United States V. Aluminum Co. Of America Essay

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United States V. Aluminum Co. Of America

United States V. Aluminum Co. Of America

Introduction

Case overview

            The United States V. Aluminum Co. Of America was a case that involved the federal government of the United States of America against the Aluminum Company of America and its subsidiaries. As the plaintiff, the federal government accused the company and one of its subsidiaries of conspiring with other foreign entities to establish a monopoly in the aluminum market both in the United States and abroad. Jointly with a Canadian company namely aluminum limited, the Aluminum Company of America was accused of forming a cartel known as The Alliance. According to the terms of the agreement signed in 1931, the shares of the resulting company were issued to the signatories accompanied by a production quota for every share held. Moreover, the alliance was free to sell its products at any price that it considers fair and no party to the agreement were supposed to sell or buy aluminum from anyone who was not a member of the alliance (Hall, 37). A second agreement that was signed by the parties in 1936 abandoned the earlier system of unconditional quotas and replaced it with royalty system. Although the United States was not included in the quotas in the first agreement, the members of the alliance included it in the second agreement. Based on this, the federal government of the united states of American instituted legal proceedings against the aluminum company of America and aluminum limited of Canada. In its presentation, the federal government accused the two companies of violating the Sherman act which prohibits companies from engaging in contracts and alliances that are aimed at restraining trade among states or overseas countries.

            The trial commenced on June 1st 1938 in the district court and it lasted for four years. After listening to the arguments made by the parties, the court dismissed the case. In his ruling, the judged stated that the actions of the company did not violate the Sherman Act nor did they restrict aluminum trade among the states and in foreign markets. According to the evidence produced before him, the judge also noted that the large market share enjoyed by the company was as a result of its ability to predict changes in the market coupled with its superior marketing and distribution strategies. After the case was dismissed by the district court, the plaintiff filed for an appeal. Initially, the appeal was supposed to be handled by the United States Supreme Court but was moved to the Court of Appeals (Hand, et al, 36). This transfer resulted from the fact the Supreme Court could not attain the required quorum of six judges to listen to the case. In delivering their judgment, the circuit judges stated that although the agreements made by shareholders of the alliance were made abroad, they affected aluminum imports in America. Based on this, the court of appeals overruled the earlier judgment of the district court and declared actions of the Aluminum Company of America and its associates illegal.

A summary of the legal issues in the case

            There were four major legal issues that arose during the case. The first legal issue was whether the Aluminum Company of America gained monopoly over the virgin aluminum ingot unfairly. Since its early years, the company had been in the business of producing and selling ingot aluminum. The company employed traditional techniques of mining and melting aluminum until 1892 when Bradley discovered that smelting could be done without using external heat. This technique promised a big economy in the production of aluminum. So that the aluminum company of America could get permission to use this technique, it entered into an agreement with Bradley (Hand, et al, 53). According to the terms of this agreement, the company would Bradley’s technology to manufacture Aluminum and in return, sell the assignee an unspecified amount of aluminum at a discount below its market prices. Aluminum extraction is a process that consumes a lot of electricity. Based on this, the American aluminum company contracted the major power suppliers. According to the terms of the contract, these power companies were not supposed to sell power to any other company that is involved in the manufacture of aluminum. These two acts made the company the sole largest producer of aluminum in the country. The main legal issue here was to determine whether the monopoly enjoyed by the company resulting from these two agreements was legal or not.

            The second legal issue that arose in the proceedings was whether the aluminum company of America was guilty of being involved in illegal activities; it established its monopoly in the aluminum business in America. In its application, the federal government of the United States wanted the court to find the activities of defendant unlawful not only because they played a role in the establishment of it’s monopoly but also they were designed to suppress its competitors. This issue was divided into three broad categories. The first category was to consider the preemption of water vapor and the bauxite deposits (Hall, 36). The Aluminum Company of America and its overseas subsidiaries bought up all bauxite deposits in all the major sources including Arkansas and other overseas sources. The plaintiff argued that the company bought more bauxite than it needed showing that the purchase was not for ensuring enough supply but locking out competitors. The second category was to consider the suppression of other players in the aluminum industry and fabricated goods. As noted earlier in the paper, the Aluminum Company of America contracted the major power companies to supply it with power. In the contract, the power companies were not supposed to sell power to other players in the aluminum business. Moreover, the company also bough interests in two aluminum companies in Norway. The third category of issues was the domination the aluminum market especially cables and sheets. The plaintiff argued that the Aluminum Company of America used unlawful tactics to penetrate the control the market for fabricated aluminum products. This was done in three main ways that included buying many shares in the Aluminum Manufacturers and Inc., Aluminum Castings Company, using price squeeze and through the Piston Patent Pool.

