in the aggregate 95 per cent of the country's output of cigarettes.' It thus possessed a high degree of monopolistic control. The leading concern was W. Duke, Sons and Company, controlled by Mr. James B. Duke. Under Mr. Duke's management the output of this concern had increased from approximately 30,000,000 cigarettes in 1883 to 940,000,000 in 1889.2 Mr. Duke testified that his company prior to the organization of the combination did about 40 per cent of the cigarette business of the country. The other four concerns had been prospering, and had been increasing their output rapidly. Competition among them, it is true, had been quite vigorous. Very extensive advertising had been resorted to, and large premiums had been given to merchants and consumers. The Duke concern alone had expended $800,000 in advertising and premiums in 1889. These heavy selling expenses had greatly reduced the profits of the five companies, and had undoubtedly promoted the establishment of a combination. But there is little reason to believe that this competition had been ruinous to the parties concerned. The firm of W. Duke, Sons and Company which, according to its president, was worth only about $250,000 in 1885, was worth $7,500,000 in 1889.5 Certainly the leading concern found the profits enormous, despite the great outlays for competitive purposes.

Having effected a monopolistic position the American Tobacco Company sought to maintain this position by entering into agreements for the exclusive use of the best cigarette machines; in fact, the possibility of acquiring exclusive control over these

1 221 U. S. 156.

2 Transcript of Record in United States v. American Tobacco Company (no. 660), vol. IV, p. 335.

3 Ibid., p. 337. During the ten years prior to 1890 the business of making cigarettes was revolutionized through the introduction of patented machines (Original Petition in United States v. American Tobacco Company, p. 13), and this, no doubt, is a partial explanation of the ability of one company to gather to itself such a large percentage of the country's business.

Original Petition in United States v. American Tobacco Company, p. 14. Transcript of Record in United States v. American Tobacco Company (no. 660), vol. IV, pp. 334, 337

machines was one of the inducements to the formation of the company. The importance of machinery in the manufacture of cigarettes is made clear by a report of the Commissioner of Labor. In 1876 the labor cost of a cigarette made by hand was 96.4 cents per thousand; in 1895 for the same cigarette made by machinery it was only 8.1 cents per thousand.2 Among the best cigarette machines was the Bonsack, and the American Tobacco Company almost immediately upon its organization entered into a contract for the exclusive use during a period of three years of the cigarette machines of the Bonsack Machine Company.3 The Bonsack Company, as a part of the contract, terminated its outstanding agreements with all other manufacturers of cigarettes. This exclusive control of the Bonsack machines was, the Commissioner of Corporations believes, the principal factor in the extraordinary success of the American Tobacco Company from 1890 to 1895.4 Toward the close of 1895, however, the Bonsack Company, by adverse court decisions, was deprived of its exclusive rights to the most important parts of the machine, and as a result the American Tobacco Company lost the advantage of this artificial prop. The American Tobacco Company likewise secured possession of the patents on the Allison machine, and was thus able to prevent its use by its competitors. Other patents and machines in considerable number were acquired by the American Tobacco Company after its organization, the purpose in some cases being to utilize these patents and machines, in other cases to prevent their utilization by competitors.

In addition to the endeavor to maintain its position by monopolizing the machinery for the manufacture of cigarettes, the cigarette trust employed another policy, a policy which it continued throughout its whole career. This was the acquisition, at high prices if necessary, of its most vigorous competitors. Cigarette companies in considerable numbers were acquired

1 Report on the Tobacco Industry, part I, p. 64.

2 Thirteenth Annual Report of the Commissioner of Labor (1898), p. 73. 3 Report on the Tobacco Industry, part I, pp. 67, 266.

4 Ibid., part I, p. 266.

after 1890, as a means of retaining the monopolistic position originally attained.1 The plants thus acquired were generally closed; and the brands, though sometimes utilized, were usually withdrawn. Frequently the owners of the plants acquired were compelled to sign an agreement not to reënter the tobacco business again for a number of years.3

The next trust in the tobacco industry was formed in the plug branch. By the purchase of the National Tobacco Works in 1891 the American Tobacco Company had acquired several popular plug brands. In 1893, Mr. James B. Duke, president of the American Tobacco Company, endeavored to engineer a combination of plug tobacco concerns. Not proving successful in this, the American Tobacco Company in 1894 began an aggressive campaign for the control of the plug business. As a part of the competitive warfare, prices were cut below cost. The principal brand made use of in this fight was appropriately termed "Battle Ax." In 1891 this brand had retailed at 50 cents per pound; in 1894 the price was reduced to 30 cents.6 This policy of price cutting was accompanied by an advertising campaign, which was pushed most vigorously in the territory of the leading competitors. In some sections, indeed, agents of the American Tobacco Company presented every man they met with a free sample of "Battle Ax." By such means, the American Tobacco Company, aided as it was by the advantages enjoyed through its control of the cigarette trade, was able to increase its sales of plug tobacco from 9,000,000 pounds in 1894 to 38,000,000 pounds in 1897; and its proportion of the total production from 5.6 per cent to 20.9 per cent.7

