Standard Oil Co. of New Jersey v. United States

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Standard Oil Co. of New Jersey v. United States
Seal of the United States Supreme Court.svg
Argued March 14–16, 1910
Reargued January 12–17, 1911
Decided May 15, 1911
Full case nameThe Standard Oil Company of New Jersey, et al. v. The United States
Citations221 U.S. 1 ( more )
31 S. Ct. 502; 55 L. Ed. 619; 1911 U.S. LEXIS 1725
Case history
PriorAppeal from the Circuit Court of the United States for the Eastern District of Missouri
Holding
The Standard Oil Company conspired to restrain the trade and commerce in petroleum, and to monopolize the commerce in petroleum, in violation of the Sherman Act, and was split into many smaller companies. Several individuals, including John D. Rockefeller, were fined.
Court membership
Chief Justice
Edward D. White
Associate Justices
John M. Harlan  · Joseph McKenna
Oliver W. Holmes Jr.  · William R. Day
Horace H. Lurton  · Charles E. Hughes
Willis Van Devanter  · Joseph R. Lamar
Case opinions
MajorityWhite, joined by McKenna, Holmes, Day, Lurton, Hughes, Van Devanter, Lamar
Concur/dissentHarlan
Laws applied
Sherman Antitrust Act

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), [1] was a case in which the Supreme Court of the United States found Standard Oil Co. of New Jersey guilty of monopolizing the petroleum industry through a series of abusive and anticompetitive actions. The Court's remedy was to divide Standard Oil into several geographically separate and eventually competing firms.

A legal case is a dispute between opposing parties resolved by a court, or by some equivalent legal process. A legal case may be either civil or criminal law. In each legal case there is an accuser and one or more defendants.

Supreme Court of the United States Highest court in the United States

The Supreme Court of the United States is the highest court in the federal judiciary of the United States. Established pursuant to Article III of the U.S. Constitution in 1789, it has original jurisdiction over a narrow range of cases, including suits between two or more states and those involving ambassadors. It also has ultimate appellate jurisdiction over all federal court and state court cases that involve a point of federal constitutional or statutory law. The Court has the power of judicial review, the ability to invalidate a statute for violating a provision of the Constitution or an executive act for being unlawful. However, it may act only within the context of a case in an area of law over which it has jurisdiction. The court may decide cases having political overtones, but it has ruled that it does not have power to decide nonjusticiable political questions. Each year it agrees to hear about one hundred to one hundred fifty of the more than seven thousand cases that it is asked to review.

Standard Oil Co. Inc. was an American oil producing, transporting, refining, and marketing company and monopoly. Established in 1870 by John D. Rockefeller and Henry Flagler as a corporation in Ohio, it was the largest oil refinery in the world of its time. Its history as one of the world's first and largest multinational corporations ended in 1911, when the U.S. Supreme Court ruled, in a landmark case, that Standard Oil was an illegal monopoly.

Contents

Facts

By the 1880s, Standard Oil was using its large market share of refining capacity to begin integrating backward into oil exploration and crude oil distribution and forward into retail distribution of its refined products to stores and, eventually, service stations throughout the United States. Standard Oil allegedly used its size and clout to undercut competitors in a number of ways that were considered "anti-competitive," including underpricing and threats to suppliers and distributors who did business with Standard's competitors.

The government sought to prosecute Standard Oil under the Sherman Antitrust Act. The main issue before the Court was whether it was within the power of Congress to prevent one company from acquiring numerous others through means that might have been considered legal in common law, but still posed a significant constraint on competition by mere virtue of their size and market power, as implied by the Antitrust Act.

Over a period of decades, the Standard Oil Company of New Jersey had bought up virtually all of the oil refining companies in the United States. Initially, the growth of Standard Oil was driven by superior refining technology and consistency in the kerosene products (i.e., product standardization) that were the main use of oil in the early decades of the company's existence. The management of Standard Oil then reinvested their profits in the acquisition of most of the refining capacity in the Cleveland area, then a center of oil refining, until Standard Oil controlled the refining capacity of that key production market.

United States Federal republic in North America

The United States of America (USA), commonly known as the United States or America, is a country composed of 50 states, a federal district, five major self-governing territories, and various possessions. At 3.8 million square miles, the United States is the world's third or fourth largest country by total area and is slightly smaller than the entire continent of Europe's 3.9 million square miles. With a population of over 327 million people, the U.S. is the third most populous country. The capital is Washington, D.C., and the largest city by population is New York City. Forty-eight states and the capital's federal district are contiguous in North America between Canada and Mexico. The State of Alaska is in the northwest corner of North America, bordered by Canada to the east and across the Bering Strait from Russia to the west. The State of Hawaii is an archipelago in the mid-Pacific Ocean. The U.S. territories are scattered about the Pacific Ocean and the Caribbean Sea, stretching across nine official time zones. The extremely diverse geography, climate, and wildlife of the United States make it one of the world's 17 megadiverse countries.

