Standard Oil Co. of New Jersey v. United States
The Anti-Trust Act of July 2, 1890, c. 647, 26 Stat. 209, should be construed in the light of reason; and, as so construed, it prohibits all contracts and combination which amount to an unreasonable or undue restraint of trade in interstate commerce.
The combination of the defendants in this case is an unreasonable and undue restraint of trade in petroleum and its products moving in interstate commerce, and falls within the prohibitions of the act as so construed.
Where one of the defendants in a suit, brought by the Government in a Circuit Court of the United States under the authority of § 4 of the Anti-Trust Act of July 2, 1890, is within the district, the court, under the authority of § 5 of that act, can take jurisdiction and order notice to be served upon the nonresident defendants.
Allegations as to facts occurring prior to the passage of the Anti-Trust Act may be considered solely to throw light on acts done after the passage of the act.
[p2] The debates in Congress on the Anti-Trust Act of 1890 show that one of the influences leading to the enactment of the statute was doubt as to whether there is a common law of the United States governing the making of contracts in restraint of trade and the creation and maintenance of monopolies in the absence of legislation.
While debates of the body enacting it may not be used as means for interpreting a statute, they may be resorted to as a means of ascertaining the conditions under which it was enacted.
The terms "restraint of trade," and "attempts to monopolize," as used in the Anti-Trust Act, took their origin in the common law, and were familiar in the law of this country prior to and at the time of the adoption of the act, and their meaning should be sought from the conceptions of both English and American law prior to the passage of the act.
The original doctrine that all contracts in restraint of trade were illegal was long since so modified in the interest of freedom of individuals to contract that the contract was valid if the resulting restraint was only partial in its operation, and was otherwise reasonable.
The early struggle in England against the power to create monopolies resulted in establishing that those institutions were incompatible with the English Constitution.
At common law, monopolies were unlawful because of their restriction upon individual freedom of contract and their injury to the public and at common law, and contracts creating the same evils were brought within the prohibition as impeding the due course of, or being in restraint of, trade.
At the time of the passage of the Anti-Trust Act, the English rule was that the individual was free to contract and to abstain from contracting and to exercise every reasonable right in regard thereto, except only as he was restricted from voluntarily and unreasonably or for wrongful purposes restraining his right to carry on his trade. Mogul Steamship Co. v. McGregor, 1892, A.C. 25.
A decision of the House of Lords, although announced after an event, may serve reflexly to show the state of the law in England at the time of such event.
This country has followed the line of development of the law of England, and the public policy has been to prohibit, or treat as illegal, contracts, or acts entered into with intent to wrong the public and which unreasonably restrict competitive conditions, limit the right of individuals, restrain the free flow of commerce, or bring about public evils such as the enhancement of prices.
[p3] The Anti-Trust Act of 1890 was enacted in the light of the then existing practical conception of the law against restraint of trade, and the intent of Congress was not to restrain the right to make and enforce contracts, whether resulting from combinations or otherwise, which do not unduly restrain interstate or foreign commerce, but to protect that commerce from contracts or combinations by methods, whether old or new, which would constitute an interference with, or an undue restraint upon, it.
The Anti-Trust Act contemplated and required a standard of interpretation, and it was intended that the standard of reason which had been applied at the common law should be applied in determining whether particular acts were within its prohibitions.
The word "person" in § 2 of the Anti-Trust Act, as construed by reference to § 8 thereof, implies a corporation as well as an individual.
The commerce referred to by the words "any part" in § 2 of the Antitrust Act, as construed in the light of the manifest purpose of that act, includes geographically any part of the United States and also any of the classes of things forming a part of interstate or foreign commerce.
The words "to monopolize" and "monopolize" as used in § 2 of the Anti-Trust Act reach every act bringing about the prohibited result.
Freedom to contract is the essence of freedom from undue restraint on the right to contract.
In prior cases where general language has been used, to the effect that reason could not be resorted to in determining whether a particular case was within the prohibitions of the Anti-Trust Act, the unreasonableness of the acts under consideration was pointed out, and those cases are only authoritative by the certitude that the rule of reason was applied; United States v. Trans-Missouri Freight Association, 166 U.S. 290, and United States v. Joint Traffic Association, 171 U.S. 505, limited and qualified so far as they conflict with the construction now given to the Anti-Trust Act of 1890.
The application of the Anti-Trust Act to combinations involving the production of commodities within the States does not so extend the power of Congress to subjects dehors its authority as to render the statute unconstitutional. United States v. E. C. Knight Co., 156 U.S. 1, distinguished.
The Anti-Trust Act generically enumerates the character of the acts prohibited and the wrongs which it intends to prevent, and is susceptible of being enforced without any judicial exertion of legislative power.
The unification of power and control over a commodity such as pe- [p4] troleum and its products by combining in one corporation the stocks of many other corporations aggregating a vast capital gives rise, of itself, to the prima facie presumption of an intent and purpose to dominate the industry connected with, and gain perpetual control of the movement of, that commodity and its products in the channels of interstate commerce in violation of the Anti-Trust Act of 1890, and that presumption is made conclusive by proof of specific acts such as those in the record of this case.
The fact that a combination over the products of a commodity such as petroleum does not include the crude article itself does not take the combination outside of the Anti-Trust Act when it appears that the monopolization of the manufactured products necessarily controls the crude article.
Penalties which are not authorized by the law cannot be inflicted by judicial authority.
The remedy to be administered in case of a combination violating the Anti-Trust Act is two-fold: first, to forbid the continuance of the prohibited act, and second, to so dissolve the combination as to neutralize the force of the unlawful power.
The constituents of an unlawful combination under the Anti-Trust Act should not be deprived of power to make normal and lawful contracts, but should be restrained from continuing or recreating the unlawful combination by any means whatever, and a dissolution of the offending combination should not deprive the constituents of the right to live under the law, but should compel them to obey it.
In determining the remedy against an unlawful combination, the court must consider the result, and not inflict serious injury on the public by causing a cessation of interstate commerce in a necessary commodity.
