Ruling Court Case No. 2. United States Vs. United States Steel Co., United States District Court Of New Jersey, June, 1915

The United States Government brought this action against the United States Steel Company to dissolve said company because of alleged violations of the Sherman Anti-Trust Act. This suit was started by the Administration of President Taft, and continued by the attorney general under President Wilson.

The government contended that the committee meetings, participated in by ninety-five per cent of the steel trade of the country, were illegal and unlawful combinations to control prices; but as these meetings, known as the "Gary dinners," had stopped before the government filed its suit in October, 1911, there was no occasion for injunction on this ground.

Four judges, Buffington, McPherson, Hunt, and Woolley, sat in this case. Judges Woolley and Hunt concurred in one opinion and Judges Buffington and McPherson in the other. The court was unanimous in its opinion that the United States Steel Company was not in violation of the Sherman Act at the time suit was brought.

Judges Woolley and Hunt agreed that the original combination was a deliberate effort to secure a monopoly of the steel trade, but was unsuccessful, because the undertaking was too large. Their theory seems to be that the potential size and control of the combination is the test of illegality rather than the result of the combination, and since the evidence showed that sixty per cent of the steel business of the country is done by the company's competitors, it is not in violation of the Anti-Trust Act.

Judges Buffington and McPherson based their decisions upon the rule laid down in the Standard Oil and Tobacco cases, that combinations are illegal, which prejudice public interest by unduly restricting trade. Their theory seems to be that the test of illegality is the result of the combination rather than its powers, and, since the effect of the steel trust has been to expand, to develop, to stimulate trade, especially foreign, the company is, in fact, a tonic, not a depressant, and that, therefore, it does not fall within the act. Judgment was given for the United States Steel Company. The United States Government appealed the case to the United States Supreme Court.

Ruling Law. Story Case Answer

The International Harvester Company case, and the Steamship Pool case (the Story Case) present a new issue in the development of the law under the Sherman Anti-Trust Act. When it is conceded that a given combination or organization of capital has promoted the public welfare, should this combination be nevertheless condemned because of its mere size? The majority opinion in the International Harvester Company case agree on the fact that bigness or size is not a crime when natural growth and development lead to bigness. A corporation, apparently, may expand indefinitely by building branches or acquiring plants by direct purchase. The government apparently will not say to a growing corporation, "You may grow to this point, but you must stop here." But, in accordance with the International Harvester case, it will forbid competing corporations to combine, if a certain size has been reached. No size limit was stated, and, apparently, this will be determined from the facts of each case when it comes before the court.

The court apparently lays down the rule that mere power, beyond a certain point, renders a combination unlawful. The fact that no injury has been committed to the public, or to rival competitors, is absolutely immaterial. The fact that there is a combination of former competitors, is altogether sufficient, provided it is of the right size, to render the contract of combination illegal and unlawful. The opinions of Judges Wooley and Hunt in the United States Steel Case concur in this point of view, but they held in favor of the steel company because the evidence proved that real competition existed. Apparently, in accordance with their opinions, the United States Steel Company had not reached the right size to come within the pale of the Sherman Act.

If these opinions state the present interpretation of the Anti-Trust Law, there is a wide divergence from the Common Law meaning of the term "restraint of trade," and from the interpretation of the law in the Standard Oil and Tobacco cases. These last named cases brought back the "rule of reason," and declared that the Anti-Trust Law embraced only those acts which operated to the prejudice of the public interest.

Judge Buffington, in the Steel Case, observes this point of view. He states that the question is not how much or how large, but in what manner was the business done. The Common Law, as to restraint of trade, was only recently declared anew by the House of Lords, the highest court of Great Britain, in the Northwestern Salt Company vs. Electrolytic Alkali Company. This decision will no doubt have great weight with our Supreme Court. The court there held that the decision must depend upon the injury or benefit to the public, resulting from the combination.

Lord Chancellor Haldane said: "Unquestionably, the combination in question was one, the purpose of which was to regulate supply and keep up prices. But an ill-regulated supply and unremunerative prices may, in point of fact, be disadvantageous to the public. Such a state of things may, if it is not controlled, drive manufacturers out of business or lower wages, and so cause unemployment or labor disturbance. It must always be a question of circumstances whether a combination of manufacturers in a particular trade is an evil from a public point of view."

The Story Case is based upon the Court Case, known as the Steamship Pool case, decided recently in the United States District Court of New York. The court in that case unanimously refused to dissolve the combination itself, on the broad ground that the evidence proved no injury to the public, but rather a benefit. The court agreed that without some method of regulating competition, there would be a succession of rate wars, and great injury done to the public.

It is submitted that the court, in the Steamship Pool case, lays down the correct statement of the law, following the rule of reason of the Common Law and the earlier cases decided under the Sherman Act. Under this interpretation of the law, the Sherman Act, along with the new Clayton Act, adequately meet the economic and social situation.

Each case must be decided on its own merits. A combination founded to control trade, and stifle competition by anti-social and reprehensible means, will be condemned by the rule of reason. Those combinations which do not injure the public, but on the contrary promote trade and benefit of the public, shall continue subject, of course, always to governmental interference, should they become inimical to public welfare. Each case must be decided upon a thorough understanding of the social and economic facts involved, and upon the requirements of the business in relation to the welfare of the people as a whole. The cases will then possess consistency and continuity. This is sound economics and sound law, because, fundamentally, the whole basis of our Anglo-Saxon jurisprudence rests upon the discretion and discrimination of the courts, who work out for the community rules of public policy, guided by the light of reason. In accordance with this reasoning, the court, in the Story Case, will decide not to dissolve the North Atlantic Conference.