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Tuesday, May 16, 1911

Supreme Court decision breaking up Standard Oil

WASHINGTON, May 16, 1911 (UP) - In accordance with late dispatches printed yesterday, the United States Supreme Court has upheld the government in its legal fight with the Standard Oil Company and has ordered the dissolution of the great monopoly within six months.

The opinion was read by Chief Justice White. The only dissenting member of the court was Justice Harlan and he read a dissenting opinion.

Justice White in his opinion first reviewed the preliminary proceedings in the case in the Circuit Court of Missouri. He restated the essential points in the bill of the government asking for dissolution of the Standard Oil Company and the answer, questioning the jurisdiction of the court and denying the claims of the government. He dismissed the objection to the jurisdiction in a few words.

Out of the "jungle" of law and facts in the case, he said, both sides were agreed only in one thing, that the determination of the controversy rested upon the proper construction and application of the first and second sections of the anti-trust act.

"Thus, on the one hand, with relentless pertinacity and minuteness of analysis," said the chief justice, "it is insisted that the facts established that the assailed combination took its birth in a purpose to unlawfully acquire wealth by oppressing the public and destroying the just rights of others, and that its entire career exemplifies an inexorable carrying out of such wrongful intents, since, it is asserted, the pathway of the combination from the beginning of the time of the filing of the bill is marked with constant proofs of wrong inflicted upon the public, and is strewn with the wrecks resulting from crushing out, without regard to law, the individual rights of others. ...

"It is asserted that the existence of the principal corporate defendant, the Standard Oil Company of New Jersey, with its vast accumulation of property, because of its potency for harm and the dangerous example which its continued existence affords, is an open and enduring menace to all freedom of trade and a byword and a reproach to all modern economic methods.

"On the other hand, in a powerful analysis of the facts, it is insisted that they demonstrated that the origin and development was but the result of lawful competitive methods, guided by economic genius of the highest order, sustained by courage, by a keen insight into the commercial situation, resulting in the acquisition of great wealth, but at the same time serving to stimulate an increased production, to widely extend the distribution of the products of petroleum at a cost largely below that which would otherwise have prevailed, thus proving to be at once and the same time a benefaction to the general public as well as an enormous advantage to individuals."

In this state of affairs, the chief justice seized upon the single point of concord, namely, the application of the two sections of the Sherman anti-trust law, as the initial basis of an examination of the contention. The rest of his opinion divides itself into a consideration of the meaning of the Sherman law in the light of the common law and the law of the United States at the time of its adoption, the contentions of the parties concerning the act and the application of the statute to the facts and, lastly, to the remedy.

The sole object with which the first section of the Sherman anti-trust law dealt, he said, was "restraint of trade," and the attempt to monopolize and "monopolization" was the subject of the second section. The chief justice said that in getting at the meaning of these words, he would be guided by the principal that where words are employed in a statute, which at the time had a well-known meaning in common law, or in the law of the country, they were presumed to have been used in this sense unless the context compels to the contrary. He summarized his search into the common law and the law of the country at the time the Sherman anti-trust law was passed, so far as the first section was concerned, as follows:

"A-That the context manifests that the statute was drawn in the light of the existing practical conception of the law of restraint of trade, because it groups as within that class, not only contracts which were in restraint of trade in the subjective sense, but all contracts or acts which theoretically were attempts to monopolize, yet which in practice had come to be considered as in restraint of trade in the broad sense.

"B-That in view of the many forms of contracts and combinations which were being evolved from existing economic conditions, it was deemed essential by an all-embracing enumeration to make sure that no form of contract or combination by which an undue restraint of interstate or foreign commerce was brought about could save such restraint from consideration. The statute, under this view, evidenced the intent not to restrain the right to make and enforce contracts, whether resulting from combination or otherwise, which did not unduly restrain interstate or foreign commerce, but to protect that commerce from being restrained by methods, whether old or new, which would constitute an interference that is an unique restraint.