173 Fed. Rep. 177, modified and affirmed.
Statement of the CaseEdit
THE facts, which involve the construction of the Sherman Anti-Trust Act of July 2, 1890, and whether defendants had violated its provisions, are stated in the opinion.
Argument for AppellantsEdit
Mr. John G. Johnson and Mr. John G. Milburn, with whom Mr. Frank L. Crawford was on the brief, for appellants:
The acquisition in 1899 by the Standard Oil Company of New Jersey of the stocks of the other companies was not a combination of independent enterprises. All of the [p5] companies had the same stockholders who in the various corporate organizations were carrying on parts of the one business. The business as a whole belonged to this body of common stockholders who, commencing prior to 1870, had as its common owners gradually built it up and developed it. The properties used in the business, in so far as they had been acquired by purchase, were purchased from time to time with the common funds for account of the common owners. For the most part the plants and properties used in the business in 1899 had not been acquired by purchase but were the creation of the common owners. The majority of the companies, and the most important ones, had been created by the common owners for the convenient conduct of branches of the business. The stocks of these companies had always been held in common ownership. The business of the companies and their relations to each other were unchanged by the transfer of the stocks of the other companies to the Standard Oil Company of New Jersey.
The Sherman Act has no application to the transfer to, or acquisition by, the Standard Oil Company of New Jersey of the stocks of the various manufacturing and producing corporations, for the reason that such transfer, and acquisition were not acts of interstate or foreign commerce, nor direct and immediate in their effect on interstate and foreign commerce, nor within the power of Congress to regulate interstate and foreign commerce. United States v. Knight, 156 U.S. 1; In re Greene, 52 Fed. Rep. 104.
The contracts, combinations and conspiracies of § 1 of the Sherman Act are contracts and combinations which contractually restrict the freedom of one or more of the parties to them in the conduct of his or their trade, and combinations or conspiracies which restrict the freedom of others than the parties to them in the conduct of their business, when these restrictions directly affect interstate [p6] or foreign trade. Purchases or acquisitions of property are not in any sense such contracts, combinations or conspiracies. Contracts in restraint of trade are contracts with a stranger to the contractor's business, although in some cases carrying on a similar one, which wholly or partially restricts the freedom of the contractor in carrying on that business as otherwise he would. Holmes, J., in Northern Securities Case, 193 U.S. 404; Pollock on Contracts, 7th ed., p. 352. Such contracts are invalid because of the injury to the public in being deprived of the restricted party's industry and the injury to the party himself by being precluded from pursuing his occupation. Oregon Steam Navigation Co. v. Windsor, 20 Wall. 68; Alger v. Thacker, 19 Pick. 54. Combinations in restraint of trade are combinations between two or more persons whereby each party is restricted in his freedom in carrying on his business in his own way. Hilton v. Eckersley, 6 El. & Bl. 47.
The cases in which combinations have been held invalid at common law as being in restraint of trade deal with executory agreements between independent manufacturers and dealers whereby the freedom of each to conduct his business with respect to his own interest and judgment is restricted. Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. St. 173; Salt Co. v. Guthrie, 35 Oh. St. 666; Arnot v. Pittston and Elmira Coal Co., 68 N.Y. 558; Craft v. McConoughy, 79 Illinois, 346; India Bagging Association v. Kock, 14 La. Ann. 168; Vulcan Powder Co. v. Hercules Powder Co., 96 California, 510; Oil Co. v. Adoue, 83 Texas, 650; Chapin v. Brown, 83 Iowa, 156.
The cases in which trusts and similar combinations have been held invalid as combinations in restraint of trade all deal with devices employed to secure the centralized control of separately owned concerns. People v. North River Sugar Refining Co., 54 Hun, 354; S. C., 121 N.Y. 582; State v. Nebraska Distilling Co., 29 Nebraska, 700; Poca- [p7] hontas Cokce Co. v. Powhatan Coal & Coke Co., 60 W. Va. 508.
A conspiracy in restraint of trade is a combination of two or more to deprive others than its members of their freedom in conducting their business in their own way by acts having that effect. A combination to boycott is a sufficient illustration.
The Sherman Act did not enlarge the category of contracts, combinations and conspiracies in restraint of trade. United States v. Trans-Missouri Association, 166 U.S. 290; United States v. Joint Traffic Association, 171 U.S. 505; Addyston Pipe & Steel Co. v. United States, 175 U.S. 211; Montague v. Lowry, 193 U.S. 38; Swift v. United States, 196 U.S. 375; Loewe v. Lawlor, 208 U.S. 274; Continental Wall Paper Co. v. Voight & Sons, 212 U.S. 227, all involved combinations, either expressly by the terms of the agreements constituting them, restricting the freedom of each of the members in the conduct of his or its business, or in the nature of conspiracies to restrict the freedom of others than their members in the conduct of their business. The Northern Securities Case, 193 U.S. 197, was a combination which, through the device adopted, restricted the freedom of the stockholders of two independent railroad companies in the separate and independent control and management of their respective companies.
Purchases and acquisitions of property do not restrain trade. The freedom of a trader is not restricted by the sale of his property and business. The elimination of competition, so far as his property and business is concerned, is not a restraint of trade, but is merely an incidental effect of the exercise of the fundamental civil right to buy and sell property freely. The acquisition of property is not made illegal by the fact that the purchaser intends thereby to put an end to the use of such property in competition with him. Every purchase of [p8] property necessarily involves the elimination of that property from use in competition with the purchaser and, therefore, implies an intent to effect such elimination. Cincinnati Packet Co. v. Bay, 200 U.S. 179.
The transfer to, and acquisition by, the Standard Oil Company of New Jersey of the stocks of the various corporations in the year 1899 was not, and the continued ownership of those shares with the control which it confers is not, a combination or conspiracy in restraint of trade declared to be illegal by the first section of the Sherman Act. Because of the common ownership of the different properties in interest they were not independent or competitive but they were the constituent elements of a single business organism. This situation was not affected by the transfer to the Standard Oil Company of New Jersey, who had the same body of stockholders and had controlled the separate companies and continued to control them through the Standard Oil Company of New Jersey. These considerations differentiate the present case from the Northern Securities Case, 193 U.S. 197. The Northern Securities Case dealt with a combination of diverse owners of separate and diverse properties which were bound by the law of their being as quasi-public corporations invested with public franchises to continue separate, independent and competitive, creating through the instrumentality of the holding company a common control which would necessarily prevent competitive relations.
