Sherman Antitrust Act

THE SHERMAN Antitrust Act of 1890 provided the first, and what remains the most important legal basis for efforts to break up exploitative monopolies and commercial behaviors, such as price-fixing agreements, that produce concentrations of economic power. The act was sponsored by Senator John Sherman (1823–1900) of Ohio, who had declared: “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessities of life.” The Sherman Act, as Lawrence Friedman has noted, was surprisingly brief: less than two pages in length. The law is, Friedman observes, “terse,” “vague,” and “ambiguous.” Notably absent are definitions of such key terms as “monopoly” and “restraint of trade.”

The heart of the Sherman Act is Section l which reads: “Every contract, combination in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by a fine not exceeding $5,000, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.”

In 1914, Congress added the Clayton Act and the Federal Trade Commission Act to strengthen the Sherman Act. The Clayton Act specifically prohibited four practices: 1) price discrimination, that is, selling products more cheaply to a favored customer; 2) exclusive-dealing contracts, tying a purchaser to deal exclusively with a single supplier and often on a long-term basis; 3) mergers that unduly restricted competition; and 4) interlocking directorates in which the same person sits on the boards of companies supposed to be in competition. Some agricultural combinations were exempted from the Clayton Act so that farmers' cooperatives could retain their legal status.

The new laws were a response to the Supreme Court's 1911 decision in Standard Oil of New Jersey v. United States (221 U.S. 1) which, though it favored the government's position, opened up a number of loopholes in antitrust regulation. These new statutes extending the reach of the Sherman Act relied on administrative rather than criminal law to deal with unfair competition. The Federal Trade Commission, made up of five members, was established to help the Department of Justice to prevent unfair and deceptive practices.

Further amendments and additions followed, including the Robinson-Patman Act of 1936 which shored up the ban on price discrimination ban, and the Celler-Kefauver Act of 1950, which toughened anti-merger rules and prohibited the purchase of the plant, equipment, or assets of a competitor. In 1975, Congress changed violations of the Sherman Act from misdemeanors to felonies and raised the ceiling on fines significantly.

During the first decades of the Sherman Act, enforcement was virtually non-existent. This situation reinforced the view of those who believed that the law had been passed to calm public resentment while, at the same time, not interfering greatly with business-as-usual, since the politicians in Congress relied heavily upon the support of the corporate world for campaign contributions. The Department of Justice filed only nine cases during the first five years of the Sherman Act, and only 22 in the first 15 years. These early cases often resulted in verdicts favoring the accused.

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