Is it not possible that this idea may soon spread? Why should it not be taken up at the next Hague conference, as it is a menace threatening the internal peace of any progressive industrial nation? To summarize may we not say that some of the results of "The Case of the Monopolies" have been (a) the clear establishment of the idea that sole control of a product is against public policy and consequently against fundamental law, (b) the giving a firm base and good outline for our States to start from in their law-making and their courts. One of its suggestions, too, that we need to-day is that the monopolistic idea is against the grain of English thought, and that therefore we should have little real trouble in framing an understanding with all English speaking lands as to an interchange of corporate restriction. THE STANDARD OIL DECISION: THE RULE OF REASON BY H. L. WILGUS, of the DEPARTMENT OF LAW, (From the Michigan Law Review, June, 1911) After twenty-one years the Sherman Anti-Trust Act has been applied to the typical combination restraining interstate commerce, which that act was designed to prevent. In the debate in the United States Senate, on the original bill introduced by Senator Sherman, he said:1 Associated enterprise and capital are not satisfied with partnerships and corporations competing with each other, and have invented a new form of combination, commonly called trusts, that seeks to avoid competition by combining the controlling corporations, partnerships, and individuals engaged in the same business, and placing the power and property of the combination under the government of a few individuals, and often under the control of a single man called a trustee, a chairman or a president. The sole object of such a combination is to make competition impossible. It can control the market, raise or lower prices, as will best promote its selfish interests, reduce prices in a particular locality and break down competition and advance prices at will where competition does not exist. Its governing motive is to increase the profits of the parties comprising it. The law of selfishness, uncontrolled by competition, compels it to disregard the interests of the consumer. It dictates terms to transportation companies, it commands the price of labor without fear of strikes, for in its field it 1 See Congressional Record, Vol. 21, Mar. 21, 1890; Bills and Debates in Congress relating to trusts, 1888-1902, pp. 95-96. There are many other references to the Standard Oil Co. in the debates: Allison, p. 126; Teller, p. 170; Wilson, p. 337. allows no competitors. Such a combination is far more dangerous than any heretofore invented, and, when it embraces the great body of all the corporations engaged in a particular industry in all of the states of the Union, it tends to advance the price to the consumer of any article produced, it is a substantial monopoly injurious to the public, and, by the rule of both the common and the civil law, is null and void and the just subject of restraint by the courts, of forfeiture of corporate rights and privileges, and in some cases should be denounced as a crime, and the individuals engaged in it should be punished as criminals. It is this kind of a combination we have to deal with now. Do I exaggerate the evil we have to deal with? I do not think so. I do not wish to single out any particular trust or combination. It is not a particular trust, but the system I aim at. I will only cite a very few instances of combinations that have been the subject of judicial or legislative inquiry, to show what has been and what can be done by them, as follows: In Handy vs. C. & M. R. R. Co., 31 Fed. 689, 693. "The Standard Oil Co. and George Rice were competitors in the business of refining oil; the Standard desired to crush Rice and his business, and under threat of building a pipe line, compelled the receiver of the railroad to carry its oil at 10 cents per barrel and charge Rice 35 cents per barrel for a like service, and pay the Standard 25 cents out of the 35 cents thus exacted from Rice." It also appears in an equity suit in Pennsylvania vs. Penn. R.R. (1897), by testimony of A. J. Cassatt, that the Standard Oil Company were receiving rebates of 49c. per bbl. on crude oil from Bradford Oil region to tide water, 514c. from the lower oil region to tide water, and 64 c. from Cleveland to tide water, or the annual illegal receipts by the Standard Oil Co. would have been $5,480,000. I do not wish to single out the Standard Oil Company. . . . I only refer to them because they are the oldest of these combinations founded upon contracts which have been copied by the other corporations.1 Sir, now the people of the United States as well as of other countries are feeling the power and grasp of these conbinations, and are demanding of every legislature and of Congress a remedy for this evil, only