"C-And, as the contracts or acts embraced in the provision were not expressly defined, since the enumeration addressed itself simply to classes of acts, those classes being broad enough to embrace every conceivable contract or combination which could be made concerning trade or commerce or the subjects of such commerce, and thus caused any act done by any of the enumerated methods and where in the whole field of human activity to be illegal if in restraint of trade, it inevitably follows that the provision necessarily called for the exercise of judgment which required that some standard should be resorted to for the purpose of determining whether the prohibitions contained in the statute had or had not in any given case been violated. 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 his country in dealing with the 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."

As to the second section, he said the investigation of the common law and of law at the time the Sherman act was passed, established that it was intended to supplement the first and to make sure that by no possible guise could the public policy embodied in the first section be frustrated or evaded. Having in the first section forbidden all means of monopolizing trade, that is, unduly restraining it by mans of every contract, combination, etc., the second section, according to the Chief Justice, "seeks, if possible, to make the prohibition to the act all the more complete and perfect by embracing all attempts to reach the end prohibited by the first section by any attempt to monopolize or monopolization thereof, even, although the acts by which such results are attempted to be brought about, or are brought about, be not embraced within the general enumeration of the first section."

Here the Chief Justice spoke of using the "rule of reason" in applying the statute to any given case. He said:

"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. And it is worthy of observation that, although the statute by the comprehensiveness of the enumerations embodied in both the first and second sections makes it assiduously certain that its purpose was to prevent undue restraints of every kind or nature, nevertheless, by the omission of any direct prohibition against monopoly in the concrete, it indicates a consciousness that the freedom of the individual right to contract, when not unduly or improperly exercised, was the most efficient means for the prevention of monopoly, since the operation of the centrifugal and centripetal forces resulting from the right to freely contract was the means by which monopoly would be inevitably prevented if no extraneous or sovereign power imposed it, and no right to make unlawful contracts having a monopolistic tendency were permitted. In other words, that freedom to contract was the essence of freedom from undue restraint on the right to contract."

The chief justice next considered the contention of the parties as to the meaning of the statute. He said in substance the propositions of the government were reducible to the claim that the language of the state embraced "every contract, combination, etc., in restraint of trade," and left no room for the exercise of judgment, but simply imposed the plain duty of applying its prohibitions to every case within its literal language. The error of the government on this point, Chief Justice White said, was in assuming that the decisions of the court had been in accordance with its contentions.

"That is not true," said the Chief Justice, "because the acts which may come under the classes stated in the first section, and the restraint of trade to which that section applies, are not specifically enumerated or defined, it is obvious that judgment must in every case be called into play in order to determine whether a particular act is embraced within the statutory classes, and whether, if the act is within such classes, its nature or effect cause it to be a restraint of trade with the intendment of the act.

"To hold to the contrary would require the conclusion either that every contract, or act or combination of any kind or nature, whether it operated a restraint of trade or not, was within the statute, and thus the statute would be destructive of all right to contract or agree or combine in any respect whatever as to subjects embraced in interstate trade or commerce, or, if this conclusion was not reached, then the contention would require it to be held that, as the statute did not define the things to which it related and excluded resort to the only means by which the acts to which it relates could be ascertained - the light of reason - the enforcement of the statute was impossible, because of its uncertainty.

"The merely generic enumeration which the statute makes of the acts to which it refers and the absence of any definition of restraint of trade as used in the statute leave room for but one conclusion, which is that it was expressly designed not to unduly limit the application of the act by precise standard, but while clearly fixing a standard, that is, by defining the ulterior boundaries which could not be transgressed with impunity, to leave it to be determined by the light of reason, guided by the principles of law and the duty to apply and enforce the public policy embodied in the statute in every given case, whether any particular act or contract was within the contemplation of the statute."

At this point, Chief Justice White touched upon the phase of the case which formed the basis of Justice Harlan's dissenting opinion. It was that the opinion of the Supreme Court in the cases of the United States vs. Freight Association and United States vs. Joint Traffic Association excluded the right to thus reason in interpreting the statute. Chief Justice White declared that the general language of those opinions had been subsequently explained, and held not to justify the broad significance attributed to them.

