Sherman Antitrust Act of 1890


The Sherman Antitrust Act of 1890 is a United States antitrust law that regulates competition among enterprises, which was passed by Congress under the presidency of Benjamin Harrison. It is named for Senator John Sherman, its principal author.
The Sherman Act broadly prohibits anticompetitive agreements and 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 perfectly 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, said the following:
At 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. For example, the Clayton Act added certain practices to the list of impermissible activities:
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.

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:

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 or trade within the District of Columbia. 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:
A Section 2 monopolization violation has two elements:
Section 2 also bans attempted monopolization, which has the following elements:

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

Violations of the Sherman Act fall into two categories:

Inference of conspiracy

A modern trend has increased difficulty for antitrust plaintiffs as 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 to show a conspiracy. For example, a conspiracy could be inferred based on parallel conduct, etc. That is, plaintiffs were only required to show that a conspiracy was conceivable. Since the 1970s, however, courts have held plaintiffs to higher standards, giving antitrust defendants an opportunity to resolve cases in their favor before significant discovery under FRCP 12. That is, to overcome a motion to dismiss, plaintiffs, under Bell Atlantic Corp. v. Twombly, must plead facts consistent with FRCP 8 sufficient to show that a conspiracy is plausible. This protects defendants from bearing the costs of antitrust "fishing expeditions"; however it deprives plaintiffs of perhaps their only tool to acquire evidence.
Manipulation of market
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, 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.

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 pure commerce

The Act was aimed at regulating businesses. However, its application was not limited to the commercial 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. This persisted until 1914, when the Clayton Act created exceptions for certain union activities.

Preemption by Section 1 of state statutes that restrain competition

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 Court in Rice v. Norman Williams Co.:
, in his essay entitled Antitrust described 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." Greenspan summarized the nature of antitrust law as: "a jumble of economic irrationality and ignorance."
Greenspan at that time was a disciple and friend of Ayn Rand, and he first published Antitrust in Rand's monthly publication The Objectivist Newsletter. Rand, who described herself as "a radical for capitalism," opposed antitrust law not only on economic grounds but also morally, as a violation of property rights, asserting that the "meaning and purpose" of antitrust law is "the penalizing of ability for being ability, the penalizing of success for being success, and the sacrifice of productive genius to the demands of envious mediocrity."
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." 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. Mason put small business survival, a justice interest, on a level concomitant with the pure economic rationale of consumer
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 went 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.'"
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."
Robert Bork was well known for his outspoken criticism of the antitrust regime. Another conservative legal scholar and judge, Richard Posner of the Seventh Circuit, does not condemn the entire regime, but expresses concern with the potential that it could be applied to create inefficiency, rather than to avoid inefficiency. 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.
Conversely, liberal Supreme Court Justice William O. Douglas criticized the judiciary for interpreting and enforcing the antitrust law unequally: "From the beginning it has been applied by judges hostile to its purposes, friendly to the empire builders who wanted it emasculated... trusts that were dissolved reintegrated in new forms... It is ironic that the Sherman Act was truly effective in only one respect, and that was when it was applied to labor unions. Then the courts read it with a literalness that never appeared in their other decisions."
According to a 2018 study in the journal Public Choice, "Senator John Sherman of Ohio was motivated to introduce an antitrust bill in late 1889 partly as a way of enacting revenge on his political rival, General and former Governor Russell Alger of Michigan, because Sherman believed that Alger personally had cost him the presidential nomination at the 1888 Republican national convention... Sherman was able to pursue his revenge motive by combining it with the broader Republican goals of preserving high tariffs and attacking the trusts."