Sherman Antitrust Act

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Federal legislation passed in 1890 prohibiting "monopolies or attempts to monopolize" and "contracts, combinations, or conspiracies in restraint of trade" in interstate and foreign commerce. The major purpose of the Sherman Antitrust Act was to prohibit monopolies and sustain competition so as to protect companies from each other and to protect consumers from unfair business practices. The act was supplemented by the clayton antitrust act in 1914. Both acts are enforced by the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Attorney General's office.

1890 law prohibiting monopolies and restraint of trade in interstate commerce. The Sherman Act was strengthened in 1914 with amendments known as the Clayton Act that added further prohibitions against price-fixing conspiracies. These federal antitrust laws at first were not applied to the insurance industry because of the 1869 Supreme Court ruling in Paul v. Virginia that insurance was not commerce and thus not subject to federal regulation. After the South-Eastern Underwriters Association (SEUA) Case in 1944 and passage of the Mccarran-Ferguson Act (Public Law 15) in 1945, Congress made it clear that states would retain the power to regulate insurance but price-fixing and restraint of trade not sanctioned by state laws and regulations would be subject to federal antitrust prosecution.

The oldest and most important federal antitrust law, the Sherman Antitrust Act has provided the primary statutory basis for American antitrust enforcement and case law since 1890. Like the other antitrust laws, the Sherman Act targets activities restricting marketplace competition. The act's sweeping prohibition of “[e]very contract, combination … or conspiracy” in restraint of interstate or foreign trade or commerce, set forth in its first section, addresses collusive or exclusionary group behavior. Section 2, prohibiting monopolization and attempted monopolization, primarily addresses single‐firm conduct, although it also condemns conspiracies to monopolize. Violations of the act currently are punishable by fines of up to $350,000 for individuals and up to $10 million for corporations, as well as by imprisonment of up to three years. Both the United States and private parties can seek federal court injunctions against threatened breaches of the act and are entitled to collect three times the amount of any injury they have sustained because of its violation. In addition, individual states are authorized to sue for treble damages on behalf of injured natural persons residing in the state.

The nearly unanimous congressional adoption of the act in 1890 responded to mounting public concerns generated by dramatic late nineteenth‐century increases in cartelization, consolidation, and apparent predatory business behavior. The congressional deliberations reflected traditional American concerns that anticompetitive conduct potentially imperils distributional fairness, productive efficiency, individual economic opportunity, and political liberty. Ever since 1890, however, scholars have disagreed with regard to specific congressional aims. Scholars, judges, and enforcement officials increasingly have posited an exclusive congressional desire to promote economic efficiency. A prominent alternative view has suggested that Congress primarily sought to prevent unfair wealth transfers resulting from noncompetitive pricing. These interpretations reflect a modern perception that the various economic, political, and moral goals reflected in the debates are in substantial tension. In late nineteenth‐century thinking, however, they largely were deemed to be complementary, so that most congressmen may well have sought to further all of these ends.

Rather than specifying the act's application in any detail, Congress left the task of further doctrinal development to the federal courts. Congress intended to incorporate in a general way the existing common‐law restraint of trade approaches of the state courts. The Sherman Act's enforcement provisions, however, went substantially beyond traditional common‐law doctrines that merely denied legal enforcement to restrictive agreements.

Despite the Supreme Court's initial limitation of the act's reach in United States v. E. C. Knight Co. (1895), the Court found for the government in a series of early cases culminating in its landmark decisions in *Standard Oil Co. v. United States (1911) and United States v. American Tobacco Co. (1911). The Court's ambiguous new embrace of a generalized *“rule of reason” standard for Sherman Act interpretation in those cases sparked new political debate and ultimately prompted Congress to pass the Clayton and Federal Trade Commission Acts in 1914 to supplement the Sherman Act.

World War I and the prosperous 1920s saw only limited Sherman Act enforcement. Federal antitrust enforcement activity dramatically expanded, however, in the later New Deal and since then has remained at a much higher level than at any time prior to the 1930s.

Over time, judicial interpretation of the act also has changed substantially. Sherman Act interpretation, scholarship, and enforcement have changed particularly dramatically since the middle 1970s. In recent cases, for example, the Court greatly has reduced, although not entirely eliminated, its use of “per se” rules to condemn summarily particular agreements among competitors or among firms in a supplier‐purchaser relationship. Simultaneously, the Court has given increasing weight to new economic perspectives suggesting that various collaborative arrangements beneficially may increase output and efficiency. The Supreme Court and lower courts similarly have shown growing tolerance for potentially efficient conduct that furthers the market position of dominant firms, even while continuing to condemn exclusionary behavior by such firms in the absence of such an efficiency justification.

Numerous special exceptions limit or preclude the normal application of the Sherman Act in particular circumstances. Some of the more important of these relate to labor activities, conduct within particular regulated industries, activities attributable to state rather than private decision making, and First Amendment protected activities.

See also Antitrust; Capitalism.

Bibliography

• E. Thomas Sullivan and Jeffrey L. Harrison, Understanding Antitrust and Its Economic Implications (1988)

— James May

For more information on Sherman Antitrust Act, visit Britannica.com.

During the 1880s Americans worried about the emergence of trusts, or combinations of businesses that tended to reduce competition. Trusts occurred whenever a single board of trustees controlled the management of many different companies. By consolidating these companies, trusts could monopolize, or dominate, production and set prices in a particular industry. Newspapers and magazines accused the Standard Oil Trust, the Sugar Trust, and other large-scale industries of improperly suppressing competition. Defenders of the trusts asserted that such consolidation allowed more efficient production and lower prices. Opponents argued that a lack of competition placed consumers, small businesses, and farmers at the mercy of these monopolics, which could charge whatever prices they wanted.

In 1890 Congress responded to these public concerns by passing—almost unanimously—the Sherman Antitrust Act. Named for its chief sponsor, Senator John Sherman (Republican–Ohio), this act sought to end monopolies and make illegal any restriction on trade. However, the Sherman Act lacked any effective means of enforcement, and it failed to stop the growth of big business. During the 1890s the federal courts further weakened the Sherman Act by interpreting it to permit mergers and other forms of business consolidation. During the Progressive Era (1900–14), reformers continued the fight to “bust” the trusts. In 1914 Congress created the Federal Trade Commission in an effort to regulate business practices rather than try to abolish big business, as the Sherman Act had tried to do.

Sherman Antitrust Act was passed by Congress and signed into law by President Benjamin Harrison on 2 July 1890. Introduced and vigorously promoted by Senator John Sherman (R–Ohio), the law was designed to discourage "trusts," broadly understood as large industrial combinations that curtail competition. Its first section declares "every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade" to be illegal. The second section makes monopolistic behavior a felony subject to imprisonment ("not exceeding three years") and/or fines (not exceeding $10 million for corporations and $350,000 for private individuals). Civil actions may be brought by both the government and private parties. The act vests federal district courts with primary jurisdiction, and assigns the U.S. attorney general and "the several United States attorneys" chief enforcement authority.

Trusts were seemingly ubiquitous in the 1880s: thousands of businesses combined to control product pricing, distribution, and production. These associations were formed, among other reasons, to counter uncertainty created by rapid market change, such as uncoordinated advancements in transportation, manufacturing, and production. While many of these trusts were small in scale and managerially thin, the most notorious were controlled by industry giants such as Standard Oil, American Tobacco, and United States Steel. These large-scale, long-term trusts were seen as coercive and rapacious, dominating markets and eliminating competition.

