Northern Securities Case

Northern Securities Case (1904), landmark antitrust case.In 1901 three powerful business leaders, J. Pierpont Morgan, James. J. Hill, and E.H. Harriman, decided to cooperate rather than compete, forming the Northern Securities holding company, which held the stock of their rival railroad interests in the Northwest. Their action was part of a great wave of corporate mergers that began in 1895 after the Supreme Court ruled that the E.C. Knight Company, a holding company that monopolized U.S. sugar production, did not violate the Sherman Antitrust Act of 1890.

By 1900 state and federal courts had found a variety of monopolistic practices illegal under the Sherman Act and state laws. Yet no holding company was successfully prosecuted until the Theodore Roosevelt administration brought an antitrust action against the Northern Securities Company in 1903. The trial court upheld the government's contention that the creation of the Northern Securities Company violated the Sherman Act. Upon appeal the following year, the Supreme Court upheld this ruling by a 5–4 vote. The majority, led by John Marshall Harlan, ruled that the holding company's intent to eliminate competition was illegal. The four dissenters, led by Oliver Wendell Holmes Jr. and Edward D. White, argued that a more flexible standard of reasonableness should have been applied to sustain the combination.

The decision ended the great wave of mergers. Federal officials, some business leaders, their lawyers, and members of the Supreme Court nonetheless concluded that in the future a “rule of reason” should govern merger cases. The Court adopted this doctrine in its Standard Oil and American Tobacco opinions of 1911. That same year, however, the Court reaffirmed that many monopolistic practices by companies working in collusion were illegal. These remained the prevailing doctrines of American antitrust law thereafter, encouraging an economic order in which both big and small business could prosper.
See also Antitrust Legislation; Business; Capitalism; Economic Regulation; Progressive Era; Railroads.

Bibliography

Naomi R. Lamoreaux , The Great Merger Movement in American Business, 1895–1904, 1985.
Martin J. Sklar , The Corporate Reconstruction of American Capitalism, 1890–1916: The Market, The Law, and Politics, 1988.

Tony A. Freyer