United States v. Trenton Potteries Co.
273 U.S. 392 (1927)
Rule of Law:
An agreement among competitors to fix prices is, in and of itself, an unreasonable restraint of trade and a per se violation of the Sherman Act, regardless of the reasonableness of the prices agreed upon.
Facts:
- A group of twenty individuals and twenty-three corporations, including the Trenton Potteries Co., were members of a trade organization known as the Sanitary Potters’ Association.
- These members manufactured or distributed approximately 82% of the vitreous pottery fixtures (e.g., toilets and sinks) produced in the United States.
- The members of the association entered into a combination to fix and maintain uniform prices for the sale of their sanitary pottery.
- The members also combined to limit their sales to a special group of distributors they referred to as 'legitimate jobbers'.
- Many of the association members sold and delivered their products within the southern district of New York.
Procedural Posture:
- The United States indicted Trenton Potteries Co. and others (Respondents) in the U.S. District Court for the Southern District of New York for violating the Sherman Act.
- A jury in the district court returned a verdict of guilty against the Respondents on both counts of the indictment.
- The Respondents, as appellants, appealed the conviction to the U.S. Court of Appeals for the Second Circuit.
- The Court of Appeals reversed the judgment of conviction, holding that the trial court erred by not allowing the jury to consider whether the price agreement constituted an unreasonable restraint of trade.
- The United States, as petitioner, was granted a writ of certiorari by the U.S. Supreme Court to review the decision of the Court of Appeals.
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Issue:
Does a combination of competitors who agree to fix prices for their products commit a per se violation of the Sherman Act, regardless of whether the prices they set are reasonable?
Opinions:
Majority - Mr. Justice Stone
Yes. An agreement among competitors who control a substantial part of an industry to fix the prices of their commodity is in itself an undue and unreasonable restraint of trade. The Sherman Act is based on the assumption that the public interest is best protected by the maintenance of competition, and the aim of every price-fixing agreement is the elimination of price competition. The power to fix prices, even if exercised reasonably at first, involves the power to control the market and fix arbitrary and unreasonable prices in the future. Therefore, such agreements are held to be unlawful restraints without the need for an inquiry into whether a particular price is reasonable, as that would create an uncertain and unworkable standard for business conduct. This principle is consistent with prior decisions, including Standard Oil, which established the 'rule of reason' but did not intend for it to validate price-fixing schemes.
Analysis:
This case is foundational in antitrust law for establishing that horizontal price-fixing is a per se violation of the Sherman Act. It firmly rejects the argument that the 'rule of reason' allows for an inquiry into the reasonableness of the prices set by a cartel. By creating this bright-line rule, the Court simplified enforcement against the most direct forms of anticompetitive conduct. This decision makes it clear that the agreement to fix prices itself is the offense, preventing defendants from justifying such cartels by claiming their prices were fair or beneficial to the public.
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