The trust "problem" varied in the late nineteenth century, depending on who was describing it. For some, trusts perverted market forces and posed a threat to the nation's consumers—only big business gained from restricting free commerce and manipulating prices. (Some proponents of this view admitted, however, that the rise of the trusts corresponded with a general lowering of prices.) Popular journalists such as Henry Demarest Lloyd and Ida Tarbell stoked this distrust, arguing that trusts held back needed goods in order to make a profit under the ruse of overproduction. Others stressed the threat trusts posed to individual liberty by constricting citizens' ability to freely enter into trades and contracts. Many considered the threat to small businesses an assault on American values. Trusts were also seen as the cause of profound political problems. The money of men like Jay Gould and John D. Rockefeller was thought to corrupt politicians and democratic institutions, a view growing out of an American tradition equating concentrated power with tyranny and despotism. Fighting the trusts offered a way to combat new and pernicious versions of prerogative and corruption.

Prior to 1890, trusts were regulated exclusively at the state level, part of the general police power held by municipalities and states. States tackled the trust problem in various ways. Some attempted to eliminate collusion through the use of regulation; fifteen antitrust laws were passed between 1888 and 1891. More frequently they tried to limit business behavior without enacting legislation. State judges were receptive to arguments, raised by state attorneys general, that trusts violated long-standing legal principles; the common law provided a useful tool in battling "unreasonable" restraints of trade. However, several states, like New Jersey, Delaware, and New York, passed incorporation statutes allowing trusts and holding companies within their jurisdictions with the goal of attracting businesses.

Pressure to enact a federal antitrust law came from many quarters. Farmers and wage laborers, for example, saw industrialists as the major threat to their political and economic power; national control of trusts, under the banner of social justice, promised to increase their bargaining position. Small companies lobbied heavily for a federal antitrust law because they welcomed the chance to limit the power of their large competitors—competitors who disproportionately benefited from revolutions in distribution and production. Many were simply dissatisfied with state regulation, arguing that only the federal government could effectively control unfair business practices. Interestingly, evidence suggests that the trusts themselves were in favor of central regulation. They may have hoped a national law would discourage state antitrust activity, or, more cynically, serve as a useful distraction while they pursued more important goals. The New York Times of October 1890 called the Sherman Act a "humbug and a sham" that was "passed to deceive the people and to clear the way" for other laws, like a high protective tariff, that clearly benefited businesses.

When it was introduced, the Sherman Act raised serious objections in Congress. Like the Interstate Commerce Act of 1887, it was one of the first national laws designed to control private business behavior, and its legitimacy was uncertain. Concerns were allayed by three arguments. First, the law was needed: states were unable to fight trusts that operated outside their borders. Second, it was constitutional: antitrust activity was a legitimate exercise of Congress's authority to regulate interstate commerce. Finally, defenders argued that it did not threaten state sovereignty. The act, instead of preempting state antitrust activity, merely supplemented it.

Although the act passed by overwhelming margins in both the House (242–0) and Senate (52–1), many battles were fought between its introduction and final passage. The Senate Finance and Judiciary committees heavily revised the original bill, and both chambers added and withdrew numerous amendments. Senator Sherman, for example, supported an amendment exempting farm groups and labor unions from the law's reach, and Senator Nelson W. Aldrich (R–Rhode Island) proposed that the law not be applied to combinations that "lessen the cost of production" or reduce the price of the life's "necessaries." Some historians argue that the debate leading up to the Sherman Act reflected an ideological split between proponents of the traditional economic order and a new one. Congressmen divided sharply over the value of free competition in a rapidly industrializing society and, more generally, over the value of laissez-faire approaches to social and economic problems. Not surprisingly, the final language of the Sherman Act was broad, allowing a good deal of enforcement discretion.

The Sherman Act's effects on trusts were minimal for the first fifteen years after enactment. Indeed, large-scale monopolies grew rapidly during this period. There was no concerted drive to prosecute trusts, nor was there an agency charged to oversee industry behavior until a special division in the Justice Department was created in 1903 under President Theodore Roosevelt. (The Bureau of Corporations was formed the same year within the Department of Commerce and Labor to gather industry information.) "Trust busting," however, was not neglected during this period. States continued to pass antitrust laws after 1890, many far more aggressive than the federal version. More importantly, federal courts assumed a leader-ship role in interpreting the act's broad provisions, a role that they have never abandoned.

Supreme Court justices openly debated the act's meaning from 1890 to 1911, an era now known as the law's formative period. Two prominent justices, John Marshall Harlan and Chief Justice Melville W. Fuller, differed over the scope of federal power granted under the act, specifically, how much authority Congress has to regulate in-state business behavior. Fuller's insistence on clear lines of distinction between state power and federal power (or police powers and the commerce power) re-flected his strong attachment to dual federalism and informed decisions such as United States v. E. C. Knight Company (1895). For Fuller, manufacture itself is not a commercial activity and thus cannot be regulated under Congress's commerce power. According to this view, the federal government has no authority over things that have merely an "indirect" effect on commerce. Harlan's alternative position—that monopolistic behavior is pervasive, blurring distinctions between in-state and interstate activities—held sway in cases like Northern Securities Company v. United States (1904) and Swift and Company v. United States (1905). This understanding significantly broadened Congress's commerce power and was accepted conclusively by the Court in the 1920s under the stewardship of Chief Justice William Howard Taft in Stafford v. Wallace (1922) and Board of Trade of City of Chicago v. Olsen (1923).

In addition to disagreements over the reach of federal power, the justices differed over the intent of the act itself, namely what types of trade restraints were forbidden. The Court concluded that the section 1 prohibition against "every" contract and combination in restraint of trade was a rule that must admit of exceptions. Justices advocated prohibitions by type (the per se rule) and a more flexible, case-by-case analysis. A compromise was reached in Standard Oil Company of New Jersey v. United States (1911) known as the "rule of reason": the Sherman Act only prohibits trade restraints that the judges deem unreasonable. Some anticompetitive activity is acceptable, according to the rule. The harm of collusion may be outweighed by its pro-competitive ramifications.

The rule of reason may have solved an internal debate among the justices, but it did little to eliminate the ambiguity of federal antitrust enforcement. Indeed, internal Court debate before 1912 convinced many observers that the act invited too much judicial discretion. Proposals to toughen the law were prevalent during the Progressive Era and were a central feature of the presidential contest of 1912. The Clayton Antitrust Act of 1914 clarified the ambiguities of the law by specifically enumerating prohibited practices (such as the interlinking of companies and price fixing). The Federal Trade Commission Act, passed the same year, created a body to act, as President Woodrow Wilson explained, as a "clearing-house for the facts … and as an instrumentality for doing justice to business" (see Federal Trade Commission). Antitrust law from that point on was to be developed by administrators as well as by federal judges.

The reach of the Sherman Act has varied with time, paralleling judicial and political developments. Sections have been added and repealed, but it continues to be the main source of American antitrust law. Civil and criminal provisions have been extended to activity occurring out-side of the United States, and indications suggest its international reach may become as important as its domestic application.

Bibliography

Bork, Robert. The Antitrust Paradox: A Policy at War with Itself. New York: Basic Books, 1978.

Hovenkamp, Herbert. Enterprise and American Law, 1836–1937. Cambridge, Mass.: Harvard University Press, 1991.

McCraw, Thomas K. Prophets of Regulation. Cambridge, Mass.: Harvard University Press, 1984.

Peritz, Rudolph J. R. Competition Policy in America, 1888–1992: History, Rhetoric, Law. New York: Oxford University Press, 1996.

Thorelli, Hans B. The Federal Antitrust Policy: Origination of an American Tradition. Baltimore: Johns Hopkins Press, 1954.

Troesken, Werner. "Did the Trusts Want a Federal Antitrust Law? An Event Study of State Antitrust Enforcement and Passage of the Sherman Act." In Public Choice Interpretations of American Economic History. Edited by Jac C. Heckelman et al. Boston: Kluwer Academic Press, 2000.

Wiebe, Robert H. The Search for Order, 1877–1920. New York: Hill and Wang, 1967. Reprint, Westport, Conn: Greenwood Press, 1980.

