Parties:
United States of America: The Plaintiff is the United States which says that the Sherman Antitrust Act has been violated by the defendants.
Hilton Hotels Corporation: A defendant that allegedly agreed with other hotels to give preferential treatment to suppliers who paid assessments while decreasing purchases from those companies who refused. Along with its co-defendant, it is accused of bringing the combined economic power of the hotels against the suppliers who failed to pay.
Western International Hotels Co.: Another defendant that was accused of violating the Sherman Act’s provisions with its refusals to deal with the unreasonable restraints on trade.
Facts:
In Portland, Oregon, representatives of hotels, restaurants and other business entities organized an association to attract potential conventions to their respective city. While at the convention, members were asked to make contributions equal to one percent of their sales in order to help finance. To help bolster their collections, hotel members, including the defendant Hilton Hotel Corp., agrees to give preferential treatment to the suppliers who paid their assessments. But for those who did not pay, actions were set in motion to help decrease the purchases from those particular suppliers.
Procedure:
The court found that the evidence was clearly sufficient to establish that the defendant hotels agreed to prefer suppliers who paid contributions over those who did not. The primary purpose and direct effect of the defendant’s actions was to bring the combined power of the hotels against those suppliers who did not pay. A corporation is liable for acts of its agents within the scope of their authority even when done against company orders. The court affirmed the ruling due to the fact that the purchasing agent exercised complete authority. The defendants appealed the ruling.
Issue:
Is a corporation criminally liable for actions taken by its agents in the scope of their authority, but while not adhering to corporate policy under the Sherman Act?
Holding:
The court affirmed the convictions as it found that the evidence clearly established that the defendants agreed to restrain trade among suppliers and their agents, although contrary to corporate policy and express instructions, resulting in a violation of the Sherman Act.
Reasoning:
The Sherman Anti-Trust Act states that “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.” (SHRM Sherman Act) That statement coincides with what has occurred in this case. The United States sees this as a clear violation due to the restraint of trade and commerce created by the defendants. The several district courts of the United States are invested with jurisdiction to prevent and restrain violations of section 8 of this title. (Cornell Law) This is a case in which the United States was well within its rights to condemn this action by the defendants and make them answer for their actions of violating a United States federal antitrust act. In his opinion, Judge Browning said that “The primary purpose of the Sherman Act is not to protect deserving private persons, but to vindicate the public interest in free market.” (Lexis Nexis) That is a very important statement raised and it goes to show why the Sherman Act was enacted in the first place. This antitrust act, backed by the United States, works almost like a shield, designed to protect all businesses and suppliers as they conduct their trade. Try to puncture the shield and violate this law, and the guilty business will pay dearly for it. This law is in place to ensure that these types of situations do not occur. And when they do, this case is a good example of how severe the consequences can be.
Case Questions:
Can a corporation be held criminally liable for the acts of its representatives?
According to Chapter 8 of our Business Law textbook, “Corporations may be held criminally liable for actions of their officers, employees, or agents.” (Business Law, pg. 142) The court outlined this point in its decision as noted above: “A corporation was liable for acts of its agents within the scope of their authority even when done against company orders.” (Lexis Nexis) Add in the fact that the purchasing agent exercised complete authority in this situation, the resounding answer is yes, a corporation can be held criminally liable for the acts of its representatives. The representatives of the hotel companies violated the Sherman Act and will face stiff penalties due to the fact that their appeal was heard, but not overturned. To act in the manner like the defendants did is not ethical nor is it fair to any of the parties involved.
If so, what criminal penalties can be assessed against the corporation?
According to the Sherman Act of 1980, there “shall be a punishment by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court." (SHRM Sherman Act) The Sherman Act is not to be taken lightly. It gives Congress the power to regulate our commerce both domestically and in foreign trade. It clearly states that restraining contracts is illegal and this concept applies directly to this case. Hilton and Western decided to hurt the suppliers that did not pay and reward the ones who did, which is known as restraint in trade. This is a clear violation of the Sherman Act, which means that criminal penalties can be assessed against the corporation.
Conclusion:
Violating the Sherman Act is nothing new. In fact, while doing my research on this case, I found quite a few different cases over the years in which a violation of the Sherman Act was presented. Out of all the ones I found, I thought it was interesting to see how this antitrust law applied in the 19th century and early 20th century. In the United States v E.C. Knight case in 1895, the American Sugar Refining Company purchased additional operations and wound up controlling 98% of the nation's output. But the Supreme Court ruled that the acquisition of refineries and the business of sugar manufacturing within a state had no direct relation to interstate commerce which means that they were not in violation of the act. (U.S. History). In this case, the government was sound in its judgment to question the company, but in the end, I believe the right judgment was made. In a 1904 decision, the Supreme Court upheld the Federal Government's suit under the Sherman Antitrust Act to dissolve the Northern Securities Company in State of Minnesota v. Northern Securities Company. (SHRM) This case was very long and reading it through online made me realize how complicated an antitrust case can be. But I do think that the State of Minnesota was well within its rights to dissolve the company to prevent a monopoly of the industry. In the final case, featured in 1911, the Court found Standard Oil Company of New Jersey (United States v Standard Oil Company) in violation of the Sherman Antitrust Act because of its excessive restrictions on trade. It was found that the company was eliminating competitors by buying them out directly and by driving them out of business by temporarily slashing prices in a certain region. (SHRM) Although it was smart of Standard Oil to use this method, the United States government caught on and exposed what it was doing. But using a technique like this in the early 20th century must have been a new concept and a surprise to the United States. But in the end, the United States won and made sure that Standard Oil was not able to achieve the level of dominance in the market that they strived for.
As far as the case that I reviewed, United States v Hilton Hotel Corp., I believe whole-heartedly that the United States did the right thing to the hotel companies. The government acted swiftly and justly in their decision and made sure that this practice would not continue. Both defendants knew exactly what they were doing and how it would affect their companies and the marketplace. They tried to cheat to get ahead and give special treatment to those suppliers who paid them while leaving the other ones to pound sand. This was a corrupt business practice and a poor decision made on the part of the defendants. In the end, justice was done and the defendants were forced to pay the consequences.