Standard Oil Co. of New Jersey v.

United States

Case Background

In an attempt to quiet some of the noise over concerns over a few corporations having too much
power, the U.S. Congress passed the Sherman Antitrust Act in 1890. The Act allowed the
government to investigate and break up monopolies in particular industries. A monopoly is when
one person or enterprise controls an entire good or service, such as oil, or internet access. The
'trust' in the law refers to large businesses that have a monopoly over the market. Congress
passed the law in order to prevent monopolies from using their position to crush legitimate
competition. In other words, if a company is successful because of their superior product or
business practices, that is totally fine. But if a company controls the market because they use
their position to prevent other businesses from trying to be successful, that is not okay. This is
because such monopolies hurt consumers, by preventing competition. The ultimate purpose of
the Act was to protect consumers.

About standard oil company

Standard Oil Company, was, as you might guess, an oil company. Standard Oil was founded by
John Rockefeller and became the leading company in the oil market, controlling nearly 90% of
the United States' oil. Standard Oil became so successful in large part because of the use of
horizontal mergers, which is when two companies producing the same goods or services join
together. Basically, Standard Oil ate up most of the other companies in the oil business.

In 1899, Standard Oil became Standard Oil Company of New Jersey, because New Jersey had
laws more favorable to large companies. In a few years, Standard Oil controlled more than 90%
of the oil in the world! That's a lot of oil.

Facts of the Case

In 1909, the United States sued Standard Oil for violating the Sherman Antitrust Act. The United
States accused Standard Oil of discriminatory and unfair practices, unfair methods of
competition (such as price-cutting, spying on competitors' businesses, and creating bogus
independent businesses); dividing the United States into districts, and 'limiting the operation of
subsidiary corporations as to such districts so that competition in the sale of petroleum products
between such corporations had been entirely eliminated and destroyed.' The Supreme Court
needed to decide whether these actions fell under the Sherman Antitrust Act's prohibition of
'contract or conspiracy in restraint of trade' or 'monopolization.'

Standard Oil protested first over the issue of jurisdiction and disagreed with the classification of
their actions as monopolizing. The lower courts agreed with the government and found Standard
Oil guilty of violating the Act. Standard Oil of New Jersey appealed to the United States
Supreme Court.

Issues
Whether the standard oil company violated the Sherman act?

Arguments by Petitioner

Frank Kellogg, attorney+

The argument was made that Rockefeller had obtained his monopoly through under the table
deals, threats, and bribery with railroad companies in order to receive special rates that would
give his companies and an unsurmountable advantage over his competitors in the regions. In
response to the defense that the profits and success were a result of efficiency and superior
businiess tactics, Kellogg would argue that the savings from the efficient processes were never
reflected in the price of the oil and thus never handed down to the consumer. Consequently,
Rockefeller and his partners continue to make extremely high profits.

Arguments by Respondent

John C. Milburn, attorney

The respondent argued that Rockefeller sought out favorable business agreements that any other
business had the ability to do and never did so with the intention of driving others out of the
market. Milburn also showed that consumers were not hurt in the process and that prices
remained the same for decades, creating a stable market which can not be said for many of the
combinations and trusts being formed at the time.

Witnesses such as Rockefeller’s business partner, Henry Flagler, would testify that there were no
illegal components of the deals made with railroad companies and that other companies received
the same rebates. The case was made that Rockefeller and the Standard Oil Co. made an
appealing offer to the railroad companies by offering continuous and exclusive business
partnerships.

Decision

On May 15,1911, Chief Justice Edward White writing for the majority, the Court ruled that
Standard Oil and the listed 33 companies affiliated were participating in “restrain[t to] trade and
commerce in petroleum.” After thorough examination of English contextual meaning of
reasonable restraint, Chief Justice White determined that the attempt to control the free market
through fixed pricing, combinations/monopolies, and seeking to eliminate competition would be
classified as unreasonable and thus illegal.

Significance / Impact

Standard Oil was ordered to be broken into 33 different companies. Those who held stock in the
companies were given a percent of stock in each of the companies equal to their hold in Standard
Oil. As a result, Rockefeller’s wealth nearly tripled. His pre-ruling holdings in Standard Oil was
approximately 25% of the company. Rockefeller received 25% of the stock in each of the 33
companies which saw his wealth increase from $300 million to $900 million shortly after the
ruling.

