Significance: This Supreme Court case limited the scope of the Sherman Antitrust Act of 1890. The ruling created a “rule of reason” test. Only companies that unreasonably restricted free trade could be dissolved by the act.
Background: In 1909 a federal court found Standard Oil Company of New Jersey in violation of the Sherman Antitrust Act because it was a combination in restraint of trade. The court ordered the company dissolved. John D. Rockefeller, the owner of Standard Oil, challenged this action, arguing that the act went beyond the powers of Congress to regulate commerce. In addition, Rockefeller contended that the dissolution of Standard Oil reduced his right to property and violated the freedom of contract.
Decision: This case was argued on March 14­16, 1910; reargued on January 12­17, 1911; and decided on May 15, 1911 by a vote of 9 to 0. Chief Justice Edward White spoke for the Court, which upheld the order to dissolve Standard Oil under the Sherman Antitrust Act. However, the Court also created a "rule of reason" test to determine when the act could be used to dissolve companies. Only when companies caused "unreasonable" restraints on free trade could the act be used. This decision was criticized on all sides. Business owners complained that it created new obstacles for earning profit. Reformers protested that the ruling weakened the act considerably.
Excerpt from the Opinion of the Court: “It becomes obvious that the criteria to be resorted to in any given case for the purpose of ascertaining [determining] whether violations of the [Sherman Antitrust Act] have been committed is the rule of reason guided by the established law and by the plain duty to enforce the prohibitions of the act, and thus the public policy which its restrictions were obviously enacted to subserve [to help].”