The general government is not placed by the Constitution in such a condition of helplessness that it must fold its arms and remain inactive while capital combines, under the name of a corporation, to destroy competition. … The doctrine of the autonomy of the states cannot properly be invoked to justify a denial of power in the national government to meet such an emergency, involving, as it does, that freedom of commercial intercourse among the states which the Constitution sought to attain.

Source: From United States v. E. C. Knight Company (1895), Justice Harlan dissenting.

That which belongs to commerce is within the jurisdiction of the United States, but that which does not belong to commerce is within the jurisdiction of the police power of the state.…Itis vital that the inde pendence of the commercial power and of the police power, and the delimitation between them, however sometimes perplexing, should always be recognized and observed, for, while the one furnishes the strongest bond of union, the other is essential to the preservation of the autonomy of the states as required by our dual form of government; and acknowledged evils, however grave and urgent they may appear to be, had better be borne, than the risk be run, in the effort to suppress them, of more serious consequences by resort to expedients of even doubtful constitutionality.

Source: From United States v. E. C. Knight Company (1895), Chief Justice Fuller, majority opinion.

The Sherman Anti-Trust Act of 1890 (15 U.S.C.A. § 1 et seq.), the first and most significant of the U.S. antitrust laws, was signed into law by President Benjamin Harrison and is named after its primary supporter, Ohio Senator John Sherman.

The prevailing economic theory supporting antitrust laws in the United States is that the public is best served by free competition in trade and industry. When businesses fairly compete for the consumer's dollar, the quality of products and services increases while the prices decrease. However, many businesses would rather dictate the price, quantity, and quality of the goods that they produce, without having to compete for consumers. Some businesses have tried to eliminate competition through illegal means, such as fixing prices and assigning exclusive territories to different competitors within an industry. Antitrust laws seek to eliminate such illegal behavior and promote free and fair marketplace competition.

The common law traditionally has favored competition, finding agreements and contracts that restrain trade to be illegal and unenforceable. During the 1800s several states enacted antitrust statutes, but by the late 1800s these statutes proved ineffective in stopping the rapidly growing and powerful trusts, because many forms of restraint on commercial competition extended across state lines. The trusts were corporate holding companies that, by 1888, had consolidated a very large share of U.S. manufacturing and mining industries into nationwide monopolies. These monopolies were popularly called "trusts" because the original legal form of their organization had been as business trusts. But changes in state business laws in the 1800s allowed them to act as holding companies, leading to the combinations. The trusts found that through consolidation they could charge monopoly prices and thus make excessive profits and large financial gains. Access to greater political power at state and national levels led to further economic benefits for the trusts, such as tariffs or discriminatory railroad rates or rebates. The most notorious of the trusts were the Sugar Trust, the Whisky Trust, the Cordage Trust, the Beef Trust, the Tobacco Trust, John D. Rockefeller's Oil Trust (Standard Oil of New Jersey), and J. P. Morgan's Steel Trust (U.S. Steel Corporation).

Consumers, workers, farmers, and other suppliers were directly hurt monetarily as a result of the monopolizations, and they demanded legislative action. Even more important, perhaps, was that the trusts fanned into renewed flame a traditional U.S. fear and hatred of unchecked power, whether political or economic, and particularly of monopolies that ended or threatened equality of opportunity to aspiring business venturers. The public's intense demands for legislative action in the late 1800s prompted Congress to pass the Sherman Act, followed by several other antitrust acts. The Clayton Act of 1914 (15 U.S.C.A. § 12 et seq.), the Federal Trade Commission Act of 1914 (15 U.S.C.A. § 41 et seq.), and the Robinson-Patman Act of 1936 (15 U.S.C.A. §§ 13a, 13b, 21a) are also significant antitrust laws that, together with the Sherman Act, prohibit anticompetitive practices and prevent unreasonable concentrations of economic power that stifle or weaken competition.

The Sherman Act made agreements "in restraint of trade" and "monopolization" illegal, subject to civil remedies and criminal penalties. Courts can issue injunctions to stop violations of the act, also subjecting the violator to treble (triple) damages by anyone injured by the violation. Private parties can bring actions seeking treble damages, and the U.S. Department of Justice and the Federal Trade Commission (FTC) have the duty to institute actions for other violations of the antitrust laws. The purpose of the act was to make competition the rule in U.S. trade and commerce and to outlaw conduct that might lead to monopoly, but its general language provided virtually no standards. Congress enacted the Sherman Act pursuant to its constitutional power to regulate commerce, and this was only the second occasion in the one hundred years of the existence of the nation in which Congress relied on that power. Because Congress was somewhat uncertain of the reach of that legislative power, it framed the law in broad common-law concepts that lacked details. This in effect passed the problem along to the executive branch to determine how to enforce the law and also to the judicial branch to determine how to interpret the law. Still, the act was a far-reaching legislative departure from the predominant laissez-faire philosophy of the era.

Initial enforcement of the Sherman Act was halting, set back in part by the decision of the Supreme Court in United States v. E. C. Knight Co., 156 U.S. 1, 15 S. Ct. 249, 39 L. Ed. 325 (1895), that manufacturing was not interstate commerce. This problem was soon circumvented, and President Theodore Roosevelt promoted the antitrust cause, calling himself a "trustbuster." A number of major cases were successfully brought in the first decade of the century, largely terminating the trusts and basically transforming the face of U.S. industrial organization. During the 1920s, enforcement efforts were more modest, and during much of the 1930s, the national recovery program of the New Deal encouraged industrial collaboration rather than competition. During the late 1930s, an intensive enforcement of the antitrust laws was undertaken. Since World War II, antitrust enforcement has become increasingly institutionalized in the Antitrust Division of the Justice Department and in a more professional Federal Trade Commission. Justice Department enforcement activities against cartels are particularly vigorous, and criminal sanctions are increasingly sought. The number of private treble damage suits, often in class actions, has grown rapidly in recent years. In 1992 the Justice Department expanded its enforcement policy to cover foreign company conduct that harms U.S. exports.

Restraint of Trade

Section one of the Sherman Act provides that "[e]very 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 hereby declared to be illegal." The broad language of this section has been slowly defined and narrowed through judicial decisions.

The courts have interpreted the act to forbid only unreasonable restraints of trade. The Supreme Court promulgated this flexible rule, called the rule of reason, in Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619 (1911). Under the rule of reason, the courts will look to a number of factors in deciding whether the particular restraint of trade unreasonably restricts competition. Specifically, the court considers the makeup of the relevant industry, the defendants' positions within that industry, the ability of the defendants' competitors to respond to the challenged practice, and the defendants' purpose in adopting the restraint. This analysis forces courts to consider the pro-competitive effects of the restraint as well as its anticompetitive effects.

The Supreme Court has also declared certain categories of restraints to be illegal per se: that is, they are conclusively presumed to be unreasonable and therefore illegal. For those types of restraints, the court does not have to go any further in its analysis than to recognize the type of restraint, and the plaintiff does not have to show anything other than that the restraint occurred.

Restraints of trade can be classified as horizontal or vertical. A horizontal agreement is one involving direct competitors at the same level in a particular industry, and a vertical agreement involves participants who are not direct competitors because they are at different levels. Thus, a horizontal agreement can be among manufacturers or retailers or wholesalers, but it does not involve participants from across the different groups. A vertical agreement involves participants from one or more of the groups — for example, a manufacturer, a wholesaler, and a retailer. These distinctions become difficult to make in certain fact situations, but they can be significant in determining whether to apply a per se rule of illegality or the rule of reason. For example, horizontal market allocations are per se illegal, but vertical market allocations are subject to the rule-of-reason test.

Concerted Action

Section one of the Sherman Act prohibits concerted action, which requires more than a unilateral act by a person or business alone. The Supreme Court has stated that an organization may deal or refuse to deal with whomever it wants, as long as that organization is acting independently. But if a manufacturer and certain retailers agree that a manufacturer will only provide products to those retailers and not others, that is a concerted action that may violate the Sherman Act. A company and its employees are considered an individual entity for the purposes of this act. Likewise, a parent company and its wholly owned subsidiaries are considered an individual entity.