The business impact of the Court ordered dismantling of the oil empire underwent several
changes and is representative of some of the major oil corporations in existence today.

 Standard Oil of New Jersey – renamed Exxon, now part of ExxonMobil.

 Standard Oil of New York – renamed Mobil, now part of ExxonMobil.
 Standard Oil of California – renamed Chevron
  Standard Oil of Indiana – renamed Amoco (American Oil Co.) – now part of BP.
 Continental Oil Company – now part of ConocoPhillips.
 Standard Oil of Ohio – acquired by BP in 1987.
 The Ohio Oil Company – renamed Marathon Oil Company.
 South Penn Oil Co. – renamed Pennzoil, now part of Shell.
 Chesebrough Manufacturing – now part of Unilever, this company took the by-products
of the oil refining and reused them to make petroleum jelly a.k.a. vaseline.

United States v. American Tobacco Co.

United States v. American Tobacco Co. was a landmark antitrust case in the United States,
decided by the Supreme Court in 1911. The case marked a significant victory for the federal
government in its efforts to combat anticompetitive practices by large corporations, and it set a
precedent for future antitrust cases.

SC held that the combination in this case is one in restraint of trade and an attempt to monopolize
the business of tobacco in interstate commerce within the prohibitions of the Sherman Antitrust
Act of 1890.

History/ facts

The American Tobacco Company was organized in 1890 by James B. Duke, a member of W.
Duke, Sons and Company of Durham. At the time, the Dukes' Durham operation was already a
leader in the emerging business of manufactured cigarettes. The new American Tobacco
Company, capitalized at $25 million, allied five large existing tobacco companies, one of which
was W. Duke, Sons and Company. From the moment it was formed, the American Tobacco
Company possessed a near monopoly on sales of manufactured cigarettes. the company had
extended its monopoly in the United States to most other branches of the tobacco industry,
including plug tobacco, smoking tobacco, snuff, and little cigars.
In 1907, the federal government filed a lawsuit against the American Tobacco Company,
alleging that it had violated the Sherman Antitrust Act by engaging in anticompetitive practices,
including monopolizing the tobacco industry and conspiring to fix prices.

Legal proceedings in the federal court

The antitrust case was commenced in a New York federal court. After that court held that the
American Tobacco Company was guilty of violating the Sherman Act, but found other
defendants not guilty of any violation, ordering the breakup of the American Tobacco Company
into several smaller companies. both the United States and the American Tobacco Company
appealed.

Supreme court

The company appealed to the Supreme Court, which upheld the lower court's decision in a 9-0
ruling. The court held that the American Tobacco Company had engaged in anticompetitive
practices, and its monopoly power had harmed competition and consumers. The court also ruled
that the company's actions violated the Sherman Antitrust Act, which prohibits monopolization
and restraint of trade.

The Supreme Court effectively extended the finding of guilt to all parties and remanded the
matter to a federal circuit court in New York, with instructions to dissolve the combination.

Impact

n order to promote market competition, four firms were created from the American Tobacco
Company's assets: American Tobacco Company, R. J. Reynolds, Liggett & Myers, and Lorillard.
The monopoly became an oligopoly.

However, The 1911 Supreme Court decision did not end monopolistic practices among cigarette
manufacturers. By 1946 the R. J. Reynolds Tobacco Company, the American Tobacco
Company, and the Liggett and Myers Tobacco Company were once again before the Supreme
Court. The Court affirmed a conviction against them for violating the Sherman Act by unlawful
price fixing and monopolizing both the purchase of raw tobacco and the marketing of cigarettes.

Related case laws: Standard oil company of new jersey vs US

US vs Addyston Pipe & Steel Co vs United States

Addyston Pipe and Steel Co. v. United States, 175 U.S. 211 (1899), was a United States
Supreme Court case in which the Court held that for a restraint of trade to be lawful, it must be
ancillary to the main purpose of a lawful contract. A naked restraint on trade is unlawful; it is not
a defense that the restraint is reasonable.

Facts of the case

The case was brought by the federal government under the Sherman Antitrust Act of 1890,
which prohibits agreements in restraint of trade. The government argued that the defendants'
actions had harmed competition and consumers, and were therefore illegal.

