May 15, 1911: Supreme Court orders standard oil breakup
John D. Rockefeller was barely 20 when Edwin Drake struck oil in the Pennsylvania town of Titusville in 1859. Drake’s discovery produced an “oil rush” to the area not unlike California’s gold rush 10 years earlier; and Rockefeller, an ambitious bookkeeper working 120 miles west, was looking for a business that would make him rich.
By 1863, Rockefeller was a junior partner in Clark & Rockefeller, commissioning foodstuffs to wholesalers. With the outbreak of the Civil War, the company profited nicely selling produce to the Union troops. But as the war crested, Rockefeller looked to the wells that erupted along the Allegheny River Valley and saw a future in refining the crude oil they produced.
The firm took on a chemist, Samuel Andrews, to erect a refinery using an oil distilling process Andrews invented. Built on borrowed money, the Excelsior Oil Works came to embody Rockefeller’s attention to business detail. It was located near two railroads and a waterway, ensuring uninterrupted shipping access. It ran on self-produced fuel oil. Barrels were produced from an on-premises cooperage at half the going price. Moreover, the refinery was designed to produce industrial products like naphtha for solvents and catalysts, along with kerosene.
In 1870, Rockefeller and his partners reorganized as Standard Oil Co. Rockefeller’s command of shipping rates and issues—along with ruthless discipline—made Standard a formidable competitor. When a surfeit of refineries caused prices to crumble, Rockefeller bought out the weak. And when he couldn’t persuade competitors to sell, he forced them out.
In 1871, Standard and a few Cleveland refineries created the South Improvement Co., co-owned with the railroads. The railroads then boosted shipping rates for oil while shielding Standard and their partners through rebates. When competitors faltered with the rising costs, Rockefeller bought their businesses, often with Standard Oil stock.
Prior to the 1890 passage of the Sherman Antitrust Act, state laws policed anticompetitive business behavior. For Rockefeller and Standard, they had no effect. Although Pennsylvania authorities canceled the South Improvement corporate charter early on, Rockefeller continued his acquisitions—absorbing refineries, oil and gas pipelines, oil field equipment and other petroleum-adjacent businesses. He assembled them under Standard Oil of Ohio but hid them from scrutiny in partnerships and private agreements with shadow stockholders in the businesses he controlled.
By 1879, Standard owned or controlled 90% of petroleum production, shipping, refining and product sales in the United States. And as concerns about his monopoly began to boil, Rockefeller grew creative.
In January 1882, facing antitrust allegations in Ohio, Rockefeller’s partners assembled Standard’s vast portfolio of companies under a single holding company: Standard Oil of New Jersey. The holding company was placed in the hands of nine trustees who would, in effect, conduct business with each other—setting prices and production among the 84 companies they controlled. When an Ohio court ordered dissolution of the arrangement, Standard pretended to comply, selling 64 of the companies to 20 others it still retained.
In 1906, under President Theodore Roosevelt, the U.S. Justice Department filed charges in Missouri against Standard Oil of New Jersey, 70 of its companies and its most significant officials, alleging that the trust had violated the Sherman Act. After a 15-month trial, the court ordered its dissolution, and Standard appealed to the U.S. Supreme Court.
In arguments over the course of two terms, Standard maintained that the Sherman Act misinterpreted the common-law notion of “restraint of trade”—that the term applied only when the ability to create contracts was restrained. The Standard Trust was built on legal contracts, even if they had resulted in a restraint of trade.
On May 15, 1911, the court upheld the Missouri court order to dissolve Standard Oil but wavered on the contracts issue, ruling that the Sherman Act applied only when contracts were “unreasonable” in their restraint of trade—as Standard’s had been.
The company was broken up into 37 different entities, many of which are extant in some form today.
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