Timken Roller Bearing Co. v. United States
71 S. Ct. 971, 341 U.S. 593, 1951 U.S. LEXIS 2490 (1951)
Rule of Law:
A parent corporation and its foreign subsidiaries, even with common ownership and control, are capable of conspiring under the Sherman Act, and agreements to allocate territories, fix prices, and eliminate competition cannot be justified as legitimate 'joint ventures' or 'trademark licensing schemes,' nor excused by foreign trade conditions.
Facts:
- As early as 1909, Timken Roller Bearing Co. (appellant) and British Timken's predecessor established comprehensive agreements to divide world markets for antifriction bearings.
- These agreements were modified and extended in 1920, 1924, and 1925.
- In 1927, appellant and an English businessman named Dewar collaborated to purchase all stock of British Timken, substantially renewing the market division agreements.
- Subsequently, appellant came to hold about 30% of British Timken's outstanding shares, while Dewar owned about 24%.
- In 1928, appellant and Dewar organized French Timken and have together owned all its stock since then.
- Beginning in 1928, appellant, British Timken, and French Timken continuously maintained 'business agreements' that regulated the manufacture and sale of antifriction bearings, including allocating trade territories, fixing prices on products sold in others' territories, cooperating to protect markets and eliminate outside competition, and participating in cartels to restrict imports to and exports from the United States.
Procedural Posture:
- The United States initiated a civil action in the District Court against Timken Roller Bearing Co. to prevent and restrain violations of §§ 1 and 3 of the Sherman Act.
- After a trial, the District Court found that Timken had violated the Sherman Act and entered a comprehensive decree barring future violations (83 F. Supp. 284).
- Timken Roller Bearing Co. (appellant) directly appealed the District Court's judgment to the Supreme Court of the United States under 15 U. S. C. § 29.
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Issue:
Does an American corporation violate the Sherman Act by entering into agreements with its foreign subsidiaries, in which it holds significant ownership and control, to divide world markets, fix prices, and eliminate competition, under the guise of a 'joint venture' or a 'trademark licensing system,' or due to foreign trade conditions?
Opinions:
Majority - Mr. Justice Black
Yes, an American corporation violates the Sherman Act by entering into agreements with its foreign subsidiaries, in which it holds significant ownership and control, to divide world markets, fix prices, and eliminate competition. The Court affirmed the District Court's finding that Timken's agreements with British Timken and French Timken constituted an illegal aggregation of trade restraints under the Sherman Act. The Court rejected Timken's arguments that the restraints were justifiable as incidental to a 'joint venture' or a 'trademark licensing system,' emphasizing that the dominant purpose of the agreements was to avoid all competition. Citing precedents like Kiefer-Stewart Co. v. Seagram & Sons and United States v. Socony-Vacuum Oil Co., the Court held that common ownership or control of contracting corporations does not exempt them from antitrust laws. Furthermore, the Court dismissed the contention that current foreign trade conditions (tariffs, quotas) should excuse such violations, stating that the Sherman Act's provisions against foreign trade restraints reflect the policy that export and import trade are desirable, and any drastic change in this policy must come from Congress. While affirming the injunctive parts of the decree, a majority of the Court, for reasons stated in other opinions, reversed the District Court's order requiring divestiture of Timken's stockholdings in British and French Timken.
Concurring - Mr. Justice Reed
Yes, an American corporation violates the Sherman Act by entering into agreements with its foreign subsidiaries, in which it holds significant ownership and control, to divide world markets, fix prices, and eliminate competition. Justice Reed concurred with the majority's conclusion that Timken violated §§ 1 and 3 of the Sherman Act, asserting that any other conclusion would 'open wide the doors for violation of the Sherman Act at home and in foreign fields,' even for arrangements between a corporation and another in which it holds a major interest. However, he dissented from the portion of the opinion that approved divestiture. Reed argued that divestiture is a harsh remedy designed to restore competition, not to punish, and should not be used indiscriminately. He believed that the District Court's injunction prohibiting continuation of the objectionable contracts, coupled with the court's continuing power to enforce compliance and punish violations, would be a sufficiently effective and less harsh method to assure enforcement of antitrust laws. He pointed out that the plan grew out of an effort to implement a patent monopoly and cultivate foreign markets under various trade restrictions, and that the American company had a normal growth.
Dissenting - Mr. Justice Frankfurter
No, not necessarily, if the unique circumstances of foreign trade make such arrangements reasonable. Justice Frankfurter dissented, primarily associating himself with Justice Jackson's views against divestiture, but also expressing doubts about the Government's position regarding the violation itself. He argued that 'cartel' and 'division of territory' should not automatically override the rule of reason in Sherman Act determinations. He suggested that the realities of foreign trade, including legal, financial, and governmental policies that restrict exports and imports, may justify arrangements that would be clear violations in domestic commerce. He believed that such conditions might alter the incidence of what would otherwise be an unreasonable restraint of trade, suggesting a more flexible interpretation of the Sherman Act in the international context.
Dissenting - Mr. Justice Jackson
No, an American corporation should not necessarily be deemed to violate the Sherman Act merely by organizing foreign subsidiaries for market access and allocating territories among them, especially when facing foreign trade barriers. Justice Jackson dissented, arguing that it places 'too much weight on labels' to find a conspiracy merely because an American company uses legally separate foreign subsidiaries rather than internal departments to serve specific markets. He contended that if Timken had set up internal departments in France and Great Britain, it would not be a conspiracy, as a corporation cannot conspire with itself. He emphasized that Timken did not divide an existing market with competitors, but rather created subsidiaries to reach markets it could not effectively access otherwise due to foreign governments' prohibitions or handicaps on direct American corporate operations. He concluded that in a world with tariffs, trade barriers, and parochialism, a rule forbidding entry into foreign markets through subsidiaries of limited scope would effectively 'foreclose foreign commerce of many kinds.'
Analysis:
This case is a landmark decision affirming the extraterritorial reach of the Sherman Act and rejecting common defenses for international cartels involving U.S. corporations and their foreign affiliates. It established that even majority-owned or controlled subsidiaries are considered 'separate persons' capable of conspiring with their parent under the antitrust laws, a critical aspect of antitrust enforcement. The Court's refusal to consider foreign trade conditions as an excuse for market division underscored the strong policy favoring free international trade. While the majority splintered on the divestiture remedy, the affirmation of liability set a clear precedent against using corporate structure or trademark licensing to shield anticompetitive agreements in global markets.
