Related court cases

Standard Oil Company v. US (1911)

• Conduct
  • In the 1870’s, three businesspeople conspired to create the oil company Standard oil
  • By 1872, Standard Oil acquired 35 to 40 refineries in the Cleveland area and used its buying power to extract illegal discounts from pipelines and railroads, engaged in espionage, market allocation schemes, and even set up fake competitors.
• Decision
  • The Supreme Court found Standard Oil guilty of an antitrust violation under Section 2 of Sherman Act.
  • The Standard Oil Corporation was horizontally divested into smaller companies.
• Rule of reason applied
  • Standard Oil’s dominant market position is not per se violation of Section 2 of Sherman Act.
  • Standard Oil wasn’t guilty merely because it was a monopoly, but rather how they became a monopoly
  • Examined whether Standard Oil’s dominant market power is a result of superior efficiency (performance) or abusive business practices
• Established abuse theory of monopoly
  • Only a monopoly who gained its power through abuse means (i.e. predatory pricing, forcing out competitors, etc.) was guilty of antitrust violation (purpose and intent to monopolize should be evident)

US v. American Tobacco Company (1911)

• Conduct
  • In 1890, five cigarette firms merged to form American Tobacco Company, accounting for 95% of the market.
  • American Tobacco was found to have engaged in several activities with the intention to monopolize the trade by driving competitors out of business
  • Initiated price wars, buying up competitors, then closing them down
• Decision
  • The Supreme Court found American Tobacco guilty of monopolization
  • This ruling was consistent with the abuse theory of monopoly

US v. US Steel (1920)

• Conduct
  • In 1901, US Steel formed as a combination of 180 independent steel producers, controlling 80-95% of steel production in the US
  • The 180 formerly independent steel producers (US Steel) engaged in price fixing; however, they did not engage in coercion or predatory pricing
  • Before an antitrust suit was filed, they abandoned price-fixing activities and by the time an antitrust suit was filed, their market share had fallen to roughly 40%
• Decision
  • Supreme Court found US Steel innocent of any antitrust violation
  • The court found that US Steel did not have substantial market power, stating that “the law does not make mere size an offense, or the existence of unexerted power an offense. It … requires overt acts.”
  • Considered as a successful defense using abuse theory of monopoly

US v. Aluminum Company of America (1945)

• Case Description
  • This case is notable for being a controversial departure from the abuse theory of monopoly
  • Through 1912, Alcoa was the dominant manufacturer of aluminum
  • They controlled the two main patents to affordably produce aluminum
  • They were known to practice market division with foreign aluminum producers and cut deals with electric companies to exclude competitors
  • In 1912, Alcoa entered a consent decree with the US government that banned any furthur use of restrictive practices
    • Consent decree is an agreement between involved parties that is approved by the court
  • From 1912 to 1940, despite of having to operate under consent decree, Alcoa was the sole producer of aluminum in the US (no patent protection, did not engage in restrictive practices)
• Decision
  • In 1945, Alcoa was found guilty of antitrust violation
  • This case set precedent that anything other than becoming a monopoly accidentally was illegal
  • The judge decided that Alcoa’s monopoly status did not happen accidentally by its own efficiency but its persistent determination to maintain control.
  • Alcoa carefully calculated market behavior in a way to invent new uses of aluminum to create additional demand and made sure that it could fulfill those additional demand
  • The Court found a structural monopoly violates section 2 of Sherman Act unless the monoply was thrust upon the firm or was the result of superior skill

US v. Griffith (1948)

• Conduct
  • Griffith owned movie theaters in 85 towns in the southwest, and owned the only movie theater in 53 of these towns
  • They negotiated screenings using all of their theaters, giving them tremendoes buying power with film distributors
  • This buying power often gave Griffith exclusive rights to first-run movies in towns where it faced competition
• Decision
  • The Supreme Court found that although there was no monopolistic intent, the final result was a monopoly exerting market power, thus Griffith was guilty of an antitrust violation
  • This set precedent that intentions are not necessary to establish innocence or guilt in an antitrust case

It follows a fortiori that the use of monopoly power, however lawfully acquired, to foreclose competition, to gain a competitive advantage, or to destroy a competitor is unlawful.