U.S. Supreme Court Rules Against Northern Securities

By prosecuting and ordering dissolution of the Northern Securities Company, the U.S. government showed that it would regulate corporations and set the precedent for later antitrust cases.

Summary of Event

On March 14, 1904, the Supreme Court of the United States ordered the dissolution of the Northern Securities Company. One of the first large-scale holding companies, Northern Securities had been formed in November, 1901, by James Jerome Hill, Edward H. Harriman, and J. P. Morgan as a way to gain greater control over and increase the efficiency of three railroad companies: the Great Northern Railroad, the Northern Pacific Railroad, and the Chicago, Burlington, & Quincy Railroad line. Responding to the general antitrust sentiment of the time, in March, 1902, President Theodore Roosevelt instructed Attorney General Philander C. Knox to bring suit against the Northern Securities Company for violation of the Sherman Antitrust Act of 1890. Sherman Antitrust Act (1890) The case eventually went to the U.S. Supreme Court and ultimately ended in 1904 with Northern Securities Company v. United States. The Supreme Court found the Northern Securities Company to be in violation of the Sherman antitrust law and ordered it to be dissolved. Northern Securities Company v. United States (1904)
Supreme Court, U.S.;antitrust and corporate regulation
Antitrust legislation
[kw]U.S. Supreme Court Rules Against Northern Securities (Mar. 14, 1904)
[kw]Supreme Court Rules Against Northern Securities, U.S. (Mar. 14, 1904)
[kw]Court Rules Against Northern Securities, U.S. Supreme (Mar. 14, 1904)
[kw]Northern Securities, U.S. Supreme Court Rules Against (Mar. 14, 1904)
Northern Securities Company v. United States (1904)
Supreme Court, U.S.;antitrust and corporate regulation
Antitrust legislation
[g]United States;Mar. 14, 1904: U.S. Supreme Court Rules Against Northern Securities[01010]
[c]Trade and commerce;Mar. 14, 1904: U.S. Supreme Court Rules Against Northern Securities[01010]
[c]Laws, acts, and legal history;Mar. 14, 1904: U.S. Supreme Court Rules Against Northern Securities[01010]
Roosevelt, Theodore
[p]Roosevelt, Theodore;antitrust prosecution
Knox, Philander C.
Morgan, J. P.
Harriman, Edward H.
Hill, James Jerome

The Northern Securities case came at the end of a great consolidation period in U.S. business history; from 1896 to 1900, nearly two thousand business mergers occurred. General suspicion of large corporations had been growing among the American public, as evidenced by support for the Interstate Commerce Act of 1887 and the growth of the reform-minded Populist Party. These concerns, and consequent political movements, had pressured Congress into passing the Sherman Antitrust Act of 1890, which made illegal “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”

Any hopes that this law would control corporations, however, were undermined by the probusiness laissez-faire policies of the legislative, executive, and judicial branches of the federal government at the time. The Sherman Act had very little real effect on corporations in the United States for more than a decade after its passage. Between 1893 and 1903, the federal government initiated fewer than two dozen cases under the Sherman Act. Furthermore, the Supreme Court decision in the case of United States v. E. C. Knight Company (1895) undermined the strength and credibility of the Sherman Act. In that case, the Supreme Court ruled that the American Sugar Company and its subsidiary, the E. C. Knight Company, although perhaps a monopoly in manufacturing, had not monopolized or restrained interstate commerce. This was a very strict and limited interpretation of the Sherman Act.

In May, 1901, James J. Hill of the Great Northern Railroad and Edward H. Harriman of the Union Pacific Railroad engaged in a competition to purchase controlling stock in the Northern Pacific Railroad. That railroad company in turn held a controlling interest in the Chicago, Burlington, & Quincy Railroad, the tracks of which provided a highly desirable line into Chicago and ran throughout the northern Midwest region. Harriman worked through the Kuhn Loeb investment house, with the backing of the Rockefeller family; Hill enlisted the considerable financial services of J. P. Morgan. As Hill and Harriman fought for control of Northern Pacific, the price of its stock soared to one thousand dollars per share. In their efforts to obtain liquid capital to purchase Northern Pacific shares, Hill and Harriman dumped other holdings at very low prices. These actions caused stock prices to fluctuate wildly, generally disrupting the stock market.