By 1870, Standard Oil was producing about 10% of the United States output of refined oil. [2] This quickly increased to 20% through the elimination of the competitors in the Cleveland area.

Judgment

As in the case against American Tobacco , which was decided the same day, the Court concluded that these facts were within the power of Congress to regulate under the Commerce Clause. The Court recognized that "taken literally," the term "restraint of trade" could refer to any number of normal or usual contracts that do not harm the public. The Court embarked on a lengthy exegesis of English authorities relevant to the meaning of the term "restraint of trade." Based on this review, the Court concluded that the term "restraint of trade" had come to refer to a contract that resulted in "monopoly or its consequences." The Court identified three such consequences: higher prices, reduced output, and reduced quality.

United States v. American Tobacco Company, 221 U.S. 106 (1911), was a decision by the United States Supreme Court, which held that the combination in this case is one in restraint of trade and an attempt to monopolize the business of tobacco in interstate commerce within the prohibitions of the Sherman Antitrust Act of 1890. The company was split into 4 competitors.

The Commerce Clause describes an enumerated power listed in the United States Constitution. The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to discuss each of these three areas of commerce as a separate power granted to Congress. It is common to see the individual components of the Commerce Clause referred to under specific terms: the Foreign Commerce Clause, the Interstate Commerce Clause, and the Indian Commerce Clause.

Contract agreement having a lawful object entered into voluntarily by multiple parties

A contract is a legally-binding agreement which recognises and governs the rights and duties of the parties to the agreement. A contract is legally enforceable because it meets the requirements and approval of the law. An agreement typically involves the exchange of goods, services, money, or promises of any of those. In the event of breach of contract, the law awards the injured party access to legal remedies such as damages and cancellation.

The Court concluded that a contract offended the Sherman Act only if the contract restrained trade "unduly"that is if the contract resulted in one of the three consequences of monopoly that the Court identified. A broader meaning, the Court suggested, would ban normal and usual contracts, and would thus infringe liberty of contract. The Court endorsed the rule of reason enunciated by William Howard Taft in Addyston Pipe and Steel Company v. United States (1899), [3] written when the latter had been Chief Judge of the United States Court of Appeals for the Sixth Circuit. The Court concluded, however, that the behavior of the Standard Oil Company went beyond the limitations of this rule.

The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law. While some actions like price-fixing are considered illegal per se, other actions, such as possession of a monopoly, must be analyzed under the rule of reason and are only considered illegal when their effect is to unreasonablyrestrain trade. William Howard Taft, then Chief Judge of the Sixth Circuit Court of Appeals, first developed the doctrine in a ruling on Addyston Pipe and Steel Co. v. United States, which was affirmed in 1899 by the Supreme Court. The doctrine also played a major role in the 1911 Supreme Court case Standard Oil Company of New Jersey v. United States.

William Howard Taft 27th president of the United States

William Howard Taft was the 27th president of the United States (1909–1913) and the tenth chief justice of the United States (1921–1930), the only person to have held both offices. Taft was elected president in 1908, the chosen successor of Theodore Roosevelt, but was defeated for re-election by Woodrow Wilson in 1912 after Roosevelt split the Republican vote by running as a third-party candidate. In 1921, President Warren G. Harding appointed Taft to be chief justice, a position in which he served until a month before his death.

United States Court of Appeals for the Sixth Circuit

The United States Court of Appeals for the Sixth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:

Justice John Marshall Harlan concurred in the result, but dissented against adopting a "rule of reason". It departed from precedent that the Sherman Act banned any contract that restrained trade "directly." [4] He said the following: [5]

I concur in holding that the Standard Oil Company of New Jersey and its subsidiary companies constitute a combination in restraint of interstate commerce and that they have attempted to monopolize and have monopolized parts of such commerce,—all in violation of what is known as the anti-trust act of 1890. 26 Stat. at L. 209, chap. 647, U. S. Comp. Stat. 1901, p. 3200. The evidence in this case overwhelmingly sustained that view and led the circuit court, by its final decree, to order the dissolution of the New Jersey corporation and the discontinuance of the illegal combination between that corporation and its subsidiary companies.

In my judgment, the decree below should have been affirmed without qualification. But the court, while affirming the decree, directs some modifications in respect of what it characterizes as 'minor matters.' It is to be apprehended that those modifications may prove to be mischievous. In saying this, I have particularly in view the statement in the opinion that 'it does not necessarily follow because an illegal restraint of trade or an attempt to monopolize or a monopolization resulted from the combination and the transfer of the stocks of the subsidiary corporations to the New Jersey corporation that a like restraint of trade or attempt to monopolize or monopolization would necessarily arise from agreements between one or more of the subsidiary corporations after the transfer of the stock by the New Jersey corporation.' Taking this language, in connection with other parts of the opinion, the subsidiary companies are thus, in effect, informed—unwisely, I think—that although the New Jersey corporation, being and illegal combination, must go out of existence, they may join in an agreement to restrain commerce among the states if such restraint be not 'undue.'

