Five-minute digest
Standard Oil Co. of New Jersey v. United States
Summary
In 1870 John D. Rockefeller, his brother William, Henry M. Flagler and others organized the Standard Oil Company of Ohio to refine crude oil. Over the next decade the company acquired or allied itself with most of its competitors, and in 1882 the stockholders of some forty companies placed their shares with nine trustees, creating the Standard Oil Trust. After the Ohio courts ordered the trust dissolved in 1892, its holdings were reorganized, and in 1899 the Standard Oil Company of New Jersey became a holding company owning the stock of the principal refining, pipeline and marketing companies. In 1906 the United States sued under the Sherman Antitrust Act of 1890, which declares illegal every contract, combination or conspiracy in restraint of interstate trade and makes it a misdemeanor to monopolize or attempt to monopolize any part of that trade. The federal circuit court in St. Louis found violations of both sections and ordered the New Jersey company to give up control of 37 subsidiaries. The government argued that the combination was formed and maintained by railroad rebates, local price cutting, control of pipelines, espionage and the acquisition of rivals, giving it command of most of the country's refining. Standard Oil answered that its growth reflected efficiency and lawful purchases, that the corporate forms it used were authorized by state law, and that the act could not be read to forbid every combination of property, which would make ordinary business unlawful. On 15 May 1911 the Court affirmed the decree with minor modifications, eight to one on the reasoning. Chief Justice White traced the common law of monopoly and contracts in restraint of trade, from English statutes against forestalling and engrossing to American decisions, and concluded that Congress, by using terms the common law had long applied with a standard of reason, meant the courts to apply that standard. The act therefore forbids undue or unreasonable restraints, judged by the rule of reason in light of the statute's purposes. Applying it, White found that the 1899 combination, read with the history of the enterprise, showed an intent to exclude others and dominate the trade. Justice Harlan agreed that Standard Oil had violated the act and must be dissolved, but objected strongly that the Court had inserted the word unreasonable into a statute that contained no such limit, contrary to earlier decisions, and had thereby taken on a legislative role. The library text gives an excerpt of White's opinion, through his discussion of the rule of reason and earlier cases, and an excerpt of Harlan's separate opinion; footnotes are omitted. The decree was carried out later in 1911, distributing the subsidiaries' shares to Standard Oil's stockholders and producing thirty-four separate companies. Congress responded to concerns about the rule of reason by passing the Clayton Act and the Federal Trade Commission Act in 1914, and the rule of reason remains the general standard of American antitrust law.
Top Lessons
Reading a broad statute
The Sherman Act says every contract in restraint of trade is illegal. White reasons that Congress used common-law terms that had always carried a standard of reason; Harlan answers that every means every and that only Congress may add an exception. The dispute is a classic study in statutory interpretation.
The history behind the law of monopoly
White's opinion surveys centuries of English and American law on monopoly, forestalling and engrossing, showing how older rules about grain and food markets shaped a modern statute aimed at industrial combinations.
Freedom of contract and freedom of trade
White argues that the act protects the freedom to contract by forbidding only undue restraints, since a ban on every combination would destroy the right to make agreements at all. Harlan recalls that Congress feared concentrations of capital controlling the necessaries of life.
Agreeing on the result, differing on the reason
Harlan joined in dissolving Standard Oil yet wrote a sharp separate opinion. His concern was less the outcome than the rule announced, which he feared would weaken the act in future cases. The opinion shows that the reasoning of a decision can matter as much as its result.
Verified Quotes
“Thus, not specifying but indubitably contemplating and requiring a standard, it follows that it was intended that the standard of reason which had been applied at the common law, and in this country, in dealing with subjects of the character embraced by the statute, was intended to be the measure used for the purpose of determining whether, in a given case, a particular act had or had not brought about the wrong against which the statute provided.”
Frequently cited
“And, of course, when the second section is thus harmonized with and made as it was intended to be the complement of the first, it becomes obvious that the criteria to be resorted to in any given case for the purpose of ascertaining whether violations of the section have been committed is the rule of reason, guided by the established law and by the plain duty to enforce the prohibitions of the act, and thus the public policy which its restrictions were obviously enacted to subserve.”
“In other words, that freedom to contract was the essence of freedom from undue restraint on the right to contract.”
“I concur in holding that the Standard Oil Company of New Jersey and its subsidiary companies constitute a combination in restraint of interstate commerce, and that they have attempted to monopolize and have monopolized parts of such commerce—all in violation of what is known as the Anti-Trust Act of 1890.”
Frequently cited
“The Nation had been rid of human slavery—fortunately, as all now feel—but the conviction was universal that the country was in real danger from another kind of slavery sought to be fastened on the American people, namely, the slavery that would result from aggregations of capital in the hands of a few individuals and corporations controlling, for their own profit and advantage exclusively, the entire business of the country, including the production and sale of the necessaries of life.”
“This is the more necessary because the court by its decision, when interpreted by the language of its opinion, has not only upset the long-settled interpretation of the act, but has usurped the constitutional functions of the legislative branch of the Government.”
Medical Lens
An antitrust case about the oil industry, corporate combination and statutory interpretation; it raises no medical or psychological questions.