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Chicago Board of Trade v. United States

Supreme Court of the United States
246 U.S. 231, 38 S. Ct. 242 (1918)
ELI5:

Rule of Law:

A restraint of trade is not inherently illegal under the Sherman Antitrust Act; its legality is determined by the "Rule of Reason," which analyzes whether the restraint merely regulates and promotes competition or suppresses and destroys it, considering the nature, scope, purpose, and effect of the restraint.


Facts:

  • The Chicago Board of Trade was the world's leading grain market, where members engaged in various transactions, including sales 'to arrive' for grain in transit to Chicago.
  • Most 'to arrive' purchases were made by members sending offers via afternoon mail to hundreds of country dealers, with acceptance due before the next business session at 9:30 A.M.
  • Before 1906, members could make bids at any price they saw fit throughout the day and after hours.
  • In 1906, the Board of Trade adopted the 'Call' rule.
  • The rule prohibited members from purchasing or offering to purchase grain 'to arrive' between the close of the 'Call' session (around 2 P.M.) and the opening of the main session the next morning at any price other than the closing bid from the Call.
  • This rule effectively fixed the price for after-hours 'to arrive' grain transactions among members at the day's closing public bid.

Procedural Posture:

  • The United States filed suit against the Chicago Board of Trade in the U.S. District Court for the Northern District of Illinois.
  • The suit sought an injunction to stop the enforcement of the 'Call' rule, alleging it was an illegal restraint of trade under the Anti-Trust Law.
  • On the government's motion, the trial court struck from the record the Board of Trade's allegations concerning the rule's purpose.
  • After a hearing, the District Court found for the United States, declaring the rule a conspiracy to restrain trade and enjoining its enforcement.
  • The Chicago Board of Trade (defendant) appealed the District Court's decree to the U.S. Supreme Court.

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Issue:

Does a rule adopted by a board of trade that prohibits its members from purchasing or offering to purchase grain 'to arrive' at a price other than the closing bid from the end of one business day's session until the opening of the next violate the Sherman Antitrust Act?


Opinions:

Majority - Mr. Justice Brandeis

No, the rule does not violate the Sherman Antitrust Act. The legality of a restraint on trade is not determined by simply asking if it restrains competition, as every business agreement does so to some extent. The true test is whether the restraint, under all the circumstances, merely regulates and perhaps thereby promotes competition, or whether it suppresses or even destroys competition. The Court found that the government's argument—that any rule fixing prices is per se illegal—was an overly simplistic test. To properly determine legality, a court must consider the peculiar facts of the business, its condition before and after the restraint, and the nature, purpose, and effect of the restraint. Here, the 'Call' rule was a reasonable regulation of business. It was limited in scope, applying only to 'to arrive' grain during non-session hours. Its effects were found to be pro-competitive: it created a public market with transparent pricing, distributed business more broadly among members, reduced risks for country dealers, and stabilized the market, rather than suppressing or destroying competition.



Analysis:

This landmark case established the 'Rule of Reason' as the prevailing standard for analyzing most alleged violations of Section 1 of the Sherman Antitrust Act. It stands in contrast to the 'per se' rule, which deems certain conduct (like horizontal price-fixing) automatically illegal without further inquiry. The decision requires courts to undertake a comprehensive, fact-intensive analysis of a business practice's competitive effects, considering its purpose and market context. This nuanced approach has profoundly shaped antitrust law, allowing courts to distinguish between anticompetitive restraints and those that may actually enhance market efficiency and competition.

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