United States v. Aluminum Co. of America
148 F.2d 416 (1945)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A company possesses an illegal monopoly under Section 2 of the Sherman Act if it has a dominant share of the relevant market and willfully acquires or maintains that power, as distinguished from achieving it through superior skill, foresight, or industry, or by sheer accident.
Facts:
- Aluminum Company of America (Alcoa) was formed in 1888 and was engaged in the production and sale of aluminum ingot.
- Initially, Alcoa held a legal monopoly over virgin aluminum ingot production due to patents, which expired by 1909.
- After its patents expired, Alcoa remained the sole domestic producer of virgin aluminum ingot in the United States through the time of the suit.
- Alcoa consistently anticipated increases in demand for aluminum ingot and proactively expanded its production capacity to meet all new demand before any competitors could enter the market.
- Alcoa entered into contracts with power companies that included covenants preventing them from selling power to any other entity for the purpose of manufacturing aluminum.
- The market for aluminum included virgin ingot produced domestically by Alcoa, imported virgin ingot, and 'secondary' ingot made from recycled aluminum scrap.
- Alcoa argued its market share was only 33% by including secondary ingot and excluding its own internal fabrication, while the government argued it was over 90% by excluding secondary ingot and including Alcoa's total production.
Procedural Posture:
- The United States filed a complaint against the Aluminum Company of America (Alcoa) in the U.S. District Court for the Southern District of New York.
- The complaint alleged that Alcoa was monopolizing interstate and foreign commerce in the manufacture and sale of aluminum, in violation of the Sherman Act.
- After a trial lasting over two years, the district court entered a final judgment dismissing the complaint in its entirety.
- The United States filed an appeal directly to the U.S. Supreme Court.
- The Supreme Court, lacking a quorum of six justices qualified to hear the case, certified the case and transferred the appeal to the U.S. Court of Appeals for the Second Circuit to act as the court of last resort.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a company that controls over 90% of the relevant market for a product monopolize that market in violation of Section 2 of the Sherman Act, even if it did not engage in overtly predatory or illegal acts to acquire or maintain that control?
Opinions:
Majority - L. Hand
Yes, a company controlling over 90% of the market monopolizes that market in violation of Section 2. The possession of monopoly power, coupled with the intent to maintain it, constitutes illegal monopolization, regardless of whether overtly predatory acts were used. First, the relevant market for calculating market share is virgin aluminum ingot; 'secondary' (recycled) ingot must be excluded because Alcoa's initial production of virgin ingot ultimately controls the future supply of scrap. This calculation gives Alcoa over 90% of the market, which is sufficient to constitute monopoly power. Second, it is not an excuse that a monopoly has not been abused by charging exorbitant prices; the Sherman Act aims to preserve a system of small, competitive producers. Third, while a company that has monopoly 'thrust upon it' by virtue of superior skill, accident, or because the market is too small for competition does not violate the law, Alcoa's situation is different. Alcoa's continued control was not inevitable; it resulted from a persistent determination to maintain its monopoly by 'progressively embracing each new opportunity as it opened' and expanding capacity to forestall any potential competition. This conduct demonstrates the requisite 'intent to monopolize,' which is a general intent to perform the acts that maintain the monopoly, not a specific intent to exclude competitors through illegal means. Therefore, Alcoa's conduct constituted illegal monopolization.
Analysis:
This decision fundamentally redefined monopolization under Section 2 of the Sherman Act. It established that market structure, specifically a dominant market share, is the primary indicator of monopoly power and that liability can arise from willfully maintaining that power, even through otherwise lawful business practices like aggressive expansion. The case moved antitrust law away from a requirement of showing predatory or 'bad acts' toward a focus on the acquisition and maintenance of monopoly power itself. The court's market share thresholds (90% is a monopoly, 64% is doubtful, 33% is not) became a foundational element of modern antitrust analysis, and the 'thrust upon' defense was narrowly defined, placing a heavy burden on dominant firms.
