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
Supreme Court of the United States
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
PriorUnited States v. Standard Oil Co. of New Jersey, 173 F. 177 (C.C.E.D. Mo. 1909)
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), was a landmark U.S. Supreme Court decision in which the Court ruled that John D. Rockefeller's petroleum conglomerate Standard Oil had illegally monopolized the American petroleum industry and ordered the company to break itself up. [1] At the same time, the Court also held that U.S. antitrust law banned only "unreasonable" restraints on trade, an interpretation that came to be known as the "rule of reason".

Contents

History

The Standard Oil Company of Ohio established a monopoly on the oil refining industry in the United States during the 1870s. [2] At the beginning of the decade, the Cleveland-based company was already among the largest refiners in the United States, but it controlled only about four percent of the market. [2] Under the leadership of founder John D. Rockefeller, Standard Oil began acquiring other refineries in Cleveland, which was a center of the U.S. refining industry. By early 1872, it owned nearly every refinery in the city and controlled roughly 25 percent of the American oil refining market. [3] Under Rockefeller's direction, Standard Oil then began acquiring refining companies in other cities, and by 1879 it controlled more than 90 percent of the market. [4]

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.

In November 1906, the Justice Department sued Standard Oil of New Jersey for violating the Sherman Act. The action was brought under the Expediting Act in the United States circuit court for the Eastern District of Missouri. After a 15-month-long trial, the court issued its decree of dissolution in November 1909 and its opinion in December 1909.

The main issue before the Supreme 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.

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.

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), [5] written when Taft 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.

Concurrence

Justice John Marshall Harlan concurred with 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." [6] He said the following: [7] [ excessive quote ]

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 43 separate companies. Many of these have since recombined; the largest present direct descendants of Standard Oil are ExxonMobil (Standard Oil of New Jersey and Standard Oil of New York) and Chevron (Standard Oil of California). Some Standard Oil descendants merged into other companies, particularly BP, which acquired/merged with Standard Oil of Ohio and Amoco. [8] [9] [10] [11]

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

Related Research Articles

Standard Oil is the common name for a corporate trust in the petroleum industry that existed from 1882 to 1911. The origins of the trust lay in the operations of the Standard Oil Company (Ohio), which had been founded in 1870 by John D. Rockefeller. The trust was born on January 2, 1882, when a group of 41 investors signed the Standard Oil Trust Agreement, which pooled their securities of 40 companies into a single holding agency managed by nine trustees. The original trust was valued at $70 million. On March 21, 1892, the Standard Oil Trust was dissolved and its holdings were reorganized into 20 independent companies that formed an unofficial union referred to as "Standard Oil Interests." In 1899, the Standard Oil Company acquired the shares of the other 19 companies and became the holding company for the trust.

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The Sherman Antitrust Act of 1890 is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce and consequently prohibits unfair monopolies. It was passed by Congress and is named for Senator John Sherman, its principal author.

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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.

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<span class="mw-page-title-main">Trust (business)</span> Business group designed to reduce competition in a market

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it is the privilege of a trader in a free country, in all matters not contrary to law, to regulate his own mode of carrying it on according to his own discretion and choice. If the law has regulated or restrained his mode of doing this, the law must be obeyed. But no power short of the general law ought to restrain his free discretion.

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Loewe v. Lawlor, 208 U.S. 274 (1908), also referred to as the Danbury Hatters' Case, is a United States Supreme Court case in United States labor law concerning the application of antitrust laws to labor unions. The Court's decision effectively outlawed the secondary boycott as a violation of the Sherman Antitrust Act, despite union arguments that their actions affected only intrastate commerce. It was also decided that individual unionists could be held personally liable for damages incurred by the activities of their union.

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. As a result, the American Tobacco Company was split into four competitors.

Duplex Printing Press Co. v. Deering, 254 U.S. 443 (1921), is a United States Supreme Court case which examined the labor provisions of the Clayton Antitrust Act and reaffirmed the prior ruling in Loewe v. Lawlor that a secondary boycott was an illegal restraint on trade. The decision authorized courts to issue injunctions to block this practice, and any other tactics used by labor unions that were deemed unlawful restraints on trade.

Continental Television v. GTE Sylvania, 433 U.S. 36 (1977), was an antitrust decision of the Supreme Court of the United States. It overturned United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), which held that vertical restraints on the territory a product could be sold in were per se illegal. Here, the Court clarified that such non-price vertical restraints would be analyzed under the "rule of reason," allowing defendants to offer justifications for the restraint.

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), is a major US antitrust law case decided by the Supreme Court concerning the Pittsburgh firm Copperweld Corporation and the Chicago firm Independence Tube. It held that a parent company is incapable of conspiring with its wholly owned subsidiary for purposes of Section 1 of the Sherman Act because they cannot be considered separate economic entities.

<span class="mw-page-title-main">History of United States antitrust law</span>

The history of United States antitrust law is generally taken to begin with the Sherman Antitrust Act 1890, although some form of policy to regulate competition in the market economy has existed throughout the common law's history. Although "trust" had a technical legal meaning, the word was commonly used to denote big business, especially a large, growing manufacturing conglomerate of the sort that suddenly emerged in great numbers in the 1880s and 1890s. The Interstate Commerce Act of 1887 began a shift towards federal rather than state regulation of big business. It was followed by the Sherman Antitrust Act of 1890, the Clayton Antitrust Act and the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, and the Celler-Kefauver Act of 1950.

United States v. Terminal Railroad Association, 224 U.S. 383 (1912), is the first case in which the United States Supreme Court held it a violation of the antitrust laws to refuse to a competitor access to a facility necessary for entering or remaining in the market. In this case a combination of firms was carrying out the restrictive practice, rather than a single firm, which made the conduct susceptible to challenge under section 1 of the Sherman Act rather than under the heightened standard of section 2 of that act. Even so, the case was brought under both sections.

<i>United States v. Motion Picture Patents Co.</i>

United States v. Motion Picture Patents Co., 225 F. 800, was a civil antitrust prosecution overlapping to some extent with the issues in the decision in the Supreme Court's Motion Picture Patents case. After the trial court found that the defendants violated §§ 1 and 2 of the Sherman Act by establishing control over "trade in films, cameras, projecting machines, and other accessories of the motion picture business," by their patent licensing practices and other conduct, they appealed to the Supreme Court. After the Supreme Court's 1917 decision in Motion Picture Patents Co. v. Universal Film Manufacturing Co., however, the parties dismissed the appeal by stipulation in 1918 that the decision had made the defendants' appeal futile.

References

Citations

  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. 1 2 Granitz & Klein (1996), p. 1.
  3. ↑ Granitz & Klein (1996), pp. 1–2.
  4. ↑ Granitz & Klein (1996), p. 2.
  5. ↑ Addyston Pipe and Steel Company v. United States ,85F.271(6th Cir.1898).
  6. ↑ See, e.g., United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898).
  7. ↑ Supreme Court Reporter: U.S. Reports. Cases Argued and Determined. Vol. 31. West Publishing Company. 1911. p. 525.
  8. ↑ "The Sherman Anti-Trust Act and Standard Oil" (PDF). University of Houston. January 9, 2014.
  9. ↑ "A Guide to the ExxonMobil Historical Collection". University of Texas at Austin . Retrieved January 9, 2014.
  10. ↑ Ibrahim, Youssef M. (August 12, 1998). "British Petroleum Is Buying Amoco in $48.2 Billion Deal". The New York Times. ISSN   0362-4331 . Retrieved September 20, 2022.
  11. ↑ "Sohio name being replaced by BP after 63 years". UPI. Retrieved September 20, 2022.

Works cited

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