Evidence of a concerted action may be shown by an express or written agreement, or it may be inferred from circumstantial evidence. Conscious parallelism (similar patterns of conduct among competitors) is not sufficient in and of itself to imply a conspiracy. The courts have held that conspiracy requires an additional element such as complex actions that would benefit each competitor only if all of them acted in the same way.

Joint ventures, which are a form of business association among competitors designed to further a business purpose, such as sharing cost or reducing redundancy, are generally scrutinized under the rule of reason. But courts first look at the reason that the joint venture was established to determine whether its purpose was to fix prices or engage in some other unlawful activity. Congress passed the National Cooperative Research Act of 1984 (15 U.S.C.A. §§ 4301-06) to permit and encourage competitors to engage in joint ventures that promote research and development of new technologies. The rule of reason will apply to those types of joint ventures.

Price Fixing

The agreement to inhibit price competition by raising, depressing, fixing, or stabilizing prices is the most serious example of a per se violation under the Sherman Act. Under the act, it is immaterial whether the fixed prices are set at a maximum price, a minimum price, the actual cost, or the fair market price. It is also immaterial under the law whether the fixed price is reasonable.

All horizontal and vertical price-fixing agreements are illegal per se. Horizontal price-fixing agreements include agreements among sellers to establish maximum or minimum prices on certain goods or services. This can also include competitors' changing their prices simultaneously in some circumstances. Also significant is the fact that horizontal price-fixing agreements may be direct or indirect and still be illegal. Thus, a promotion or discount that is tied closely to price cannot be raised, depressed, fixed, or stabilized, without a Sherman Act violation. Vertical price-fixing agreements include situations where a wholesaler mandates the minimum or maximum price at which retailers may sell certain products.

Market Allocations

Market allocations are situations where competitors agree to not compete with each other in specific markets, by dividing up geographic areas, types of products, or types of customers. Market allocations are another form of price fixing. All horizontal market allocations are illegal per se. If there are only two computer manufacturers in the country and they enter into a market allocation agreement whereby manufacturer A will only sell to retailers east of the Mississippi and manufacturer B will only sell to retailers west of the Mississippi, they have created monopolies for themselves, a violation of the Sherman Act. Likewise, it is an illegal agreement that manufacturer A will only sell to retailers C and D and manufacturer B will only sell to retailers E and F.

Territorial and customer vertical market allocations are not per se illegal but are judged by the rule of reason. In 1985 the Department of Justice announced that it would not challenge any restraints by a company that has less than 10 percent of the relevant market or whose vertical price index, a measure of the relevant market share, indicates that collusion and exclusion are not possible for that company in that market.

Boycotts

A boycott, or a concerted refusal to deal, occurs when two or more companies agree not to deal with a third party. These agreements may be clearly anticompetitive and may violate the Sherman Act because they can result in the elimination of competition or the reduction in the number of participants entering the market to compete with existing participants. Boycotts that are created by groups with market power and that are designed to eliminate a competitor or to force that competitor to agree to a group standard are per se illegal. Boycotts that are more cooperative in nature, designed to increase economic efficiency or make markets more competitive, are subject to the rule of reason. Generally, most courts have found that horizontal boycotts, but not vertical boycotts, are per se illegal.

Tying Arrangements

When a seller conditions the sale of one product on the purchase of another product, the seller has set up a tying arrangement, which calls for close legal scrutiny. This situation generally occurs with related products, such as a printer and paper. In that example, the seller only sells a certain printer (the tying product) to consumers if they agree to buy all their printer paper (the tied product) from that seller.

Tying arrangements are closely scrutinized because they exploit market power in one product to expand market power in another product. The result of tying arrangements is to reduce the choices for the buyer and exclude competitors. Such arrangements are per se illegal if the seller has considerable economic power in the tying product and affects a substantial amount of interstate commerce in the tied product. If the seller does not have economic power in the tying product market, the tying arrangement is judged by the rule of reason. A seller is considered to have economic power if it occupies a dominant position in the market, its product is advantaged over other competing products as a result of the tying, or a substantial number of consumers has accepted the tying arrangement (evidencing the seller's economic power in the market).

Monopolies

Section two of the Sherman Act prohibits monopolies, attempts to monopolize, or conspiracies to monopolize. A monopoly is a form of market structure where only one or very few companies dominate the total sales of a particular product or service. Economic theories show that monopolists will use their power to restrict production of goods and raise prices. The public suffers under a monopolistic market because it does not have the quantity of goods or the low prices that a competitive market could offer.

Although the language of the Sherman Act forbids all monopolies, the courts have held that the act only applies to those monopolies attained through abused or unfair power. Monopolies that have been created through efficient, competitive behavior are not illegal under the Sherman Act, as long as honest methods have been employed. In determining whether a particular situation that involves more than one company is a monopoly, the courts must determine whether the presence of monopoly power exists in the market. Monopoly power is defined as the ability to control price or to exclude competitors from the marketplace. The courts look to several criteria in determining market power but primarily focus on market share (the company's fractional share of the total relevant product and geographic market). A market share greater than 75 percent indicates monopoly power, a share less than 50 percent does not, and shares between 50 and 75 percent are inconclusive in and of themselves.

In focusing on market shares, courts will include not only products that are exactly the same but also those that may be substituted for the company's product based on price, quality, and adaptability for other purposes. For example, an oat-based, round-shaped breakfast cereal may be considered a substitutable product for a rice-based, square-shaped breakfast cereal, or possibly even a granola breakfast bar.

In addition to the product market, the geographic market is also important in determining market share. The relevant geographic market, the territory in which the firm sells its products or services, may be national, regional, or local in nature. Geographic market may be limited by transportation costs, the types of product or service, and the location of competitors.

Once sufficient monopoly power has been proved, the Sherman Act requires a showing that the company in question engaged in unfair conduct. The courts have differing opinions as to what constitutes unfair conduct. Some courts require the company to prove that it acquired its monopoly power passively or that the power was thrust upon them. Other courts consider it an unfair power if the monopoly power is used in conjunction with conduct designed to exclude competitors. Still other courts find an unfair power if the monopoly power is combined with some predatory practice, such as pricing below marginal costs.

Attempts to Monopolize

Section two of the Sherman Act also prohibits attempts to monopolize. As with other behavior prohibited under the Sherman Act, courts have had a difficult time developing a standard that distinguishes unlawful attempts to monopolize from normal competitive behavior. The standard that the courts have developed requires a showing of specific intent to monopolize along with a dangerous probability of success. However, the courts have no uniform definition for the terms intent or success. Cases suggest that the more market power a company has acquired, the less flagrant its attempt to monopolize must be.

Conspiracies to Monopolize

Conspiracies to monopolize are unlawful under section two of the Sherman Act. This offense is rarely charged alone, because a conspiracy to monopolize is also a combination in restraint of trade, which violates section one of the Sherman Act.

In accordance with traditional conspiracy law, conspirators to monopolize are liable for the acts of each coconspirator, even their superiors and employees, if they are aware of and participate in the overall mission of the conspiracy. Conspirators who join in the conspiracy after it has already started are liable for every act during the course of the conspiracy, even those events that occurred before they joined.

See: Antitrust Law; Mergers and Acquisitions; Unfair Competition; Vertical Merger.

A federal law passed in 1890 that committed the American government to opposing monopolies. The law prohibits contracts, combinations, or conspiracies “in the restraint of trade or commerce.” Under the authority of the Sherman Antitrust Act, the federal government initiated suits against the Standard Oil Company and the American Tobacco Company. (See trust busting.)

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The Sherman Antitrust Act (Sherman Act,^[1] July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. § 1–7) requires the Federal government to investigate and pursue trusts, companies and organizations suspected of violating the Act. It was the first United States Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by the federal government.

