Monday, December 14, 2015

United States v. E. C. Knight Co

United States v. E. C. Knight Co., 156 U.S. 1 (1895), also known as the "Sugar Trust Case," was a United States Supreme Court case that limited the government's power to control monopolies. The case, which was the first heard by the Supreme Court concerning the Sherman Antitrust Act, was argued on October 24, 1894 and the decision was issued on January 21, 1895.

In 1892, the American Sugar Refining Company gained control of the E. C. Knight Company and several others which resulted in a 98% monopoly of the American sugar refining industry. President Grover Cleveland, in his second term of office (1893–1897), directed the national government to sue the Knight Company under the provisions of the Sherman Antitrust Act to prevent the acquisition. The question the court had to answer was, "could the Sherman Antitrust Act suppress a monopoly in the manufacture of a good, as well as its distribution?"

The court's 8-1 decision, handed down on January 21, 1895 and written by Chief Justice Melville Weston Fuller, went against the government. Justice John Marshall Harlan dissented.

The court held "that the result of the transaction was the creation of a monopoly in the manufacture of a necessary of life" but ruled that it "could not be suppressed under the provisions of the act". The court ruled that manufacturing—in this case, refining—was a local activity not subject to congressional regulation of interstate commerce. Fuller wrote:

That which belongs to commerce is within the jurisdiction of the United States, but that which does not belong to commerce is within the jurisdiction of the police power of the State. . . . Doubtless the power to control the manufacture of a given thing involves in a certain sense the control of its disposition, but . . . affects it only incidentally and indirectly.

Under the Knight decision, any action against manufacturing monopolies would need to be taken by individual states, making such regulation extremely difficult with regards to out-of-state monopolies because states are prohibited from discriminating against out-of-state goods by, among other things, the Dormant Commerce Clause and Article I section 10 of the U.S. Constitution. The ruling prevailed until the end of the 1930s, when the court took a different position on the national government's power to regulate the economy.

Although the decision was never expressly overturned, the Court later retreated from this position in a series of cases (see for example Swift and Company v. United States) that defined various steps of the manufacturing process as part of commerce. Eventually, E.C. Knight came to be a precedent narrowed to its precise facts, with no force whatsoever.

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