There is no warrant for the assumption that corporations engaged in the same business are naturally or potentially competitive regardless of their origin or ownership. If the same body of men create several corporations to carry on a large business for the economical advantages of location or for any other reason, and the stocks of these corporations are all in common ownership, it is a fiction to say that they are potentially com- [p9] petitive or that their natural relation is one of competition.
The common owners of the Standard Oil properties and business had the right to vest the properties and business in a single corporation, notwithstanding that such a transaction might tend to prevent the disintegration of the different properties into diverse ownerships. The Sherman Act does not impose restrictions upon the rights of joint owners.
The acquisitions prior to 1882 were lawful and their effect upon competition was incidental. The purpose of the trust of 1879 was to bring the scattered legal titles to the joint properties then vested in various individuals into a single trusteeship. The purpose of the Trust Agreement of 1882 was to provide a practicable trusteeship to hold the legal title to the joint properties, an effective executive management and a marketable symbol or evidence of the interest of each owner. The only question raised in the case of State v. Standard Oil Company, 49 Oh. St. 137, was whether it was ultra vires for the Standard Oil Company of Ohio to permit its stock to be held by the trustees instead of by the real owners. The method of distribution adopted on the dissolution of the trust was the only feasible plan of distribution. Each certificate-holder was given an assignment of his proportionate interest in all the companies. All being parts of the common business there was no basis for separate valuations. The value of the interest of every owner was dependent upon its being kept together as an entirety. The transaction of 1899 was practically an incorporation of the entire business by the common owners through the ownership of the Standard Oil Company of New Jersey. That was the plain purpose, object and effect of the transaction.
The first section of the Sherman Act deals directly with contracts, combinations and conspiracies in restraint of trade. The second section deals directly with monopoliz- [p10] ing and attempts to monopolize. Monopolizing does not enlarge the operation of the first section nor does its absence restrict the operation of that section.
The first section deals with entities, a contract, combination, a conspiracy; and the entities themselves are expressly declared to be illegal, and may be annulled or destroyed. The second section deals with acts.
At common law monopoly had a precise definition. Blackstone, Vol. 4, p. 160; Butchers' Union Co. v. Crescent City Co., 111 U.S. 756. Monopoly imports the idea of exclusiveness and an exclusiveness existing by reason of the restraint of the liberty of others. With the commonlaw monopoly the restraint resulted from the grant of the exclusive right or privilege. Under the Sherman Act there must be some substitute for the grant as a source of the exclusiveness and restraint essential to monopolizing. The essential element is found in the statement of Judge Jackson (In re Greene, 52 Fed. Rep. 116) that monopolizing is securing or acquiring "the exclusive right in such trade or commerce by means which prevent or restrain others from engaging therein." Exclusion by competition is not monopolizing. Pollock on Torts, 8th ed., p. 152; Mogul Case, L. R. 23 Q. B. D. 615; (1892) App. Cas. 51. Monopolizing within the act is the appropriation of a trade by means of contracts, combinations or conspiracies in restraint of trade or other unlawful or tortious acts, whereby "the subject in general is restrained from that liberty of . . . trading which he had before." In the absence of such means or agencies of exclusion, size, aggregated capital, power, and volume of business are not monopolizing in a legal sense.
Swift v. United States, 196 U.S. 375, was the case of a combination of corporations, firms and individuals separately and independently engaged in the business, together controlling nearly the whole of it, to monopolize it by certain acts and courses of conduct effective to [p11] that end when done and pursued by such a combination.
Richardson v. Buhl, 77 Michigan, 632; People v. North River Sugar Refining Co., 54 Hun, 354; State v. Standard Oil Co., 49 Oh. St. 137; State v. Distillery Co., 29 Nebraska, 700; Distilling Co. v. People, 156 Illinois, 448, and Anderson v. Shawnee Compress Co., 209 U.S. 423, rest upon special grounds and are not applicable to this case. See on the other hand, In re Greene, 52 Fed. Rep. 104, Jackson, J.; Trenton Potteries Co. v. Oliphant, 58 N. J. Eq. 507; Oakdale Co. v. Garst, 18 R.I. 484; State v. Continental Tobacco Co., 177 Missouri, 1; Diamond Match Co. v. Roeber, 106 N.Y. 473; Davis v. Booth & Co., 131 Fed. Rep. 31; Robinson v. Brick Co., 127 Fed. Rep. 804. The acquisition of existing plants or properties however extensive, though made to obtain their trade and eliminate their competition, is not a monopoly at common law or monopolizing under the Sherman Act, in the absence of the exclusion of others from the trade by conspiracies to that end or contracts in restraint of trade on an elaborate and effective scale, or other systematic, wrongful, tortious or illegal acts. When such monopolizing is present the remedy of the act is to prohibit the offending conspiracies, contracts, and illegal acts or means of exclusion, leaving the individual or corporation to pursue his or its business with the properties and plants that have been acquired or created shorn of the monopolizing elements in the conduct of the business.
The acquisition of competing plants and properties cannot be rendered unlawful by imputing to such acquisitions an intent to monopolize. The acquisition of plants and properties does not exclude anyone from the trade and therefore the intent to monopolize cannot be attributed to such acquisitions. The proposition that an acquisition of property is rendered invalid because of a collateral intent to monopolize is not sustained by the [p12] authorities relied upon to support it. Addyston Pipe Case, 85 Fed. Rep. 291, and cases there cited. The substantial acquisitions made by the owners of the Standard Oil business antedated the Sherman Act and they resulted from separate transactions extending over a long period of years. They were in all cases accretions to an existing business. They formed an insignificant part of the business as it now exists. The Sherman Act is intended to prevent present monopolizing or attempts to monopolize. Whether acquisitions made many years ago were or were not associated with an attempt to monopolize has no relation with the present attempt at monopolizing.
