Standard Oil Co. of New Jersey v. United States
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| Standard Oil Co. of New Jersey v. United States | |||||||||||||
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| Argued March 14 – 16, 1910 Reargued January 12 – 17, 1911 Decided May 15, 1911 |
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| 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 Douglass White Associate Justices: John Marshall Harlan, Joseph McKenna, Oliver Wendell Holmes, Jr., William R. Day, Horace Harmon Lurton, Charles Evans Hughes, Willis Van Devanter, Joseph Rucker Lamar |
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| Case opinions | |||||||||||||
| Majority by: White Joined by: McKenna, Holmes, Day, Lurton, Hughes, Van Devanter, Lamar Concurrence by: Harlan |
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| Laws applied | |||||||||||||
| Sherman Anti-Trust Act | |||||||||||||
Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), was a case in which the Supreme Court of the United States found Standard Oil 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 competing firms.
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[edit] Facts
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 most of the refining capacity in the Cleveland area, then a center of oil refining, until they controlled the refining capacity of that key production market. They then used that market dominance to obtain favorable transportation rates from the railroads, putting pressure on the smaller and less organized refining capacity throughout the northeast, compelling their competition to sell out or face bankruptcy, until Standard controlled most of the refining capacity of the U.S. By the 1880s, Standard Oil was using their stranglehold on 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 U.S. Standard 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 the 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 Anti-trust Act.
[edit] Opinion of the Court
The Court found this was within the power of Congress 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. Thus, the Court concluded that a contract only offended the Sherman Act if it restrained trade "unduly," that is, resulted in one of the three consequences of monopoly that it identified. A broader meaning, the Court suggested, would ban normal and usual contracts and thus infringe liberty of contract. In so doing, the Court endorsed the rule of reason enunciated by William Howard Taft in Addyston Pipe and Steel Company v. United States, 85 F. 271 (6th Cir. 1898), written when the latter had been Chief Judge of the United States Court of Appeals for the Sixth Circuit. However, the Court found that the behavior of the Standard Oil Company went beyond the limitations of this rule.
Justice John Marshall Harlan wrote a separate opinion, concurring in the result, but dissenting in the Court's adoption of the rule of reason. Among other things, he argued that the "rule of reason" was a departure from prior predecents holding that the Sherman Act banned any contract that restrained trade "directly." See, e.g., United States v. Joint Traffic Ass'n, 171 U.S. 505 (1898). 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.
[edit] External link
[edit] Sources
McConnell Brue: Economics, Sixteenth Edition
[edit] Bibliography
Albert H. Walker, The Unreasonable Obiter Dicta of Chief Justice White in the Standard Oil Case: A Critical Review (1911)
William Howard Taft, The Antitrust Acts And The Supreme Court (1914)
Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division, 74 Yale L. J. 775 (1965) (Part I)
William Letwin, Law and Economic Policy in America (1965)
James May, Antitrust in the Formative Era: Political and Economic Theory in Constitutional and Antitrust Analysis, 1888-1918, 50 Ohio State L. J. 258 (1989)
William Page, Ideological Conflict and the Origins of Antitrust Policy, 66 Tulane L. Rev. 1 (1991)
Rudolph Peritz, Competition Policy in America, 1888-1992 (1996)
Alan J. Meese, Liberty and Antitrust in the Formative Era, 79 Boston University L. Rev. 1 (1999)
Alan J. Meese, Price Theory, Competition, and the Rule of Reason, 2003 Illinois L. Rev. 77
