U.S. Supreme Court Orders Du Pont to Disburse GM Holdings

The Supreme Court ordered that Du Pont disburse its shares of GM stock to Du Pont shareholders, marking the largest forced divestiture of an American company under antitrust laws since 1911.

Summary of Event

The landmark case United States v. E. I. du Pont de Nemours and Company (353 U.S. 586, 1957) grew out of a study by the Antitrust Division of the Department of Justice Department of Justice, U.S. into the market power and actions of the General Motors Corporation (GM). That study was begun in September, 1946, by the assistant attorney general in charge of the Antitrust Division, Wendell Berge. At the time, E. I. du Pont de Nemours and Company (commonly known as Du Pont) owned more than 20 percent of the equity in GM, so the investigation quickly was expanded to cover the relationship between the two companies and whether, by virtue of its partial ownership, Du Pont exercised control over GM. Antitrust enforcement
Supreme Court, U.S.;antitrust law
United States v. E. I du Pont de Nemours and Company (1961)
Du Pont Corporation[Dupont Corporation]
General Motors
[kw]U.S. Supreme Court Orders Du Pont to Disburse GM Holdings (May 22, 1961)
[kw]Supreme Court Orders Du Pont to Disburse GM Holdings, U.S. (May 22, 1961)
[kw]Du Pont to Disburse GM Holdings, U.S. Supreme Court Orders (May 22, 1961)[Dupont to Disburse GM Holdings, U.S. Supreme Court Orders]
[kw]GM Holdings, U.S. Supreme Court Orders Du Pont to Disburse (May 22, 1961)
Antitrust enforcement
Supreme Court, U.S.;antitrust law
United States v. E. I du Pont de Nemours and Company (1961)
Du Pont Corporation[Dupont Corporation]
General Motors
[g]North America;May 22, 1961: U.S. Supreme Court Orders Du Pont to Disburse GM Holdings[06940]
[g]United States;May 22, 1961: U.S. Supreme Court Orders Du Pont to Disburse GM Holdings[06940]
[c]Laws, acts, and legal history;May 22, 1961: U.S. Supreme Court Orders Du Pont to Disburse GM Holdings[06940]
[c]Trade and commerce;May 22, 1961: U.S. Supreme Court Orders Du Pont to Disburse GM Holdings[06940]
[c]Business and labor;May 22, 1961: U.S. Supreme Court Orders Du Pont to Disburse GM Holdings[06940]
Berge, Wendell
Du Pont, Pierre
LaBuy, Walter J.
Raskob, John Jackob

Shortly thereafter, the inquiry was split into two parts. Antitrust advocates feared that without the differentiation, the courts would be reluctant to require both the dissolution of GM and its divorce from Du Pont. To compel production of documents expected to be important in framing the case, a criminal action was filed and a grand jury was empaneled in August, 1948, to study the interrelationships among Du Pont, GM, United States Rubber Company United States Rubber Company (USR), and several other companies. When the government was unable to obtain an indictment from the grand jury, it immediately filed a civil action charging that Du Pont’s ownership of large blocks of stock in GM and USR gave it de facto control of the companies. The government charged that dealings among the companies were in restraint of trade, thus violating sections 1 and 2 of the Sherman Antitrust Act Sherman Antitrust Act (1890) and section 7 of the Clayton Antitrust Act Clayton Antitrust Act (1914) , as amended by the Celler-Kefauver Act Celler-Kefauver Act (1950)[Celler Kefauver Act] .

The root of the case stretched back to a number of Du Pont actions, some occurring before World War I. In an effort to diversify, brought on by the decision of the U.S. government to produce its own smokeless powder, Du Pont sought alternative uses for its smokeless powder plants. Additionally, on the advice of company treasurer John Jackob Raskob to its president, Pierre Du Pont, the company embarked on an acquisition spree, purchasing entities that manufactured artificial leather, celluloid, rubber-coated fabrics, paints, and varnish. In 1917, Du Pont made its first investment in GM, and by 1920 it owned almost 24 percent of the stock in GM.

Many members of the Du Pont clan personally invested in the automaker. Including their interests and those of several Du Pont trusts along with those of the corporation, the percentage of GM stock owned by Du Pont interests rose as high as 38 percent. Despite the fact that beginning in 1923 several family members and the Du Pont company began to sell off small portions of the automaker’s stock, industry pundits expected that, in the future, GM would be absorbed into Du Pont. During the 1920’s, members of the Du Pont family or its corporation made many other investments, including the purchase of large blocks of stock in United States Steel Corporation United States Steel Corporation (U.S. Steel) and USR.