            The third legal issue in the case was whether The Aluminum Company of America together with its subsidiaries were in an illegal conspiracy, and whether or not the company was also in conspiracies with other foreign aluminum manufacturers. The Aluminum Company of America was incorporated in 1928 with the aim of coming with subsidiaries to take over the operations of the company abroad. In place of all the possessions conveyed, the company issued all its common shares top its common shareholders in the ratio of one share for every three held. This tactic was meant to ensure that the beneficial ownership of the company remained as it had been previously. The court needed to determine whether these actions were legal business strategies or were conspiracies aimed at monopolizing the aluminum market in the United States and abroad (Wang, 73).

            The final legal issue in the case was establishing the right remedy in the case of every defendant who may be found guilty of violating the Sherman Act. About five years had passed since the proceedings started and many changes had taken place in the aluminum industry in America. Based on this, it was hard for the court to dispose the case on the basis of the basis of the existing judicial record. According to the presentations made by the plaintiff, the court should dissolve the defendant.

Summary of any economic analysis relevant to the case

            The first economic analysis relevant to this case is the rise of monopoly and the effects it has on a country’s economy. As noted earlier in the paper, The Aluminum Company of America implemented a number of measures that saw it rise into a dominant player in the aluminum industry. Monopolies are not illegal but they must be established through lawful and competitive ways. More specifically, monopolies should not arise from a company’s competitiveness but not from conspiracies and other illegal acts (Hall, 28). No company should enjoy the unchallenged economic power in any industry because it discourages economic growth and slows economic growth. Even if monopolies are achieved lawfully, they should be discouraged regardless of their economic results. This would be inline with the Sherman act that was mainly aimed at putting an end to aggregations of capital because it made individuals helpless. Moreover, it gave large organizations an opportunity to exploit customers.

The outcome of the case

            The case was heard by two different courts. Initially, the case was handled by the district court before moving to the court of appeals. In the district court, the judge rules that the defendant was not guilty of engaging in a conspiracy with its subsidiaries to manipulate the American aluminum industry through a monopoly. The judge noted that the company success and dominance enjoyed by The Aluminum Company of America was a result of its superior business strategies compared to its competitors. Based on this, the court ruled that the actions of the company did violate the Sherman Act (Hand et al, 25). The plaintiff was not satisfied with this judgment and appealed it. Initially, the case was to be heard in the Supreme Court but was moved to the court of appeals after the Supreme Court failed to raise enough number of judges to listen to it.

            After listening to all the submissions presented before it, the Supreme Court made its final judgment four years after the case was initiated. In the judgment, the judges ruled that states could impose liabilities even to parties that are not within its allegiance. Based on the provisions of the Sherman act, the court ruled that the agreements entered into by The Aluminum Company of America in 1931 and 1936 were unlawful because they were meant to affect aluminum imports into the country. Moreover, the court indicated that the main aim of the Sherman act was to ensure that all the factors that play a role in determining prices should be kept free. Based on this, the court ruled that the actions of the aluminum company of America and its partners violated the Sherman act. Consequently, the court of appeal overturned the earlier ruling made by the district court.

Conclusion

            In conclusion, The United States V. Aluminum Co. Of America was a case that was initiated by the federal government of the United States against the Aluminums Company of America and its partners. In filing the case, the plaintiff accused the defendant and its other partners of entering into business agreements aimed at establishing a monopoly in the aluminum market both in the United States and abroad (Wang, 38). According to the federal government, these actions were illegal because they were in violation of the Sherman act. This act prohibits companies from engaging in contracts and alliances that are aimed at restraining trade among states or overseas countries.

            There were four major legal issues in the case. The first legal issue was whether the Aluminum Company of America gained monopoly over the virgin aluminum ingot unfairly. The second legal issue that arose in the proceedings was whether the aluminum company of America was guilty of being involved in illegal activities. The other legal issue was whether The Aluminum Company of America together with its subsidiaries were in an illegal conspiracy, and whether or not the company was also in conspiracies with other foreign aluminum manufacturers. The final legal issue in the case was establishing the right remedy in the case of every defendant who may be found guilty of violating the Sherman Act.

            In its final ruling, the court of appeals overturned the ruling of the district court and found the actions of Aluminum Company of America and it’s subsidiaries illegal and to be in violation of the Sherman act.

References

Hall., K. L. The Oxford Companion to the Supreme Court of the United States. Oxford University Press, 2005. Print

Hand, L., Swan, & Augustus N. Hand. UNITED STATES v. ALUMINUM CO. OF AMERICA et al. No. 144. Circuit Court of Appeals, Second Circuit. March 12, 1945. Web

Wang, Zhigang. International Harmonization of Competition Laws. Martinus Nijhoff Publishers. 1995. Print

Source document

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