In order that my objections to certain parts of the court's opinion may distinctly appear, I must state the circumstances under which Congress passed the anti-trust act, and trace the course of judicial decisions as to its meaning and scope. This is the more necessary because the court by its decision, when interpreted by the language of its opinion, has not only upset the long-settled interpretation of the act but has usurped the constitutional functions of the legislative branch of the government. With all due respect for the opinions of others, I feel bound to say that what the court has said may well cause some alarm for the integrity of our institutions. Let us see how the matter stands.

All who recall the condition of the country in 1890 will remember that there was everywhere, among the people generally, a deep feeling of unrest. The nation had been rid of human slavery, fortunately, as all now feel,—but the conviction was universal that the country was in real danger from another kind of slavery sought to be fastened on the American people; namely, the slavery that would result from aggregations of capital in the hands of a few individuals and corporations controlling, for their own profit and advantage exclusively, the entire business of the country, including the production and sale of the necessaries of life. Such a danger was thought to be then imminent, and all felt that it must be met firmly and by such statutory regulations as would adequately protect the people against oppression and wrong. Congress, therefore, took up the matter and gave the whole subject the fullest consideration. All agreed that the national government could not, by legislation, regulate the domestic trade carried on wholly within the several states; for power to regulate such trade remained with, because never surrendered by, the states. But, under authority expressly granted to it by the Constitution, Congress could regulate commerce among the several states and with foreign states. Its authority to regulate such commerce was and is paramount, due force being given to other provisions of the fundamental law, devised by the fathers for the safety of the government and for the protection and security of the essential rights inhering in life, liberty, and property.

Guided by these considerations, and to the end that the people, so far as interstate commerce was concerned, might not be dominated by vast combinations and monopolies, having power to advance their own selfish ends, regardless of the general interests and welfare, Congress passed the anti-trust act of 1890...

[... Harlan J quoted from United States v. Trans-Missouri Freight Association , 166 U.S. 290 (1897) and continued...]

I have made these extended extracts from the opinion of the court in the Trans-Missouri Freight Case in order to show beyond question that the point was there urged by counsel that the anti-trust act condemned only contracts, combinations, trusts, and conspiracies that were in unreasonable restraint of interstate commerce and that the court in clear and decisive language met that point. It adjudged that Congress had in unequivocal words declared that 'every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of commerce among the several states,' shall be illegal, and that no distinction, so far as interstate commerce was concerned, was to be tolerated between restraints of such commerce as were undue or unreasonable, and restraints that were due or reasonable. With full knowledge of the then condition of the country and of its business, Congress determined to meet, and did meet, the situation by an absolute, statutory prohibition of 'every contract, combination in the form of trusts or otherwise, in restraint of trade or commerce.' Still more; in response to the suggestion by able counsel that Congress intended only to strike down such contracts, combinations, and monopolies as unreasonably restrained interstate commerce, this court, in words too clear to be misunderstood, said that to so hold was 'to read into the act by way of judicial legislation, an exception not placed there by the lawmaking branch of the government.' 'This,' the court said, as we have seen, 'we cannot and ought not to do.'

Justice John Marshall Harlan

Significance

The Standard Oil case resulted in the breakup of Standard Oil into 34 separate companies. Many of these have since recombined, particularly into ExxonMobil. [6] [7]

While some scholars have agreed with Justice Harlan's characterization of prior case law, others have agreed with William Howard Taft, who concluded that despite its different verbal formulation, Standard Oil's "rule of reason" was entirely consistent with prior case law.[ citation needed ]

See also

Notes

  1. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911). PD-icon.svg This article incorporates public domain material from this U.S government document.
  2. Dudley Dillard, Economic Development of the North Atlantic Community (Englewoods Cliffs, N.J.:Prentice-Hall, 1967), pp. 409-410
  3. Addyston Pipe and Steel Company v. United States ,85F.271(6th Cir.1898).
  4. See, e.g., United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898).
  5. Supreme Court Reporter: U.S. Reports. Cases Argued and Determined. 31. West Publishing Company. p. 525.
  6. "The Sherman Anti-Trust Act and Standard Oil" (PDF). University of Houston. January 9, 2014.
  7. "A Guide to the ExxonMobil Historical Collection". University of Texas at Austin . Retrieved January 9, 2014.

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References

Predatory Price Cutting: The Standard Oil (N. J.) Case John S. McGee Journal of Law and Economics Vol. 1, (October, 1958), pp. 137–169