Sherman Antitrust Act


The Sherman Antitrust Act is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce and consequently prohibits unfair monopolies. It was passed by Congress in 1890 and is named for Senator John Sherman, its principal author.
The Sherman Act broadly prohibits 1) anticompetitive agreements and 2) unilateral conduct that monopolizes or attempts to monopolize the relevant market. The Act authorizes the Department of Justice to bring suits to enjoin conduct violating the Act, and additionally authorizes private parties injured by conduct violating the Act to bring suits for treble damages. Over time, the federal courts have developed a body of law under the Sherman Act making certain types of anticompetitive conduct per se illegal, and subjecting other types of conduct to case-by-case analysis regarding whether the conduct unreasonably restrains trade.
The law attempts to prevent the artificial raising of prices by restriction of trade or supply. "Innocent monopoly," or monopoly achieved solely by merit, is legal, but acts by a monopolist to artificially preserve that status, or nefarious dealings to create a monopoly, are not. The purpose of the Sherman Act is not to protect competitors from harm from legitimately successful businesses, nor to prevent businesses from gaining honest profits from consumers, but rather to preserve a competitive marketplace to protect consumers from abuses.

Background

In Spectrum Sports, Inc. v. McQuillan 506 U.S. 447 the Supreme Court said:
According to its authors, it was not intended to impact market gains obtained by honest means, by benefiting the consumers more than the competitors. Senator George Hoar of Massachusetts, another author of the Sherman Act, stated that "a man who merely by superior skill and intelligence got the whole business because nobody could do it as well as he could was not a monopolist," but that it was monopoly if their business practices "made it impossible for other persons to engage in fair competition".
In 1937, the business Apex Hosiery suffered losses when strikers occupied their business, and prevented shipments of orders, including shipments to other states. Apex attempted to sue the union leader for treble damages as provided by the Sherman Act. Apex argued that the union had interfered with interstate commerce. The court held that the Sherman Act did not apply to the unlawful occupation of a business.
The Supreme Court stated in the case Apex Hosiery Co. v. Leader , -93 and n. 15:
At Addyston Pipe and Steel Company v. United States, 85 F.2d 1, affirmed, U.S. 211;
At Standard Oil Co. of New Jersey v. United States, , -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 anti-competitive 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.

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. The Clayton Antitrust Act added certain practices to the list of impermissible activities:
  • price discrimination against competing companies
  • conditioning sales on "exclusive dealing" agreements
  • one person serving on the board of directors for two competing companies
  • mergers and acquisitions that may significantly reduce market competition
The Clayton Antitrust Act specifically states that unions are exempt from this ruling.
The Robinson–Patman Act of 1936 amended the Clayton Act. The amendment proscribed certain anti-competitive practices in which manufacturers engaged in price discrimination against equally-situated distributors. For example, if a wholesale supplier sells products to a franchise at a price that is not available to a smaller business.

Legacy

The federal government began filing cases under the Sherman Antitrust Act in 1890. Some cases were successful and others were not; many took several years to decide, including appeals.
Notable cases filed under the act include:
  • United States v. Workingmen's Amalgamated Council of New Orleans, which was the first to hold that the law applied to labor unions.
  • Chesapeake & Ohio Fuel Co. v. United States, in which the trust was dissolved
  • Northern Securities Co. v. United States, which reached the Supreme Court, dissolved the company and set many precedents for interpretation.
  • Hale v. Henkel also reached the Supreme Court. Precedent was set for the production of documents by an officer of a company, and the self-incrimination of the officer in his or her testimony to the grand jury. Hale was an officer of the American Tobacco Co.
  • Standard Oil Co. of New Jersey v. United States, which broke up the company based on geography, and contributed to the Panic of 1910–1911.
  • United States v. American Tobacco Co., which split the company into four.
  • United States v. General Electric Co, where GE was judged to have violated the Sherman Anti-Trust Act, along with International General Electric, Philips, Sylvania, Tungsol, and Consolidated and Chicago Miniature. Corning and Westinghouse made consent decrees.
  • United States v. Motion Picture Patents Co., which ruled that the company was abusing its monopolistic rights, and therefore, violated the Sherman act.
  • Federal Baseball Club v. National League in which the Supreme Court ruled that Major League Baseball was not interstate commerce and was not subject to the antitrust law.
  • United States v. National City Lines, related to the General Motors streetcar conspiracy.
  • United States v. AT&T Co., which was settled in 1982 and resulted in the breakup of the company.
  • Wilk v. American Medical Association Judge Getzendanner issued her opinion that the AMA had violated Section 1, but not 2, of the Sherman Act, and that it had engaged in an unlawful conspiracy in restraint of trade "to contain and eliminate the chiropractic profession."
  • United States v. Microsoft Corp. was settled in 2001 without the breakup of the company.
  • , where nurses alleged Albany Medical Center suppressed their wages in violation of the Sherman Anti-Trust Act, by sharing wage information with other area hospitals. References: Casetext Fleischman vs Albany Medical Center Justia Docket No. 10-0846-mv
  • United States v. Google LLC, wherein Judge Amit P. Mehta ruled Google acted illegally to maintain a monopoly in online search.

    Legal application

Constitutional basis for legislation

Congress claimed 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. This requires that 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:
  1. an agreement;
  2. which unreasonably restrains competition; and
  3. which affects interstate commerce.
A Section 2 monopolization violation has two elements:
  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.
Section 2 also bans attempted monopolization, which has the following elements:
  1. qualifying exclusionary or anticompetitive acts designed to establish a monopoly
  2. specific intent to monopolize; and
  3. dangerous probability of success.

    Violations "per se" and violations of the "rule of reason"

Violations of the Sherman Act fall into two categories:
  • Violations "per se": These are violations that meet the strict characterization of Section 1. 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 unlawful per se is that which has been found to have a pernicious effect on competition' or 'lack... any redeeming virtue Such conduct "would always or almost always tend to restrict competition and decrease output". 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. Conduct considered unlawful per se includes horizontal price-fixing, horizontal market division, and concerted refusals to deal.
  • 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 whether Section 1 is violated. The court analyzes "facts peculiar to the business, the history of the restraining, and the reasons why it was imposed", to determine the effect on competition in the relevant product market. A restraint violates Section 1 if it unreasonably restrains trade.
  • *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 unlawful per se. 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".