Swift and Co. v. United States 1905

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Swift and Co. v. United States 1905

Appellant: Swift and Company

Appellant's Claim: That the Sherman Anti-trust Act of 1890 was vague and did not apply to businesses operating solely within a single state

Chief Lawyers for Appellant: John S. Miler and Merritt Starr

Chief Lawyers for Appellee: William H. Moody, U.S. Attorney General, and William A. Day

Justices for the Court: David J. Brewer,Henry B. Brown, William R. Day, Melville W. Fuller, John Marshall Harlan I, Oliver Wendell Holmes, Joseph McKenna, Rufus W. Peckham, Edward D. White

Justices Dissenting: None

Date of Decision: January 30, 1905

Decision: Ruled in favor of the United States by finding that the actions of Swift and Company affected interstate commerce and were an integral part of a larger interstate meat-packing industry.

Significance: This decision greatly expanded federal power under the Commerce Clause of the U.S. Constitution. The ruling held that even locally operating businesses that made products eventually sold in interstate markets could be subject to federal regulation.

Before the birth of the United States, English common law restricted business activity very little. By the mid-nineteenth century. Congress and the courts began restricting certain business efforts, known as restraint of trade, which limited competition. But, if specific trade restraints were limited in the time they were used or carried out in a small area, they were often allowed. A laissez-faire approach to business conduct persisted meaning that little governmental interference existed over business practices.

The Rise of Trusts

A rapidly expanding national railroad network spurred increased industrialization (growth of large businesses manufacturing goods) in the 1870s and 1880s. Prospects of ever-increasing profits led many businesses to join together in business combinations with the intent of forcing other, usually smaller, competitors out of business. These businesses combinations were called trusts. The public considered many actions of the trusts unfair. Trusts rose to dominate certain industries including sugar, oil, steel, meat-packing, and tobacco.

To many, trusts threatened the idea of free-enterprise in which businesses freely compete with one another. Public demand for government intervention into trusts dramatically increased through the 1880's. States tried adopting various laws to control trust activities, but these proved inconsistent and could not apply to interstate commerce (business activity between states) in which the trusts largely operated. The Commerce Clause of the U.S. Constitution reserves the responsibility to regulate interstate commerce to Congress, not the states. Congress, responding to the public outcry against the power of trusts, passed the Sherman Antitrust Act in 1890. The act, the first major national legislation addressing business practices, prohibited every "contract, combination in the form of trust . . . or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations."

Though strongly worded by prohibiting all restraint of trade through business cooperation, the act was vague leaving enforcement to the courts and executive branch of government. President Grover Cleveland (1885–1889; 1893–1897), believing trusts were a natural result of technological advances and good for eliminating waste, was not inclined to enforce the act. Likewise, the very conservative U.S. Supreme Court of the time preferred not to inhibit business activities of employers. The first ruling involving the Sherman Act, United States v. E.C. Knight Co. (1895), provided a very narrow interpretation of what the court considered interstate commerce. Manufacturing was not considered interstate commerce thus leaving many key industries free to continue operating under trusts.

Swift Meat Packers

One meat packing company in operation at the beginning of the twentieth century was Swift and Co. Though Swift had slaughterhouses in various states including Illinois, Nebraska, Minnesota, and Missouri, they did not consider themselves an interstate business since each plant operated independently of other Swift plants. Strategically located at major railway terminal locations, each plant purchased livestock at the local stockyards, slaughtered the purchased stock in its facility, then sold the meat products to local purchasers. An interstate character to the process existed, however. The livestock was normally shipped thousands of miles from distant states to the stockyards where Swift would purchase them. Also, the local purchasers of Swift products would sell to wholesale meat companies, often located in other states, thus shipping the fresh meat on interstate railroads.

Swift and Co. had become very successful in the meat-packing industry, controlling about 60 percent of the national fresh meat market. Some of its methods to achieve that success were dishonest, however. For example, forming a beef trust through extensive agreements with other meat-packing houses they would manipulate (fix to their satisfaction) the interstate price of livestock. For example, they would send several buyers to a livestock auction and appear to compete against each other for the price. Though sometimes trying to manipulate low prices, other times they tried to make prices appear high for livestock. When word would get out to other livestock companies that high prices were being bid in a certain town, they would ship their livestock there to get higher profits, often flooding a particular market with livestock. The beef trust would then let the prices fall sharply allowing them to purchase the livestock at a bargain price. As a result, Swift and the beef trust would get much of its livestock at artificially-reduced prices, then sell its products at regular prices for a big profit. Through this means, they controlled livestock and meat prices in many stockyards and slaughterhouses around the nation.

