United States v. E. I. Du Pont De Nemours & Co.

Background

In 1949 the United States sued a large chemical company that owned about 23% of the voting stock of a major automaker, alleging the ownership violated the Clayton Act’s ban on stock acquisitions that tend to lessen competition. After a trial court dismissed the complaint, the Supreme Court in 1957 found the ownership likely had insulated much of the automaker’s market and sent the case back for a remedy. On remand the trial court held lengthy hearings, focused heavily on tax and market consequences, and adopted a “pass-through” voting plan instead of ordering a sale.

Reasoning

The central question was whether the limited pass-through of voting power plus injunctions would actually eliminate the tendency toward monopoly, or whether only complete divestiture would. The majority held that courts must ensure remedies truly restore competition and that divestiture is a historically sure and administrable remedy for stock acquisitions that threaten a market. The Court concluded the pass-through left a substantial likelihood of continued influence by the chemical company’s shareholders and would rely on slow injunctive policing, so it ordered complete divestiture and set deadlines and procedures for a sale plan.

Real world impact

The ruling requires the chemical company to sell its automaker shares under the timetable the Court set, affecting millions of shareholders and possibly market prices and corporate financing. It makes it harder for firms to keep large cross-holdings to influence a customer’s purchasing decisions and signals courts may prefer outright sale to limited voting fixes. The trial court will hold further proceedings to shape the sale details.

Dissents or concurrances

A dissent argued the trial judge had carefully weighed public and private harms, including large tax bills and market disruption to innocent investors, and that the pass-through with strict injunctions was a reasonable, less destructive remedy deserving deference.