''Chicago Board of Trade v. United States'', 246 U.S. 231 (1918), was a case in which the Supreme Court of the United States applied the " rule of reason" to the internal trading rules of a

commodity market A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investin ...

. Section 1 of the Sherman 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."Sherman Antitrust Act of 1890, § 1 (excerpt). However, in evaluating the U.S. government's allegations that the Chicago 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."

Facts

Defendant Chicago Board of Trade (CBOT) is a

, dealing in spot sales (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.m Central Time), the price of grain is set and dealers can't sell grain at any other price. The

United States Department of Justice The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the United States government tasked with the enforcement of federal law and administration of justice in the United Stat ...

accused CBOT of

price-fixing Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given ...

, and in 1913, filed suit against the Board in the

United States District Court for the Northern District of Illinois The United States District Court for the Northern District of Illinois (in case citations, N.D. Ill.) is the federal trial-level court with jurisdiction over the northern counties of Illinois. Appeals from the Northern District of Illinois ar ...

. 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 these

monopsony In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. The microeconomic theory of monopsony assumes a single entity ...

oligopsony An oligopsony (from Greek ὀλίγοι (''oligoi'') "few" and ὀψωνία (''opsōnia'') "purchase") is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in a mark ...

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 a consent decree under which enjoined them from acting upon the same or from adopting or acting upon any similar rule.

Judgment

Justice Brandeis Louis Dembitz Brandeis (; November 13, 1856 – October 5, 1941) was an American lawyer and Associate Justice of the Supreme Court of the United States, associate justice on the Supreme Court of the United States from 1916 to 1939. Starti ...

, 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 the

market power In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market powe ...

of dominant sellers and made sure that prices were set by open competitive bidding. The decree of the District Court was reversed.

Notes

External links

* * {{caselaw source , case = ''Chicago Board of Trade v. United States'', {{ussc, 246, 231, 1918, el=no , findlaw =https://caselaw.findlaw.com/us-supreme-court/246/231.html , justia =https://supreme.justia.com/cases/federal/us/246/231/ , loc =http://cdn.loc.gov/service/ll/usrep/usrep246/usrep246231/usrep246231.pdf 1918 in United States case law United States Supreme Court cases United States antitrust case law United States commodity and futures case law Chicago Board of Trade litigation United States Supreme Court cases of the White Court

Facts

Judgment

See also

Notes

External links