Neither Hill nor Harriman was able to gain a controlling interest in Northern Pacific, and the two men decided that cooperation would be preferable to market disorder. In November, 1901, they had Morgan arrange for the incorporation of the Northern Securities Company, a $400 million holding company that would, they hoped, bring order and efficiency to the northwestern railroad market by bringing their combined interests—the Great Northern Railroad, the Northern Pacific Railroad, and the Chicago, Burlington, & Quincy Railroad line—under the aegis of one board of directors. Morgan had a history of improving rail systems through his own reorganization and consolidation efforts. In the sixteen years since 1885, Morgan had worked to make thousands of miles of railroads throughout the East more efficient, including saving the New York Central Railroad from financial collapse. In his book Highways of Progress (1910), Highways of Progress (Hill, J. J.) Hill stated that the formation of the Northern Securities Company was “a device contributing to the welfare of the public by assuring in the management of great properties that security, harmony and relief from various forms of waste out of which grow lower rates just as surely as dividends.” He argued that consolidation was in the public interest, as it contributed to efficiency.

To the public and much of the rest of the business world, however, the actions of Hill, Harriman, and Morgan appeared to be the very worst of the disruptive, careless, and crude abuses of power attributed to the “robber barons” of that era. Public opinion was further enraged by the fact that the episode had resulted in one of the largest holding companies yet formed in this era of large business trusts. Even The Wall Street Journal criticized Harriman and Hill for their actions. Responding to these pressures, in March, 1902, President Roosevelt instructed Attorney General Knox to bring suit against the Northern Securities Company.

Working with the governor and attorney general of Minnesota, the home of Hill’s Great Northern Railroad, Knox filed the federal suit in a circuit court in St. Paul on March 10, 1902. The federal circuit court ruled against the Northern Securities Company on April 9, 1903. The company then appealed to the U.S. Supreme Court, and on March 14, 1904, the Court found the Northern Securities Company to be in violation of the Sherman Antitrust Act. In a five-to-four decision, the Court affirmed the decision of the lower court and ordered the dissolution of the Northern Securities Company.


The prosecution and dissolution of the Northern Securities Company sent shock waves through the business world. It may have slowed the growth of mergers, but the trend continued through both of Theodore Roosevelt’s administrations. Mergers decreased dramatically from 1902 to 1904 but increased from 1904 to 1906. The fact that by 1909 just 1 percent of the industrial firms in the United States were producing nearly half of the nation’s manufactured goods illustrates how large the largest firms had become.

By successfully prosecuting the Northern Securities Company, Roosevelt and Knox gave meaning and legitimacy to the Sherman Antitrust Act that it had not had since its passage in 1890. They also built up the legitimacy and the credibility of the Justice Department, which before the Northern Securities case had been nothing more than a small team of independent lawyers. In his efforts to prosecute the case, Knox built within the Justice Department the legal machinery necessary to bring antitrust suits in the future. Roosevelt stated that Knox had “done more against trusts and for the enforcement of the antitrust law than any other man we have ever had in public life.” Vigorous presidential action also influenced the jurisprudence of the Supreme Court, making it more sympathetic to the cause of antitrust in the future.

The dissolution of the Northern Securities Company opened the door for many other prosecutions by the Justice Department for antitrust violations. Just after the Justice Department brought suit against the Northern Securities Company in 1902, Roosevelt instructed Knox to bring suit against the “beef trust,” which was made up of a number of Chicago packinghouses, including Swift & Company. Like the Northern Securities case, the suit against the beef trust Beef trust was supported by widespread public opinion, especially given that meat prices were on the rise. In the 1905 case of Swift & Company v. United States, Swift & Company v. United States (1905) the Supreme Court enjoined the beef trust from engaging in collusive practices that kept prices stable or rising. This case was significant in that it expanded federal jurisdiction to include manufacturing combinations whose products were later traded in interstate commerce, a line of argument that the Court had rejected in the E. C. Knight case.

