Cameron Miranda
The first antitrust law in the United States was the Sherman Antitrust Act, passed in 1890. Named for Senator John Sherman, the Act was the first measure to outlaw monopolistic business practices and prohibit trusts. The Act broadly prohibits anticompetitive agreements and unilateral conduct that monopolizes or attempts to monopolize the relevant market. It also authorizes the Department of Justice to bring suits to prohibit conduct violating the Act and allows private parties injured by such conduct to bring suits for treble damages. The history of antitrust law in the US is generally considered to begin with the Sherman Act, though some form of policy to regulate competition in the market economy has existed throughout the common law's history.
| Characteristics | Values |
|---|---|
| Name | Sherman Anti-Trust Act |
| Year | 1890 |
| Prohibitions | Contracts restricting commerce, monopolies, trusts, conspiracies in restraint of trade |
| Author | Senator John Sherman |
| Passed by | U.S. Congress |
| Signed into law by | President Benjamin Harrison |
| Vote in Senate | 51-1 |
| Vote in House | 242-0 |
| Section 5 | Allows courts to summon other parties to appear before them |
| Section 6 | Property owned under any contract or conspiracy mentioned in Section 1 may be forfeited to the U.S. |
| Section 7 | Injured parties may sue in any circuit court of the U.S. and recover three times the damages |
| Section 8 | The word "person" or "persons" includes corporations and associations |
| Objective | To protect the process of competition for the benefit of consumers |
| Core Principles | Free competition, protection of consumers, and decentralisation of power |
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What You'll Learn
The Sherman Antitrust Act of 1890
The Sherman Antitrust Act was passed by Congress almost unanimously and signed into law by President Benjamin Harrison on July 2, 1890. The Act makes it illegal to restrain trade or form a monopoly, with severe penalties for individuals and businesses that violate it. The federal government began filing cases under the Act in 1890, with varying degrees of success. Over time, 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.
The legislative history and litigation record of the Sherman Act give no indication that it was intended to address inadequate state laws or law enforcement. Instead, it was designed to protect free enterprise in America and prohibit the use of power to control the marketplace. Despite this, the Supreme Court dismantled the Act in United States v. E. C. Knight Company (1895), ruling that the American Sugar Refining Company had not violated the law despite controlling about 98% of all sugar refining in the United States.
However, during President Theodore Roosevelt's "trust-busting" campaigns, the Sherman Antitrust Act was used with considerable success. The Supreme Court upheld the government's suit to dissolve the Northern Securities Company in 1904, and by 1911, President Taft had used the Act against the Standard Oil Company and the American Tobacco Company. In the late 1990s, the federal government used the Act against Microsoft, demonstrating its continued relevance in ensuring a competitive free-market system.
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The Clayton Antitrust Act of 1914
Section 7 of the Clayton Act prohibits mergers and acquisitions that may substantially lessen competition or lead to the creation of a monopoly. The Act also introduced controls on the merger of corporations and removed the application of antitrust laws to trade unions. It contained safe harbours for union activities, exempting labour unions and agricultural organisations and allowing for boycotts, peaceful strikes, peaceful picketing, and collective bargaining.
The Clayton Act also prohibited specific business actions, such as price discrimination and tying, if they substantially lessened competition. It defined unethical business practices, such as price fixing and monopolies, and upheld various rights of labour. The Act allows for civil suits to be brought to court and permits individuals to seek damages through lawsuits against companies that violate antitrust laws.
The Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) enforce the provisions of the Clayton Antitrust Act, which continue to affect American business practices today. The Act has been amended several times to expand its provisions and strengthen its position on mergers and acquisitions.
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The Federal Trade Commission Act of 1914
The history of United States antitrust law is generally considered to have begun with the Sherman Antitrust Act of 1890, which was the first measure passed by the US Congress to prohibit trusts and outlaw monopolistic business practices. The Sherman Act outlaws "every contract, combination, or conspiracy in restraint of trade" and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize." The Clayton Act, passed in 1914, addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates. The Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly."
