Thursday, December 27, 2012

1912 - Kellogg's Corn Flakes Accused of Violating Anti-trust Laws

The Salt Lake Tribune
December 27 1912

Attorney General Wickersham Accuses the
Kellogg Company of Violating
Anti-Trust Law
Patented Carton Mere Subterfuge

Government Asks for an Injunction to Prevent Breakfast Food
Manufacturers Controlling Prices

Detroit Mich. Dec 26--The Kellogg Toasted Corn Flake company is alleged to be violating the Sherman law in a petition in equity filed in the district court here today by order of Attorney General Wickersham to settle for all time the extent to which a manufacturer may control retail prices.

The company and its officers, engaged in the manufacture of Kellogg's toasted corn flakes, are charged with fixing prices at which the flakes are sold to retailer and consumer, preventing competition which would reduce the price to the public, and creating a monopoly by concentrating the entire interstate traffic in this commodity in the hands of jobbers and retailers who abide by price agreements exacted by the defendants. It is alleged that the defendants have invoked the patent laws through the use of a patented carton in which the flakes are packed as a "mere subterfuge and device" to escape the provisions of the Sherman law.  The government asks for injunctions to prevent the company, its officers and agents from controlling the price of the breakfast food after it leaves the hands of the manufacturer.

The following are named as defendants:
Kellogg Toasted Corn Flakes company and Will K. Kellogg, Wilfred C. Kellogg and Andrew Rose, respectively president, secretary and general manager of the company, all of Battle Creek, Mich.

The suit is regarded by the government as of vast importance because of its bearing on the right of a manufacturer to control prices to the consumer.

It is alleged that the company sells only to jobbers, refusing absolutely to deal directly with consumers or with the retail trade.  The commodity, according to the petition, is old to jobbers at a uniform price under an agreement that the jobbers will sell to retailers at a price fixed by the defendants.  The defendants are charged with strictly enforcing the agreement of sale by absolutely refusing to deal with any jobber who fails to maintain the specified price.

Attempt to Fix Prices
It is pointed out that a notice signed by the Kellogg Corn Flake company is printed on a flap of the carton in which the flakes are packed, stating that the package and its contents are sold conditionally with the distinct understanding that they will not be retailed at less than 10 cents per package.  For selling at less than that price the vendor is warned by the notice that he is liable to prosecution as an infringer of patent rights.

The government insists that the patented carton can afford no protection in attempting to fix resale prices by retailers because it is alleged:
The carton was not in fact patentable as all of its material features had long been in use before the patent was issued; the value of the carton is negligible, the contents alone being desired by the purchaser, the defendants having sold the cartons and contents to jobbers, have parted with all title to the commodities and have no legal right to fix prices at which the retail purchaser from the jobber shall be required to sell; and lastly, "its use is resorted to as a mere subterfuge and device to avoid the provisions" of the antitrust law and the provisions of law controlling such contracts.  

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