When the Du Pont holdings in U.S. Steel attracted the attention of the Department of Justice’s Antitrust Division, they were quickly liquidated. The investments in USR were made only after careful study and with the understanding that the company, while financially weak, was probably the most advanced in the development of a highly productive and disease resistant rubber tree. There is no question that the family expected that at some time in the future the company would be merged into Du Pont. In the meantime, according to papers filed by the government in the case, the resultant interrelationships among Du Pont, GM, and USR allegedly obtained favored treatment for GM in tire purchasing and guaranteed USR a market for a large percentage of its output.

In December, 1954, Judge Walter J. LaBuy of the District Court for the Northern District of Illinois found that the defendants were not guilty. In line with its already-well-enunciated strict antitrust enforcement policy, the Justice Department appealed the decision to the Supreme Court. In June, 1957, the Court reversed the determination, finding that the government had proved a violation of section 7 of the Clayton Act, noting that “[t]he test of a violation is whether, at the time of suit, there is any reasonable possibility that the stock acquisition may lead to a restraint of commerce or tend to create a monopoly.”

In 1956, the Court had used a wide definition of a market, in the Du Pont cellophane case. It had accepted the Du Pont argument that various packaging products were substitutes and that the market included all of them, thus lowering Du Pont’s overall percentage share of the market from what it would have been if cellophane wrap had been considered to be a separate market. The Court now narrowed the definition of a market, finding that automotive finishes and fabrics had sufficient peculiar characteristics and uses to differentiate them from other finishes and fabrics, thus creating a distinct line of commerce within the meaning of the Clayton Act. This increased Du Pont and GM’s shares of the market and made them more vulnerable to adverse antitrust rulings.

The case was remanded to the lower court to determine an appropriate remedy, with the government proposing that Du Pont’s GM shares be distributed directly to Du Pont stockholders. The defendants proposed transferring only the voting rights associated with the GM stock while keeping the rest of the rights accorded to shareholders, such as the right to dispose of the shares at any time deemed propitious. This was referred to as the “pass through option.”

The Internal Revenue Service Internal Revenue Service, U.S. ruled that shares disbursed according to the government’s plan would be treated as income and thus taxable at a rate, depending on the filer’s overall income, ranging from 20 to 91 percent. The income would also be taxable by states. Judge LaBuy opted for the “pass through option,” ruling that the government plan would be “harsh and punitive,” as many Du Pont shareholders would have to sell their GM shares to pay a tax bill on profits generated from making an undesired sale of securities. This would affect not only the sellers but also thousands of other General Motors investors.

The government had the right to appeal the arrangement, but few believed that it would, especially since the specter of the presidential election loomed large and any other solution would negatively affect hundreds of thousands of shareholders. Nevertheless, early in 1960 the government announced that it would file an appeal. In May, the Supreme Court granted the government’s petition for certiorari, indicating that it would hear the appeal. The market values of all the equities involved reacted negatively to the decision, illustrating that the government action was unexpected.

On May 22, 1961, the Court, by a 4-3 vote, issued its opinion accepting the government’s argument and directing divestiture. About sixty-three million GM shares were in question, valued at the time at about $3.5 billion. It was generally agreed that a single massive sale would disrupt the market in GM stock; thus, it was expected that the shares would have to be issued to Du Pont shareholders on a pro rata basis. Even according to this scenario, the receipts would be taxable immediately. Responding to the cries of his constituents, Republican senator J. Allen Freer Freer, J. Allen of Delaware convinced Congress to pass a statute providing that, for tax purposes, the market value of GM shares received would be treated as “return of capital.” Income tax exposure thus would be postponed for Du Pont shareholders as long as they continued to own the shares, provided that the value of the shares received did not exceed the original cost of their Du Pont equity.

The new statute directly affected the divestiture timetable as directed by the Court. Originally, in an attempt to lessen the tax impact, the government had asked that the divestiture take place over a span of ten years. With the legislation, the shares were to be distributed within a space of three years, with the Du Pont personal and trust holdings being divested over a slightly longer time span. As finally arranged, each Du Pont shareholder received three disbursements in three different years. For each Du Pont share owned, .50 of a GM share was paid on July 9, 1962; .36 of a share was paid on January 6, 1964; and .50 of a share was paid on January 4, 1965.


Even though the breakup of GM, the original intent of the antitrust action, was not accomplished, the Du Pont-General Motors case is significant because, at the time, it produced the largest divestiture since the breakup of the Standard Oil Company in 1911. The suit against Du Pont was filed on the eve of the 1948 presidential election, and its political intent was readily visible to all but the most naïve. First, it improved the antitrust record of the incumbent administration. Second, the Republicans were heavily favored to win and were expected to drop the action, thus providing Democrats with fuel for their claim that their opponents were “soft on big business.”

The action is a vivid illustration of the dedication of the Dwight D. Eisenhower Eisenhower, Dwight D.
[p]Eisenhower, Dwight D.;and business[business] administration to a vigorous antitrust enforcement policy. That administration’s first secretary of defense was Charles E. Wilson Wilson, Charles E. (1890-1961) , a former president of General Motors. He is often misquoted as stating, “what is good for General Motors is good for the country”; he actually said in his confirmation hearings before the Senate that “I had always thought that what was good for the country was good for General Motors and vice versa.”

