What was the outcome of the supreme court’s decision in the 1911 standard oil case?

In 1911 the United States Supreme Court agreed on a "rule of reason" as the principle to apply in antitrust cases.  The key case was Standard Oil Company of New Jersey et. al. v. United States.

Standard Oil was John D. Rockefeller's "oil trust."  The government charged Standard Oil with violating the Sherman Act through unreasonable restraints of trade.  The government, and many popular writers, claimed that Standard Oil had used its power to prevent other oil firms from competing with it.  Standard Oil, in this view, had become a giant firm through unfair competition.

The Supreme Court in 1911 agreed.

"Unreasonable restraints of trade or monopoly . . . meant (1) unfair, oppressive methods designed to eliminate, damage, or destroy competitors; and (2) business practices, the purpose or necessary effect of which was to enhance or depress prices unduly, or affect trade or distribution or transportation unduly, that is, to the detriment of the public interest."  (Quote from Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916.  The Market, the Law, and Politics (New York: Cambridge University Press, 1988), 147.)

The Rule of Reason became the guiding principle of antitrust law after 1911.  On a case-by-case basis, the Courts would determine if a firm became large through fair or unfair means.  If a company became large through succeeding in fair competition with its rivals, the courts would allow it to remain big.  If, as was the situation in 1911 and other famous cases, the courts found that a firm such as Standard Oil had become large unfairly, then the courts ordered them broken up.

• In 1911, the Court ordered Standard Oil of New Jersey broken into seven different oil firms.
• In 1911, the Court, applying the rule of reason, found against the American Tobacco Company and ordered it broken up.
• There were other famous cases after 1911 in which the Court ordered very large firms broken up into smaller firms.
• However, the antitrust law, under the rule of reason, was not against bigness in business per se, only against bigness that resulted from unfair use of power.

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In Standard Oil Company of New Jersey v. United States, 221 U.S. 1 (1911), the U.S. Supreme Court held that the Standard Oil Company was guilty of operating a monopoly in violation of the Sherman Anti-Trust Act. While the Court upheld the application of the anti-trust law under the Commerce Clause, it limited the reach of the Sherman Anti-Trust Act to unreasonable restraints of trade.

The Facts of Standard Oil Company of New Jersey v. United States

The Standard Oil Company initially became very successful in the petroleum industry by using alternative types of technology in oil refinery. Under the direction of John D. Rockefeller, Sr., the Standard Oil Company eventually expanded its company by acquiring its competitors. By 1906, Standard Oil controlled over 75 percent of the oil production in the United States. 

The federal government ultimately filed suit against the company for allegedly engaging in anti-competitive practices in violation of the Sherman Anti-Trust Act. The suit maintained that while purchasing the competition was not technically illegal, the practice violated the Sherman Anti-Trust Act because it stifled competition. The suit also alleged that the Standard Oil Company also engaged in other prohibited actions, such as threatening distributors that did not purchase its petroleum and undercutting its oil prices to force other companies out of business. 

The Court’s Decision on Standard Oil Company of New Jersey v. United States

The Court found that the Standard Oil Company violated the Sherman Anti-Trust Act and ordered its dissolution into smaller companies. Chief Justice Edward White wrote the majority opinion.

In reaching its decision, the Supreme Court determined that the term “restraint of trade” had come to include the formation of monopolies and their consequences. As detailed by the Court, the consequences that violated the Sherman Anti-Trust Act included higher prices, reduced output, and reduced quality.

The Court further concluded that the Sherman Anti-Trust Act only prohibited contracts that “unduly” restrained trade. “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 Chief Justice wrote.

In interpreting the Sherman Anti-Trust Act, the Court looked to the common law as well as the underlying policy considerations behind the statute. As the Chief Justice explained:

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. 

Under this legal framework, the Court concluded: “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.”

What did the Supreme Court decide in Standard Oil v the United States?

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