grown into huge proportions in recent times. They had monopolies and mortmains of old, but never before such giants as in our day. You must heed their appeal or be ready for the Socialist, the Communist, and the Nihilist. Society is now disturbed by forces never felt before.2 3 The Supreme Court of the United States has now after these 21 years decided that the Standard Oil Company of New Jersey, is an unlawful combination in restraint of interstate and foreign commerce, in violation of the Federal Sherman Anti-trust act of 1890. The court's decision to this effect is unanimous, affirming the unanimous decision of the Circuit Court.4 The court ruled: (1) That the Anti-trust act makes only con 1 See Congressional Record, Vol. 21, March 24, 1980; Bills & Debates, p. 167. 2 Ibid. Bills & Debates, p. 101. United States vs. Standard Oil Co., U.S., (May 15, 1911). 4173 Fed. 177; 152 Fed. 290. tracts and combinations in unreasonable restraint of interstate and foreign trade and commerce illegal, and (2) that the Standard Oil Co. of New Jersey is such a combination. Chief Justice White writes the opinion, Mr. Justice Harlan vigorously dissenting on the first proposition. Whether all the other justices concur in the result only, or also upon the first proposition, is not definitely stated in the reports received; but that a majority of the court concurs on the first proposition is indicated by the words of the Chief Justice that if there are statements in former decisions inconsistent with this, "they are necessarily now limited and qualified." The court had no difficulty in unanimously finding from the facts, that the Standard Oil Company of New Jersey was a combination in unreasonable restraint of interstate commerce. The Circuit Court also had no difficulty in so unanimously finding. Hence, there was no question before the court requiring it to decide that the Anti-trust act applied only to combinations in unreasonable restraint of interstate commerce, and it seems unusual for the court in a case where such a question is not involved to overrule two prior decisions where such a question was directly and necessarily involved and passed upon. The facts are generally known and voluminous (23 volumes, 12,000 pages), yet a summary is proper to show how unnecessary it was for the court in this case to announce the first proposition. The following, gleaned from various sources, but more than confirmed by the record in the case, will make this clear: Oil was "struck" by boring in 1858, in Northwestern Pennsylvania, near Titusville, about 25 miles from Corry, Union City, and Meadville, 125 miles from Cleveland, and 170 from Pittsburg by rail. The Pennsylvania road reached Corry and Union City, and from the latter connected with the Lake Shore, 25 miles away, at Erie; the Erie road ran through Corry, Union City and Meadville. In 1863 the Oil Creek railroad reached Titusville and Oil City from Corry, and the Erie road built to Franklin; in 1868 the Lake Shore completed a line to Oil City. By 1868 successful pipe lines, storage reservoirs, and transferable oil certificates were in use. The first refinery had been built in 1862, in which the processes yet in use were employed. In 1865 Mr. J. D. Rockefeller went into the refining business at Cleveland. In 1876 he took in his brother William and H. M. Flagler. In 1868 Mr. Rockefeller represented to General Devereux, VicePresident of the Lake Shore road, that building refineries at the oil regions would ruin the Cleveland refineries, and destroy the oil traffic of the road; a rebate of 15 cents per barrel from the 40 cent rate on the crude oil from the fields was made to Mr. Rockefeller, and he agreed to fight it out with the oil region refineries. In 1870, the Standard Oil Co. of Ohio was formed by Mr. Rockefeller and his associates with 1 Tarbell, Ida, McClure's Magazine, Nov. 1902, and following. 1. a capital stock of $1,000,000, and their refining capacity was 600 barrels of crude oil daily - the production of all the 150 refineries of the country being 15,000 barrels daily. Some of the railroad officials became stockholders in the Standard Oil Co.3 In 1871 (May 6) the South Improvement Co. was chartered in Pennsylvania, with very broad powers; this was brought to Mr. Rockefeller's attention as early as October, 1871, and he, and four other Standard Oil Co. members, took 1,375 shares of the 2,000 of its stock, and Peter Watson, freight agent of the Lake Shore, took 100 more.5 The company was organized, Watson made president, and January 18, 1872, a contract was entered into with the railroads, signed by the presidents or managers, whereby oil rates were to be doubled, and the South Improvement Co. was to have rebates (40 cents out of 80 cents on crude oil to Cleveland, $1.06 out of $2.56 to New York) on crude oil shipped by it, and 50 cents out of $2.00 on refined, from Cleveland