| Chicago Board of Trade v. United States | |
|---|---|
 | |
| Argued December 18–19, 1917 Decided March 4, 1918 | |
| Full case name | Chicago Board of Trade v. United States |
| Citations | 246U.S.231 (more) 38 S. Ct. 242; 62L. Ed. 683; 1918U.S. LEXIS 1538 |
| Case history | |
| Prior | Onwrit of certiorari to theUnited States District Court for the Northern District of Illinois |
| Holding | |
| The "call rule" of the Chicago Board of Trade was ultimately procompetitive, and did not violate the Sherman Act. | |
| Court membership | |
| |
| Case opinion | |
| Majority | Brandeis, joined byunanimous |
| McReynolds took no part in the consideration or decision of the case. | |
| Laws applied | |
| Sherman Antitrust Act | |
Chicago Board of Trade v. United States, 246 U.S. 231 (1918), was a case in which theSupreme Court of the United States applied the "rule of reason" to the internal trading rules of acommodity market. Section 1 of theSherman Act flatly states: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."[1] However, in evaluating the U.S. government's allegations that theChicago Board of Trade's rules on grain prices violated the Act, the Supreme Court rejected a strict interpretation of its language: "The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition."
TheChicago Board of Trade (CBOT) is acommodity market, dealing inspot sales (for example, sales of grain stored in Chicago and ready for delivery),future sales (grain to be purchased for delivery at a later time), and “to arrive” orders (grain which is en route to Chicago). CBOT introduced a new “call rule” which regulated board members buying or selling sales of “to arrive” orders—at the close of the call session (which at that point was 2:00 p.mCentral Time), the price of grain is set and dealers are unable to sell grain at any other price. TheUnited States Department of Justice accused CBOT ofprice-fixing, and, in 1913, filed suit against the Board in theUnited States District Court for the Northern District of Illinois.
At trial, CBOT asserted that the rule did not have any unlawful purpose, but rather was set up to curb certain pre-existing problems and abuses. CBOT claimed that a group of agents were lowering discounts on commissions to those people buying grain after hours. These agents would wait until after hours, and then buyers would get cheaper prices. CBOT wanted to curb the power of thesemonopsony/oligopsony type of buyers by making prices the same for everyone after hours. Also, the rule shortened the traders’ work hours, for the convenience of its members.
Ultimately, however, the District Court did not issue an opinion. The Justice Department and CBOT entered into aconsent decree under which enjoined them from acting upon the same or from adopting or acting upon any similar rule.
Justice Brandeis, writing for a unanimous court, first observed that every trade association and board of trade imposes some restraint upon the conduct of its members. He explained the essence of the Rule of Reason: "The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition." Whether or not a rule restrains trade in violation of the Sherman Act thus turns on the facts and circumstances of each particular case.
He then examined the nature, scope, effect, and history of the rule. He held that the call rule was ultimately procompetitive in purpose and effect. The scope of the rule was such that it only operated during certain times of day, and affects only small percentage of the grain market. The rule helped to create public market for grain and made pricing more transparent. It decreased themarket power of dominant sellers and made sure that prices were set by open competitive bidding. The decree of the District Court was reversed.
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