reversed.

MR. JUSTICE McKENNA and MR. JUSTICE PITNEY dissent.