The Standard Oil Company of New Jersey was not monopolizing, or attempting to monopolize, or combining with anyone else to monopolize, interstate and foreign trade in petroleum and its products when this proceeding was instituted, or at any time.
The ownership of the pipe lines has not been a means of monopolizing. Substantially all of the pipe lines owned by the Standard Oil companies have been constructed by those companies. There has never been any exclusion of anyone from the oil fields either in the production of oil, or its purchase, or its storage, or its gathering or transportation by pipe lines. Ownership of the pipe lines does not give the Standard companies any advantages in dealing with the producers which are not open to others.
The decree erroneously includes and operates upon several of the appellant companies.
The sixth section of the decree is unwarranted and impracticable in various of its provisions.
It was error to deny the motion of the appellants to vacate the order permitting service upon them outside of the Eastern Division of the Eastern District of Missouri, and to set aside the service upon them of the, writs of subpcena issued thereunder; and error to overrule the pleas of the appellants to the jurisdiction of the court [p13] over them. The appellants were not residents of the Eastern District of Missouri nor were they found therein when the order was made authorizing the service of process upon them outside of the district. There was no proceeding pending in that district involving a controversy for the determination of which the appellants were necessary parties.
Mr. D. T. Watson, also for appellants:
The Government has failed to maintain the affirmative of the issue made by the pleadings. Brent v. The Bank, 10 Pet. 614; The Siren, 7 Wall. 154; United States v. Stinson, 197 U.S. 200, 205.
The transfer in 1899 to the Standard Oil Company of New Jersey of the various non-competitive properties jointly used by them as one property was not a restriction of interstate trade, or an attempt to monopolize, or a violation of the Sherman Act.
The Sherman Act permits trusts, combines, corporations and individuals to enter into and compete for interstate trade so long as they act lawfully. It does not seek to regulate the methods nor forbid those who enter into trade from doing their business in the form of a trust, corporation or combine, provided they carry it on lawfully.
The Standard Oil Company of New Jersey after 1899 might legitimately and properly compete for interstate trade, notwithstanding the combination of the group of properties gave it a great power, only provided it did not restrain such trade or by unlawful means seek to gain a monopoly contrary to the provisions of the Sherman Act.
There is nothing in this case to show that after 1899 the combination did unlawfully compete, restrict or seek to monopolize interstate trade; yet such evidence was indispensable to prove that the combination was violating the Sherman Act in 1906. See the Calumet & Hecla [p14] Case, Judge Knappen, 167 Fed. Rep. 709, 715; Judge Lurton, 167 Fed. Rep. 727, 728; Judge Gray in United States v. Reading Co., decided December 8, 1910.
There is a great difference between the Northern Securities Case and the case at bar.
On the question of potential competition, the idea of competition between properties all owned by the same persons is a novelty. The idea that properties themselves compete, and that if one man owns two or more he must compete with himself, is startling. Competition between joint owners is also novel. Fairbanks v. Leary, 40 Wisconsin, 642, 643; Whitwell v. Continental Tobacco Co., 125 Fed. Rep. 454.
Competition is the striving of two or more persons, or corporations, either individually or jointly, for one thing, i. e., trade; it is personal action; the strife between different persons. Properties do not compete. Their relative locations may more readily enable their owners to use them in competition, but of themselves and as against each other, they do not compete.
This idea makes the Sherman Act read that the same person or group of individuals shall not own and operate two or more sites for refineries or for stores or for any kind of manufactories which might be used by different owners in competition. Joint Traffic Association Case, 171 U.S. 505, 567.
The words "potential" or "naturally competitive" are not in the Sherman Act. Cascade Railroad Co. v. Superior Court, 51 Washington, 346. The rule of potential competition refers only to the ownership of the physical properties which produce the oil which goes into interstate commerce, and not to the oil itself. United States v. E. C. Knight Co., 156 U.S. 1; Northern Securities Co. v. United States, 193 U.S. 407.
The Sherman Act is a highly penal one. In a criminal prosecution under the act the degree of proof is beyond a [p15] reasonable doubt. In a civil suit under it, the degree is not so great, but the proof must be direct, plain and convincing. United States v. Trans-Missouri Freight Assn., 58 Fed. Rep. 77; Northern Securities Co. v. United States, 193 U.S. 197, 401; State v. Continental Tobacco Co., 177 Mississippi, 1.
There is a distinction between private traders and railroad companies; and see also distinction under Sherman Act between quasi-public corporations and private traders. Trans-Missouri Case, 166 U.S. 290.
The mere method in which stocks are held is not prescribed by the Sherman Act; all methods are lawful if not used to restrict trade or gain an unlawful monopoly. Under the court's ruling the effectiveness of a large business organization may, by reason of that very fact, bring it under the Sherman Act.
The decree below was not justified by the facts found by the court; or by the Sherman Act; after the court in § 5 permitted the distribution among the shareholders of the Standard Oil Company of New Jersey of the stocks held by that company, it did without lawful authority so to do, define and limit the method of that distribution; restrict the distributees in the future sale, use and disposal of their stocks; restrict the distributees in the sale, use and disposal of their properties; and in the contract relations thereafter to exist, as well as the use and disposition of the different properties in such a drastic manner as to greatly injure and destroy the value of the same and render their future profitable use practically impossible. The decree disintegrates properties built with appellants' moneys for joint use so as to create units that never before existed and compels these units separately to carry on business and compete with other units, directly contrary to the purpose of their creation. It allows the future operation and use of the refineries, pipe lines, and other properties of the appellants only under the vague and [p16] indefinite, but broad and comprehensive, terms of § 6 of the decree, by subjecting those who in the future operate them to attachment for contempt for unwittingly violating vague and indefinite terms. It prohibits appellants from engaging in all interstate commerce until the discontinuance of the operation of the illegal combination, thus inflicting a new penalty for an indefinite and uncertain period.