Contents 1 History 1.1 Purpose 1.2 Early applications 1.3 Legislative intent 2 Provisions 2.1 Original text 2.2 Subsequent legislation expanding its scope 3 Legal Application 3.1 Constitutional basis for legislation 3.2 Elements 3.3 Violations "Per se" and violations of the "Rule of Reason" 3.4 Modern Trends 3.4.1 Inference of Conspiracy 3.4.2 Manipulating Market Definitions 3.5 Monopoly 3.6 Application of the act outside of pure commerce 4 Preemption by Section 1 of state statutes that restrain competition 5 Criticism 6 See also 7 Notes 8 External links 8.1 Official websites 8.2 Additional information

History

The Sherman Act was passed in 1890 and was named after its author, Senator John Sherman, an Ohio Republican, chairman of the Senate Finance Committee.^[2] The Sherman Act followed Ohio's Valentine Anti-Trust Act (1898).^[3] After passing in the Senate on April 8, 1890 by a vote of 51-1, the Sherman Act passed unanimously (242-0) in the House of Representatives on June 20, 1890, and was then signed into law by President Benjamin Harrison on July 2, 1890.^[2]

Purpose

In 1879, C. T. Dodd, an attorney for the Standard Oil Company of Ohio, devised a new type of trust agreement to overcome Ohio state prohibitions against corporations owning stock in other corporations. A trust is a centuries old form of a contract whereby one party entrusts their property to a second party. The property is then used to benefit the first party. In a corporate trust, the various corporations assign their stock to a board of trustees. The trust then issues trust certificates to the stockholders. They receive the financial benefits, while the board of trustees maintain operational control. By consolidating control of most companies in an industry under one controlling board, the industry is essentially monopolized.^[4]

Around the world, what U.S. lawmakers and attorneys call "Antitrust" is more commonly known as "competition law." The purpose of the act was to oppose the combination of entities that could potentially harm competition, such as monopolies or cartels. Its reference to trusts today is an anachronism. At the time of its passage, the trust was synonymous with monopolistic practice, because the trust was a popular way for monopolists to hold their businesses, and a way for cartel participants to create enforceable agreements.^[5].

The Sherman Act was not specifically intended to prevent the dominance of an industry by a specific company, despite misconceptions to the contrary. According to Senator George Hoar, an author of the bill, any company that "got the whole business because nobody could do it as well as he could" would not be in violation of the act. The law attempts to prevent the artificial raising of prices by restriction of trade or supply.^[6] In other words, innocent monopoly, or monopoly achieved solely by merit, is perfectly legal, but acts by a monopolist to artificially preserve his status, or nefarious dealings to create a monopoly, are not.

Put another another way, it has sometimes been said that the purpose of the Sherman Act is not to protect competitors, but rather to protect competition and the competitive landscape. As explained by the U.S. Supreme Court in Spectrum Sports, Inc. v. McQuillan:

"The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself." ^[7]

This focus of U.S. competition law, on protection of competition rather than competitors, is not necessarily the only possible focus or purpose of competition law. For example, it has also been said that competition law in the European Community (EC) tends to protect the competitors in the marketplace, even at the expense of market efficiencies and consumers. ^[8]

Early applications

One of the earliest invocations of the Act was in 1894, against the American Railway Union led by Eugene V. Debs, with the intent to settle the Pullman Strike.^[9] Several years would pass before the first use of the Act against its intended target, corporate monopolies. President Theodore Roosevelt used the Act extensively in his antitrust campaign, including to divide the Northern Securities Company. President William Howard Taft used the Act to split the American Tobacco Company.

Legislative intent

At Apex Hosiery Co. v. Leader 310 U. S. 469, 310 U. S. 492-93 and n. 15:

The legislative history of the Sherman Act, as well as the decisions of this Court interpreting it, show that it was not aimed at policing interstate transportation or movement of goods and property. The legislative history and the voluminous literature which was generated in the course of the enactment and during fifty years of litigation of the Sherman Act give no hint that such was its purpose. ^[10]They do not suggest that, in general, state laws or law enforcement machinery were inadequate to prevent local obstructions or interferences with interstate transportation, or presented any problem requiring the interposition of federal authority.^[11] In 1890, when the Sherman Act was adopted, there were only a few federal statutes imposing penalties for obstructing or misusing interstate transportation.^[12] With an expanding commerce, many others have since been enacted safeguarding transportation in interstate commerce as the need was seen, including statutes declaring conspiracies to interfere or actual interference with interstate commerce by violence or threats of violence to be felonies.^[13] It was another and quite a different evil at which the Sherman Act was aimed. It was enacted in the era of "trusts" and of "combinations" of businesses and of capital organized and directed to control of the market by suppression of competition in the marketing of goods and services, the monopolistic tendency of which had become a matter of public concern. The end sought was the prevention of restraints to free competition in business and commercial transactions which tended to restrict production, raise prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services, all of which had come to be regarded as a special form of public injury. ^[14]For that reason the phrase "restraint of trade," which, as will presently appear, had a well understood meaning at common law, was made the means of defining the activities prohibited. The addition of the words "or commerce among the several States" was not an additional kind of restraint to be prohibited by the Sherman Act, but was the means used to relate the prohibited restraint of trade to interstate commerce for constitutional purposes, Atlantic Cleaners & Dyers v. United States, 286 U. S. 427, 286 U. S. 434, so that Congress, through its commerce power, might suppress and penalize restraints on the competitive system which involved or affected interstate commerce. Because many forms of restraint upon commercial competition extended across state lines so as to make regulation by state action difficult or impossible, Congress enacted the Sherman Act, 21 Cong.Rec. 2456. It was in this sense of preventing restraints on commercial competition that Congress exercised "all the power it possessed." Atlantic Cleaners & Dyers v. United States, supra, 286 U. S. 435.

At United States v. Addyston Pipe & Steel Co., 85 F.2d 1, affirmed, 175 U. S. 175 U.S. 211;

At Standard Oil Co. of New Jersey v. United States 221 U. S. 1, 221 U. S. 54-58.

Provisions

Original text

The Sherman Act is divided into three sections. Section 1 delineates and prohibits specific means of anticompetitive conduct, while Section 2 deals with end results that are anticompetitive in nature. Thus, these sections supplement each other in an effort to prevent businesses from violating the spirit of the Act, while technically remaining within the letter of the law. Section 3 simply extends the provisions of Section 1 to U.S. territories and the District of Columbia.

Section 1:

"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".^[15]

Section 2:

"Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [. . . ]"^[16]

Subsequent legislation expanding its scope

The Clayton Antitrust Act, passed in 1914, proscribes certain additional activities that had been discovered to fall outside the scope of the Sherman Antitrust Act. For example, the Clayton Act added certain practices to the list of impermissible activities:

• price discrimination between different purchasers, if such discrimination tends to create a monopoly
• exclusive dealing agreements
• tying arrangements
• mergers and acquisitions that substantially reduce market competition.

The Robinson-Patman Act of 1936 amended the Clayton Act. The amendment proscribed certain anticompetitive practices in which manufacturers engaged in price discrimination against equally-situated distributors.

Legal Application

Constitutional basis for legislation

Congress derived its power to pass the Sherman Act through its constitutional authority to regulate interstate commerce. Therefore, Federal courts only have jurisdiction to apply the Act to conduct that restrains or substantially affects either interstate commerce or trade within the District of Columbia. This requires the plaintiff must show that the conduct occurred during the flow of interstate commerce or had an appreciable effect on some activity that occurs during interstate commerce.

