U.S. 211, Addyston Pipe and Steel Company v. U.S. (1899)
U.S. 211, Addyston Pipe and Steel Company v. U.S. (1899)
1. Provision of the Antitrust Laws
The provisions invoked in the case were sections one and two of the Sherman Act, 1890. The provisions illegalized any persons or group of persons who shall in one way or another conduct themselves in a manner that would restrain trade. The conduct includes matters of contract and or trusts. In addition, the Constitutional clause on commercial transactions between states was also invoked as being ancillary to the matters at hand.
2. The basis of the ruling
The judges at the Supreme Court affirmed the holding of the lower court which found that the defendants’ actions amounted to restrain to trade and that as such, the restrain to trade could not be enforced by the courts. The matter at hand was the fact that the group of defendants had entered into a local agreement among themselves. In that group, each member would be entitled to a tender as agreed in by the group. They agreed that other members, not entitled to a current floated tender, would overvalue their quotations and the one entitled to the tender quotes a lower value. This way, the one entitled to the tender had a better chance of clinching the tender at least among the group members. The United States of America sued the group seeking to have the court hold that the agreement was in restrain to trade and thereby invalid and unenforceable. The Court of Appeal ruled that the contract and/or the agreement amounted to a restrain to trade and that the intention of the Sherman’s Act was to prevent restrain to trade and promote fair trading practices. In addition, in the obiter of the Court of Appeal’s Judge, it was held that contracts whose sole intention is to increase the costs of goods are illegal and not enforceable. It was discovered that the defendant’s quoted price in that case was way above the market value per pipe. The Court of Appeal, therefore, found the provision of the group illegal and amounting to a restraint of trade. The defendants appealed to the Supreme Court. In the subsequent appeal at the Supreme Court, the defendants invoked the provisions of the Commerce Clause of the Constitution arguing that it did not intend to control and regulate agreements entertained among private persons. The Supreme Court affirmed the Court of Appeal’s holding insisting that the contract contravened the provisions of the Sherman’s Act and that the Commerce Clause of the Constitution could not be relied on to cure that defect in law.
The structure of the market in which the corporations operated was monopolistic in nature with free entry and exit. However, since the defendants had the intention of enjoining in the floated tenders among themselves they had entered into agreements that would limit competition among themselves. Indeed, the internal local agreements among the group members clearly amounted to restraint of trade among the group members. In addition, it should be appreciated that corporations that were involved were American corporations. Therefore, they were subject to the law of antitrust in the Sherman Act and the overall law which is the Constitution of the United States of America. The price fixing in this case, therefore, occurred through the group’s mutual agreement to have one corporation under quote below the floated costs by others. This pricing strategy would devolve competitive advantages to the corporation that under quotes to the detriment of the others. In other words, it can be said that the corporations (defendants) had integrated horizontally in the sense that they all specialized in the production of similar services yet entered into a deal to work as a group to the advantage of each of the member’s interests. This created a market imperfection in the sense that fair competition was reduced in one way or another. The reduction of competition was seen in the deliberate pricing method that ended up favoring only one corporation at a time.
3. Conduct considered anticompetitive
The conduct that was considered anticompetitive was the relation upon which the defendants were operating. The fact that the defendants had entered an agreement to ensure that each party to the contract had a chance to clinch the tender floated to the public. The contest in the fact that the other corporations in the group not enjoying the chance were required to over quote their quotation. In addition, another issues identified by the judges against the corporation was the fact that the price still offered by the corporation enjoying the chance was way above than the market rate. This was read in connection with the Sherman Act provision in regard to restraint of trade with result of advancing the costs to the disadvantage of the final consumers.
4. Effect of Conduct on others
The conduct of the defendants had the effect of controlling the market for selfish motives and to the detriment of the other market players. In addition, the agreement meant that only one member of the group would be availed the opportunity of winning a tender to the disadvantage of other group members . Moreover, the arrangement was anticompetitive because it aimed at minimizing competition among a group of companies to the disadvantage of other companies and entities in the market.
5. Initial legal action
This case was first heard at the District Courts. The District Court dismissed the case in favor of the defendants. The United States appealed in the Circuit Court of Appeals. In the Appeal Court, the judges ruled in favor of the United States of America. It had ordered that the agreement amounted to a restraint to trade and that it was as such not enforceable. The defendants then appealed at the Supreme Court which affirmed the ruling at the Court of Appeal.
6. Subsequent legal action
The Supreme Court serves as the final arbiter in the American judicial system. In that vein, it marked the final step in the litigation process. However, it should be noted that the court’s decision was a landmark ruling and has since been resided upon as a good precedent to illustrate how the court can come in on matters involving private persons but with the same consequence of restraining trade.
7. Model of Structure, Conduct and Performance
The market in which the defendants operated was a monopolistic market in which any entity had free entry and exit. For that reason, the entities had to organize themselves into competitive units either as single entity or joint entities. The defendant corporations strategized on how to fit as players in the monopolistic market. They had to behave in a manner that would enable them advance of their economic interests. After all, any business seeks to maximize profits. For that reason they settled on a system that would limit competition among themselves. It should be appreciated that tenders are always awarded to the lowest bidder. Therefore, they agreed that they would decide on a single member who would win a tender each time on a rotational basis. During the tendering process, other members within the group would deliberately over quote their bids. This way, the member that was selected for the tender will have a higher chance of winning the tender. This conduct was considered anticompetitive by the Court. The basis for the Court’s ruling was predicated on the provisions as to antitrust in the Sherman Act and by extension constitutional provisions in regard to the Commerce Clause. It was noted by the Court that their action amounted to advancing the costs of products to the final consumers contrary to the provisions of the Sherman Act, sections one and two. The performance of that agreement had adverse effects on the market. It did not only prevent other corporations and entities from competing fairly but also effectively raised the costs of the final output to the detriment of the consumers. It was on this basis that the court ruled that the agreement was illegal and unenforceable. The Supreme Court equally upheld the ruling from the Court of Appeal on the grounds that the provisions of the Sherman Act were to be applicable even in respect to private organizations in their own arrangements as long as the matters had an effect on the public eventually. The court must have been motivated by the need to defend and protect the underlying framework from which the monopolistic market operated. It must have been in the interest of the public through the court to stop the group of corporations from practices in respect to restraint to trade. The performance of the agreement if left unregulated by the Court would have the effect of committing an offence in respect to restraint to trade. It would have been contrary to the Sherman Act and, therefore, would have equated the Act to a mere piece of paper. The ruling must, therefore, be appreciated for its singular contribution to the jurisprudence as to the actualization of the Sherman Act. It equally proved that the Courts could be on to protect the interests of the public in as far as the commercial matters were concerned.
Addyston Pipe & Steel Co. v. United States - 175 U.S. 211 (1899), 175 US 211 (Supreme Court December 4, 1899).
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