| Addyston Pipe and Steel Co. v. U.S. | ||||||
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Supreme Court of the United States |
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| Argued April 26–27, 1899 Decided December 4, 1899 |
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| Full case name | Addyston Pipe and Steel Company et al., Appts., v. United States | |||||
| Holding | ||||||
| Upheld the rule of reason doctrine regarding U.S. antitrust laws. | ||||||
| Court membership | ||||||
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| Case opinions | ||||||
| Majority | Peckham, joined by Fuller, Harlan, Gray, Brewer, Brown, Shiras, White, McKenna | |||||
| Laws applied | ||||||
| First, Fourteenth amendment, Commerce Clause | ||||||
Addyston Pipe and Steel Co. v. United States, 85 F. 271 (6th Cir. 1898), was an important case in which the United States Court of Appeals for the Sixth Circuit determined that U.S. antitrust laws, as set forth in the Sherman Antitrust Act, were to be governed by a rule of reason. The opinion was written by Chief Judge William Howard Taft (who later became President of the United States, and then Chief Justice of the United States Supreme Court). Taft's reasoning was eventually adopted by the Supreme Court as the proper interpretation of the Sherman Act.
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The defendants were pipemakers who were operating in agreement, so that when municipalities offered projects available to the lowest bidder, all companies but the one designated would overbid, thus guaranteeing the success of the designated low bidder (although it was still possible for a company outside the group to win).
The defendants asserted that this was a reasonable restraint of trade, and that the Sherman Act could not have meant to prevent such restraints.
The Sixth Circuit noted that it would be impossible for the Sherman Act to prohibit every restraint of trade, for that would even encompass employment contracts which, by their nature, restrain the employee from working elsewhere during the time that they are being paid to work for the employer. Therefore, reasonable restraints were permitted, but this would only apply if the restraint was ancillary to the main purpose of the agreement. No conventional restraint of trade can be enforced unless:
If the primary purpose is to restrain trade, then the agreement is invalid, and in this case, the restraint was direct, and therefore invalid.
This case was appeal to the Supreme Court as Addyston Pipe and Steel Company v. United States, 175 U.S. 211 (1899),[1] but in that case. the defendants did not attack the reasoning of the Sixth Circuit. Instead, they argued that the Commerce Clause of the Constitution did not empower Congress to regulate purely private agreements but instead only authorized Congress only to remove barriers to interstate commerce erected by individual states. They argued also that even if Congress possessed the authority to regulate purely private agreements, banning defendants' cartel would infringe liberty of contract because the defendants' cartel purportedly set reasonable prices. The defendants' last argument was that their cartel did not directly restrain trade but instead was simply a partial restraint that ensured the defendants merely a reasonable rate of return and thus would have been enforceable at common law.
The Court, in an opinion by Justice Peckham, rejected all three arguments and affirmed the decision below. Peckham conceded that the framers and ratifiers of the Constitution likely anticipated that the Commerce Clause would mainly authorize Congressional interdiction of state-created barriers to interstate commerce. At the same time, Peckham observed that, in some cases, purely private agreements can have the same economic impact, that is directly restrain commerce among the several states. Moreover, Peckham also held that contracts that directly restrain trade are not the sort of ordinary contracts and combinations that find shelter in liberty of contract. Finally, Peckham held that the defendants' cartel did in fact directly restrain trade Here Peckham quoted extensively from Judge Taft's opinion below, which found, as a matter of fact, that the defendant's cartel set unreasonable prices. See 85 F. 291-93. In particular, Peckham quoted Taft's finding that pipe produced by the cartel could have been produced and delivered to Atlanta for a cost, including a reasonable profit and the cost of transportation, or $17 or $18 per ton, but the cartel instead charged $24.25 per ton.