Elements

A Section 1 violation has three elements:^[17]

1. An agreement
2. which unreasonably restrains competition
3. and which affects interstate commerce.

A Section 2 violation has 2 elements:^[18]

(1) the possession of monopoly power in the relevant market and

(2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

Violations "Per se" and violations of the "Rule of Reason"

Violations of the Sherman Act fall (loosely^[19]) into two categories:

• Violations "per se": these are violations that meet the strict characterization of Section 1 ("agreements, conspiracies or trusts in restraint of trade"). A per se violation requires no further inquiry into the practice's actual effect on the market or the intentions of those individuals who engaged in the practice. Conduct characterized as per se unlawful is that which has been found to have a "'pernicious effect on competition' or 'lack[s] . . . any redeeming virtue'"^[20] Such conduct "would always or almost always tend to restrict competition and decrease output."^[21] When a per se rule is applied, a civil violation of the antitrust laws is found merely by proving that the conduct occurred and that it fell within a per se category. ^[22] (This must be contrasted with rule of reason analysis.) Conduct considered per se unlawful includes horizontal price-fixing,^[23] market division,^[24] and vertical price-fixing^[25].
• Violations of the "rule of reason": A totality of the circumstances test, asking whether the challenged practice promotes or suppresses market competition. Unlike with per se violations, intent and motive are relevant when predicting future consequences. The rule of reason is said to be the "traditional framework of analysis" to determine if Section 1 is violated.^[26] The court analyzes "facts peculiar to the business, the history of the restraining, and the reasons why it was imposed,"^[27] to determine the effect on competition in the relevant product market.^[28] A restraint violates Section 1 if it unreasonably restrains trade.^[29]

Quick-look: A "quick look" analysis under the rule of reason may be used when "an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets," yet the violation is also not one considered illegal per se.^[30] Taking a "quick look," economic harm is presumed from the questionable nature of the conduct, and the burden is shifted to the defendant to prove harmlessness or justification. The quick-look became a popular way of disposing of cases where the conduct was in a grey area between illegality "per se" and demonstrable harmfulness under the "rule of reason".

Modern Trends

Inference of Conspiracy

Two modern trends have increased the difficulty for antitrust plaintiffs. First, courts have come to hold plaintiffs to increasing burdens of pleading. Under older Section 1 precedent, it was not settled how much evidence was required of the conspiracy. It could be inferred. Since the 1970s, courts have held plaintiffs to higher standards, giving antitrust defendants an opportunity to resolve cases in their favor, before much, if any discovery is done. This protects defendants from bearing the costs of an antitrust "fishing expeditions." However, it deprives plaintiffs of perhaps their only tool to acquire evidence.

Manipulating Market Definitions

Second, courts have employed more sophisticated and principled definitions of markets. Market definition is necessary in rule of reason cases, for the plaintiff to prove a conspiracy is harmful. It is also necessary for the plaintiff to establish the market relationship between conspirators to prove their conduct is within the per se rule.

In early cases, it was easier for plaintiffs to show market relationship, or dominance, by tailoring market definition, even if it ignored fundamental principles of economics. In U.S. v. Grinnell, 384 U.S. 563 (1966), the trial judge, Charles Wyzanski composed the market only of alarm companies with services in every state, tailoring out any local competitors; the defendant stood alone in this market, but had the court added up the entire national market, it would have had a much smaller share of the national market for alarm services that the court purportedly used. The appellate courts affirmed this finding, however, today, an appellate court would likely find this definition to be flawed. Modern courts use a more sophisticated market definition that does not permit as manipulative a definition.^{[citation needed]}

Monopoly

Section 2 of the act forbade monopoly. In section 2 cases, the court has, again on its own initiative, drawn a distinction between coercive and innocent monopoly. The act is not meant to punish businesses that come to dominate their market passively or on their own merit, only those that intentionally dominate the market through misconduct, which generally consists of conspiratorial conduct of the kind forbidden by section 1 of the Sherman Act, or Section 3 of the Clayton Act.

Application of the act outside of pure commerce

The Act was aimed at regulating businesses. However, its application was not limited to the commerce side of business. Its prohibition of the cartel was also interpreted to make illegal many labor union activities. This is because unions were characterized as cartels as well (cartels of laborers).^{[clarification needed]} This persisted until 1914, when the Clayton Act created exceptions for certain union activities.

Preemption by Section 1 of state statutes that restrain competition

Main article: Sherman Antitrust Act (federal preemption)

To determine whether a particular state statute that restrains competition was intended to be preempted by the Act, courts will engage in a two-step analysis, as set forth by the Supreme Corut in Rice v. Norman Williams Co..

• First, they will inquire whether the state legislation "mandates or authorizes conduct that necessarily constitutes a violation of the antitrust laws in all cases, or ... places irresistible pressure on a private party to violate the antitrust laws in order to comply with the statute." Rice v. Norman Williams Co., 458 U.S. 654, 661; see also 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987) ("Our decisions reflect the principle that the federal antitrust laws pre-empt state laws authorizing or compelling private parties to engage in anticompetitive behavior.")
• Second, they will consider whether the state statute is saved from preemption by the state action immunity doctrine (aka Parker immunity). In California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980), the Supreme Court established a two-part test for applying the doctrine: "First, the challenged restraint must be one clearly articulated and affirmatively expressed as state policy; second, the policy must be actively supervised by the State itself." Id. (citation and quotation marks omitted).

Criticism

See also: United States antitrust law  and Competition law

The Sherman act has been a magnet for controversy. One branch of the criticism focuses on whether the Act improves competition and benefits consumers, or merely aids inefficient businesses at the expense of more innovative ones. Alan Greenspan, in his essay entitled Antitrust^[31] condemns the Sherman Act as stifling innovation and harming society. "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible."^[32]

Another aspect of the debate over antitrust policy is normative. That is, assuming that some kind of competition law is inevitable, critics will argue as to what its central policy should be, and whether it is accomplishing its goal. A common tactic is to choose a one goal, and then cite evidence that it supports the opposite. For example, during a debate over the act in 1890, Representative William Mason said "trusts have made products cheaper, have reduced prices; but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to people of this country by the trusts which have destroyed legitimate competition and driven honest men from legitimate business enterprise."^[33] Consequently, if the primary goal of the act is to protect consumers, and consumers are protected by lower prices, the act may be harmful if it reduces economy of scale, a price-lowering mechanism, by breaking up big businesses.

The converse argument is that if lowering prices alone is not the goal, and instead protecting competitions and markets as well as consumers is the goal, the law again arguably has the opposite effect - it could be protectionist. Economist Thomas DiLorenzo notes that Senator Sherman sponsored the 1890 William McKinley tariff just three months after the Sherman Act, and agrees with The New York Times which wrote on October 1, 1890: "That so-called Anti-Trust law was passed to deceive the people and to clear the way for the enactment of this Pro-Trust law relating to the tariff." The Times goes on to assert that Sherman merely supported this "humbug" of a law "in order that party organs might say...'Behold! We have attacked the trusts. The Republican Party is the enemy of all such rings.' "^[34]

Dilorenzo writes: "Protectionists did not want prices paid by consumers to fall. But they also understood that to gain political support for high tariffs they would have to assure the public that industries would not combine to increase prices to politically prohibitive levels. Support for both an antitrust law and tariff hikes would maintain high prices while avoiding the more obvious bilking of consumers."^[35]

The criticism of antitrust law is often associated with conservative politics. For example, conservative legal scholar, judge, and failed Supreme Court nominee Robert Bork is well known for his outspoken criticism of the antitrust regime. Another conservative legal scholar and judge, Richard Posner of the Seventh Circuit does not condem the entire regime, but expresses concern with the potential that it could be applied to create inefficiency, rather than to avoid inefficiency.^[36]. Posner further believes, along with a number of others, including Bork, that genuinely inefficient cartels and coercive monopolies, the target of the act, would be self-corrected by market forces, making the strict penalties of antitrust legislation unnecessary.^[37]

See also

• Alcoa
• American Bar Association
• American Tobacco Company
• AT&T
• Microsoft
• Northern Securities Company
• Ticketmaster
• Standard Oil
• Standard Oil Co. of New Jersey v. United States
• Tying (commerce)
• Antitrust
• Cartel
• Clayton Antitrust Act of 1914
• DRAM price fixing
• Monopoly
• Price fixing
• Resale price maintenance
• National Linseed Oil Trust
• laissez faire