to New York; and in addition to these rebates, the South Improvement Co. was to have drawbacks to the same amount on all oil shipped by all other shippers; the rate from the oil fields to New York, 125 miles nearer than Cleveland, was made $2.92 or 92 cents higher; the railroads agreed to furnish all way bills of all oil shipped by any one and open their books to them (the Improvement Co.) and do everything they could to insure them "against loss or injury by competition." February 12 the Standard increased its stock to $2,500,000, and Mr. Rockefeller proceeded to Cleveland, and told the thirty refineries there that if they didn't sell their property to him it would be valueless there was a combination of railroad and oil men. of the thirty refineries all but four or five sold out at from 45 to 56 per cent of their value. The premature putting into effect of this contract, February 26, almost led to riots in the oil regions, and the railroads were obliged to abrogate it, and there followed legislative investigations and the repeal of the charter, March 25, 1872. A new contract was made with "perfect equality to all shippers," which didn't last two weeks, and it soon became apparent that the railroads "were doing for the Standard secretly just what they had publicly contracted to do for the South Improvement Co."9 The details are obscure in some places. The result, however, was perfectly apparent. The Standard first acquired control of the local pipe lines, by means of drawbacks of 22 cents per barrel allowed to the Standard lines and the other local lines "died off like sheep." "10 In 1875, lower rates were 1 Indus. Com. R., 606, 689. Ibid. 606, 645, 690, 694, 703. 6 I Indus. Com. R., 692, 644. that The result was that 7 Ibid. 616, 644, 648, 692; 43 O. S., 581; Tarbell, Ida, McClure's Magazine, Nov. 1902, and following. * 13 Indus. Com. R., 641. 10 Ibid. 386, 388, 641, 696, 697. I Indus. Com. R., 385-386. given the Standard on western shipments, by allowing them to ship tank cars averaging 100 barrels and billing them at 80 barrels, and, although the tariff rates were charged, "according to some prearranged method," a portion was refunded under the names of "drawbacks" or "rebates." 1 This contract lasted till 1883.2 To enable the Standard to acquire a competing pipe line the New York Central made a rate netting II cents to the Standard, when the open rate was $1.90 from Cleveland to New York. In 1878, the Standard, stating they had regularly received 35 cents commission per barrel from the New York Central, and 20 cents from the Erie, demanded 20 cents per barrel from the Pennsylvania on all oil shipped by these roads, and Mr. Cassatt granted it "after seeing the receipted bills" from the other roads. This amounted on the Pennsylvania alone, in two months, to $68,753. It had been in existence since October 17, 1877, on the other roads. Another contract gave a Standard Oil Terminal Company 22 cents "on all oil transported" by the Pennsylvania Co.5 In these ways, by 1879, the Standard had obtained not only control of the local pipe lines, but also the terminal facilities of the four trunk lines at Philadelphia, Baltimore and New York, and had obtained control of 90 or 95 per cent of the refining business of the country,' and, according to the Hepburn Committee, "the parties who have been driven to the wall have had ample capital and equal ability in the prosecution of their business in all things save their ability to acquire facilities for transportation." 8 6 Similar discriminations by railroad companies in favor of the Standard Oil Co., or of some of its numerous affiliated companies had practically continued to the time of bringing the suit in this case. In 1879, a secret trust agreement was entered into by the thirty-seven stockholders of the Standard Oil Company of Ohio, whereby the stocks of thirty separate competing companies, were turned over to trustees to hold, control and manage for the benefit of the stockholders of the Standard. This was superseded in 1882 by the Standard Oil Trust composed of trustees. Forty corporations (including those of 1879) were taken in, their $56,000,000 of capital stock being exchanged by their stockholders with the trustees for $70,000,000 trust certificates. In the ten years after 1882, the stocks of seventy-eight more companies were acquired, but fifty refineries had been dismantled in the meantime; $12,000,000 more trust certificates had been issued for these properties and $15,000,000 more issued as a stock dividend, making $97,250,000 trust certificates outstanding against property valued at $67,936,000. In March, 1892, the Supreme Court of Ohio declared the Trust illegal 143 O. S., 571, 583-584, from finding of facts by trial court. 2 Ibid. 31 Indus. Com. R., 263, 513, 696, 713. I Ibid. 387. Ibid. 387, 696. 13 Indus. Com. R., 643. 8 19 Indus. Com R., 654. |