This case was decided on 4th December, 1899 by chief Melville fuller.

There are six defendants who entered into combination and conspiracy among themselves by
which they agreed that there should be no compeitition between them In any of the states or
territories. Further when municipalities offered projects available to the lowest bidder, all
companies but the one designated would overbid, guaranteeing the success of the designated low
bidder if no bidder outside the group submitted a bid.

The government argued that some antitrust violations, such as bid rigging, were such egregious
anti-competitive acts that they were always illegal (the so-called "per se" rule). The defendants
asserted that it was a reasonable restraint of trade and that the Sherman Act could not have meant
to prevent such restraints.

Contentions

The defendants, including Addyston Pipe & Steel Co., argued that their actions were legal and
were simply part of normal business practices. They claimed that they were simply trying to
maximize profits and that their actions had not harmed competition or consumers.

Judgement
Court of Appeals (6th Circuit)
The United States Court of Appeals for the Sixth Circuit noted that it would be impossible for
the Sherman Act to prohibit every restraint of trade. Therefore, reasonable restraints were
permitted, but this would only apply if the restraint was ancillary to the main purpose of the
agreement.

If the primary purpose is to restrain trade, then the agreement is invalid, and in this case, the
restraint was direct and therefore invalid.

Supreme Court
This case was appealed to the supreme court as Addyston pipe and Steel company vs united
states. However, on appeal, the defendants did not attack the reasoning of the sixth circuit.

Instead they argued on the following three points:

-commerce clause of the constitution did not empower congress to regulate private agreement.

- 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.

- their cartel did not directly restrain trade.

-the court, in an opinion by justice Peckham, rejected all three arguments and affirmed the
decision below.

-Peckham conceded that the framers 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.

-Finally, Peckham held that the defendants’ cartel did in fact directly restrain trade
United States v. E. I. du Pont de Nemours & Co.

AKA cellophane case

LEGAL SIGNIFICANCE: This subsequent case law has rise to a popular theory of The
Cellophane paradox (also the Cellophane trap or Cellophane fallacy or gingerbread paradox)
which describes a type of incorrect reasoning used in market regulation methods.
The paradox arises when a firm sells a product with few substitutes, which in turn allows the
firm to increase the price of that product. The original reason was that as the price increases, the
product will reach a point where it begins to attract more and more substitutes.

Facts

E. I. du Pont de Nemours and Company (du Pont) (defendant) was a manufacturer of cellophane,
a clear-film material used as a wrapping for foodstuffs and other items. du Pont owned a patent
for a moisture-proof version of cellophane that was especially desirable as a wrapping material.
du Pont’s cellophane was very popular, and the United States (plaintiff) brought an action
against du Pont, claiming that du Pont had monopolized the market for cellophane. du Pont
argued that the government’s alleged product market was too narrow and that cellophane was a
product within the larger market for flexible packaging materials (e.g., aluminum foil, waxed
paper, and Saran wrap). During the relevant period, du Pont maintained a share of 75 percent of
cellophane production in the United States but less than 20 percent of flexible-packaging
production. The district court accepted du Pont’s market definition after determining that
consumers had treated other flexible packaging materials as functional substitutes for cellophane.
Based on this definition, the district court determined that du Pont did not possess a monopoly in
violation of § 2 of the Sherman Act. The government appealed.

Issues

1. Does duPont have power, without regard to competitive forces, to raise price of cellophane
either directly or by limiting production, deteriorating quality, or by any other means?

2. Does duPont have power alone to exclude competition in the production and sale of
cellophane?
Answer:

No.

Judgement

The Court held that because the facts established that cellophane was functionally
interchangeable with other flexible packaging materials, there was no cellophane market separate
and distinct from other flexible packaging materials. Additionally, The Court agreed with du
Pont that when evaluated at the monopolistic price observed in the early 1950s, there were many
substitutes for cellophane and, therefore, du Pont had only a small share of the market for
wrapping materials (i.e., it possessed little or no market power).

The majority of the Court held that cellophane was not a market in itself but part of the greater
"flexible wrapping paper" market, and since it comprised only twenty percent of this latter
market it could not possibly "monopolize" it. The dissenting three judges, on the other hand,
thought that cellophane was its own market and further urged that DuPont was guilty of
monopolizing the "cellophane market."