Northern Securities Co. v. United States

193 U.S. 197 (1904), argued 14–15 Dec. 1903, decided 14 Mar. 1904 by vote of 5 to 4; Harlan for the Court, Brewer concurring, White and Holmes in dissent. At the end of the nineteenth century, the Court had begun to find some teeth in the Sherman Antitrust Act. However, it was only when Theodore Roosevelt sought to dissolve the Northern Securities Company, which held the stock of three major railroads, that the question arose whether the statute reached stock ownership.

Reading both congressional power and the law broadly, Justice John Marshall Harlan said that the Court could not properly concern itself with any adverse effects on the business community a decision to dissolve the company would have. A majority was formed when Justice David Brewer, who believed that the Sherman Act should apply only to unreasonable restraints of trade, pronounced the restraint here unreasonable. All the dissenters agreed with Justice Edward White's contentions that the restraint shown here was reasonable, that a broad interpretation of the act would unsettle business, and that congressional control over commerce could not embrace stock ownership. They also joined Justice Oliver Wendell Holmes's opinion, which argued that the Sherman Act must be interpreted strictly to ensure its constitutionality; otherwise the most local of transactions would be brought within the ambit of Congress's control of interstate commerce (see Commerce Power). In *Standard Oil Co. v. United States (1911), Chief Justice White persuaded the Court to limit the Sherman Act's reach solely to unreasonable restraints of trade.

See also Antitrust.

— John E. Semonche

• 193 U.S. 197 (1904)
• Vote: 5–4
• For the Court: Harlan
• Concurring: Brewer
• Dissenting: White, Holmes, Fuller, and Peckham

J. P. Morgan, James J. Hill, and Edward H. Harriman were powerful stock market speculators and investors who were interested mainly in railroads. Each desperately desired to control the three leading railroads linking the Great Lakes and the Pacific Northwest. In 1901 they battled fiercely on the stock exchange to gain control of the railroads. None of the three succeeded, so they settled their differences and joined together to form the Northern Securities Company to control the three railroads. They chartered their company under New Jersey laws.

In 1890, however, Congress had passed the Sherman Antitrust Act in an effort to prevent the growth of business monopolies. (A monopoly is the exclusive control of an industry by a single owner or company.) This law prohibited trusts, or business combinations “in restraint of trade or commerce among the several States.” Congress had the power to pass that law under the commerce clause of the Constitution (Article 1, Section 8), which had been defined broadly in the Supreme Court case Gibbons v. Ogden (1824). But the Sherman Antitrust Act was vague. What did “restraint of trade and commerce” mean?

The government argued that the Northern Securities Company was guilty of the very thing the law forbade. The Sherman Act aimed to prevent monopolies from taking over an industry or an aspect of an industry. The Northern Securities Company controlled all of the major railroads throughout a huge section of the country. If the Court allowed the three competing railroads to merge into one giant company, competition in the area would disappear. Because people had no alternative method of transportation, the Northern Securities Company would have been able to charge them exorbitant fees. Serving only the narrow interests of Morgan, Hill, and Harriman, this monopoly would harm the public and nation.

The Northern Securities Company argued that the federal government could not interfere with its affairs because it was merely a holding company created by a stock transaction. (A holding company is created solely to hold the ownership rights to two or more companies. But the holding company, as an administrative convenience, does not by itself deal in commerce.) Legally, under New Jersey laws, the corporation therefore did not deal in commerce. Federal government interference would violate state powers as protected by the 10th Amendment.

The Issue

Did the combination of railroads under the Northern Securities Company represent a “restraint of trade or commerce” covered by the Sherman Antitrust Act? Or was the combination just a stock transaction, not commerce? If it was the latter, it merited legal recognition under New Jersey law and 10th Amendment protection.

As often happens in Supreme Court cases, however, this specific question reflected a larger, more general issue. Could the national government regulate the activities of the huge, powerful businesses that were developing in the nation? A decision in favor of the Northern Securities Company would greatly limit the effectiveness of the Sherman Antitrust Act and the ability of the government to gain some control over business.

Opinion of the Court

The Supreme Court ruled in favor of the government. It found that the Northern Securities Company intended to eliminate competition among the railroads involved. Hence, the company was “a combination in restraint of interstate commerce” and was illegal under the Sherman Antitrust Act.

The Court interpreted the act broadly. Justice John Harlan wrote that a combination of businesses, a trust, did not need to engage directly in commerce to violate the act. If it restrained commerce in any way, a trust was illegal.

Dismissing the argument that the Sherman Act violated state powers under the Constitution, Harlan said a state law could not confer immunity from federal law. In regulating interstate commerce, Congress superseded the states' power to create corporations. Acting within its legitimate sphere, such as regulating commerce, the national government was supreme.

Dissent

Chief Justice Edward D. White argued that Congress could not regulate the ownership of stock through laws such as the Sherman Antitrust Act because this was a violation of powers reserved to the states by the 10th Amendment. He also claimed that a broad interpretation of the Sherman Act would have a negative effect on business.

Significance

The Court's decision helped establish increased government control of trusts and monopolies. The Northern Securities case symbolized the federal government's right and duty to regulate the national economy for the public good. The Court's ruling gave the federal government the authority to begin to exercise stricter supervision of the growing number of large American corporations. For example, the Federal Trade Commission Act of 1914 provided for regulation of businesses to prevent activities that would reduce competition in the marketplace or cheat consumers.

See also Commerce power

Sources

• R. W. Apple, Jr., “The Case of the Monopolistic Railroadmen,” in Quarrels That Have Shaped the Constitution, edited by John A. Garraty (New York: Harper & Row, 1987)