The inspiration and motivation for the Federal Trade Commission Act started in 1890, when the Sherman Antitrust Act was passed. There was a strong antitrust movement to prevent manufacturers from joining price-fixing cartels. After Northern Securities Co. v. United States, a 1904 case that dismantled a J. P. Morgan company, antitrust enforcement became institutionalized. Soon after, US President Theodore Roosevelt created the Bureau of Corporations, an agency that reported on the economy and businesses in the industry. The agency was the predecessor to the Federal Trade Commission. In 1913, Congress expanded on the agency by passing the Federal Trade Commissions Act and the Clayton Antitrust Act.
Under the Federal Trade Commission Act, the Commission is empowered to prevent unfair methods of competition, deceptive acts or practices in or affecting commerce, seek monetary redress and other relief for conduct injurious to consumers, prescribe trade regulation rules, conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce, and make reports and legislative recommendations to Congress. The FTC Act does not give consumers the right to sue for violations of the act, but consumers may complain to the Commission about acts or practices they believe to be unfair or deceptive.
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The Robinson-Patman Act of 1936
The Robinson-Patman Act (RPA) of 1936 is a United States federal law that prohibits anticompetitive practices by producers, specifically price discrimination. Sponsored by Senator Joseph T. Robinson and Representative Wright Patman, it was designed to protect small retail shops against competition from chain stores by fixing a minimum price for retail products.
The Act prevents suppliers, wholesalers, or manufacturers from supplying goods to "preferred customers" at a reduced price. It also prevents coercing suppliers into restrictions on whom they can and cannot sell goods to. This means that it is illegal for a supplier to sell one truckload of goods at a steep discount to a large business, such as Walmart or Amazon, and then charge a substantially higher price for a truckload of identical goods to a small business, such as a local grocery store.
The Robinson-Patman Act also forbids certain discriminatory allowances or services furnished or paid to customers. In general, it requires that a seller treats all competing customers in a proportionately equal manner. Services or facilities covered include payment for or furnishing advertising or promotional allowances, handbills, catalogues, signs, demonstrations, display and storage cabinets, special packaging, warehousing facilities, credit returns, and prizes or free merchandise for promotional contests. The seller must inform all of its competing customers if any services or allowances are available.
The Act applies to commodities, but not to services, and to purchases, but not to leases. Sales to Military Exchanges and Commissaries are exempt from the Act. Early enforcement of the Robinson-Patman Act was difficult, and it continues to be widely unenforced due to its complexity, which limits consumers' ability to understand it. In the late 1960s, federal enforcement of the Act ceased for several years due to industry pressure.
The Robinson-Patman Act is an amendment to the Clayton Act, which was passed in 1914 to increase the government's capacity to intervene and break up big businesses. The Clayton Act prohibits specific business actions (such as price discrimination and tying) if they substantially lessen competition.
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The Celler-Kefauver Act of 1950
The Sherman Antitrust Act of 1890 was the first federal act passed by the US Congress to prohibit trusts and monopolistic business practices. It was based on the constitutional power of Congress to regulate interstate commerce and was passed almost unanimously. The Act makes it illegal to restrain trade or form a monopoly and gives the Justice Department the mandate to go to federal court to stop such practices.
The Celler-Kefauver Act argued that conglomerate mergers created by two or more companies could result in the use of resources and money from different markets to create a monopoly in another market. Such mergers prevent fair consumer access to identical products offered by competitor firms and create barriers to entry for small enterprises. When planning a vertical merger or acquisition, companies must inform the Department of Justice and the Federal Trade Commission, which can reject or approve the transaction based on its potential impact on competition.
The Celler-Kefauver Act helped to address a wave of questionable pre- and post-war consolidation, ensuring that all mergers across industries were carefully scrutinized and policed. It was occasionally referred to as the Anti-Merger Act and marked an important step in curbing greedy corporate behaviour.
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Frequently asked questions
The Sherman Antitrust Act of 1890 was the first antitrust law passed by the U.S. Congress.
The Sherman Antitrust Act was designed to prohibit trusts and monopolistic business practices. It aimed to protect free enterprise and competition in the market economy.
The Act broadly prohibits anticompetitive agreements and unilateral conduct that monopolizes or attempts to monopolize the relevant market. It outlaws every contract, combination, or conspiracy in restraint of trade and any monopolization, attempted monopolization, or conspiracy or combination to monopolize.
Antitrust laws affect businesses by ensuring they engage in fair competition and do not harm consumers through anti-competitive behaviour such as price fixing and market control.
