Kara Sears
The first antitrust law in the United States was the Sherman Antitrust Act, passed in 1890. Named after Senator John Sherman, the Act was the first measure to outlaw monopolistic business practices and prohibit trusts. The Act was passed to ensure free competition among those engaged in commerce, and to prevent unfair monopolies. The Sherman Act broadly prohibits anticompetitive agreements and unilateral conduct that monopolizes or attempts to monopolize the relevant market. The Act also authorizes the Department of Justice to bring suits against those violating the Act and allows private parties injured by violations to sue for treble damages.
| Characteristics | Values |
|---|---|
| Name | Sherman Anti-Trust Act |
| Year | 1890 |
| Prohibitions | Contracts restricting commerce, anticompetitive agreements, unilateral conduct that monopolizes or attempts to monopolize the relevant market |
| Author | Senator John Sherman |
| Passed by | U.S. Congress |
| Senate Vote | 51-1 |
| House Vote | 242-0 |
| Signed into law by | President Benjamin Harrison |
| Purpose | To regulate businesses, outlaw monopolistic business practices, and protect the process of competition for the benefit of consumers |
| Notable Sections | Section 3, Section 5, Section 6, Section 7, Section 8 |
| Subsequent Amendments | Clayton Act (1914), Robinson-Patman Act (1936), Hart-Scott-Rodino Antitrust Improvements Act (1976) |
| Federal Agencies Enforcing the Law | Federal Trade Commission (FTC), Department of Justice (DOJ) |
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What You'll Learn
The Sherman Antitrust Act of 1890
The Sherman Antitrust Act was based on the constitutional power of Congress to regulate interstate commerce. It was designed to restore competition and prescribed the rule of free competition among those engaged in commerce, prohibiting unfair monopolies and anticompetitive agreements. The Act broadly prohibits anticompetitive agreements and unilateral conduct that monopolizes or attempts to monopolize the relevant market. It authorizes the Department of Justice to bring suits to prohibit conduct violating the Act and permits private parties injured by such conduct to bring suits for treble damages.
Section 1 of the Act states that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal". Section 2 prohibits monopolization or attempts to monopolize any aspect of interstate trade or commerce, making it a felony. The penalties for violating the Sherman Act can be severe, with individuals and businesses that violate it subject to prosecution by the Department of Justice.
The Sherman Antitrust Act was the first federal statute to address monopolies and restrictive business practices, but it was loosely worded and did not define critical terms such as "trust," "combination," "conspiracy," and "monopoly." Despite this, the Act has been used successfully over the years to break up large companies and trusts, such as the Northern Securities Company, the Standard Oil Company, and the American Tobacco Company.
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Interstate Commerce Act of 1887
The Interstate Commerce Act of 1887 was the first federal regulation of big businesses, specifically targeting the railroad industry. It was passed by both the Senate and the House on February 4, 1887, and signed into law by President Grover Cleveland.
The Act was a response to public demand for the regulation of railroad operations, which had been privately owned and entirely unregulated following the Civil War. Small businesses and farmers protested against the higher rates that railroads charged them compared to larger corporations, as well as the higher rates for shorter hauls. The Interstate Commerce Act addressed these concerns by setting guidelines for how railroads conducted business, limiting rates to those that were "reasonable and just", forbidding rebates to high-volume users, and prohibiting higher rates for shorter hauls.
The Act also established the first independent regulatory agency of the US government, the Interstate Commerce Commission (ICC). The ICC was responsible for overseeing the conduct of the railroad industry, investigating and prosecuting railroads and other transportation companies alleged to have violated the Act. The ICC heard complaints and issued cease-and-desist orders to combat unfair practices. It was empowered to require railroads to submit annual reports and banned special rates arranged among railroads.
While the ICC's jurisdiction was initially limited to companies operating across state lines, it served as a model for future government regulation of private businesses and challenged the philosophy of laissez-faire economics by affirming Congress's right to regulate private corporations engaged in interstate commerce. Over time, the ICC's authority was narrowed by court rulings and the creation of other regulatory bodies. In 1995, Congress abolished the ICC, transferring its remaining functions to the Surface Transportation Board.
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Clayton Antitrust Act of 1914
The Clayton Antitrust Act of 1914 was passed by Congress to curb the power of trusts and monopolies and to maintain market competition. The Act was introduced by Alabama Democrat Henry De Lamar Clayton Jr. in the US House of Representatives and passed the House with an overwhelming majority on June 5, 1914. It was then signed into law by President Woodrow Wilson on October 15, 1914.
The Clayton Act was designed to address specific practices that were not clearly prohibited by its predecessor, the Sherman Act of 1890. These practices included mergers and interlocking directorates, where the same person makes business decisions for competing companies. Section 7 of the Clayton Act prohibits mergers and acquisitions that may substantially lessen competition or create a monopoly. The Act also bans discriminatory prices, services, and allowances in dealings between merchants, as well as certain anti-competitive behaviours such as exclusive dealings and tying arrangements.
