What was the US Supreme Court ruling in Standard Oil Co. of New Jersey v. United States?

Answer 1

Standard Oil Co. of New Jersey v. US, 221 US 1 (1911)

Answer

In 1911, the US Supreme Court used a novel interpretation of "restraint of trade" to rule Standard Oil Company of New Jersey held a monopoly on gasoline production and distribution, and was in violation of the Sherman Antitrust Act. In order to resolve what the Court considered unfair trade practices, they ordered the Standard Oil be divided into 34 independent companies with different boards of directors. Some of the more familiar petroleum company names originally part of Standard Oil are Esso, Mobile, (now Exxon/Mobile), Amoco, Sinclair, Standard, Chevron, and a host of small regional companies bearing the original Standard Oil name (e.g., Standard Oil of New Jersey, Standard Oil Company of New York, aka Socony). They also split off 24 non-gasoline petroleum enterprises.

Explanation

At the turn of the 20th century, Standard Oil was the largest oil producer in the United States, at one time responsible for 91% of production and 85% of final sales (1904). The Commissioner of Corporations, associated with the US Department of Commerce, investigated the company and concluded that Standard Oil was guilty monopolistic practices, identifying four major violations of the Sherman Antitrust Law:

1. secret and semi-secret railroad rates;
2. discrimination in the open arrangement of rates;
3. discrimination in classification and rules of shipment; and
4. discrimination in the treatment of private tank cars

The government also believed Standard guilty of using its dominant position in the petroleum industry to drive competitors and refinery- or distributor-customers out of business by raising prices to industry customers, while reducing them to consumers.

The US Department of Justice filed suit against Standard in 1909; Standard prevailed in the District Court, but the Circuit Court reversed, and Standard Oil appealed that ruling to the US Supreme Court in 1911. By that time, Standard's market share had dropped to 64%, and it was no longer engaging in some of the more egregious business practices the Department of Commerce identified; however, it was still the largest petroleum company in the United States.

The Justice Department charged Standard and its subsidiaries with conspiracy "to restrain the trade and commerce in petroleum, commonly called 'crude oil,' in refined oil, and in the other products of petroleum, among the several States and Territories of the United States and the District of Columbia and with foreign nations, and to monopolize the said commerce" over a 40-year period.

More specifically: "[D]uring said first period, the said individual defendants, in connection with the Standard Oil Company of Ohio, purchased and obtained interests through stock ownership and otherwise in, and entered into agreements with, various persons, firms, corporations, and limited partnerships engaged in purchasing, shipping, refining, and selling petroleum and its products among the various States for the purpose of fixing the price of crude and refined oil and the products thereof, limiting the production thereof, and controlling the transportation therein, and thereby restraining trade and commerce among the several States, and monopolizing the said commerce."

The Supreme Court, in affirming the decision of the lower appellate court, held that Standard Oil was guilty of restraint of trade, creating unfair market conditions and eliminating the competition's "freedom to contract." According to the Court, monopolies "unduly" result in at least one of the following: higher prices, reduced output, or reduced quality.

Standard Oil was ordered to dissolve the present corporation and restructure its holdings into 34 separate businesses, each with an different board of directors. While the Supreme Court affirmed this part of the order, it found several other provisions overbroad or unreasonable, extended the time frame for action from 30 days to six months, and overturned a provision that prevented Standard from engaging in interstate commerce as injurious to the public.