CHAPTER VII

THE DECISIONS OF THE SUPREME COURT IN THE STANDARD OIL AND AMERICAN TOBACCO TRUST CASES1

THE decisions rendered by the Supreme Court of the United States in the Standard Oil and Tobacco Trust cases have attracted wide attention and aroused much comment, favorable and unfavorable. The case against the Standard Oil Company was begun in the Circuit Court for the Eastern District of Missouri in November, 1906, and that against the American Tobacco Company in the Circuit Court for the Southern District of New York, July, 1907. Both cases reached the Supreme Court during the year 1909, but owing to the unfortunate death or illness of some of the Justices, and the subsequent rehearing, they were under consideration for a period of nearly two years. The Supreme Court declares both companies illegal, and orders their dissolution. The Standard Oil Company is given a period of six months in which to reorganize in conformity with the Sherman Law, while the Tobacco Company,

1 This chapter does not constitute a part of the lectures delivered at the University of Pennsylvania in 1910, but has been added since the Supreme Court decisions were rendered.

owing to the complexity of its corporate structure, is placed under the control of the Circuit Court, which is directed to devise some form of reorganization not repugnant to the law. If at the end of eight months the Court has not worked out such a plan of reorganization, or accepted one proposed to it by those concerned, it is directed to prohibit the Tobacco Company from further participation in interstate commerce, or to place the company in the hands of a receiver, who shall give effect to the requirements of the statute. This, in some respects, is a novel proceeding in our judicial development, and is being watched with a great deal of interest, especially by those corporations the legality of whose organization is still in doubt. In all probability a number of trusts will voluntarily adopt the plan of organization finally approved by the Circuit Court.

The basis of the adverse decision of the Supreme Court in the Standard Oil case, is the wrongful intent manifest by those in control from about the year 1870. The form of corporation adopted later, that of a holding company with a New Jersey charter, is not directly attacked, although the fact that by this means its organizers were able to secure and maintain such complete dominion over the oil business is considered by the Supreme Court as primâ facie evidence of the wrongful intent to restrain trade. The purpose of the organizers of this corporation to monopolize the oil business is shown

by the various methods employed in driving out competitors. The Court mentions especially the use of railway rebates, the control of pipe lines and various other acts intended to exclude others from their right to engage in the same business. The wrongful intent is especially shown by the expansion of the New Jersey corporation, concerning which the court makes the following statement:

The exercise of the power which resulted from that organization fortifies the foregoing conclusions, since the development which came, the acquisition here and there which ensued of every efficient means by which competition could have been asserted, the slow but resistless methods which followed, by which means of transportation were absorbed and brought under control, the system of marketing which was adopted by which the country was divided into districts and the trade in each district in oil was turned over to a designated corporation within the combination and all others were excluded, all lead the mind up to a conviction of a purpose and intent which we think is so certain as practically to cause the subject not to be within the domain of reasonable contention.

The grounds on which the Supreme Court declared the American Tobacco Company an illegal combination, as in the Standard Oil case, appear to be not so much its form or size, as the conscious intent on the part of a few persons to monopolize all branches of the tobacco business by methods manifestly unfair and illegal. In some cases fierce

trade wars were engaged in to drive out competitors. This was especially true in the Plug Tobacco and Snuff wars which occurred in the nineties. In other cases excessive amounts were paid to independent producers, to induce them to sell out and agree to keep out of the tobacco business for a considerable number of years. For instance, the National Tobacco Works, capitalized at $400,000, received $600,000 in cash and $1,200,000 in stock of the American Tobacco Company. Many plants thus acquired were soon dismantled. Subsidiary corporations, nominally independent but secretly controlled by this same group of capitalists, were organized and put into the field to drive out or prevent the entry of competitors. Such wrongful acts as these, in the opinion of the Supreme Court, endanger individual liberty and are a menace to public welfare. It was just such conduct that the Sherman law was intended to prevent.

In the American Tobacco case, the Supreme Court sums up the charges against the company as follows:

Indeed, the history of the combination is so replete with the doing of acts which it was the obvious purpose of the statute to forbid, so demonstrative of the existence from the beginning of a purpose to acquire dominion and control of the tobacco trade, not by the mere exertion of the ordinary right to contract and to trade, but by methods devised in order to monopolize the trade by driving competitors out of business, which

were ruthlessly carried out upon the assumption that to work upon the fears or play upon the cupidity of competitors would make success possible. We say these conclusions are inevitable, not because of the vast amount of property aggregated by the combination, not because alone of the many corporations which the proof shows were united by resort to one device or another. Again, not alone because of the dominion and control over the tobacco trade which actually exists, but because we think the conclusion of wrongful purpose and illegal combination is overwhelmingly established by the following considerations, etc.1

The particular feature of these decisions to which most significance should be attached is the interpretation placed by a majority of the Court upon the Sherman Antitrust Law. Much difference of opinion exists as to the ultimate effect and scope of this interpretation. The strong dissenting opinion of Justice Harlan, together with the absence of protest by business interests of the country, and the sudden rise in the stock market following the decision in the Standard Oil Case, might lead to the inference that the Sherman Law has been seriously emasculated. That this view is also shared by some legislators, is shown by the fact that a number of amendments, intended to restore to the Sherman Law its original meaning, as they had interpreted it, were introduced in Congress

1 For full text see Appendix A, p. 201.