Sherman Antitrust Act

Date: 1890

Description: Federal law outlawing a combination of interests such as a trust or a conspiracy that attempts to unreasonably constrain trade among states or with foreign nations.

Significance: The Supreme Court, in a series of cases, determined the constitutional scope of the Sherman Antitrust Act, which extended national control into the fields of production and trade.

From early in its history, the United States maintained a widespread fear of the commercial monopoly the concentration of economic power in the hands of a few which could be used to oppress individuals and injure the public. The post-Civil War economic boom and industrialization manifested the reality of that fear. However, Congress failed to take action against the pools and trusts that were monopolizing corporate America and, thereby, relinquished its regulatory power to state legislatures. The Supreme Court was left with the difficult task of affirming state regulation in the face of the Constitution’s commerce clause, which mandated federal responsibility for interstate commerce. Notably, in Munn v. Illinois (1877), the Court declared that, until Congress acted in reference to a state’s commercial restriction, the state could enforce its regulations even though that might indirectly and perhaps negatively affect interstate commerce.

Congress responded a decade later with the passage of the Interstate Commerce Act and, in 1890, with the Sherman Antitrust Act as a comprehensive charter of economic liberty aimed at preserving free and unfettered competition. In writing the Sherman Antitrust Act, Congress used general language, comparable to that found in constitutional provisions, which allowed adaptability to a wide variety of commercial transactions and increasingly sophisticated business practices. The Court determined, in Standard Oil Co. v. United States (1911), that allowing the judiciary substantial flexibility in its interpretations was not an unconstitutional delegation of legislative power.

Source of Power

The Sherman Antitrust Act arises from the commerce clause of the Constitution. Thus, interpretation and application of the act was concurrent with the evolution of federal commercial law. Specifically, whether litigation fell within its parameters was largely determined by the Court’s definition of what constituted commerce.

Within five years of the act’s passage, the Court heard United States v. E. C. Knight Co. (1895), a case involving a company’s nearly complete control of the manufacture of refined sugar in the United States. In affirming the trial court’s dismissal of this case, the Court stated that manufacturing was not commerce. Because the Court focused on the narrow choice of exclusive federal or state control of commerce, it rejected federal power to regulate such a monopoly because that would leave states powerless to regulate their local manufacturers. Justice John Marshall Harlan dissented, contending that the majority view left the public, so far as national power was concerned, entirely at the mercy of monopolies that arbitrarily controlled the prices of products.

Harlan’s view ultimately prevailed in Addyston Pipe and Steel Co. v. United States (1899). The Court first distinguished the facts of the case from Knight, finding that Addyston presented a conspiracy involving not only manufacturing but also the sale and transportation of iron pipe. The Court concluded that this range of business activity was a direct restraint of interstate commerce, and therefore, the federal commerce power could be exerted under the act.

Court decisions continued to sustain the complete and paramount character of federal power to regulate commerce among the states and, concurrently, strengthened the authority of the Sherman Antitrust Act. Applicability of the act was notably expanded when, in Swift and Co. v. United States (1905), the Court unequivocally explained that commerce among the states is not a technical legal conception but a practical one drawn from the course of business.

By 1944 the Court had determined that the commercial authority of Congress was a positive power to legislate concerning transactions that affect people in more than one state. Indictments underlying United States v. South-Eastern Underwriters Association (1944) charged that nearly two hundred insurance companies had successfully conspired to restrain interstate trade by fixing noncompetitive premium rates. In delivering the opinion, Justice Hugo L. Black emphasized the size of the insurance business and the extent to which companies located in one part of the country wrote insurance contracts for persons in other states. He confirmed federal power to govern affairs that the individual states, with their limited territorial jurisdictions, are not fully capable of governing.

Contemporary Cases

Application of the Sherman Antitrust Act is fact specific, and therefore, lower federal trial courts have articulated the majority of case law. As the United States grew in commercial sophistication and case law increased in volume, these lower courts deciphered the distinction between reasonable business practices and monopolistic endeavors. Ultimately, this balancing of corporate enterprise and fair business practices spawned greater clarity of antitrust legislation through congressional adoption of the Clayton Act (1914), the Federal Trade Commission Act (1914), and the Robinson-Patman Act (1936).

However, the Court remains the ultimate authority in determining the constitutional scope and course of antitrust law. The Court held that the first two sections of the Sherman Antitrust Act embrace every conceivable act that might come within the spirit of the prohibitions the act was meant to address. For example, it applies to both tangible and intangible products, such as stock sales.

Specifically, section 1 forbids all means of monopolizing trade, that is, unduly restraining trade by means of contracts and combinations. A restraint of interstate commerce produced by peaceable persuasion is as much within the prohibition of the act as one accomplished by force. Section 2 condemns the result to be achieved rather than the business practice used. A violation of this section requires the possession of a monopoly within the relevant market and 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.

Bibliography

Dieterle, David A., and Kathleen C. Simmons, eds. Government and the Economy: An Encyclopedia. Santa Barbara: Greenwood, 2014. Print.

Kintner, Earl W., ed. Federal Antitrust Laws and Related Statutes: A Legislative History. Buffalo: Hein, 1978. Print.

Markovits, Richard S. Economics and the Interpretation and Application of US and EU Antitrust Law. New York: Springer, 2014. Print.

McNeese, Tim. The Robber Barons and the Sherman Antitrust Act: Reshaping American Business. New York: Chelsea, 2009. Print.

Shenefield, John H. The Antitrust Laws: A Primer. 3rd ed. Washington, DC: Amer. Enterprise Inst., 1998. Print.

Sherman, Roger. Antitrust Policies and Issues. Reading: Addison, 1978. Print.

Walker, Albert H. History of the Sherman Law of the United States of America. Westport: Greenwood, 1980. Print.