Notes

1. ^ as it was formally designated by the Hart-Scott-Rodino Antitrust Improvements Act in 1976.
2. ^ ^{a b} [1]
3. ^ "Valentine Anti-Trust Act" Ohio History Central. Retrieved 6/5/09.
4. ^ May, J. (2007). The Story of Standard Oil Co. v. United States. In Fox, E. M. & Crane, D. A. (Eds.), Antitrust Stories. New York: Foundation.
5. ^ Letwin, W. L. (1956). Congress and the Sherman Antitrust Law: 1887-1890, 23 U.Chi.L.Rev 221.
6. ^ http://www.butnowyouknow.com/sherman.anti-trust.act.html
7. ^ Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (Supreme Court 1993).
8. ^ Cseres, Katalin Judit (2005). Competition law and consumer protection. Kluwer Law International. pp. 291-293. ISBN 9041123806, 9789041123800. http://books.google.com/books?id=y3IOROCcVacC&printsec=frontcover&source=gbs_v2_summary_r&cad=0. Retrieved on 2009-07-15. 
9. ^ J. Anthony Lukas, Big trouble : a murder in a small western town sets off a struggle for the soul of America (New York: Simon & Schuster, 1997), pp. 310f
10. ^ Footnote 11 appears here: "See the Bibliography on Trusts (1913) prepared by the Library of Congress. Cf. Homan, Industrial Combination as Surveyed in Recent Literature, 44 Quart.J.Econ., 345 (1930). With few exceptions, the articles, scientific and popular, reflected the popular idea that the Act was aimed at the prevention of monopolistic practices and restraints upon trade injurious to purchasers and consumers of goods and services by preservation of business competition. See, e.g., Seager and Gulick, Trusts and Corporation Problems (1929), 367 et seq., 42 Ann.Am.Acad., Industrial Competition and Combination (July, 1912); P. L. Anderson, Combination v. Competition, 4 Edit.Rev. 500 (1911); Gilbert Holland Montague, Trust Regulation Today, 105 Atl.Monthly, 1 (1910); Federal Regulation of Industry, 32 Ann.Am.Acad. of Pol.Sci., No. 108 (1908), passim; Clark, Federal Trust Policy (1931), Ch. II, V; Homan, Trusts, 15 Ency.Soc.Sciences 111, 113: "clearly the law was inspired by the predatory competitive tactics of the great trusts, and its primary purpose was the maintenance of the competitive system in industry." See also Shulman, Labor and the Anti-Trust Laws, 34 Ill.L.Rev. 769; Boudin, the Sherman Law and Labor Disputes, 39 Col.L.Rev. 1283; 40 Col.L.Rev. 14."
11. ^ Footnote 12 appears here: "There was no lack of existing law to protect against evils ascribed to organized labor. Legislative and judicial action of both a criminal and civil nature already restrained concerted action by labor. See, e.g., the kinds of strikes which were declared illegal in Pennsylvania, including a strike accompanied by force or threat of harm to persons or property, Brightly's Purdon's Digest of 1885, pp. 426, 1172. For collection of state statutes on labor activities, see Report of the Commissioner of Labor, Labor Laws of the Various States (1892); Bull. 370, Labor Laws of the United States with Decisions Relating Thereto, United States Bureau of Labor Statistics (1925); Witte, The Government in Labor Disputes (1932), 12-45, 61-81."
12. ^ Footnote 13 appears here: "Three statutes covered in 1890 the Congressional action in relation to obstructions to interstate commerce. A penalty was imposed for the refusal to transmit a telegraph message (R.S. § 5269, 17 Stat. 366 (1872)) for transporting nitroglycerine and other explosives without proper safeguards (R.S. § 5353, 14 Stat. 81 (1866)) and for combining to prevent the continuous carriage of freight, 24 Stat. 382, 49 U.S.C. § 7."
13. ^ Footnote 14 appears here: "See, e.g. regulation of; interstate carriage of lottery tickets, 28 Stat. 963 (1895), 18 U.S.C. § 387; Transportation of obscene books, 29 Stat. 512 (1897), 18 U.S.C. § 396; transportation of illegally killed game, 31 Stat. 188 (1900), 18 U.S.C. §§ 392-395; interstate shipment of intoxicating liquors, 35 Stat. 1136 (1909), 18 U.S.C. §§ 388-390; white slave traffic, 36 Stat. 825 (1910), 18 U.S.C. §§ 397-404; transportation of prize-fight films, 37 Stat. 240 (1912), 18 U.S.C. §§ 405-407; larceny of goods moving in interstate commerce, 37 Stat. 670 (1913), 18 U.S.C. § 409; violent interference with foreign commerce, 40 Stat. 221 (1917), 18 U.S.C. § 381; transportation of stolen motor vehicles, 41 Stat. 324 (1919), 18 U.S.C. § 408; transportation of kidnapped persons, 47 Stat. 326 (1932), 18 U.S.C. § 408a-408c; threatening communication in interstate commerce, 48 Stat. 781 (1934), 18 U.S.C. § 408d; transportation of stolen or feloniously taken goods, securities or money, 48 Stat. 794 (1934), 18 U.S.C. § 415; transporting strikebreakers, 49 Stat. 1899 (1936), 18 U.S.C. § 407a; destruction or dumping of farm products received in interstate commerce, 44 Stat. 1355 (1927), 7 U.S.C. § 491. Cf. National Labor Relations Act, 49 Stat. 449 (1935), 29 U.S.C., Ch. 7, § 151, "Findings and declaration of policy. The denial by employers of the right of employees to organize and the refusal by employers to accept the procedure of collective bargaining lead to strikes and other forms of industrial strife or unrest, which have the intent or the necessary effect of burdening or obstructing commerce. . . ." The Anti-Racketeering Act, 48 Stat. 979, 18 U.S.C. §§ 420a-420e (1934), is designed to protect trade and commerce against interference by violence and threats. § 420a provides that "any person who, in connection with or in relation to any act in any way or in any degree affecting trade or commerce or any article or commodity moving or about to move in trade or commerce --" "(a) Obtains or attempts to obtain, by the use of or attempt to use or threat to use force, violence, or coercion, the payment of money or other valuable considerations . . . not including, however, the payment of wages by a bonafide employer to a bona fide employee; or" "(b) Obtains the property of another, with his consent, induced by wrongful use of force or fear, or under color of official right; or" "(c) Commits or threatens to commit an act of physical violence or physical injury to a person or property in furtherance of a plan or purpose to violate subsections (a) or (b); or" "(d) Conspires or acts concertedly with any other person or persons to commit any of the foregoing acts; shall, upon conviction thereof, be guilty of a felony and shall be punished by imprisonment from one to ten years or by a fine of $10,000 or both." But the application of the provisions of § 420a to labor unions is restricted by § 420d, which provides: "Jurisdiction of offenses. Any person charged with violating section 420a of this title may be prosecuted in any district in which any part of the offense has been committed by him or by his actual associates participating with him in the offense or by his fellow conspirators: Provided, That no court of the United States shall construe or apply any of the provisions of sections 420a to 420e of this title in such manner as to impair, diminish, or in any manner affect the rights of bona fide labor organizations in lawfully carrying out the legitimate objects thereof, as such rights are expressed in existing statutes of the United States." It is significant that Chapter 9 of the Criminal Code, dealing with "Offenses Against Foreign And Interstate Commerce" and relating specifically to acts of interstate transportation or its obstruction, makes no mention of the Sherman Act, which is made a part of the Code which deals with social, economic and commercial results of interstate activity, notwithstanding its criminal penalty."