Upon discovering Swift's auction practices, the United States filed charges of conspiracy to restrain trade under the Sherman Antitrust Act. The case was first heard in federal district court which ruled in favor of the United States. Swift then appealed to the U.S. Supreme Court.

A Stream of Commerce

Arguments were presented before the Court on January 6 and 7 of 1905. Swift argued that the Sherman Antitrust Act was too vague. How could companies know what activities could be considered illegal? Besides, all of its business activities of purchasing, processing, and selling was local. Only a few miles distance separated the stockyards from its slaughterhouses and meat-packing plants. Consequently, it was not interstate commerce and the federal government had no authority to regulate it. Regarding the bidding practices, Swift argued that livestock sellers always had the option of either not selling or accepting the sometimes artificially high bids. The government argued that even though Swift was intrastate (within a single state) in operation, its effects on the nation's economy were interstate in character.

Justice Oliver Wendell Holmes, Jr., writing for a 9–0 unanimous Court, presented the opinion on January 30. Holmes ruled that clearly Swift was trying to create a monopoly of the meat-packing industry through unfair means. The livestock Swift purchased had to be shipped interstate to supply Swift plants with meat, and Swift had to rely on meat markets in other states to sell its products. Acknowledging the vagueness of the Sherman Antitrust Act, Holmes sought to more clearly define through the ruling the kinds of actions considered illegal restraint of trade. Holmes sought a more "practical" concept of interstate commerce than the courts had previously offered. Holmes wrote,

When cattle are sent for sale from a place in one state, with the expectation that they will end their transit [trip], after purchase, in another, and when in effect they do so, with only the interruption necessary to find a purchaser at the stock yards, and when this is a typical constantly recurring course, the current thus existing is a current of commerce among the states, and the purchase of the cattle is a part . . . of such commerce.

The doctrine (idea) of "stream of commerce" was thus applied for the first time. From the time livestock was purchased until the meat products were sold, Swift was part of a larger stream of commerce that involved interstate business. The meat-packing industry clearly relied on a flowing interstate process, regardless if some of its parts might only operate in a single state. Congress, Holmes asserted, has authority to regulate business any where along that stream.

Regarding the manipulation of meat market prices, the temporary artificial rise followed by a sharp drop of prices clearly effected interstate commerce. Such manipulation of the free market price of livestock directly restrained trade.

TEDDY ROOSEVELT AND TRUSTBUSTING

B y the time Theodore Roosevelt (1901–1909) first became President, only a few hundred large companies controlled almost half of U.S. manufacturing. Forming large trusts, they greatly influenced almost all key industries. The "trustbusting" movement briefly took off in 1904 with the Supreme Court's decision in Northern Securities Co. v. United States breaking up a railroad trust. Quickly, over forty more antitrust lawsuits were filed under Roosevelt. Though gaining the reputation as "trustbuster," Roosevelt actually sought a middle ground in government oversight of corporate activities. He, as did his successor President William Howard Taft (1909–1913), used the Sherman Act to force greater social accountability by businesses. Roosevelt did not intend to end all business combinations, only to regulate those considered grossly unresponsive to consumer needs.

The 1905 Swift decision came as Roosevelt was trying to shift emphasis from trustbusting to regulation of industry. As a result, the ruling was not applied often to other cases until the late 1930s when the Court began supporting broad federal powers under President Franklin D. Roosevelt's economic recovery program.

Commerce Clause Expanded

Swift was the most important case concerning the beef trust ever heard by the Court. Abandoning its previous narrow interpretation of interstate commerce, the stream of commerce doctrine became the basic idea later used for expanding federal power under the Commerce Clause. Congress could regulate businesses involved to any degree in interstate commerce. Yet, for the economic boom years of World War I (1914–1918) and the 1920's, political interest in regulating business greatly diminished. President Franklin D. Roosevelt's (1933–1945) New Deal programs of the early 1930's actually encouraged industrial collaboration to boost economic recovery from the Great Depression. Not until Congress passed the Robinson-Patman Act in 1936 was the federal attack on monopolies and trusts renewed. As was the issue in Swift, the act was designed to protect small businesses from larger competitors.