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''Standard Oil Co. of New Jersey v. United States''

(1910), was a
case Case or CASE may refer to: Containers * Case (goods), a package of related merchandise * Cartridge case or casing, a firearm cartridge component * Bookcase, a piece of furniture used to store books * Briefcase or attaché case, a narrow box to ca ...
in which the
Supreme Court of the United States The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. Federal tribunals in the United States, federal court cases, and over Stat ...
found Standard Oil Co. of New Jersey guilty of monopolizing the
petroleum Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crud ...
industry through a series of abusive and
anticompetitive Anti-competitive practices are business or government practices that prevent or reduce competition in a market. Antitrust laws differ among state and federal laws to ensure businesses do not engage in competitive practices that harm other, usuall ...
actions. The Court's remedy was to divide Standard Oil into several geographically separate and eventually competing firms.


Facts

By the 1880s, Standard Oil was using its large market share of refining capacity to begin integrating backward into oil exploration and crude oil distribution and forward into retail distribution of its refined products to stores and, eventually, service stations throughout the United States. Standard Oil allegedly used its size and clout to undercut competitors in a number of ways that were considered "anti-competitive," including underpricing and threats to suppliers and distributors who did business with Standard's competitors. The government sought to prosecute Standard Oil under the
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. ...
. The main issue before the Court was whether it was within the power of Congress to prevent one company from acquiring numerous others through means that might have been considered legal in common law, but still posed a significant constraint on competition by mere virtue of their size and market power, as implied by the Antitrust Act. Over a period of decades, the Standard Oil Company of New Jersey had bought up virtually all of the
oil refining An oil refinery or petroleum refinery is an industrial process plant where petroleum (crude oil) is transformed and refined into useful products such as gasoline (petrol), diesel fuel, asphalt base, fuel oils, heating oil, kerosene, liquefi ...
companies in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
. Initially, the growth of Standard Oil was driven by superior refining technology and consistency in the kerosene products (i.e., product standardization) that were the main use of oil in the early decades of the company's existence. The management of Standard Oil then reinvested their profits in the acquisition of most of the refining capacity in the Cleveland area, then a center of oil refining, until Standard Oil controlled the refining capacity of that key production market. By 1870, Standard Oil was producing about 10% of the United States output of refined oil. This quickly increased to 20% through the elimination of the competitors in the Cleveland area.


Judgment

As in the case against ''
American Tobacco The American Tobacco Company was a tobacco company founded in 1890 by J. B. Duke through a merger between a number of U.S. tobacco manufacturers including Allen and Ginter and Goodwin & Company. The company was one of the original 12 members of ...
'', which was decided the same day, the Court concluded that these facts were within the power of Congress to regulate under the
Commerce Clause The Commerce Clause describes an enumerated power listed in the United States Constitution ( Article I, Section 8, Clause 3). The clause states that the United States Congress shall have power "to regulate Commerce with foreign Nations, and amon ...
. The Court recognized that "taken literally," the term "restraint of trade" could refer to any number of normal or usual
contracts A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
that do not harm the public. The Court embarked on a lengthy
exegesis Exegesis ( ; from the Greek , from , "to lead out") is a critical explanation or interpretation of a text. The term is traditionally applied to the interpretation of Biblical works. In modern usage, exegesis can involve critical interpretation ...
of English authorities relevant to the meaning of the term "restraint of trade." Based on this review, the Court concluded that the term "restraint of trade" had come to refer to a contract that resulted in "monopoly or its consequences." The Court identified three such consequences: higher prices, reduced output, and reduced quality. The Court concluded that a contract offended the Sherman Act only if the contract restrained trade "unduly"—that is if the contract resulted in one of the three consequences of monopoly that the Court identified. A broader meaning, the Court suggested, would ban normal and usual contracts, and would thus infringe liberty of contract. The Court endorsed the
rule of reason The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law. While some actions like price-fixing are considered illegal ''per se', ''other actions, such as po ...
enunciated by
William Howard Taft William Howard Taft (September 15, 1857March 8, 1930) was the 27th president of the United States (1909–1913) and the tenth chief justice of the United States (1921–1930), the only person to have held both offices. Taft was elected pr ...
in ''
Addyston Pipe and Steel Company v. United States ''Addyston Pipe and Steel Co. v. United States'', 175 U.S. 211 (1899), was a United States Supreme Court case in which the Court held that for a restraint of trade to be lawful, it must be ancillary to the main purpose of a lawful contract. A nak ...
'' (1899), written when Taft had been Chief Judge of the
United States Court of Appeals for the Sixth Circuit The United States Court of Appeals for the Sixth Circuit (in case citations, 6th Cir.) is a federal court with appellate jurisdiction over the district courts in the following districts: * Eastern District of Kentucky * Western District of ...
. The Court concluded, however, that the behavior of the Standard Oil Company went beyond the limitations of this rule.