14. ^ Footnote 15 appears here: "The history of the Sherman Act, as contained in the legislative proceedings, is emphatic in its support for the conclusion that "business competition" was the problem considered, and that the act was designed to prevent restraints of trade which had a significant effect on such competition. On July 10, 1888, the Senate adopted without discussion a resolution offered by Senator Sherman which directed the Committee on Finance to inquire into, and report in connection with, revenue bills "such measures as it may deem expedient to set aside, control, restrain or prohibit all arrangements, contracts, agreements, trusts, or combinations between persons or corporations, made with a view, or which tend to prevent free and full competition . . . with such penalties and provisions . . . as will tend to preserve freedom of trade and production, the natural competition of increasing production, the lowering of prices by such competition . . ." (19 Cong.Rec. 6041). This resolution explicitly presented the economic theory of the proponents of such legislation. The various bills introduced between 1888 and 1890 follow the theory of this resolution. Many bills sought to make void all arrangements "made with a view, or which tend, to prevent full and free competition in the production, manufacture, or sale of articles of domestic growth or production, . . ." S. 3445; S. 3510; H.R. 11339; all of the 50th Cong., 1st Sess. (1888) were bills of this type. In the 51st Cong. (1889), the bills were in a similar vein. See S. 1, sec. 1 (this bill as redrafted by the Judiciary Committee ultimately became the Sherman Law); H.R. 202, sec. 3; H.R. 270; H.R. 286; H.R. 402; H.R. 509; H.R. 826; H.R. 3819. See Bills and Debates in Congress relating to Trusts (1909), Vol. 1, pp. 1025-1031. Only one, which was never enacted, S. 1268 in the 52d Cong., 1st Sess. (1892), introduced by Senator Peffer, sought to prohibit "every willful act . . . which shall have the effect to in any way interfere with the freedom of transit of articles in interstate commerce, . . ." When the antitrust bill (S. 1, 51st Cong., 1st Sess.) came before Congress for debate, the debates point to a similar purpose. Senator Sherman asserted the bill prevented only "business combinations" "made with a view to prevent competition", 21 Cong.Rec. 2457, 2562; see also ibid. at 2459, 2461. Senator Allison spoke of combinations which "control prices," ibid., 2471; Senator Pugh of combinations "to limit production" for "the purpose of destroying competition", ibid., 2558; Senator Morgan of combinations "that affect the price of commodities," ibid., 2609; Senator Platt, a critic of the bill, said this bill proceeds on the assumption that "competition is beneficent to the country," ibid., 2729; Senator George denounced trusts which crush out competition, "and that is the great evil at which all this legislation ought to be directed," ibid., 3147. In the House, Representative Culberson, who was in charge of the bill, interpreted the bill to prohibit various arrangements which tend to drive out competition, ibid., 4089; Representative Wilson spoke in favor of the bill against combinations among "competing producers to control the supply of their product, in order that they may dictate the terms on which they shall sell in the market, and may secure release from the stress of competition among themselves," ibid., 4090. The unanimity with which foes and supporters of the bill spoke of its aims as the protection of free competition permits use of the debates in interpreting the purpose of the act. See White, C.J. in Standard Oil Co. v. United States, 221 U. S. 1, 221 U. S. 50; United States v. San Francisco, ante, p. 310 U. S. 16. See also Report of Committee on Interstate Commerce on Control of Corporations Engaged in Interstate Commerce, S.Rept. 1326, 62d Cong., 3d Sess. (1913), pp. 2, 4; Report of Federal Trade Commission, S.Doc. 226, 70th Cong., 2d Sess. (1929), pp. 343-345."
15. ^ See 15 U.S.C. § 1.
16. ^ See 15 U.S.C. § 2.
17. ^ E.g., Richter Concrete Corp. v. Hilltop Basic Resources, Inc., 547 F. Supp. 893, 917 (S.D. Ohio 1981), aff'd, 691 F.2d 818 (6th Cir. 1982); Consolidated Farmers Mut. Ins. Co. v. Anchor Sav. Ass'n, 480 F. Supp. 640, 648 (D. Kan. 1979); Mardirosian v. American Inst. of Architects, 474 F. Supp. 628, 636 (D.D.C. 1979).
18. ^ United States v. Grinnell Corp., 384 U.S. 563, 570-71, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966); see also Weiss v. York Hosp., 745 F.2d 786, 825 (3d Cir. 1984).
19. ^ The truth is that our categories of analysis of anticompetitive effect are less fixed than terms like 'per se,' 'quick look,' and 'rule of reason' tend to make them appear. We have recognized, for example, that 'there is often no bright line separating per se from rule of reason analysis,' since 'considerable inquiry into market conditions' may be required before the application of any so-called 'per se' condemnation is justified. Cal. Dental Ass'n v. FTC at 779 (quoting NCAA, 468 U.S. at 104 n.26). "'Whether the ultimate finding is the product of a presumption or actual market analysis, the essential inquiry remains the same whether or not the challenged restraint enhances competition.'" 526 U.S. at 779-80 (quoting NCAA, 468 U.S. at 104).
20. ^ Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 58 (1977) (quoting Northern Pac. Ry. v. United States, 356 U.S. 1, 5 (1958)).
21. ^ Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19-20 (1979).
22. ^ Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 104 S. Ct. 1551, 1556 (1984); Gough v. Rossmoor Corp., 585 F.2d 381, 386-89 (9th Cir. 1978), cert. denied, 440 U.S. 936 (1979); see White Motor v. United States, 372 U.S. 253, 259-60 (1963) (a per se rule forecloses analysis of the purpose or market effect of a restraint); Northern Pac. Ry. v. United States, 356 U.S. 1, 5 (1958) (same).
23. ^ United States v. Trenton Potteries Co., 273 U.S. 392, 397-98 (1927)
24. ^ United States v. Topco Assocs., 405 U.S. 596, 608 (1972)
25. ^ California Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 102-03 (1980)
26. ^ Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977). The inquiry focuses on the restraint's effect on competition. National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 691 (1978).
27. ^ id. at 692
28. ^ see Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 45 (1977) (citing United States v. Arnold, Schwinn & Co., 388 U.S. 365, 382 (1967)), and geographic market, see United States v. Columbia Steel Co., 334 U.S. 495, 519 (1948).
29. ^ Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977); see Standard Oil Co. v. United States, 221 U.S. 1, 58 (1911) (Congress only intended to prohibit agreements that were "unresonably restrictive of competitive (conditions").
30. ^ Cal. Dental Ass'n, 526 U.S. at 770.
31. ^ http://www.polyconomics.com/searchbase/06-12-98.html
32. ^ IdIt should be noted that criticisms such as this one, attributed to Greenspan, are not directed at the Sherman act in particular, but rather at the underlying policy of all antitrust law, which includes several pieces of legislation other than just the Sherman Act, e.g. the Clayton Antitrust Act.
33. ^ Congressional Record, 51st Congress, 1st session, House, June 20, 1890, p. 4100.
34. ^ ""Mr. Sherman's Hopes and Fears"". New York Times. 1890-10-01. http://query.nytimes.com/mem/archive-free/pdf?_r=1&res=9B06E4D7103BE533A25752C0A9669D94619ED7CF&oref=slogin. Retrieved on 2008-04-21. 
35. ^ DiLorenzo, Thomas, Cato Handbook for Congress, Antitrust.
36. ^ Richard Posner, _Economic Analysis of Law_ p.295 et seq. (explaining the optimal antitrust regime from an econimc point of view)
37. ^ Id.

External links

Wikisource has original text related to this article:

Sherman Anti-Trust Act

Official websites

• U.S. Department of Justice: Antitrust Division
• U.S. Department of Justice: Antitrust Division - text of SHERMAN ANTITRUST ACT, 15 U.S.C. §§ 1-7

Additional information

• Antitrust Division's "Corporate Leniency Policy"
• Antitrust by Alan Greenspan
• Dr. Edward W. Younkins (February 19, 2000). "Antitrust Laws Should Be Abolished".
• DiLorenzo, Thomas Cato Handbook for Congress, Antitrust.
• Fair Fight in the Marketplace Documentary on anti-trust law hosted by NPR/Fox commentator Mara Liasson.

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