In 1906 and 1907, Roosevelt had the Justice Department bring suit against the American Tobacco Company, the E. I. du Pont Chemical Corporation, the New Haven Railroad, and the Standard Oil Company. The Supreme Court subsequently ordered the dissolution of American Tobacco (1910) and Standard Oil (1911). In the years between 1890 and 1905, the Department of Justice brought twenty-four antitrust suits. Theodore Roosevelt’s administrations brought fifty-four suits, and the single administration of William Howard Taft prosecuted ninety antitrust cases. In the decade from 1905 to 1915, at least eighteen antitrust cases were prosecuted each year.

Perhaps the most important impact of the Northern Securities case was that it answered the question of whether the federal government had the ability and willingness to regulate large corporations aggressively. Roosevelt later wrote that in 1902 the question had not been how large corporations should be controlled. “The absolutely vital question,” said Roosevelt, “was whether the government had power to control them at all.” Before the federal government could compose the rules and create the agencies needed for regulation, it had to show that it had the willingness and ability to do so. The prosecution and dissolution of the Northern Securities Company proved that the federal government had both.

In addition to proving that the federal government could regulate and punish large corporations, the Northern Securities case set the precedent for federal intervention in the national economy. The Hill-Harriman battle had disrupted the stock market, and the overwhelming pressure of public opinion provided a favorable arena for the reform philosophy of Roosevelt and Knox. Just after he announced the antitrust suit against the Northern Securities Company, Roosevelt said that the prosecution aimed to prevent violent fluctuations and disaster in the market. In April, 1902, Roosevelt stated that “after the combinations have reached a certain stage it is indispensable to the general welfare that the Nation should exercise . . . the power of supervision and regulation.”

Roosevelt did not oppose the fact of large corporations. He believed that with their ability to provide economies of scale, vertically integrated operations, and consolidations that prevented ruinous competition, corporations could achieve a degree of organizational efficiency that smaller concerns could not. Roosevelt believed in an increased regulatory role for the federal government, one that involved policing corporate behavior and actions rather than size itself. A few days after he announced the suit against the Northern Securities Company, Roosevelt told J. P. Morgan, who was concerned for his much larger United States Steel Corporation, that U.S. Steel would be prosecuted only if it had “done something that we regard as wrong.”

Perhaps because of Roosevelt’s accommodationist regulatory policy, the trend toward large corporations grew at the same time that the number of antitrust cases increased. The economic concentration that had increased dramatically in the late nineteenth century continued to rise in the early twentieth century. In addition, in the cases concerning Standard Oil Standard Oil and American Tobacco, American Tobacco Company the Supreme Court ruled that not every restraint of trade is illegal in terms of the Sherman Act, thus encouraging merger activity.

In the case regarding Standard Oil, the U.S. Supreme Court noted that it would determine through the “rule of reason” Rule of reason principle whether combinations were restraining trade unreasonably and thus violating the Sherman Act. Congress passed the Clayton Antitrust Act of 1914 Clayton Antitrust Act (1914) in part to eliminate interlocking directorates but also to create statutory specifics on antitrust prohibitions so that the government need not rely on the shifting opinions of the federal judiciary. The Clayton Act was supplemented by the Robinson-Patman Act of 1936, Robinson-Patman Act (1936)[Robinson Patman Act] which sought to clarify and codify further the types of illegal price discrimination. The Celler-Kefauver Act of 1950 Celler-Kefauver Act (1950)[Celler Kefauver Act] again sought to reinforce the Clayton Act, in much the same manner as had the Robinson-Patman Act. In 1976, Congress passed the Hart-Scott-Rodino Act, also known as the Concentrated Industries Act, a mild reform law that attempted to strengthen provisions of existing antitrust laws.

