United States v. E. C. Knight

Throughout the late 1800s, scores of industrial and agricultural tycoons formed trusts, whose combined wealth allowed them to squeeze smaller competitors out of business. With so much power settling into the hands of monopolies, the potential for abuse by those willing to manipulate the national economy to enrich private fortunes was enormous. Public concern was sufficient for Congress to act, in spite of the federal government's reluctance to interfere with corporate 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 business from monopolies. The vague wording of the bill and the lack of a governmental agency 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 American Sugar 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 cancel the 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 Pennsylvania court was concerned, the American Sugar Company merger had taken place within state 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.