United States v. Alcoa
Encyclopedia
United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945), is a landmark decision concerning United States antitrust law. Judge Learned Hand
's opinion is notable for its discussion of determining the relevant market for market share analysis and—more importantly—its discussion of the circumstances under which a monopoly
is guilty of monopolization under section 2 of the Sherman Antitrust Act
.
, the Justice Department
charged Alcoa
with illegal monopolization, and demanded that the company be dissolved. Trial began on June 1, 1938. The trial judge dismissed the case four years later. The government appealed. Two years later in 1944, the Supreme Court
announced that it could not assemble a quorum to hear the case so it referred the matter to the U.S. Court of Appeals for the Second Circuit. In the following year, Learned Hand
wrote the opinion for the Second Circuit.
, it acquired that position honestly, through out competing other companies through greater efficiencies. Hand applied a rule concerning practices that are illegal per se
here, saying that it does not matter how Alcoa became a monopoly, since its offense was simply to become one.
Hand acknowledged the possibility that a monopoly might just happen, without anyone's having planned for it. If it did, then there would be no wrong, no liability, and no need to remedy the result. But that acknowledgement has generally been seen as an empty one in the context of the rest of the opinion, because of course rivals in a market routinely plan to outdo one another, at the least by increasing efficiency and appealing more effectively to actual and potential customers. If one competitor succeeds through such plans to the extent of 90% of the market, that planning can be described given Hand's reasoning as the successful and illegal monopolization of the market.
and Kaiser
– as a result of demobilization
after the war and the government's divestiture of defense plants. In other words, the problem had solved itself and no judicial action would be required. On this basis, the district court judge ruled against divestiture in 1950, but the court retained jurisdiction over the case for five years, so that it could look over Alcoa's shoulder and ensure that there was no re-monopolization.
Until 1950, Alcoa was concerned with its domestic market, while its Canadian subsidiary Aluminum Limited (Alcan) took care of the international markets. Alcoa, Reynolds, and Kaiser were soon joined in the growing market by Anaconda
Aluminum Company, a subsidiary of the copper
-industry giant. In 1958 Harvey Machine Tools Company began primary aluminum production, marking the end of Alcoa's monopoly over the process which had led to its domination of the American market.
Former Federal Reserve chairman Alan Greenspan
criticized Alcoa in an essay published in Capitalism: The Unknown Ideal
, arguing that antitrust law should only condemn coercive monopolies
:
In particular, Greenspan singles out the following passage from Hand's opinion:
Learned Hand
Billings Learned Hand was a United States judge and judicial philosopher. He served on the United States District Court for the Southern District of New York and later the United States Court of Appeals for the Second Circuit...
's opinion is notable for its discussion of determining the relevant market for market share analysis and—more importantly—its discussion of the circumstances under which a monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
is guilty of monopolization under section 2 of the Sherman Antitrust Act
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
.
Procedural history
During the presidency of Franklin D. RooseveltFranklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
, the Justice Department
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
charged Alcoa
Alcoa
Alcoa Inc. is the world's third largest producer of aluminum, behind Rio Tinto Alcan and Rusal. From its operational headquarters in Pittsburgh, Pennsylvania, Alcoa conducts operations in 31 countries...
with illegal monopolization, and demanded that the company be dissolved. Trial began on June 1, 1938. The trial judge dismissed the case four years later. The government appealed. Two years later in 1944, the Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
announced that it could not assemble a quorum to hear the case so it referred the matter to the U.S. Court of Appeals for the Second Circuit. In the following year, Learned Hand
Learned Hand
Billings Learned Hand was a United States judge and judicial philosopher. He served on the United States District Court for the Southern District of New York and later the United States Court of Appeals for the Second Circuit...
wrote the opinion for the Second Circuit.