The Standard Oil decision, he said, does not conflict with any previous case decided concerning the anti-trust law, because every one of these cases "applied the rule of reason for the purpose of determining whether the subject before the court was within the statute."

"Unaided by the light of reason," he continued, "it is impossible to understand how the statute may in the future be enforced and the public policy which it establishes be made efficacious."

The chief justice next took up the facts. As a matter of fact, the court found that the result of enlarging the capital stock of the Standard Oil Company of New Jersey and the acquisition by that company of the shares of the stock of the other corporations in exchange for its certificates, gave to the corporation an enlarged control over the trade in petroleum and its products. The effect of this, the lower court held, was to destroy "the potentiality of competition" which otherwise would have existed, to such an extent as to be a conspiracy in restraint of trade in violation of the first section of the act, and also to be an attempt to monopolize, and, by a monopolization, to bring about perennial violation of the second section.

"We see no cause to doubt the correctness of these conclusions," said the Chief Justice, for the following reasons:

"A-Because the unification of power and control over petroleum and its products, which was the inevitable result of the combining in the New Jersey corporation by the increase of its stock and the transfer to it of the stocks of so many other corporations, aggregating so vast a capital, gives rise, in and of itself, in the absence of countervailing circumstances, to say the least to the prima facie presumption of intent and purpose to maintain the dominancy over the oil industry, not as a result of normal methods of industrial development, but by new means of combination, which were resorted to in order that greater power might be added than would otherwise have arisen had normal methods been followed, the whole with the purpose of excluding others from the trade and thus centralizing in the combination a perpetual control of the movements of petroleum and its products in the channels of interstate commerce.

"B-Because the prima facie presumption of intent to restrain trade, to monopolize and to bring about monopolization resulting from the act of expanding and vesting of the New Jersey corporation and vesting it with such vast control of the oil industry, is made conclusive by considering:

":1-The conduct of the persons or corporations who were mainly instrumental in bringing about the extension of power in the New Jersey corporation before the consummation of that result and prior to the formation of the trust agreements of 1879 and 1882;

"2-By considering the proof as to what was done under those agreements and the acts which immediately preceded the vesting of power in the New Jersey corporation as well as by weighing the modes in which the power vested in that corporation has been exerted, and the results which have arisen from it."

"The inference that no attempt to monopolize could have been intended and that no monopolization resulted from the acts complained of, since a very small percentage of the crude oil produced was controlled by the combination, is unwarranted. As substantial power over the crude product was the inevitable result of the absolute control which existed over the refined product, the monopolization of the one carried with it the power to control the other, and if the inference which the situation suggests were developed, which we deem it unnecessary to do, they might well serve to add additional cogency to the presumption of intent to monopolize, which we have found arises from the unquestioned proof on other subjects."

The court then considered the arguments that the statute could not be applied under the facts in the case without impairing the right of property and destroying that freedom of contract of trade necessary to the well being of society.

"But the ultimate foundation of all these arguments," said the Chief Justice, "Is the assumption that reason may not be resorted to in interpreting and applying the statute. ... As the premise is demonstrated to be unsound by the construction we have given the statute, of course, the propositions which rest upon that premise need not further be noticed."

Finally, the Chief Justice came to apply the remedy. He said that ordinarily where violations of the act were found to have been committed, it would suffice to enjoin further violations. In a case, however, of an established monopoly, the continuance of which was a perennial violation of the statute, further relief was called for.

The lower court, he pointed out, had enjoined the combination, and, in effect, directed its dissolution; forbidden the New Jersey corporation from exercising any control, by virtue of its stock ownership, over the subsidiary corporations and enjoined those corporations from recognizing in any manner the authority of the New Jersey corporation by virtue of such ownership; enjoined the subsidiary corporations, after the dissolution, from doing any act which could create a like illegal combination; enjoined the New Jersey corporation and all the subsidiaries from doing any interstate business pending the dissolution of the combination by the transfer of stocks which the decree required, and, lastly, given thirty days to carry out the directions of the court.