One important distinction between the Clayton Act and the Sherman Act is the inclusion of safe harbours for union activities. Section 6 of the Act exempts labour unions and agricultural organisations, stating that "the labour of a human being is not a commodity or article of commerce". This means that boycotts, peaceful strikes, peaceful picketing, and collective bargaining are not regulated by the statute.
The Clayton Act is enforced by the Federal Trade Commission (FTC), which was established during the Wilson Presidency. The FTC has the power to force businesses to agree to "consent decrees", providing an alternative mechanism to police antitrust. The Act also authorizes private parties to bring civil suits for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Act.
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Federal Trade Commission Act of 1914
The Federal Trade Commission Act of 1914 is a United States federal law that established the Federal Trade Commission (FTC). The Act was signed into law by President Woodrow Wilson on September 26, 1914, and it outlaws unfair methods of competition and unfair or deceptive acts or practices that affect commerce. The FTC Act empowers the Commission to enforce its provisions against all persons, partnerships, or corporations, although banks, savings and loan institutions, and federal credit unions are exempt. The Commission can issue cease and desist orders to large corporations to curb unfair trade practices and false advertising, which can harm consumers.
The Act was passed by Congress as part of a broader movement in the early 20th century to use special groups like commissions to regulate certain business forms. The Federal Trade Commission Act works in conjunction with the Sherman Act and the Clayton Act, with any violations of the Sherman Act also violating the Federal Trade Commission Act. The Act was inspired by the Sherman Antitrust Act of 1890, the first federal act to outlaw monopolistic business practices and prohibit trusts. 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 not clearly prohibited by the Sherman Act, such as mergers and interlocking directorates. The Clayton Act prohibits mergers and acquisitions likely to substantially lessen competition or create a monopoly. The Federal Trade Commission Act and both antitrust laws were created with the sole objective of "protecting the process of competition for the benefit of consumers, ensuring strong incentives for businesses to operate efficiently, keep prices down, and maintain quality."
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The Act's impact on labour unions
The Sherman Antitrust Act of 1890 was the first federal antitrust law in the United States, designed to prevent monopolies and restraints on trade. It had a significant impact on labour unions, as the Act's prohibition on combinations and conspiracies in restraint of trade could be interpreted to include union activities such as strikes and collective bargaining. While the Act did not specifically mention labour unions, its broad language left them vulnerable to prosecution. This had a chilling effect on union organizing and collective action, as unions risked running afoul of the law in their efforts to improve wages and working conditions for their members.
In the years following the Sherman Act's passage, courts interpreted the law in a way that was often unfavourable to labour unions. For example, in the 1908 case of Loewe v. Lawlor, the Supreme Court held that a union could be liable for triple damages under the Sherman Act if it used a secondary boycott to achieve its goals. This decision made it easier for businesses to sue unions for antitrust violations, and it discouraged unions from engaging in certain types of collective action.
However, it is important to note that the Sherman Act also contained a provision, added at the insistence of labour supporters in Congress, that exempted "bona fide" labour unions from the Act's restrictions. This exemption, found in Section 6 of the Act, provided that the Act "shall not be construed to forbid the existence and operation of labour...organizations, instituted for the purposes of mutual help...or to authorize the construction...to forbid or restrain individual members of such organizations from lawfully carrying out the legitimate objects thereof."
Despite this exemption, unions often found themselves the target of antitrust prosecutions, particularly during the late 19th and early 20th centuries when there was significant opposition to organized labour. In response to concerns about the impact of the Sherman Act on labour unions, Congress passed the Clayton Act in 1914, which provided additional protections for labour organizations. The Clayton Act exempted labour unions from antitrust liability for certain activities, such as peaceful strikes and secondary boycotts, and it also made it more difficult for businesses to obtain injunctions against union activities.
The impact of these antitrust laws on labour unions is complex and evolving. While the Sherman Act initially posed a threat to union activities, the subsequent passage of the Clayton Act and other pro-labour legislation has provided greater protections for unions. Today, labour unions continue to operate within the framework of these antitrust laws, and courts have issued a body of case law interpreting how these laws apply to specific union activities. While unions must still be mindful of potential antitrust violations, they also have legal protections that allow them to engage in collective bargaining and other activities to improve the lives of their members.
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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 aimed to regulate businesses and prohibit unfair monopolies and anticompetitive agreements. It was designed to protect free enterprise and ensure fair competition among businesses.
The Act makes it illegal to restrain trade or form monopolies. It authorizes the Department of Justice to bring suits against violations and allows private parties injured by violations to seek treble damages. The Act also set a precedent for the production of documents and self-incrimination by company officers.
