Plaintiff
U.S. Justice Department
Defendant
Standard Oil of New Jersey
Plaintiff's Claim
That Standard Oil was a monopoly and engaged in a conspiracy of restraint oftrade.
Chief Lawyer for Plaintiff
Frank B. Kellogg
Chief Defense Lawyer
John G. Milburn
Justices for the Court
William Rufus Day, John Marshall Harlan I, Oliver Wendell Holmes, Charles Evans Hughes, Joseph Rucker Lamar, Horace Harmon Lurton, Joseph McKenna, WillisVan Devanter, Edward Douglass White
Justices Dissenting
None
Place
Washington, D.C.
Date of Decision
15 May 1911
Decision
Sustained the circuit court dissolution order.
Significance
Although the Court sustained the order to dissolve Standard Oil by introducing the "rule of reason," the Court opened the door to future collaboration inrestraint of trade among the component companies.
A Challenge to Monopolies
Since the passage of the Sherman Anti-Trust Act in 1890, complaints had mounted that Standard Oil of New Jersey violated the letter and spirit of the lawby unfair practices. By 1906, federal authorities estimated that Standard Oilcontrolled over 80 percent of the oil production in the United States. By charging excessive prices for products for which there was no competition, suchas kerosene, and by undercutting its competition in other areas, the companyhad driven many smaller firms out of business. Furthermore, the company offered rebates to oil producing companies if they would ship oil through Standard Oil pipelines, rather than those of competitors. Majority ownership of thefirm was held by a small group, led by John D. Rockefeller. Monopolistic practices had allowed the firm to reap excessive profits. From an original investment of about $70 million, stockholders had earned profits over a fifteen year period of more than $700 million.
Despite evidence uncovered by journalists and executives of oil companies destroyed by Standard Oil, attorneys general during the Cleveland, Harrison, McKinley, and Roosevelt administrations refused to act against the corporation.Theodore Roosevelt's second administration, faced with mounting public outrage over the company's practices, finally ordered an investigation and prosecution of Standard Oil. The case was continued by Roosevelt's successor, WilliamHoward Taft, who had made a promise to vigorously prosecute the StandardOil case during his presidential campaign in 1908.
On 20 November 1909, after eight months of argument, the St. Louis Federal Circuit Court handed down its opinion. Judge Walter Henry Sanborn, representinga unanimous court, ruled that many of the companies controlled by Jersey Standard were potentially competitive, yet the holding company gave the corporation the absolute power to prevent competition. The effect of the stock transfers from the component companies to Standard Oil of New Jersey was a direct and substantial restriction of interstate commerce.
The court also ruled that Standard Oil of New Jersey had tried to monopolizethe petroleum industry. The judge ruled that "the combination and conspiracyin restraint of trade and its continued execution which have been found to exist, constitute illegal means by which the conspiring defendants combined, and still combine and conspire to monopolize a part of interstate and international commerce." However, in directing how the corporation should be dissolved, the court ruled that holdings in the subsidiary companies could be distributed to shareholders in Standard Oil in proportion to their holdings in that company. As a result, the small group which controlled Standard Oil would, inturn, become owners of the companies into which the larger firm was dissolved. That arrangement would almost guarantee little competition among the resulting companies. An alternative plan proposed dividing the ownership of the subsidiary firms among the major owners thus fostering competition among the successor firms. However, such an arrangement was not seriously considered.
Standard Oil of New Jersey appealed the decision to the Supreme Court. The federal case brought by Frank Kellogg was assisted by President William HowardTaft's attorney general, George Wickersham, who presented the government's arguments. However, neither Kellogg nor Wickersham challenged the stock transfer provision of the circuit court ruling. In the decision of this case, Justice Day introduced the "rule of reason" which stated effectively that if a restraint of trade was ancillary to a legitimate business transaction, and reasonable in the eyes of the contracting parties and the general public, then suchrestraints of trade were not illegal. In effect, the rule of reason allowedthe courts to judge certain monopolies reasonable. Justice White argued thatto strictly enforce the Sherman Act against all agreements in restraint of trade would bring the economy to a halt, by attacking all sorts of contracts which were the essence of trade.
The resulting companies which emerged from the dissolution of Standard Oil ofNew Jersey included major gasoline suppliers such as Exxon, Amoco, Mobil, Chevron, Standard of California, and others. The decision in United States v. Standard Oil, while hailed as a victory for anti-trust prosecution, ineffect stood as a judicial endorsement of the movement toward extremely largecorporate monopolies. These monopolies could then dominate a whole sector ofthe economy through restraining agreements and common ownership.
Related Cases
U.S. Justice Department
Defendant
Standard Oil of New Jersey
Plaintiff's Claim
That Standard Oil was a monopoly and engaged in a conspiracy of restraint oftrade.
