American Tobacco Co. v. United States
328 U.S. 781, 66 S. Ct. 1125 (1946)
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Rule of Law:
A conviction for monopolization under § 2 of the Sherman Act requires proof of the power to exclude competitors combined with the intent to exercise that power; proof of the actual exclusion of competitors is not necessary.
Facts:
- The American Tobacco Company, Liggett & Myers Tobacco Company, and R. J. Reynolds Tobacco Company (the "Big Three") collectively produced over 68% of the domestic cigarettes in the United States between 1937 and 1939, and over 80% of the comparable higher-grade cigarettes.
- The Big Three consistently refused to purchase raw leaf tobacco at any auction market unless representatives from the other two companies were also present, effectively preventing the success of new, independent tobacco markets.
- Before tobacco auctions began, the companies' buyers were given identical price ceilings for various grades of tobacco, and they coordinated their purchases to avoid bidding against one another.
- In 1931, during the Great Depression when their costs were falling, the Big Three simultaneously and identically raised their cigarette list prices.
- When cheaper "10-cent cigarettes" from smaller competitors began gaining market share, the Big Three concertedly cut their prices to levels that were unprofitable for some of them, driving the market share of the cheaper brands down significantly.
- Once the market share of the 10-cent brands had fallen from over 22% to approximately 6%, the Big Three simultaneously raised their prices again.
- The companies engaged in massive, coordinated advertising campaigns, spending over $40 million annually, which served as a significant barrier to entry for potential new competitors.
Procedural Posture:
- The United States government filed an information against American Tobacco Co., Liggett & Myers Tobacco Co., R. J. Reynolds Tobacco Co., and others in the U.S. District Court for the Eastern District of Kentucky.
- A jury convicted the petitioners on counts of conspiracy in restraint of trade, monopolization, and conspiracy to monopolize under §§ 1 and 2 of the Sherman Act.
- The petitioners appealed the convictions.
- The U.S. Circuit Court of Appeals for the Sixth Circuit affirmed the district court's judgment.
- The petitioners sought review from the U.S. Supreme Court, which granted certiorari limited to the sole question of whether actual exclusion of competitors is necessary for the crime of monopolization.
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Issue:
Does a conviction for monopolization under § 2 of the Sherman Act require proof that the defendants actually excluded competitors from the market?
Opinions:
Majority - Mr. Justice Burton
No, the crime of monopolization under § 2 of the Sherman Act is established by the possession of monopoly power coupled with an intent to exercise that power, and does not require proof of the actual exclusion of competitors. The court held that the statute condemns the acquisition or maintenance of the power to exclude, not just the successful exercise of that power. Where a combination or conspiracy to monopolize is proven, the existence of the power and the intent to use it are the material considerations. The court found persuasive the reasoning in United States v. Aluminum Co. of America, which held that the power to fix prices and its exercise coalesce and that progressively embracing new opportunities to face down competitors constitutes effective exclusion. The jury was justified in finding from the petitioners' concerted actions—such as parallel price fixing, controlling leaf tobacco auctions, and engaging in a price war against smaller brands—that they had a unity of purpose and possessed both the power and the intent to monopolize the industry.
Concurring - Mr. Justice Rutledge
No, the offense of monopolization is complete when the power to exclude competitors is acquired, and therefore actual exclusion need not be shown. However, this concurrence expresses no judgment on other issues not before the Court under the limited grant of certiorari, specifically whether the multiple convictions for conspiracy in restraint of trade, monopolization, and conspiracy to monopolize constituted multiple punishments for the same offense. That question would require a full review of the facts, which was beyond the scope of the Court's review in this case.
Analysis:
This decision significantly clarified the offense of monopolization under Section 2 of the Sherman Act by establishing that the existence of monopoly power plus the general intent to acquire or maintain it is sufficient for a conviction. It eliminated the need for the government to prove that defendants engaged in specific predatory acts that successfully drove a competitor out of the market. This precedent lowers the evidentiary burden for antitrust prosecutors, shifting the legal focus from the outcome of anti-competitive behavior (actual exclusion) to the market structure and the defendant's intent (the power to exclude). The case solidified the principle that circumstantial evidence of parallel conduct, such as the price-fixing and market control demonstrated by the tobacco companies, can be sufficient to prove the requisite power and intent for a monopolization charge.
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