All of such restrictions are unauthorized by the Sherman Act, are in violation of the settled rules governing injunctions, and are contrary to the provisions of the different decrees heretofore approved by this court under the Sherman Act, and especially the one in the Northern Securities Case.
The decree authorized by the Sherman Act is wholly negative, and one that merely enjoins---stops an illegal thing in operation when the petition is filed or which then is foreseen. Lacassagne v. Chapius, 144 U.S. 124; E. C. Knight Co. Case, 156 U.S. 1, 17; Harriman v. Northern Securities Co., 197 U.S. 244, 289; Swift & Co. v. United States, 196 U.S. 375, 402; United States v. Reading Co., decided by Circuit Court of the Third Circuit, December 8, 1910.
The Sherman Act prescribes certain specific methods of relief which are exclusive of all others. Noyes on Intercorporate Relations, 2d ed., 1909, § 406; Greer, Mills & Co. v. Stoller, 77 Fed. Rep. 1, 3; Minnesota v. Northern Securities Co., 194 U.S. 48, 71; Barnet v. National Bank, 98 U.S. 555, 558; East Tennessee R. R. Co. v. Southern Tel. Co., 112 U.S. 306, 310; Farmers' Bank v. Dearing, 91 U.S. 29, 35; United States v. Union Pacific Railroad Co., 98 U.S. 569.
The decree hampers and greatly injures the value of the stock of the stockholders, though they are not parties to the bill.
A corporation, when party to a bill in equity, does rep- [p17] resent its stockholders, but only within the scope of corporate power, and not as to the individual rights of the stockholder to do with his property as he chooses. Taylor & Co. v. Southern Pacific Co., 122 Fed. Rep. 147, 153, 154. A corporation has no right to conclude or affect the right of any shareholder in respect of the ownership or incidents of his particular shares. Brown v. Pacific Mail Steamship Co., Fed. Cas. No. 2025; 5 Blatch. 525; Morse v. Bay State Gas Co., 91 Fed. Rep. 944, 946; Harriman v. Northern Securities Co., 197 U.S. 244, 288-290.
The decree follows the appellants and their properties after the dissolution.
The Sherman Act closely limits and defines the power of the court on a petition filed to give equitable relief. The petition must pray that such violations shall be enjoined or otherwise prohibited; and it is these violations of the act that the court may now enjoin, and only such violations. Past unlawful competition does not deprive parties of their right to conduct lawful competition. New Haven R. R. Case, 200 U.S. 361, 404.
The Sherman Act does not give power to the courts to strike down and disintegrate a non-competing group of physical properties used to manufacture an article of trade. These physical properties are bought and held and used under state laws; they do not enter into interstate commerce and hence are not under Federal control. New Haven R. R. Co. v. Interstate Com. Comm., 200 U.S. 361, 404; State v. Omaha Elevator Co., 75 Nebraska, 637.
The effect of the decree is ruinous. For instance, these companies jointly own 54,616 miles of pipe lines, of which the seven individual defendants and their associates built over 50,000 miles, in which they have an investment of over $61,000,000.
The decree splits up this pipe line system into eleven parts, takes away from the owners, who jointly built the pipe lines and who created the sub-companies, all control [p18] over the different sub-companies, and compels the eleven different parts to stand alone, independently of their principal and of each other, to be hostile to and to compete with their principal and with one another.
Pipe lines are never parallel but always continuous, and each line has a value which depends wholly upon its connection with other parts of the system, and whether all are used together as one whole. The carrying out of the decree would cut the pipe line system into isolated segments, prevent such use, and make the successful operation of the pipe lines impossible.
The decree would especially destroy the value of the stock of all shareholders who each had five shares or less. The stockholders on August 19, 1907, holding from one to four shares each numbered 1,157, and the stockholders owning five shares each numbered 439, out of a total number of 5,085 stockholders.
Considering the case de novo, and not on the findings of the court below, it is not true that when the petition in this case was filed in 1906, the seven individual appellants and their associates, private traders in oil, were, contrary to the provisions of the Sherman Act, carrying on a conspiracy to restrain interstate and foreign trade in oils, and to gain by illegal means a monopoly thereof.
The Federal law allowed and allows each of the individuals to compete freely for the interstate and foreign traffic in oil and its products. He may use all the weapons that his ingenuity and skill can suggest, to wage a successful warfare. His rights to compete are not limited to merely such means as are fair or reasonable, but are only limited to such as are unlawful and directly tend to the violation of the Sherman Act. The Federal law also allows and assures to each competitor whatever share, however large, of the interstate or foreign trade in oil he or they may win provided his means are not unlawful. The Sherman Act was passed to protect trade and further [p19] competition. It makes such restraint and monopoly a crime and inflicts, on conviction, severe penalties for such offense. It permits one set of competitors to purchase the property of other competitors solely to avoid further competition. The mere size of the competing corporations or combinations is immaterial.
The monopoly of a trade at common law was forbidden because, and only because, it excluded all others from practicing such trade, and seems to have been then limited to a royal grant, as, for example, giving the exclusive right to manufacture playing cards. It was and is a distinct thing from engrossing, regrating or forestalling the market, all of which were based on the prevention of artificial prices for the necessaries of life. No one of these falls under Federal jurisdiction, but each is subject to state control only.
The present litigation is between the Federal Government and certain of its citizens. The questions involved are solely the rights of these Federal citizens and the effect upon those rights of the Sherman Act, and whether these Federal citizens have violated the provisions of that act.
There was and is no such thing as a Federal crime, aside from express congressional acts, and as no such act was in existence prior to 1890, as to the matters charged in the petition, all the matters and things done by the defendants prior thereto are immaterial.
This case involves, and only involves, the question of the restraint and monopolization of interstate and foreign trade in oil in November, 1906, when the petition was filed; it does not involve any alleged restraint or monopoly of the oil industry in any of the States.
The appellants were lawfully entitled to so hold and use in interstate trade all of its combined properties.
To succeed in this case, the Government must also show that the said Standard Oil Company was then in 1906 [p20] using its power to actually restrain interstate or foreign trade in oil, or was then in 1906 excluding or attempting to exclude by illegal means others from said trade and attempting to monopolize the same, or a part thereof.
