United States v. American Can Co.
1916 U.S. Dist. LEXIS 1011, 230 F. 859 (1916)
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Rule of Law:
A corporation formed with the illegal intent to monopolize an industry in violation of the Sherman Act will not be dissolved if it has since ceased its anticompetitive practices and its continued existence is not harmful to the public interest. Dissolution is an equitable remedy intended to prevent future harm, not to punish past misconduct.
Facts:
- In the late 1890s, the can-making industry consisted of over 100 independent competing firms.
- Between 1899 and 1901, promoters including Edwin Norton and the Moore brothers organized the American Can Company to consolidate the industry.
- The promoters acquired approximately 90% of the nation's can-making plants, often using threats of predatory competition and paying extravagant prices far exceeding the plants' tangible value.
- Most sellers were required to sign restrictive covenants, agreeing not to engage in can-making for 15 years within a 3,000-mile radius of Chicago.
- Immediately after its formation, American Can shut down and dismantled approximately two-thirds of the plants it had purchased.
- American Can entered into exclusive, multi-year contracts with the leading can-making machinery manufacturers (such as E. W. Bliss Company) to prevent new or existing competitors from obtaining modern, automatic machinery.
- American Can secured a preferential pricing agreement with the American Tin Plate Company, which was controlled by some of the same promoters, allowing it to purchase its primary raw material at a significant discount not available to competitors.
- Following its consolidation of the industry, American Can substantially raised the price of cans.
Procedural Posture:
- The United States government filed a petition in the District Court, a court of first instance, under the Sherman Anti-Trust Act.
- The government sued the American Can Company along with numerous other corporate and individual defendants, alleging illegal monopolization.
- During the hearing, the petition was dismissed by consent against several of the original defendants.
- The case proceeded to a hearing on the merits before the District Court.
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Issue:
Does a corporation that was originally formed for the illegal purpose of monopolizing interstate commerce in violation of the Sherman Act require dissolution, even if it has since ceased its anticompetitive practices and its current conduct is not harmful to the public?
Opinions:
Majority - Rose, District Judge
No. A corporation formed with illegal monopolistic intent does not require dissolution if it has long since ceased its wrongful conduct and its continued existence is not deemed harmful to the public interest. A court of equity's role is to prevent and remedy ongoing or future harm, not to punish past offenses. The court found that while American Can was unquestionably formed with the illegal intent to restrain trade and monopolize the can-making industry, its conduct had fundamentally changed over the years. For a significant period before the suit was filed, the company had ceased its predatory practices and had operated in a manner that was fair, efficient, and even beneficial to the industry and its customers through service innovations like season's-requirement contracts, standardization, and reliable delivery. Because dissolution would destroy an efficient industrial organization, cause harm to the industry, and would be punitive rather than remedial, the court refused to grant it. Instead, the court chose to retain jurisdiction over the case, reserving the right to decree dissolution in the future if American Can's size and power were ever used to the public's detriment.
Analysis:
This decision establishes that a company's 'original sin' of illegal formation under the Sherman Act does not automatically mandate dissolution if the company has subsequently reformed its conduct. It introduces a 'good behavior' consideration into antitrust remedies, allowing a court of equity to weigh the practical consequences and current market realities against the law's policy goals. This nuanced approach grants courts significant discretion, prioritizing the prevention of future harm over punishment for past violations. The ruling suggests that if an illegally formed combination evolves into an efficient and non-predatory market participant, the drastic remedy of dissolution may do more harm than good and is therefore inappropriate.
