Anaya Nolan
The Standard Oil Company was a petroleum conglomerate founded by John D. Rockefeller in the 1860s. By 1870, the company had acquired a monopoly on oil refining in the United States. In 1909, the Department of Justice filed a federal antitrust lawsuit against Standard Oil, arguing that the company had restrained trade through its control of pipelines and preferential deals with railroads. The Supreme Court ruled against Standard Oil in 1911, finding that the company had violated the Sherman Antrust Act by engaging in unreasonable restraint of trade and ordering the company to break itself up.
| Characteristics | Values |
|---|---|
| Law broken | Sherman Antitrust Act |
| Ruling | Standard Oil was in violation of the Sherman Antitrust Act |
| Reasoning | Standard Oil was deemed to have illegally monopolised the American petroleum industry |
| Result | The Supreme Court ordered the dissolution of Standard Oil |
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What You'll Learn
Standard Oil was found to have illegally monopolised the American petroleum industry
Over the course of the 1870s, the Standard Oil Company of Ohio had acquired a monopoly on oil refining in the United States. By 1880, the company had 90% of American refining capacity. However, by 1911, this had shrunk to between 60 and 65% due to the expansion of competitors.
The Department of Justice filed a federal antitrust lawsuit against Standard in 1909, arguing that the company restrained trade through its preferential deals with railroads, its control of pipelines, and its engagement in unfair practices like price-cutting to drive smaller competitors out of business. The Supreme Court ruled that Standard Oil was in violation of the law "on the ground that it is a combination in unreasonable restraint of inter-State commerce".
The decision set a precedent that only "unreasonable" restraints on trade were banned by US antitrust law, an interpretation known as the "rule of reason". This narrow definition of illegal monopoly was criticised by antitrust advocates as favouring the trusts.
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The company was sued by the federal government
The case against Standard Oil was the first test of the Sherman Antitrust Act of 1890, which prohibits the restraint of trade. The federal courts ruled that Standard Oil had indeed restrained trade, despite defenders of the company insisting that they were simply superior competitors.
The Supreme Court ruled against Standard Oil in 1911, ordering the company to break itself up. The court ruled that Standard Oil was "a combination in unreasonable restraint of inter-State commerce". This ruling set a precedent that only “unreasonable” restraint of trade constitutes a monopoly.
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![The Great Oil Octopus. [1911]](https://m.media-amazon.com/images/I/41kTRtsmUPL._AC_UY218_.jpg)
Standard Oil was in violation of the Sherman Antitrust Act
The Sherman Antitrust Act of 1890 prohibits the restraint of trade. Standard Oil was found to have restrained trade through its preferential deals with railroads, its control of pipelines, and by engaging in unfair practices like price-cutting to drive smaller competitors out of business. The company was also found to have used its size to receive benefits not available to smaller companies, such as discount rates from railroads.
The Supreme Court ruled against Standard Oil in 1911, ordering the dissolution of the company. The ruling stated that Standard Oil was "a combination in unreasonable restraint of inter-State commerce". This interpretation of the Sherman Antitrust Act, that only \"unreasonable\" restraint of trade constitutes a monopoly, was seen as a narrow decision that favoured the trusts.
Despite this ruling, defenders of Standard Oil insist that the company did not restrain trade, but was simply a superior competitor. Some economic historians have also observed that Standard Oil was in the process of losing its monopoly at the time of its breakup in 1911. The company's market share had shrunk from 90 percent in 1880 to between 60 and 65 percent in 1911 due to the expansion of competitors in the industry.
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The company was found to have restrained trade
The Standard Oil Company was found to have restrained trade by making preferential deals with railroads, controlling pipelines, and engaging in unfair practices like price-cutting to drive smaller competitors out of business. This was in violation of the Sherman Antrust Act of 1890, which prohibits the restraint of trade. The company was also found to have illegally monopolised the American petroleum industry.
The Department of Justice filed a federal antitrust lawsuit against Standard in 1909, and the Supreme Court ruled against the company in 1911, ordering its breakup. The court ruled that Standard Oil was "a combination in unreasonable restraint of inter-State commerce". This interpretation of the law, which held that only "'unreasonable' restraints on trade constitute a monopoly, came to be known as the "rule of reason".
Defenders of Standard Oil insist that the company did not restrain trade and was simply a superior competitor. Some economic historians have observed that Standard Oil was in the process of losing its monopoly at the time of its breakup in 1911. The company's market share had shrunk from 90 percent in 1880 to between 60 and 65 percent in 1911 due to the expansion of competitors.
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The Supreme Court ordered Standard Oil to break itself up
In 1911, the Supreme Court ordered the Standard Oil Company to break itself up, ruling that it was in violation of the Sherman Antitrust Act of 1890. The company had been sued by the federal government after journalist Ida M. Tarbell exposed its shady dealings. The Supreme Court ruled that Standard Oil had illegally monopolised the American petroleum industry, and that it had restrained trade through its preferential deals with railroads, its control of pipelines, and its unfair practices, such as price-cutting to drive smaller competitors out of business.
The Sherman Antitrust Act prohibits the restraint of trade. Defenders of Standard Oil insisted that the company did not restrain trade, but was simply a superior competitor. However, the federal courts ruled otherwise.
The Supreme Court's decision also held that U.S. antitrust law bans only "unreasonable" restraints on trade, an interpretation that came to be known as the "rule of reason". This ruling was received by antitrust advocates as a narrow decision that favoured the trusts.
The rise of corporate trusts and monopolies in the Progressive Era spurred Congress to legislate regulations on business practices. The first such law was the Sherman Antitrust Act, which met its greatest test in the case against Standard Oil. Congress strengthened antitrust laws with the Federal Trade Commission Act and Clayton Antitrust Act.
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Frequently asked questions
The Sherman Antitrust Act of 1890.
The company restrained trade through its preferential deals with railroads, its control of pipelines and by engaging in unfair practices like price-cutting to drive smaller competitors out of business.
The Supreme Court ordered the dissolution of the Standard Oil Company in 1911, ruling that it was in violation of the Sherman Antitrust Act.
The case was a landmark decision that set a precedent for interpreting U.S. antitrust law as banning only \"unreasonable\" restraints on trade, an interpretation known as the "rule of reason".