The Sherman Act does not compel private traders, however organized, to compete with each other. The character of the oil business was and is such that a great corporation was and is an economic necessity for carrying on that industry. The growth and success of the Standard Oil Company was the result of individual enterprise and the natural laws of trade. It was not the result of unlawful means, but of skill, unremitting toil, denials and hardships, and is an instance of where the continuous use for forty years of skill, labor and capital reached a great success.
To prove a violation of § 1 of the Sherman Act the Government must clearly show that when the petition was filed appellants were then actually restraining interstate trade in oil.
To prove a monopoly under § 2 of the Sherman Act, the Government must show that the appellants were, when the petition was filed, then using unlawful means to maintain their control of the industry and that the appellants were then by unlawful means excluding others from said industry.
Argument for the United StatesEdit
The Attorney General and Mr. Frank B. Kellogg, with whom Mr. Cordenio N. Severance was on the brief, for the United States:
It is immaterial that this conspiracy had its inception prior to the enactment of the Sherman Law, or that many of the rebates and discriminations granted by the railroads which enabled the defendants to monopolize the commerce in petroleum antedated the enactment of the Interstate Commerce Act; the principles of the common law applied to interstate as well as to intrastate com- [p21] merce. Western Union Telegraph Co. v. Call Pub. Co., 181 U.S. 92; Murray v. C. & N. W. R. Co., 62 Fed. Rep. 24; Interstate Com. Comm. v. B. & 0. R. Co., 145 U.S. 263; Bank of Kentucky v. Adams Express Co., 93 U.S. 174; National Lead Co. v. Grote Paint Store Co., 80 Mo. App. 247; People v. Chicago Gas Trust, 130 Illinois, 268; Richardson v. Buhl, 77 Michigan, 632; State v. Nebraska Distilling Co., 29 Nebraska, 700; Distilling & Cattle Feeding Co. v. People, 156 Illinois, 448.
From the earliest date these various corporations were held together by trust agreements which were void at common law. But whether they were void or not, the combination was a continuing one; there was no vested right by reason of the acquisition of these stocks by the trustees, and when the Sherman Act was passed the continuance of the combination became illegal. United States v. Freight Association, 166 U.S. 290, cited and approved in Waters-Pierce Oil Co. v. Texas, 212 U.S. 86; Thompson v. Union Castle Steamship Co., 166 Fed. Rep. 251; United States v. American Tobacco Co., 164 Fed. Rep. 700; Finck v. Schneider Granite Co., 86 S. W. Rep. 221; Ford v. Chicago Milk Assn., 155 Illinois, 166.
The Standard Oil Company, through various defendant subsidiary corporations is engaged in producing and purchasing crude petroleum in Pennsylvania, West Virginia, Ohio, Indiana, Illinois, Oklahoma, Kansas and California; in transporting the same by pipe lines from the States in which the same is produced into the various other States to the manufactories of the various defendants; in manufacturing the same into the products of petroleum and transporting those products, largely in the tank cars of the Union Tank Line Company (controlled by the Standard Oil Company of New Jersey) to the various marketing places throughout the United States, and in selling and disposing of the same. This clearly makes the defendants engaged in interstate commerce. Swift & Co. v. [p22] United States, 196 U.S. 375; Shawnee Compress Co. v. Anderson, 209 U.S. 423; Loewe v. Lawlor, 208 U.S. 274.
The amalgamation of the stocks of all these companies in 1899 in the Standard Oil Company of New Jersey as a holding corporation was a combination in restraint of trade within § 1 of the Sherman Act. United States v. Northern Securities Co., 193 U.S. 197; Harriman v. Northern Securities Co., 197 U.S. 244; Shawnee Compress Co. v. Anderson, 209 U.S. 423; Swift & Co. v. United States, 196 U.S. 375; Loewe v. Lawlor, 208 U.S. 274; Continental Wall Paper Co. v. Voight, 148 Fed. Rep. 939; 212 U.S. 227; Burrows v. Inter. Met. Co., 156 Fed. Rep. 389; Montague v. Lowry, 193 U.S. 38; Distilling & Cattle Feeding Co. v. People, 156 Illinois, 48; Harding v. Am. Glucose Co., 55 N. E. Rep. 577; Dunbar v. American Tel. & Teleg. Co., 79 N. E. Rep. 427; Missouri v. Standard Oil Co., 218 Missouri, 1; Merchants' Ice & Cold Storage Co. v. Rohrman, 128 S. W. Rep. 599; State v. International Harvester Co., 79 Kansas, 371; International Harvester Co. v. Commonwealth, 124 Kentucky, 543; State v. Creamery Package Mfg. Co., 126 N. W. Rep. 126.
The Northern Securities Case and other authorities cited under this head are conclusive of the proposition that this is a combination in restraint of trade. The court held that the inhibitions of the Sherman Act were not limited to those direct restraints upon trade and commerce evidenced by contracts between independent lines of railway to fix rates or to maintain rates, or manufacturing or other corporations to limit the supply or control prices; that the power of suppression of competition and therefore of restraint of trade exercised or which could be exercised by reason of stock ownership and control of the various corporations, was as much in violation of the Anti-trust Act as direct restraint by contract. There is nothing in the act which can be construed to prohibit the suppression of competition by reason of stock control of railways [p23] and at the same time to permit it in manufacturing industries, pipe line companies, or car line companies engaged in the manufacture and transportation of oil. The contracts, combinations in the form of trusts or otherwise, or conspiracies in restraint of trade, which are inhibited by the first section of the act as applied to these classes of corporations cannot be distinguished from those contracts, combinations in the form of trusts or otherwise, or conspiracies in restraint of trade, when applied to railway companies. The thing inhibited is the restraint of interstate commerce. The thing to be accomplished is the maintenance of the freedom of trade. The inhibition against the suppression of competition by any instrumentality, scheme, plan or device, to evade the act, applies to all corporations and all devices. The real point is not the instrumentality or the scheme used to suppress the competition, but whether competition is thus suppressed and trade restrained and monopolized. Nowhere in the decisions of this court is there authority for the proposition that combinations by stock ownership or the purchase of competing properties is invalid as to railroads but valid as to trading and manufacturing companies. The act of Congress and the decisions of this court, so far as the principle goes, places them upon the same plane. In the argument of the Freight Association cases it was urged by counsel that the inhibitions of the Sherman Act in this regard did not apply to railroads, but only included trading companies. It is now urged that they apply to railroads and do not apply to manufacturing and trading companies. But this court in the Freight Association cases clearly laid down the rule that while there are points of difference existing between the two classes of corporations, yet they are all engaged in interstate commerce, that the injuries to the public have many common features, and that the inhibitions apply to all. 166 U.S. 322.
