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End Standard Oil consent decree, DOJ says

By Claude Marx

Published on May 6, 2019 in Issue 960

Theodore Roosevelt and William Howard Taft are either frowning in their graves or realizing their efforts succeeded.

The nation’s two most prominent presidential trustbusters led the government’s effort to break up John D. Rockefeller’s Standard Oil Company. But the Justice Department recently asked the US Court of Appeals for the Eighth Circuit to vacate the decree.

“This court should terminate this judgment because of its age, but also because Standard Oil was dissolved and the other individual defendants are deceased. As a result, the decree is no longer necessary,” the DOJ stated in its filing.

The nine-page decree first agreed to in 1909 ordered Rockefeller and other executives to give up control of 37 companies they used to control the oil industry. The Roosevelt administration’s DOJ filed a lawsuit in 1907 because Standard Oil and its subsidiaries controlled 85 percent of the market. The company was later divided into 34 smaller companies. Those companies became petroleum giants Chevron, ConocoPhillips and Exxon Mobil.

Federal Trade Commission member Noah Phillips expressed skepticism about the decree’s effectiveness. “The evidence that the Standard Oil breakup significantly increased competition or benefited consumers is not compelling,” Phillips said in an April 30 speech at the Hudson Institute.

“I didn’t know there was still an order,” Bernard Clark, who co-chairs the energy practice of Houston-based law firm Haynes and Boone, told FTCWatch.

He said there was some consensus that the decree wasn’t needed because by the time it was issued, Standard Oil couldn’t control the market because of developments, including the discovery of oil at Spindletop, an oil field on top of a salt dome near Beaumont, Texas, which vastly expanded production.

“The current US petroleum market has many companies and competition is quite vigorous. It’s a robust, efficient and competitive market, with thousands of independent producers, and also you don’t have a monopsony because there is no single purchaser,” Clark said.

Clark is not only an expert regarding the contemporary energy industry, but also the author of “Oil Capital: The History of American Oil, Wildcatters, Independents and Their Bankers,” a 2016 book tracing the industry's beginnings in the US.

The DOJ’s recent move is part of an initiative launched last year by Assistant Attorney General for Antitrust Makan Delrahim that resulted in more than 100 requests to terminate decrees.

“Firms bound by perpetual decrees based on an outmoded per se view of a restraint are unfairly prevented from adopting policies that, if adopted by rival firms and analyzed under the ‘rule of reason,’ may be perfectly lawful and procompetitive. Such an imposition obviously denies consumers the benefits of market competition,” he said when announcing the initiative.

The Standard Oil lawsuit was one of the first big antitrust cases. When the Roosevelt administration sued Standard Oil, it alleged the company violated the spirit and letter of the Sherman Antitrust Act, which Congress passed in 1890. The suit alleged the company had obtained its monopoly “not by superior efficiency, but by unfair and immoral acts — rebate taking, local price-cutting.” The company responded that any excesses were not illegal but “mere incidents in the conduct of a great business” as a result of the “over zealousness of some employees.”

On Nov. 20, 1909, a four-judge panel unanimously upheld the government’s position. Judge Walter Sanborn, a Republican appointed by President Benjamin Harrison, wrote that the test for illegality established in Section One of the Sherman Antitrust Act was whether the effect of the company’s actions was “to stifle, or directly and substantially to restrict, free competition in commerce among the states or with foreign nations.” Under that definition, Standard Oil’s practices were illegal.

The company appealed to the Supreme Court and after two oral arguments (necessitated because of personnel changes among the justices), the court announced its decision on May 15, 1911.

Chief Justice Edward Douglass White, a Democrat first named to the court by President Grover Cleveland whom Taft had elevated to the top spot, wrote for an 8-1 majority that the Sherman Act shouldn’t be interpreted to outlaw any industrial combination that could be perceived as harmful to the public. But he went on to outline the test that should be used.

White wrote it “was intended that the standard of reason which had been applied at the common law, and in this country, in dealing with subjects of the character embraced by the statute, was intended to be the measure used for the purpose of determining whether, in a given case, a particular act had or had not brought about the wrong against which the statute provided.”

The Roosevelt administration filed the lawsuit partly because of several investigative articles; the most famous was a series by Ida Tarbell, an acclaimed journalist (whose father’s oil company had been a victim of Rockefeller’s predatory practices). In writing what was considered by many to be the definitive series of articles about Rockefeller, Tarbell described him as having “legitimate and illegitimate greatness.”