Introduction

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CHAPTER I

INTRODUCTION

On July 2, 1890, President Benjamin Harrison signed into law what

has become known as the Sherman Act. Section 1 of the act succinctly

states that “[e]very contract, combination in the form of trust or otherwise,

or conspiracy, in restraint of trade or commerce among the several States,

or with foreign nations, is declared to be illegal.”1 This chapter will

consider what Congress meant by these words and then examine early

decisions by the Supreme Court that provide further insight into what

Congress sought to regulate through Section 1.

A. The Text and Background of Section 1

1. Why Congress Determined That a Federal Statute Was Needed

Following the Civil War, the country was poised for economic growth

and expansion of national transportation and communication networks.

Firms rapidly moved into new geographic markets and took advantage of

resulting increased economies of scale.2 They developed increasingly

sophisticated measures for control of industrial organizations. Standard

Oil Company—which had control of the majority of the country’s

petroleum refining assets—formed the first industrial trust in 1879.3 The

Standard Oil Trust was reorganized in 1882, and it was this organization

that served as a model for creation of trusts by other firms.4

Under the reorganized trust, all stockholders of the corporations and

some limited partnerships in which John D. Rockefeller had an interest or

1. An Act to Protect Trade & Commerce Against Unlawful Restraints &

Monopolies, § 1, ch. 647, 26 Stat. 209 (1890) (current version codified at

15 U.S.C. § 1).

2. See, e.g., James May, Antitrust in the Formative Era: Politica l and

Economic Theory in Constitutional and Antitrust Analysis, 1880-1918, 50

OHIO ST. L.J. 257, 283 (1989).

3. See, e.g., HANS B. THORELLI, THE FEDERAL ANTITRUST POLICY :

ORGANIZATION OF AN AMERIC AN TRADITION 76-77 (1955).

4. See id. at 76-77, 96.

2 Proof of Conspiracy Under Federal Antitrust Laws

control, as well as forty individuals, ceded their ownership to a board of

trustees in return for trust certificates issued by the trustees.5 The trustees

exercised complete working control over the business interests of the

trust.6 This form of organization was in short order adopted by firms

controlling other industries, including cotton oil production, sugar

refining, whiskey production and lead manufacturing.7

Public denunciation of the new legal device surfaced quickly. Popular

opinion equated trusts with government-created monopolies, and

outspoken antitrust advocates condemned trusts for driving out

competitors by lowering prices, victimizing consumers by raising prices,

defrauding investors by watering stocks, putting laborers out of work by

closing down plants, and other abuses.8

Political parties recognized the potential for gaining popu lar support

in the upcoming 1888 presidential election by denouncing the trusts that

“the public found to be a growing and intolerable evil.”9 The Republican

Party mounted a condemnation of trusts and recommended in its 1888

convention “such legislation as will prevent the execution of all schemes

to oppress the people by undue charges on their supplies, or by unjust rates

for the transportation of their products to market.”10 After Republican

candidate Benjamin Harrison won the Presidency and the Republicans

gained control of Congress, the party needed to deliver on the campaign

promise to eradicate trusts.

Meanwhile, individual states had begun to take action against the

largest industrial combinations. Prior to the passage of the Sherman Act,

several states successfully secured forfeiture of corporate charters or other

penalties against large trusts or combinations.11 These initiatives were

5. Id. at 77.

6. Id.

7. See id. at 78-79. For a discussion of the principa l varieties of trusts

developed for industrial use at this time, see generally HERBERT

HOVENKAMP, ENTERPRISE & AMERICAN LAW, 1836-1937, 249-67 (1991).

8. See William L. Letwin, Congress and the Sherman Antitrust Law: 1887-

1890, 23 U. CHI. L. REV. 221, 235 (1956).

9. Id. at 223 (quoting WILL IAM HOWARD TAFT, THE ANTI-TRUST ACT AND

THE SUPREME COURT 2 (1914)).

10. Id. at 248.

11. See, e.g., THORELLI, supra note 3, at 79-82 (discussing enforcement

initiatives in Louisiana, California, New York, Nebraska and Ohio). For a

summary of state antitrust enforcement activity prio r to the passage of the

Sherman Act, see generally James May, Antitrust Practice and Procedure

in the Formative Era: The Constitutional and Conceptual Reach of State