[p24] The transfer of the stocks of these companies in 1899 to the Standard Oil Company of New Jersey had no greater legal sanctity than the transfer to the trustees in 1882, nor was it different from the transfer of the stocks of the Northern Pacific and Great Northern Railways to the Northern Securities Company in 1901, two years after the organization of the present corporate Standard Oil combination. It is the usual course of reasoning urged in all of these trust cases-because a person has a right to purchase property, he may therefore purchase a competitor, and because he may purchase one competitor he may purchase all of his competitors, and what an individual may do a corporation may do. These were the identical arguments pressed with great ability by counsel in the Northern Securities Case and in the subsequent case of Harriman v. Northern Securities Co., 197 U.S. 291; but this court held to the contrary. The position is also contrary to the almost universal trend of the American decisions both Federal and state. The exercise of an individual right disconnected from all other circumstances may be legal, but when taken together with the other circumstances may accomplish the prohibited thing.
The second section of the act prohibits a person or a single corporation from monopolizing or attempting to monopolize any part of the commerce of the country by any means whatever, and also from conspiring with any other person or persons to accomplish the same object. The two sections of the act were manifestly not intended to cover the same thing; otherwise the second section would be useless. Any contract or combination in the form of a trust or otherwise, or conspiracy in restraint of trade which tends to monopoly is prohibited by the first section. Addyston Pipe Case, 175 U.S. 211; United States v. Northern Securities Co., 193 U.S. 334.
The question then is: What is the meaning of the word "monopoly," as used in the second section of the act? [p25] Of course Congress did not have in mind monopoly by legislative or executive grant. National Cotton Oil Co. v. Texas, 197 U.S. 129; Burrows v. Inter. Met. Co., 156 Fed. Rep. 389, opinion by Judge Holt. Such monopolies could not exist in this country except by grant of Congress or the States, and it has been held that exclusive grants to pursue an ordinary legitimate business are void. Butchers' Union Co. v. Crescent City Co., 111 U.S. 754. Neither did Congress have in mind an absolute monopoly. This can only be obtained by legislative grant. In a country like ours, where everyone is free to enter the field of industry, no absolute monopoly is probable. It is sufficient to bring it within the act if the combination or the aggregation of capital "tends to monopoly . . . or are reasonably calculated to bring about the things forbidden." Waters-Pierce Co. v. Texas, 212 U.S. 86. Originally monopoly meant a grant by sovereign power of the exclusive right to carry on any employment. The only act of exclusion was the grant itself. If the grant was void, then there was no monopoly. These monopolies were common in all monarchial countries. Monopoly, however, came to have a broader meaning under the common law in the later days, and especially in the United States, and in order to arrive at what Congress intended by the act of 1890 it is important to understand the history of the times and the general understanding of monopoly as defined by the courts and the political economists, and the monopolies which were known to the people generally and against which Congress was legislating. Prior to the passage of this law, the various trust cases had been decided, in which trusts, like the Standard Oil of 1882, had been held illegal because they tended to create a monopoly. People v. North River Sugar Refining Co., 54 Hun, 354; State v. Nebraska Distilling Co., 29 Nebraska, 700; State v. Standard Oil Co., 49 Oh. St. 137. Various other decisions had defined monopoly as known [p26] in this country,---such cases as Alger v. Thacher, 19 Pick. 51; People v. Chicago Gas Trust, 130 Illinois, 268; Salt Co. v. Guthrie, 35 Oh. St. 666; Craft v. McConoughy, 79 Illinois, 346; Central R. R. Co. v. Collins, 40 Georgia, 582.
These cases were decided before the Sherman Act was passed, and defined monopoly at common law as it was understood and existed in this country. They embrace trusts like the Standard Oil trust; agreements fixing prices, dividing territory, or limiting production, thereby tending to enhance or control the price of products; general agreements restraining individuals from engaging in any employment except as incident to the sale of property; purchases by corporations of all or a large proportion of competing manufacturing or mechanical plants; combinations of separate businesses in the form of partnership but really for the purpose of controlling the trade; and various other forms of acquiring monopoly. There was no unlawful exclusion of anyone else from doing business in these cases. They show that the term "monopoly" as applied in American jurisprudence meant monopoly acquired by mere individual acts, as distinguished from grant of government, although the individual act in and of itself was not illegal; the concentration of business in the hands of one combination, corporation, or person, so as to give control of the product or prices; as said by Mr. Justice McKenna, in the Colton Oil Case, "all suppression of competition, by unification of interest or management."
The case of Craft v. McConoughy, supra, well illustrates this argument. The pretended copartnership formed between the dealers of the town of Rochelle, while carrying on the business separately, enabled them to control the prices to the detriment of the surrounding country. It was therefore a monopolizing or an attempt to monopolize a part of the commerce of the State; and the monopolization would have been just as effective had these sepa- [p27] rate business enterprises been stock corporations and the stock placed in the hands of a holding company. A similar illustration was the case of Smiley v. Kansas, 196 U.S. 447 (affirming 65 Kansas, 240), in which an attempt to control the grain trade of a particular station was held illegal under a state statute. The Standard combination is an attempt to control and monopolize a vast commerce of the entire country, as these people undertook to control and monopolize a local commerce.
