Case Facts: Northern Securities Company had been organized in November 1901 by banker J. P. Morgan and railroad owner James J. Hill. Their main goal was to acquire stock in two railroads, the Northern Pacific and the Great Northern. Both companies ran trains across the northern part of the United States, from the East to the West. The government believed that a collaboration of such powerful companies violated the Sherman Antitrust Act because it discouraged competition and went against the purpose of the Sherman Antitrust Act. In return, the owners of Northern Securities Company claimed that the federal government had no right under the U.S. Constitution to regulate the purchase of stocks in a company to state governments.
Issue: Does the federal government have the right to regulate stocks in a company?
Holding/Reasoning: 5-4 in favor of the government. The majority opinion was ruled in favor of the government, saying that the only reason for the existence of Northern Securities was to create a monopoly on railroad traffic across the northern part of the country. The court ordered the company to be separated by selling the railroads it had acquired. Because the railroads, had a substantial effect over a large area of the north, it was considered interstate and can be regulated by the government.
Relevance: This case opposed the decision of E.C Knight vs. United States. In the E.C Knight vs. United States decision,the Court ruled that that the Sherman Act could not be used to regulate commerce. The Court held that manufacturing was different from interstate commerce, and because Knight’s manufacturing operations took place in a single state he didn’t violate the Commerce Clause. This ruling proved that the Sherman Act was ineffective against regulating monopolies. However, The Northern Securities Company vs. United States decision was ruled to dissolve monopolies therefore giving more power to the Sherman Antitrust Act. This case represented a change in how the Court interpreted the meaning of the Commerce Clause.