Sherman Act

The Sherman Act: Sugar Trust Case

Congress's chief effort to regulate commerce in the primary sense of “traffic” is embodied in the Sherman Antitrust Act of 1890, the opening section of which declares “every contract, combination in the form of trust or otherwise,” or “conspiracy in restraint of trade and commerce among the several States, or with foreign nations” to be “illegal,” while the second section makes it a misdemeanor for anybody to “monopolize or attempt to monopolize any part of such commerce.” 1 The act was passed to curb the growing tendency to form industrial combinations, and the first case to reach the Court under it was the famous Sugar Trust Case, United States v. E. C. Knight Co.2 Here the government asked for the cancellation of certain agreements, whereby the American Sugar Refining Company, had “acquired,” it was conceded, “nearly complete control of the manufacture of refined sugar in the United States.”

More about the Sugar Trust Case

The question of the validity of the Act was not expressly discussed by the Court but was subordinated to that of its proper construction. The Court, in pursuance of doctrines of constitutional law then dominant with it, turned the Act from its intended purpose and destroyed its effectiveness for several years, as that of the Interstate Commerce Act was being contemporaneously impaired. The following passage early in Chief Justice Fuller's opinion for the Court sets forth the conception of the federal system that controlled the decision: “It is vital that the independence of the commercial power and of the police power, and the delimination between them, however sometimes perplexing, should always be recognized and observed, for while the one furnishes the strongest bond of union, the other is essential to the preservation of the autonomy of the States as required by our dual form of government; and acknowledged evils, however grave and urgent they may appear to be, had better be borne, than the risk be run, in the effort to suppress them, of more serious consequences by resort to expedients of even doubtful constitutionality.” 3

Sugar Trust Case: Developments

In short, what was needed, the Court felt, was a hard and fast line between the two spheres of power, and, in a series of propositions, it endeavored to lay down such a line: (1) production is always local, and under the exclusive domain of the states; (2) commerce among the states does not begin until goods “commence their final movement from their State of origin to that of their destination;” (3) the sale of a product is merely an incident of its production and, while capable of “bringing the operation of commerce into play,” affects it only incidentally; (4) such restraint as would reach commerce, as above defined, in consequence of combinations to control production “in all its forms,” would be “indirect, however inevitable and whatever its extent,” and as such beyond the purview of the Act.4 Applying this reasoning to the case before it, the Court proceeded: “The object [of the combination] was manifestly private gain in the manufacture of the commodity, but not through the control of interstate or foreign commerce. It is true that the bill alleged that the products of these refineries were sold and distributed among the several States, and that all the companies were engaged in trade or commerce with the several States and with foreign nations; but this was no more than to say that trade and commerce served manufacture to fulfill its function.”

Other Aspects

“Sugar was refined for sale, and sales were probably made at Philadelphia for consumption, and undoubtedly for resale by the first purchasers throughout Pennsylvania and other States, and refined sugar was also forwarded by the companies to other States for sale. Nevertheless it does not follow that an attempt to monopolize, or the actual monopoly of, the manufacture was an attempt, whether executory or consummated, to monopolize commerce, even though, in order to dispose of the product, the instrumentality of commerce was necessarily invoked. There was nothing in the proofs to indicate any intention to put a restraint upon trade or commerce, and the fact, as we have seen, that trade or commerce might be indirectly affected was not enough to entitle complainants to a decree.” 5

Resources

References

This text about Sherman Act is based on “The Constitution of the United States of America: Analysis and Interpretation”, published by the U.S. Government Printing Office.

[Footnote 1] 26 Stat. 209 (1890); 15 U.S.C. §§ 1-7.

[Footnote 2] 156 U.S. 1 (1895).

[Footnote 3] 156 U.S. at 13.

[Footnote 4] 156 U.S. at 13-16.

[Footnote 5] 156 U.S. at 17. The doctrine of the case boiled down to the proposition that commerce was transportation only, a doctrine Justice Harlan undertook to refute in his notable dissenting opinion. “Interstate commerce does not, therefore, consist in transportation simply. It includes the purchase and sale of articles that are intended to be transported from one State to another&emdash;every species of commercial intercourse among the States and with foreign nations.” 156 U.S. at 22. “Any combination, therefore, that disturbs or unreasonably obstructs freedom in buying and selling articles manufactured to be sold to persons in other States or to be carried to other States&emdash;a freedom that cannot exist if the right to buy and sell is fettered by unlawful restraints that crush out competition&emdash;affects, not incidentally, but directly, the people of all the States; and the remedy for such an evil is found only in the exercise of powers confided to a government which, this court has said, was the government of all, exercising powers delegated by all, representing all, acting for all. McCulloch v. Maryland, 4 Wheat. 316, 405.” 156 U.S. at 33.

Sherman Act Revived

Four years later came Addyston Pipe and Steel Co. v. United States,6 in which the Antitrust Act was successfully applied to an industrial combination for the first time. The agreements in the case, the parties to which were manufacturing concerns, effected a division of territory among them, and so involved, it was held, a “direct” restraint on the distribution and hence of the transportation of the products of the contracting firms. The holding, however, did not question the doctrine of the earlier case, which in fact continued substantially undisturbed until 1905, when Swift & Co. v. United States 7 was decided.

Resources

References

This text about Sherman Act is based on “The Constitution of the United States of America: Analysis and Interpretation”, published by the U.S. Government Printing Office.

[Footnote 6] 175 U.S. 211 (1899).

[Footnote 7] 196 U.S. 375 (1905). The Sherman Act was applied to break up combinations of interstate carriers in United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290 (1897); United States v. Joint-Traffic Ass'n, 171 U.S. 505 (1898); and Northern Securities Co. v. United States, 193 U.S. 197 (1904).

In Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 229-39 (1948), Justice Rutledge, for the Court, critically reviewed the jurisprudence of the limitations on the Act and the deconstruction of the judicial constraints. In recent years, the Court's decisions have permitted the reach of the Sherman Act to expand along with the expanding notions of congressional power. Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186 (1974); Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738 (1976); McLain v. Real Estate Bd. of New Orleans, 444 U.S. 232 (1980); Summit Health, Ltd. v. Pinhas, 500 U.S. 322 (1991). The Court, however, does insist that plaintiffs alleging that an intrastate activity violates the Act prove the relationship to interstate commerce set forth in the Act. Gulf Oil Corp, 419 U.S. at 194-99.

Tables of Contents

• Sherman Act and other Topics in the Contents – Article 1 of the U.S. Constitution
• U.S. Constitutional Law Category
• List of amendments to the U.S. Constitution
• Sherman Act and other Topics in the Constitution Contents
• Interpretation of the U.S. Constitution (Table of Contents)
• Clauses of the Constitution (Table of Contents)