The term "monopoly," therefore, as used in the Sherman Act was intended to cover such monopolies or attempts to monopolize as were known to exist in this country; those which were defined as illegal at common law by the States, when applied to intrastate commerce, and those which were known to Congress when the act was passed. The monopoly most commonly known in this country, and which the debates in Congress show were intended to be prohibited by the act, were those acquired by combination (by purchase or otherwise) of competing concerns. The purchase of a competitor, as a separate transaction standing alone, was the exercise of a lawful privilege, not in and of itself unlawful at common law nor prohibited by statute, yet in the Northern Securities Case the purchase of stock in a railway was held to be illegal when done in pursuance of a scheme of monopoly.
It is not necessary in this case, and we doubt whether in any case it is possible, to make a comprehensive definition of monopoly which will cover every case that might arise. It is sufficient if the case at bar clearly comes within the provisions of the act. We believe that the defendants have acquired a monopoly by means of a combination of the principal manufacturing concerns through [p28] a holding company; that they have, by reason of the very size of the combination, been able to maintain this monopoly through unfair methods of competition, discriminatory freight rates, and other means set forth in the proofs. If this act did not mean this kind of monopoly, we doubt if there is such a thing in this country. The men who framed the Constitution of this country were familiar with the history of monopolies growing out of acts of the Government. They guarded the people against these by constitutional provisions, but they left open the widest field for the exercise of individual enterprise, and it was the abuse of these personal privileges, made easy by state laws permitting unlimited incorporation, which gave rise to the evils that convinced the people of the necessity for the passage of the Sherman Anti-trust Act. It was not monopolies as known to the English common law, but monopolies such as were commonly understood to exist in this country which that act prohibited.
As a natural conclusion from the foregoing definition of monopoly by appellants' counsel they claim that the inhibitions of the second section are against the unlawful means used to acquire the monopoly, but that acquired monopoly is not illegal; therefore that the court can only restrain the means by which the monopoly was acquired, leaving the monopoly to exist. We believe this to be an altogether too refined construction of the act. If such be the true interpretation, the result would be that one could combine all the separate manufactures in a given branch of industry in this country by use of unlawful means such as discriminatory freight rates, but, if not attacked by the Government before it had obtained complete control of the business, its very size, with its ramifications through all the States, would make it impossible for anyone else to compete, and it could control the price of products in the entire country and would be beyond the reach of the law. It could, by selling at a low price where a competitor was [p29] engaged in business and by raising the price where there was no attempt at competition, absolutely control the business without itself suffering any loss; and yet the Government would be powerless to destroy the monopoly because the unlawful means had been abandoned.
If the court finds this combination to be in restraint of trade and a monopoly, it is authorized by § 3 to enjoin the same and has plenary power to make such decree as is necessary to enforce the terms and provisions of the act. Northern Securities Co. v. United States, 193 U.S. 336, 337, 344; Swift & Co. v. United States, 196 U.S. 375; United States v. Marigold, 9 How. 560, 566; Crutcher v. Kentucky, 141 U.S. 57; In re Rapier, 143 U.S. 110; The Lottery Case, 188 U.S. 321; United States v. General Paper Co., opinion of Judge Sanborn in settling the decree, not reported; United States v. American Tobacco Co., 164 Fed. Rep. 700; Chicago, Rock Island & Pacific R. R. Co. v. Union Pacific R. R. Co., 47 Fed. Rep. 15, 26.
Evidence that the defendant companies obtained rebates and discriminatory rates in the transportation of their product as against their competitors, and engaged in unfair and oppressive methods of competition thereby destroying the smaller manufacturers and dealers throughout the country, is material in this case. State of Missouri v. Standard Oil Co., 218 Missouri, 1; State of Minnesota v. Standard Oil Co., 126 N. W. Rep. 527; Standard Oil Co. v. State of Tennessee, 117 Tennessee, 618; S. C., 120 Tennessee, 86; S. C., 217 U.S. 413; State of South Dakota v. Central Lumber Co., 123 N. W. Rep. 504; Citizens' Light, Heat & Power Co. v. Montgomery, 171 Fed. Rep. 553; State of Nebraska v. Drayton, 82 Nebraska, 254; S. C., 117 N. W. Rep. 769; People v. American Ice Co., 120 N. Y. Supp. 443.
A person or corporation joining a conspiracy after it is formed, and thereafter aiding in its execution, becomes from that time as much a conspirator as if he originally designed and put it into operation. United States v. [p30] Standard Oil Co., 152 Fed. Rep. 294; Lincoln v. Claflin, 7 Wall. 132; United States v. Babcock, 24 Fed. Cas. 915, No. 14,487; United States v. Cassidy, 67 Fed. Rep. 698, 702; The Anarchist Case, 122 Illinois, 1; United States v. Johnson, 26 Fed. Rep. 682, 684; People v. Mather, 4 Wend. 230.
This conspiracy was a continuing offense. Every overt act committed in furtherance thereof was a renewal of the same as to all of the parties. The statute of limitations does not begin to run until the commission of the last overt act. Neither can the parties claim a vested right to violate the law. 19 Am. & Eng. Ency. of Law, 2d ed, "Limitations of Actions;" United States v. Greene, 115 Fed. Rep. 343; Ochs v. People, 124 Illinois, 399; Spies v. People, 122 Illinois, 1; 8 Cyc. 678; State v. Pippin, 88 N. Car. 646; United States v. Bradford, 148 Fed. Rep. 413; Commonwealth v. Bartilson, 85 Pa. St. 489; People v. Mather, 4 Wend. 261; State v. Kemp, 87 No. Car. 538; American Fire Ins. Co. v. State, 22 So. Rep. (Miss.) 99; Lorenz v. United States, 24 App. D. C. 337; People v. Willis, 23 Misc. (N. Y.) 568; Raleigh v. Cook, 60 Texas, 438; Commonwealth v. Gillespie, 10 Am. Dec. (Pa.) 480.
- Cong. Rec., Vol. 21, part 3, pp. 2456-2460, 2562, 2645, 2726, 2728, 2791, 2928; Cong. Rec., Vol. 21, part 5, pp. 4089, 4093, 4098, 4101; Vol. 21, part 6, p. 5954.