Relevant market
Hand wrote that he could consider only the percentage of the market in "virgin aluminum" for which Alcoa accounted. Alcoa had argued that it was in the position of having to compete with scrap. Even if the scrap was aluminum that Alcoa had manufactured in the first instance, it no longer controlled its marketing. But Hand defined the relevant market narrowly in accord with the prosecution's theory.Monopolization
Alcoa said that if it was in fact deemed a monopolyMonopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
, it acquired that position honestly, through out competing other companies through greater efficiencies. Hand applied a rule concerning practices that are illegal per se
Illegal per se
The term illegal per se means that the act is inherently illegal. Thus, an act is illegal without extrinsic proof of any surrounding circumstances such as lack of scienter or other defenses...
here, saying that it does not matter how Alcoa became a monopoly, since its offense was simply to become one.
Hand acknowledged the possibility that a monopoly might just happen, without anyone's having planned for it. If it did, then there would be no wrong, no liability, and no need to remedy the result. But that acknowledgement has generally been seen as an empty one in the context of the rest of the opinion, because of course rivals in a market routinely plan to outdo one another, at the least by increasing efficiency and appealing more effectively to actual and potential customers. If one competitor succeeds through such plans to the extent of 90% of the market, that planning can be described given Hand's reasoning as the successful and illegal monopolization of the market.
Subsequent history
Hand remanded the matter to the trial court for a determination of the remedy. In 1947, Alcoa made the argument to the court that there were two effective new entrants into the aluminum market – ReynoldsReynolds Metals
Reynolds Group Holdings is an American packaging company with its roots in the Reynolds Metals Company, was the second largest aluminum company in the United States, and the third largest in the world...
and Kaiser
Kaiser Aluminum
Kaiser Aluminum is an American aluminum producer. The company was founded in 1946 by American industrialist Henry J. Kaiser. Kaiser entered the aluminum business by leasing, then purchasing three government-owned aluminum facilities in Washington state. These were the primary reduction plants at...
– as a result of demobilization
Demobilization
Demobilization is the process of standing down a nation's armed forces from combat-ready status. This may be as a result of victory in war, or because a crisis has been peacefully resolved and military force will not be necessary...
after the war and the government's divestiture of defense plants. In other words, the problem had solved itself and no judicial action would be required. On this basis, the district court judge ruled against divestiture in 1950, but the court retained jurisdiction over the case for five years, so that it could look over Alcoa's shoulder and ensure that there was no re-monopolization.
Until 1950, Alcoa was concerned with its domestic market, while its Canadian subsidiary Aluminum Limited (Alcan) took care of the international markets. Alcoa, Reynolds, and Kaiser were soon joined in the growing market by Anaconda
Anaconda
An anaconda is a large, non-venomous snake found in tropical South America. Although the name actually applies to a group of snakes, it is often used to refer only to one species in particular, the common or green anaconda, Eunectes murinus, which is one of the largest snakes in the world.Anaconda...
Aluminum Company, a subsidiary of the copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
-industry giant. In 1958 Harvey Machine Tools Company began primary aluminum production, marking the end of Alcoa's monopoly over the process which had led to its domination of the American market.
Legacy
Greenspan's criticismFormer Federal Reserve chairman Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
criticized Alcoa in an essay published in Capitalism: The Unknown Ideal
Capitalism: the Unknown Ideal
Capitalism: The Unknown Ideal is a collection of essays, mostly by Ayn Rand, with additional essays by her associates Nathaniel Branden, Alan Greenspan and Robert Hessen. The book focuses on the moral nature of laissez-faire capitalism and private property...
, arguing that antitrust law should only condemn coercive monopolies
Coercive monopoly
In economics and business ethics, a coercive monopoly is a business concern that prohibits competitors from entering the field, with the natural result being that the firm is able to make pricing and production decisions independent of competitive forces...
:
- ALCOA is being condemned for being too successful, too efficient, and too good a competitor. Whatever damage the antitrust laws may have done to our economy, whatever distortions of the structure of the nation's capital they may have created, these are less disastrous than the fact that the effective purpose, the hidden intent, and the actual practice of the antitrust laws in the United States have led to the condemnation of the productive and efficient members of our society because they are productive and efficient.
In particular, Greenspan singles out the following passage from Hand's opinion:
- It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.