The court said this decree was right, and should be affirmed, except as to what it termed "minor matters." One of these was the extension of the time the decree should be put into effect, from one month to six months. The other modification had to do with the section of the decree which forbade the formation by the subsidiary corporations or their stockholders of like combinations.

Chief Justice White said it did not follow because an illegal restraint of trade resulted from the combination of the corporations in the New Jersey corporation that a like restraint would necessarily arise from agreements between one or more of the subsidiary corporations after the transfer of the stock by the New Jersey corporation.

The decision in the Standard Oil case today is the culmination of a long and hard-fought legal battle. It marks the end by the highest court of the biggest trust-busting suit ever undertaken by the government, and one that has been waged by the highest priced legal talent obtainable. It was aimed at the dissolution of the most gigantic octopus of the business and industrial world, and personally named the world's richest man. It has been, all things considered, probably the most costly litigation in which the government has ever been involved. Attorney General Wickersham, in his argument on the same case last year before the court declared it as his opinion that the Standard Oil suit was "probably the most important ever before the Supreme Court."

Justice Willis VanDevanter, one of President Taft's recent appointees to the highest bench, participated, as a judge of the Eighth Circuit Court in a decision against the trust. Heretofore a justice of the court who is called upon to sit in an appeal of a case tried before him in a lower court, has always refrained from participation in the review, but in the case of Justice VanDevanter it was President Taft's desire that he should sit.

In brief the charges which Attorneys John G. Milburn of New York and John G. Johnson of Philadelphia sought to controvert included a conspiracy alleged to have had its conception in 1870; a growth into gigantic proportions, fed by illegal rebate, fostered by unfair competition, and made almost impregnable through domination of the market.

They attempted to prove to the court that this growth has been the result of extraordinary business acumen, that the combination of interests was not a trust for evil, and that the Standard Oil Company did not control the oil business.

Against their arguments, Frank B. Kellogg, special assistant to the attorney general, and Attorney General Wickersham related an amazing story of high finance, market manipulation, and oppression of competitors.

Mr. Kellogg has been working to accomplish the downfall of the Standard since early in 1906, frst as the government's mainstay in the famous $25,000,000 suit against the Standard Oil Company of Indiana, one of the subsidiary corporations of the parent, or New Jersey company - and, since November, 1906, in the present suit.

It was in November, 1906, that the suit which has just been settled by the highest court was filed before the United States court at St. Louis. The bill of complaint was a voluminous document covering 220 pages. It purported to give a history of the growth of the monopoly, and was a drastic arraignment of the corporation and its guiding spirits, John D. Rockefeller, Henry M. Flagler, Oliver H. Payne, Charles M. Pratt and others. One hundred and forty-three subsidiary corporations were named as co-defendants.

More than two years were occupied in the taking of testimony under a special examiner at various cities throughout the country. John D. Rockefeller himself was among those examined.

On Nov. 20, 1909, the circuit courts sustained practically every contention made by the government, adjudged the combine a trust in restraint of trade and ordered its dissolution under the terms of the Sherman law. By its decree the Standard Oil Company of New Jersey, the parent corporation, was enjoined from voting the stock in any of the subsidiary defendant companies, and from exercising any control over these corporations by virtue of the stock which it held. The subsidiary companies were enjoined from paying any dividends to the parent corporation.

From this decision, the Oil Trust appealed, alleging 66 errors in the decree. Briefly these were that the court erred in compelling non-resident corporations and individuals to appear at St. Louis; in overruling the plea of the defendants that the court had no jurisdiction; in finding that the 19 corporations absorbed by the Standard of New Jersey in 1899 were then competitive; in finding the seven individual defendants including John D. and William G. Rockefeller, H.M. Flagler and H.H. Rogers - in the ten years prior to 1879 acquired competing companies to suppress competition; that the subsidiary companies were entirely controlled by the parent corporations; and that an exchange of stocks for an interest in a single corporation was illegal.

It is alleged that practically $500,000,000 of capital is invested in the various companies which the present suit sought to dissolve.

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