The trend toward business mergers and economic concentration continued. With the war efforts of both World War I and World War II, the federal government accepted the economic and industrial concentration necessary to keep production levels high. This also was true of the federal efforts to deal with the Great Depression in the 1930’s. The laissez-faire policies of the 1920’s were born of political philosophy rather than of necessity. Finally, the economic prosperity that followed World War II also lessened desire for antitrust regulation, as the system seemed to be working for the benefit of most.

Several important antitrust cases, however, did reach the courts following the main period of antitrust prosecution. In 1945, the Aluminum Company of America (Alcoa) was found to be in violation of the Sherman Antitrust Act. In 1948, the federal government forced a number of major U.S. film studios to divest themselves of studio-owned movie theaters. In 1961, the Supreme Court ordered the Du Pont Corporation to divest itself of its holdings in General Motors Company. In 1967, the Federal Communications Commission ordered the American Telephone and Telegraph Company (AT&T) to lower its rates. In 1982, under continuing federal pressure, AT&T agreed to be broken up, and a number of rival telephone companies entered the market to challenge AT&T’s control. In the late 1990’s, the federal government pursued legal action against Microsoft Corporation for monopolistic practices in the computer software and Internet browser industries. Northern Securities Company v. United States (1904)
Supreme Court, U.S.;antitrust and corporate regulation
Antitrust legislation

Further Reading

  • Blum, John Morton. “Theodore Roosevelt and the Definition of Office.” In The Progressive Presidents: Theodore Roosevelt, Woodrow Wilson, Franklin D. Roosevelt, Lyndon Johnson. New York: W. W. Norton, 1980. Good for an introduction to the Progressive policies and politics, as well as foreign policies, of Roosevelt and Wilson.
  • Clark, John D. The Federal Trust Policy. Baltimore: The Johns Hopkins University Press, 1931. Analytic, detailed, and still brief enough to be of use both to readers seeking an introduction to antitrust policy at the federal level and to those seeking to expand their knowledge of the subject.
  • Gould, Lewis L. “Immediate and Vigorous Executive Action.” In The Presidency of Theodore Roosevelt. Lawrence: University Press of Kansas, 1991. Excellent history of the foreign and domestic policies of Roosevelt’s administrations. Good on the Northern Securities case. Focuses on the Roosevelt presidency, but also good for students beginning study of the Progressive Era.
  • Hill, James Jerome. Highways of Progress. 1910. Reprint. New York: Books for Business, 2001. Hill’s own account of the process of railroad building in the United States is very useful. Provides an enlightening and different perspective on the Northern Securities case and the railroad industry in general.
  • Meyer, Balthasar Henry. A History of the Northern Securities Case. Madison: Bulletin of the University of Wisconsin, 1906. Reprint. New York: Da Capo Press, 1972. Meyer, a member of the Railroad Commission of Wisconsin, gives a valuable contemporary treatment of the Northern Securities case and the trust issue itself. Places the case in context by briefly describing the growth of the antitrust movement at the state and federal levels. Includes copies of relevant documents.
  • Peritz, Rudolph J. R. Competition Policy in America: History, Rhetoric, Law. Rev. ed. New York: Oxford University Press, 2001. Explores the influences on U.S. public policy of the concept of free competition. Discusses congressional debates, court opinions, and the work of economic, legal, and political scholars in this area.
  • Thorelli, Hans B. The Federal Antitrust Policy: Origination of an American Tradition. Baltimore: The Johns Hopkins University Press, 1955. Comprehensive, in-depth treatment of U.S. antitrust policy. Covers economic, social, and political formation of the antitrust movement in the legislative, executive, and judicial branches of government in the late nineteenth and early twentieth centuries. For those seeking a highly sophisticated and detailed treatment of U.S. antitrust policy.

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U.S. Supreme Court Upholds Prosecution of the Beef Trust

U.S. Supreme Court Establishes the “Rule of Reason”

U.S. Supreme Court Breaks Up the American Tobacco Company

Clayton Antitrust Act

United States v. United States Steel Corporation

U.S. Government Loses Its Suit Against Alcoa

Eastman Kodak Is Found to Be in Violation of the Sherman Act

Antitrust Prosecution Forces RCA to Restructure