Concurrence

Justice
John Marshall Harlan John Marshall Harlan (June 1, 1833 – October 14, 1911) was an American lawyer and politician who served as an associate justice of the U.S. Supreme Court from 1877 until his death in 1911. He is often called "The Great Dissenter" due to his ...
concurred in the result, but dissented against adopting a "rule of reason". It departed from precedent that the Sherman Act banned any contract that restrained trade "directly." He said the following:


Significance

The ''Standard Oil'' case resulted in the breakup of
Standard Oil Standard Oil Company, Inc., was an American oil production, transportation, refining, and marketing company that operated from 1870 to 1911. At its height, Standard Oil was the largest petroleum company in the world, and its success made its co- ...
into 43 separate companies. Many of these have since recombined; the largest present direct descendants of Standard Oil are
ExxonMobil ExxonMobil Corporation (commonly shortened to Exxon) is an American multinational oil and gas corporation headquartered in Irving, Texas. It is the largest direct descendant of John D. Rockefeller's Standard Oil, and was formed on November 3 ...
(Standard Oil of New Jersey and Standard Oil of New York) and
Chevron Chevron (often relating to V-shaped patterns) may refer to: Science and technology * Chevron (aerospace), sawtooth patterns on some jet engines * Chevron (anatomy), a bone * '' Eulithis testata'', a moth * Chevron (geology), a fold in rock la ...
(Standard Oil of California). Some Standard Oil descendants merged into other companies, particularly BP, which acquired/merged with
Standard Oil of Ohio The Standard Oil Company (Ohio) was an American oil company, a successor of the original company established in 1870 by John D. Rockefeller. It was established as "Standard Oil Company of Ohio" as one of the separate entities created after t ...
and
Amoco Amoco () is a brand of fuel stations operating in the United States, and owned by BP since 1998. The Amoco Corporation was an American chemical and oil company, founded by Standard Oil Company in 1889 around a refinery in Whiting, India ...
. While some scholars have agreed with Justice Harlan's characterization of prior case law, others have agreed with William Howard Taft, who concluded that despite its different verbal formulation, Standard Oil's "
rule of reason The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law. While some actions like price-fixing are considered illegal ''per se', ''other actions, such as po ...
" was entirely consistent with prior case law.


See also

*
US antitrust law In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherma ...
*
List of United States Supreme Court cases, volume 221 This is a list of cases reported in volume 221 of ''United States Reports'', decided by the Supreme Court of the United States in 1911. Justices of the Supreme Court at the time of volume 221 U.S. The Supreme Court is established by Ar ...


Notes


References

* * * * * * * * * * * *


External links

* * {{DEFAULTSORT:Standard Oil Co. Of New Jersey V. United States Standard Oil United States Supreme Court cases United States Supreme Court cases of the White Court United States antitrust case law United States energy case law 1911 in United States case law ExxonMobil litigation 1911 in American law