United States v. E. C. Knight - Further Readings

Appellant
United States
Appellees
E. C. Knight Company, American Sugar Refining Company, Franklin Sugar Company, Spreckels Sugar Refining Company, Delaware Sugar House
Appellant's Claim
That lower courts erred in finding that the named sugar refining companies had not violated the Sherman Anti-Trust Act of 1890.
Chief Lawyers for Appellant
Lawrence Maxwell Jr., U.S. Solicitor General; Richard Olney, U.S. Attorney General
Chief Lawyers for Appellees
John E. Parsons, John G. Johnson
Justices for the Court
Henry Billings Brown, David Josiah Brewer, Stephen Johnson Field, Melville Weston Fuller (writing for the Court), Horace Gray, George Shiras, Jr., EdwardDouglass White
Justices Dissenting
John Marshall Harlan I (Howell Edmunds did not participate)
Place
Washington, D.C.
Date of Decision
21 January 1895
Decision
The Court upheld the Sherman Anti-Trust Act, but found that it did not applyto manufacturing.
Significance
The decision severely weakened the Sherman Anti-Trust Act of 1890, the federal government's first attempt to limit the power of industrial monopolies.
The Age of Monopolies
Throughout the late 1800s, scores of industrial and agricultural tycoons formed trusts, whose combined wealth allowed them to squeeze smaller competitorsout of business. With so much power settling into the hands of monopolies, the potential for abuse by those willing to manipulate the national economy toenrich private fortunes was enormous. Public concern was sufficient for Congress to act, in spite of the federal government's reluctance to interfere withcorporate interests. On 2 July 1890, Congress passed the Sherman Anti-- Trust Act, making illegal, "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade." On the surface, the act seemed to empower the federal government to protect free competition in businessfrom monopolies. The vague wording of the bill and the lack of a governmentalagency to enforce its terms ensured that any action brought against corporations under the bill would wind up in the courts.
One such consolidation occurred in 1892 when four Philadelphia-area sugar refineries--the E. C. Knight Company, Franklin Sugar Company, Spreckels Sugar Refining Company, and Delaware Sugar House--agreed to sell out to the AmericanSugar Refining Company in exchange for American Company stock. By combining these plants, 90 percent of all sugar sold in the U.S. would suddenly be refined by a single company. The U.S. government immediately filed suit against E.C. Knight and the other companies of the "Sugar Trust," attempting to cancelthe stock transfer on grounds that it violated the Sherman Anti-Trust Act. The government action argued that ultimate aim of the stock transfer was to completely control the price of sugar throughout the country.
Both the government suit and a subsequent appeal were dismissed by the Circuit Court for the Eastern District of Pennsylvania. As far as the Pennsylvaniacourt was concerned, the American Sugar Company merger had taken place withinstate lines and had no bearing on the Sherman Act's rules regarding interstate commerce. U.S. Attorney General, Richard Olney, continued the suit by appealing to the U.S. Supreme Court on 24 October 1894. Again, the "Sugar Trust"was victorious.
Manufacturing And Transportation
On 21 January 1895 the Court upheld the ruling against the government. ChiefJustice Fuller wrote that the terms of the Sherman Act were not written to directly prohibit monopolies, but were instead aimed at preventing corporationsfrom monopolizing commerce. The Court echoed the Pennsylvania court's separation of manufacturing and transportation as two distinct processes. The refining of sugar was a manufacturing process and not in itself an act connected to the product's transportation across state lines. Because all of the companies named in the Knight case were located in one state, Pennsylvania, the Sherman Act's prohibitions against restraint of interstate trade did not apply. The government, wrote Fuller, had not proven that there was any conspiracy bythe refineries to interfere with interstate commerce.
Only Justice Harlan dissented. Harlan believed that the government was the only body powerful enough to protect the American people against corporations gaining control of aspects of everyday life, such as the price of basic foods.Unlike his colleagues, he believed that the "Sugar Trust" did constitute anunlawful combination in restraint of free trade. The American Sugar RefiningCompany admitted it was in the business of selling its product throughout theUnited States, not just in Pennsylvania. Harlan believed the company shouldtherefore be subject to national, not just state, regulations.
Harlan noted that the majority opinion had not found the Sherman Act to be unconstitutional, but he felt that the decision defeated the main reason the law had been passed. His analysis would accurately reflect the fate of other labor cases passed before the Court in the coming years. The Knight decision's narrow interpretation of the Sherman Act rendered the law toothless until decisions in the Addyston Pipe & Steel Co. v. United States (1899) and Northern Securities Co. v. United States (1904) cases resurrected the act as an effective instrument of federal regulation.
Related Cases

• Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899).
  
• Northern Securities Co. v. United States, 193 U.S. 197 (1904).

Robber Barons
A handful of mid- to late nineteenth century railroad owners and executives became known as the "robber barons" because of the illegal and monopolistic practices they used to control the U.S. railroads. Without laws and regulations, the robber barons largely did what they wanted, amassing wealth and power through their railroad monopolies.
Jay Gould, perhaps the most notorious of the robber barons, took over the Erie Railroad by bribing politicians, issuing fraudulent stock, launching pricewars, influencing the gold market, and deceiving business associates. Other key robber barons included Edward Henry Harriman and James J. Hill who competed with each other for control of the Northwest railroads. Harriman's Union Pacific eventually seized the Pacific Coast, while Hill's Great Northern Railway connected the North and West. The two briefly formed the monopoly NorthernSecurities Company, which the U.S. Supreme Court broke up in 1904.
Around the turn of the century, the robber barons' dominance began to wane because of growing public anger over ticket price fluctuations and stock marketdips stemming from the railroads. During this period, the federal governmentdealt a series of blows to the robber barons in the form of laws, regulations, and court orders, which led to policies that curbed the formation of monopolies.
Sources
West's Encyclopedia of American Law Minneapolis, Minnesota: West Publishing, 1998.
Samuel Insull Trial
During the business boom of the early 1900s, Samuel Insull forged a corporateempire of utility companies. At the height of his utility reign, his companies operated in 39 of the 48 states. To make the empire work, one of his electric companies would sell properties to another Insull company at a profit, with the second company then selling to a third.
On 2 October 1934, Insull and 15 others were charged through Utility Securities Company with fraudulently scheming to induce investors nationwide to buy the common stock of Corporation Securities Company at inflated prices. The Insull-controlled companies were also charged with maintaining a fictitious market for the common stock, thus misleading prospective investors as to its value. To carry out the scheme, the defendants had used the mail to send circulars to those they intended to defraud. On 24 November 1934, Insull and the others were found not guilty.
The revelations of the trial produced immediate legislation, such as the Federal Securities and Exchange Act, to regulate the issuance of securities, control stock exchanges, and protect the unwary from holding companies. The trialprovides insight into a time when a stock manipulator could build a pyramidof commercial wealth, making as much as a million dollars a week, at the expense of thousands of small investors doomed innocently to ruin.
Sources
Knappman, Edward W., ed. Great American Trials. Detroit, MI: Visible Ink Press, 1994.