United States v. Union Pacific R. Co.
226 U.S. 61 (1912)

Annotate this Case

U.S. Supreme Court

United States v. Union Pacific R. Co., 226 U.S. 61 (1912)

United States v. Union Pacific Railroad Company*

No. 446

Argued April 19, 22, 23, 1912

Decided December 2, 1912

226 U.S. 61

Syllabus

The purchase by the Union Pacific Railroad Company of forty-six percent of the stock of the Southern Pacific Company, with the resulting control of the latter's railway system by the former, is an illegal combination in restraint of interstate trade within the purview of the Sherman Anti-Trust Act of 1890 and must be dissolved.

The Sherman Anti-Trust Act of July 2, 1890, 26 Stat. 209, c. 647, applies to interstate railroads, which are among the principal instrumentalities of interstate commerce.

The Sherman Act is intended to reach and prevent all combinations which restrain freedom of interstate trade, and should be given a reasonable construction to this end.

The opinions in Standard Oil Co. v. United States and United States v. American Tobacco Co.,221 U. S. 1 and 221 U. S. 106, contain no suggestion

Page 226 U. S. 62

that the decisions of the court in the Trans-Missouri and Joint Traffic cases were not correct in holding the combinations involved to be illegal while applying the rule that the statute should be reasonably construed.

The Sherman Law prohibits the creation of a single dominating control in one corporation whereby natural and existing competition in interstate trade is suppressed; such prohibition extends to the control of competing interstate railroads effected by a holding company, as in the Northern Securities case, and to the purchase by one of two competing railroad companies of a controlling portion, even if not, as in this case, a majority, of the stock of the other.

The Sherman Law, in its terms, embraces every contract or combination in form of trust or otherwise or conspiracy in restraint of interstate trade.

Congress is supreme over interstate commerce, and a combination which contravenes the Sherman Law is illegal although it may be permissible under, and within corporate powers conferred by, the laws of the state where made.

Courts should construe the Sherman Law with a view to preserve free action of competition in interstate trade, which was the purpose of Congress in enacting the statute.

Competition is the striving for something which another is actively seeking and wishes to gain.

Competition between two transcontinental railway systems such as the Union Pacific and Southern Pacific includes not only making of rates, but the character of service rendered and accommodation afforded, and the inducement to maintain points of advantage in these respects is greater when the systems are independent than when the corporation owning one of the systems also dominates and controls the other.

The Union Pacific and Southern Pacific are competing systems of interstate railways, and their consolidation by the control of the latter by the former through a dominating stock interest does, as a matter of fact, abridge free competition, and is an illegal restraint of interstate trade under the Sherman Law.

In this case, held that, while there was a great deal of noncompetitive business, a sufficiently large amount of competitive business was affected to clearly bring the combination made within the purview of the Sherman Law.

In this case, also held that the necessity of the Union Pacific to obtain an entrance to San Francisco and other California points over the lines of the Southern Pacific was not such as to justify the combination complained of in this case in view of the provisions for a continuous

Page 226 U. S. 63

railroad to the Pacific Coast and for interchange of traffic without discrimination contained in the Acts of July 1, 1862, 12 Stat. 489, 495, § 12, c. 120, and of July 2, 1864, 13 Stat. 356, 362, § 15, c.216.

Doubtless courts could restrain one railroad constructed under the Acts of July 1, 1862, and July 2, 1864, from making discriminations, contrary to the provisions of those acts in regard to interchange of traffic, against another railroad also constructed under those acts.

The obligation to keep faith with the government in regard to management of railroads constructed under acts of Congress continues notwithstanding changed forms of ownership and organization, as does also continue the legislative power of Congress concerning such railroads.

Although a railroad corporation may lawfully acquire that portion of another railroad which connects, but does not compete, with any part of its own system, it may not acquire the entire system, a substantial portion of which does compete with its lines.

The effect of such a purchase and its legality under the Sherman Law may be judged by what was actually accomplished and the natural and probable consequences of that which was done.

In determining the validity of a combination, the court may look to the intent and purpose of those conducting the transaction, and to the objects had in view.

While, in small corporations, a majority of stock may be necessary for control, in large corporations, where the stock is distributed among many stockholders, a compact united ownership of less than half may be ample to control and amount to a dominant interest sufficient to effect a combination in restraint of trade within a reasonable construction of the Sherman Law.

In applying the general rules as to relief under the Sherman Law as declared in Standard Oil Co. v. United States,221 U. S. 1, 221 U. S. 78, the Court must deal with each case as it finds it, and where the combination has been effected by purchase by one corporation of a dominant amount of stock of its competitor, the decree should provide an injunction against the right to vote stock so acquired, or payment of dividends thereon except to a receiver, and any plan for disposition of the stock should be such as to effectually dissolve the unlawful combination.

Whether the decree can provide for the purchase by the Union Pacific of such portions of the Southern Pacific as are only connecting, and are not competitive, and which effect a continuous line to San Francisco not now determined, but leave granted to the district court to consider any plan proposed to effect such results.

Page 226 U. S. 64

Unless plans for dissolution are presented to, and affirmed by, the district court within a reasonable period, in this case, three months, that court should proceed to dissolve the combination by receiver and sale.

The decree below, dismissing the bill generally, being affirmed by this court as to all matters other than the purchase of Southern Pacific stock, is reversed in part, and the district court retains its jurisdiction over the cause to see that the decree outlined by this Court in this opinion is made effectual. (See also p. 226 U. S. 470, post.)

188 F. 102 reversed in part.

The facts, which involve the validity under the Sherman Anti-Trust Act of 1890 of the purchase by the Union Pacific Railroad Company of a dominant interest of the stock of the Southern Pacific Company, and whether the same was a combination in restraint of interstate commerce within the purview of the act, are stated in the opinion.

Page 226 U. S. 79

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