There was much partisan rhetoric to the effect that the Republican administration was business oriented and soft on antitrust, but the record in this case alone refutes the latter charge. Attorney General Herbert Brownell, Jr., Brownell, Herbert, Jr. and his successor, William P. Rogers Rogers, William P. , chose persons to run the Antitrust Division who were dedicated to vigorous enforcement. The case could have been dropped after the defeat on the district court level, but it was not; the determined stance concerning the divestiture and disbursement of the GM stock, ignoring the political calendar and the interests of the Republican Party’s natural constituency, was not required to blunt partisan criticism. Eisenhower administration activism kept the case in the courts.

In terms of the development of legal precedent, the case is little more than an unimportant footnote in the history of Clayton Act enforcement. Less than two years after the filing, the Celler-Kefauver Amendment altered section 7 of the Clayton Act to strengthen its prohibitions. Although the old statute was given a new and much broader interpretation as a result of the case, the precedent has never since been used. Over the next few years, only one other acquisition was investigated in which the precedent could have been cited: the Du Pont acquisition of the Remington Arms Company Remington Arms Company . Although the Antitrust Division prepared a complaint, it was never filed, probably in reaction to the possible cry of the unfairness of applying the precedent again to Du Pont before having used it in connection with actions against other companies.

The Supreme Court decisions in the case fit into a pattern of vigorous antitrust enforcement begun in the 1950’s and continued through the late 1960’s. It was during this period that the government won an unprecedented string of victories in the highest court, extending the interpretation of section 7 of the Clayton Act as amended in 1950. Key actions, many begun during the Eisenhower era and others initiated during the John F. Kennedy and Lyndon B. Johnson years, all were decided in favor of the government. These included opposition to takeovers by Brown Shoe Company, Philadelphia National Bank, Vons Grocery, and a joint venture of Pennsalt Chemicals Corporation and Olin Mathieson Chemicals Corporation. Antitrust enforcement
Supreme Court, U.S.;antitrust law
United States v. E. I du Pont de Nemours and Company (1961)
Du Pont Corporation[Dupont Corporation]
General Motors

Further Reading

  • Areeda, Phillip, Louis Kaplow, and Aaron Edlin. Antitrust Analysis: Problems, Text, Cases. 6th ed. New York: Aspen, 2004. Textbook containing case studies of the major antitrust cases in American history. Bibliographic references and index.
  • Chandler, Alfred D., and Stephen Salsbury. Pierre S. Du Pont and the Making of the Modern Corporation. New York: Harper & Row, 1971. A corporate history, particularly informative on the company’s diversification and the suit.
  • Dirlam, Joel B., and I. M. Stelzer. “Du Pont-General Motors Decision: In the Antitrust Grain.” Columbia Law Review 58 (September, 1958): 24-43. Views the decision as being within the confines of traditional antitrust policy.
  • Kinnane, Adrian. DuPont: From the Banks of the Brandywine to Miracles of Science. Wilmington, Del.: E. I. du Pont de Nemours, 2002. Official corporate history of Du Pont, touting the corporation’s accomplishments in the fields both of science and of business. Bibliographic references and index.
  • Kovaleff, Theodore Philip. Business and Government During the Eisenhower Administration. Athens: Ohio University Press, 1980. Includes a chapter that details the various antitrust actions filed against the chemical giant in the post-World War II era.
  • _______. “Divorce American Style: The Du Pont-General Motors Case.” Delaware History 18 (Spring/Summer, 1978): 28-42. Uses the papers of both the Du Ponts and the Antitrust Division to detail the intricacies of the case.
  • Stocking, George W. “The Du Pont-GM Case and the Sherman Act.” Virginia Law Review 44 (January, 1959): 1-40. Stocking agrees with the outcome but believes that it was incorrectly based. Rather than violating section 7 of the Clayton Act, he suggests that Du Pont’s acquisition of GM shares was a restraint of trade, thus violating sections 1 and 2 of the Sherman Act.
  • “Symposium—The Du Pont-General Motors Decision: The Merger Problem in a New Perspective.” Georgetown Law Journal 46 (Summer, 1958): 561-700. Participants included Irston R. Barnes, John Blair, Bruce Bromley, Walton Hamilton, William L. McGovern, and Blackwell Smith. Various issues involved in the decision are discussed from a legal perspective.

NBC Is Ordered to Divest Itself of a Radio Network

Alcoa Is Convicted of Violating the Sherman Antitrust Act

Antitrust Rulings Force Film Studios to Divest Theaters

Celler-Kefauver Act Amends Antitrust Legislation

Supreme Court Rules Against a Procter & Gamble Merger

Flood Tests Baseball’s Reserve Clause