1 For an account of the cigarette concerns acquired from 1890-1904, see Report on the Tobacco Industry, part I, pp. 67-71, 79-93.

2 Brief for United States in United States v. American Tobacco Company (nos. 118, 119), p. 9.

3 Testimony of Mr. James B. Duke before Industrial Commission, XIII,

p. 323.

4

* Original Petition in United States v. American Tobacco Company, p. 25.

This expansion of its operations, however, was expensive. During the four years from 1895 to 1898, the American Tobacco Company sustained losses on its plug business amounting to more than $3,300,000.1 This competition was ruinous, especially to the concerns unable to make up their losses in the plug branch out of the enormous profits of the cigarette branch. It was ruinous, not because competition is naturally or inevitably ruinous, but because the cigarette trust was deliberately manœuvring to force the manufacturers of plug tobacco into a combination. By early in 1898 the outside manufacturers had been brought into the proper frame of mind; they had come to favor a combination as a means of obtaining relief from the attacks on their business. The first plan for a combination fell through, however, partly because the promoters feared that the SpanishAmerican War, with its increased revenue taxes, would seriously affect the profitableness of the combination. The American Tobacco Company thereupon, in the fall of 1898, purchased two more important plug companies, and apparently was about to give its rivals another taste of cutthroat competition. These purchases undoubtedly hastened the movement for the establishment of a combination of the leading plants. By October, 1898, the definite announcement was made that a consolidation of the leading plug plants would be formed, including those owned by the American Tobacco Company. The name of the consolidated company was the Continental Tobacco Company; and it was incorporated in New Jersey on December 10, 1898, with an authorized capital of $75,000,000.2 The new plug combination embraced nearly every important navy plug concern in the country, including the firm of P. Lorillard.3 But the combination did not include the Liggett and Myers Tobacco Company, possessing the largest single plant of any plug concern. And without the Liggett and Myers plant the Continental Tobacco Company could hardly carry out its purpose, which was

Report on the Tobacco Industry, part I, p. 367.

2 Ibid., pp. 99–100.

* Ibid. For an explanation of the terms "navy" plug and "flat" plug, see Report on the Tobacco Industry, part III, pp. 45-46.

the monopolization of the plug business. This fact was clearly realized, and the attempt was consequently made to acquire this concern, though at first without success.

The inability to secure control of this company was due to the opposition of an element in its management which had planned a raid on the plug combination. In October, 1898, a syndicate, consisting of Mr. Thomas Fortune Ryan, Mr. P. A. B. Widener, and Mr. Anthony N. Brady, among others, acquired the National Cigarette and Tobacco Company, the only real rival of the American Tobacco Company in the cigarette business.1 In the same month the syndicate organized the Union Tobacco Company of America; and this company took over the stock of the National Company. In December, 1898, the Union Tobacco Company purchased 86 per cent of the stock of the Blackwell's Durham Tobacco Company, one of the leading independent smoking tobacco concerns. Early in 1899 it became known that the organizers of the Union Tobacco Company held an option on a majority of the stock of the Liggett and Myers Tobacco Company. The men who had promoted the Union Tobacco Company apparently reasoned that a powerful concern standing outside the combination would be in a position to exact a good price as a condition of joining it; and the company was clearly strong enough financially to cause great loss to the combination, should a struggle actually take place. This fact was well realized by the dominant interests in the cigarette and plug combinations, and in 1899 the Continental Tobacco Company purchased at a very high figure the Union Tobacco Company, and with it secured the Liggett and Myers concern.2 Mr. Duke testified subsequently that the purpose in buying the Union Tobacco Company was to bring into the fold the wealthy financiers who had promoted it; that the American Tobacco "crowd" was not strong enough financially.3 As a matter of fact, the men who controlled the Union Tobacco Company did shortly there

1 Report on the Tobacco Industry, part I, pp. 73-74.

2 Ibid., p. 100.

3 Transcript of Record in United States v. American Tobacco Company (no. 660), vol. IV, p. 367.