Chief Lawyer for Plaintiff
Frank B. Kellogg
Chief Defense Lawyer
John G. Milburn
Justices for the Court
William Rufus Day, John Marshall Harlan I, Oliver Wendell Holmes, Charles Evans Hughes, Joseph Rucker Lamar, Horace Harmon Lurton, Joseph McKenna, WillisVan Devanter, Edward Douglass White
Justices Dissenting
None
Place
Washington, D.C.
Date of Decision
15 May 1911
Decision
Sustained the circuit court dissolution order.
Significance
Although the Court sustained the order to dissolve Standard Oil by introducing the "rule of reason," the Court opened the door to future collaboration inrestraint of trade among the component companies.
A Challenge to Monopolies
Since the passage of the Sherman Anti-Trust Act in 1890, complaints had mounted that Standard Oil of New Jersey violated the letter and spirit of the lawby unfair practices. By 1906, federal authorities estimated that Standard Oilcontrolled over 80 percent of the oil production in the United States. By charging excessive prices for products for which there was no competition, suchas kerosene, and by undercutting its competition in other areas, the companyhad driven many smaller firms out of business. Furthermore, the company offered rebates to oil producing companies if they would ship oil through Standard Oil pipelines, rather than those of competitors. Majority ownership of thefirm was held by a small group, led by John D. Rockefeller. Monopolistic practices had allowed the firm to reap excessive profits. From an original investment of about $70 million, stockholders had earned profits over a fifteen year period of more than $700 million.
Despite evidence uncovered by journalists and executives of oil companies destroyed by Standard Oil, attorneys general during the Cleveland, Harrison, McKinley, and Roosevelt administrations refused to act against the corporation.Theodore Roosevelt's second administration, faced with mounting public outrage over the company's practices, finally ordered an investigation and prosecution of Standard Oil. The case was continued by Roosevelt's successor, WilliamHoward Taft, who had made a promise to vigorously prosecute the StandardOil case during his presidential campaign in 1908.
On 20 November 1909, after eight months of argument, the St. Louis Federal Circuit Court handed down its opinion. Judge Walter Henry Sanborn, representinga unanimous court, ruled that many of the companies controlled by Jersey Standard were potentially competitive, yet the holding company gave the corporation the absolute power to prevent competition. The effect of the stock transfers from the component companies to Standard Oil of New Jersey was a direct and substantial restriction of interstate commerce.
The court also ruled that Standard Oil of New Jersey had tried to monopolizethe petroleum industry. The judge ruled that "the combination and conspiracyin restraint of trade and its continued execution which have been found to exist, constitute illegal means by which the conspiring defendants combined, and still combine and conspire to monopolize a part of interstate and international commerce." However, in directing how the corporation should be dissolved, the court ruled that holdings in the subsidiary companies could be distributed to shareholders in Standard Oil in proportion to their holdings in that company. As a result, the small group which controlled Standard Oil would, inturn, become owners of the companies into which the larger firm was dissolved. That arrangement would almost guarantee little competition among the resulting companies. An alternative plan proposed dividing the ownership of the subsidiary firms among the major owners thus fostering competition among the successor firms. However, such an arrangement was not seriously considered.
Standard Oil of New Jersey appealed the decision to the Supreme Court. The federal case brought by Frank Kellogg was assisted by President William HowardTaft's attorney general, George Wickersham, who presented the government's arguments. However, neither Kellogg nor Wickersham challenged the stock transfer provision of the circuit court ruling. In the decision of this case, Justice Day introduced the "rule of reason" which stated effectively that if a restraint of trade was ancillary to a legitimate business transaction, and reasonable in the eyes of the contracting parties and the general public, then suchrestraints of trade were not illegal. In effect, the rule of reason allowedthe courts to judge certain monopolies reasonable. Justice White argued thatto strictly enforce the Sherman Act against all agreements in restraint of trade would bring the economy to a halt, by attacking all sorts of contracts which were the essence of trade.
The resulting companies which emerged from the dissolution of Standard Oil ofNew Jersey included major gasoline suppliers such as Exxon, Amoco, Mobil, Chevron, Standard of California, and others. The decision in United States v. Standard Oil, while hailed as a victory for anti-trust prosecution, ineffect stood as a judicial endorsement of the movement toward extremely largecorporate monopolies. These monopolies could then dominate a whole sector ofthe economy through restraining agreements and common ownership.
Related Cases
- Puerto Rico v. Shell Co., 302 U.S. 253 (1937).
- United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377(1956).
- Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2nd Cir. 1979).
Further Readings
- Bringhurst, Bruce. Antitrust and the Oil Monopoly, The Standard Oil Cases, 1890-1911. Westport, CT: Greenwood Press, 1979.
- Miller, Arthur S. The Supreme Court and American Capitalism. New York: Free Press, 1968.
- Nash, Gerald P. United States Oil Policy, 1890-1914. Pittsburgh: University of Pittsburgh Press, 1968.
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