Gavin Howe
The history of antitrust law in the United States is generally considered to have begun with the Sherman Antitrust Act of 1890, which was the first federal act to outlaw monopolistic business practices. The act was designed to restore competition and prevent concentrations of power that interfere with trade and reduce economic competition. In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Antitrust Act, which further specified illegal practices contributing to or resulting from monopolization.
| Characteristics | Values |
|---|---|
| First antitrust law | Sherman Act |
| Year of creation | 1890 |
| Passed the Senate | 51-1 on April 8, 1890 |
| Passed the House | 242-0 on June 20, 1890 |
| Signed into law | July 2, 1890 |
| Signed by | President Benjamin Harrison |
| Additional laws | Clayton Act, Federal Trade Commission Act (1914) |
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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 and was passed in response to the dominance of trusts in several major industries, which were destroying competition. It authorized the federal government to institute proceedings against trusts to dissolve them and allowed individuals and companies suffering losses due to trusts to sue in federal court for treble damages. The act also imposed severe penalties for violating its provisions, including fines of up to $100,000 for corporations and $1,000,000 for individuals, as well as imprisonment of up to 10 years.
While the Sherman Antitrust Act was a groundbreaking piece of legislation, it was not without its shortcomings. The act was loosely worded and failed to define key terms such as "trust", "combination", "conspiracy", and "monopoly". This led to the Supreme Court dismantling the act in United States v. E. C. Knight Company (1895), ruling that the American Sugar Refining Company, which controlled about 98% of all sugar refining in the United States, had not violated the law. Despite this setback, the act was successfully used during President Theodore Roosevelt's "trust-busting" campaigns, and it continues to be a core federal antitrust law even today, over 100 years later.
The federal government began filing cases under the Sherman Antitrust Act in 1890, with varying degrees of success. Some notable cases include United States v. Workingmen's Amalgamated Council of New Orleans (1893), which established the law's applicability to labor unions, and Northern Securities Co. v. United States (1904), where the Supreme Court upheld the government's suit to dissolve the Northern Securities Company. In 1914, Congress passed two additional antitrust laws: the Clayton Act, which further defined and prohibited specific anticompetitive practices, and the Federal Trade Commission Act, which created the Federal Trade Commission (FTC) as an independent agency with shared jurisdiction over federal civil antitrust enforcement.
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The Clayton Antitrust Act of 1914
The Clayton Antitrust Act, passed in 1914, was a landmark piece of legislation aimed at promoting fair competition and protecting consumers in the United States. The act was passed by Congress in response to the Sherman Act, which had triggered a wave of mergers and anti-competitive practices that harmed smaller businesses and hindered fair pricing.
The Clayton Antitrust Act introduced several key provisions to address these issues. Firstly, it outlawed the use of mergers and acquisitions to achieve monopolies, specifically prohibiting mergers that could substantially reduce competition or lead to the creation of a monopoly. This was a significant development as it shifted the focus from solely banning monopolies, as the Sherman Act had done, to preventing the incipient forms of unethical behaviour that could lead to their formation.
Secondly, the act included safe harbours for union activities, exempting labour unions and agricultural organisations from certain regulations. This exemption allowed for boycotts, peaceful strikes, picketing, and collective bargaining, recognising the unique nature of labour as a non-commodity and protecting the rights of workers to organise and protest.
Thirdly, the act empowered the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) to enforce its provisions. Both the FTC and the DOJ's Antitrust Division investigate and prosecute alleged violations, taking legal action to stop anticompetitive conduct and seeking compensation for any harm suffered. The act also allowed private parties to bring lawsuits against companies for triple the actual damages caused by violations of antitrust laws, providing individuals with a means to seek redress.
Since its passage, the Clayton Antitrust Act has been amended several times to strengthen its provisions and adapt to changing economic conditions. For example, the Celler-Kefauver amendments of 1950 broadened the scope of the act to include asset acquisitions, ensuring that mergers and acquisitions involving assets were also subject to scrutiny.
Overall, the Clayton Antitrust Act of 1914 has played a pivotal role in shaping American business practices by providing a framework to regulate unethical corporate behaviour, promote fair competition, and protect the rights of consumers and workers.
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The Federal Trade Commission Act of 1914
The Act was passed by Congress to protect consumers against methods of deception in advertisement and to force businesses to be upfront and truthful about items being sold. The Federal Trade Commission Act works in conjunction with the Sherman Act and the Clayton Act. Any violations of the Sherman Act also violate the Federal Trade Commission Act, and the Federal Trade Commission can act on cases that violate either act. The Federal Trade Commission Act and both antitrust laws were created for the sole objective to "protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up."
The commission is empowered to enforce the act's provisions against all persons, partnerships, or corporations, with several exceptions, including banks, savings and loans institutions, and federal credit unions. 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. An act or practice is "deceptive" under the FTC Act when there is a misrepresentation, omission, or practice that is likely to mislead a reasonable consumer.
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The Robinson-Patman Act of 1936
The Robinson-Patman Act prohibits suppliers, wholesalers, or manufacturers from offering preferential prices to certain customers, known as "preferred customers." It also prevents these suppliers from being coerced into restricting whom they can and cannot sell goods to. This ensures that a supplier does not sell goods at a significantly lower price to a large business, such as Amazon or Walmart, compared to a small business, like a local grocery store. The Act also covers discriminatory allowances or services, such as advertising or promotional allowances, handbills, catalogues, and special packaging.
The complexity of the Robinson-Patman Act has made enforcement challenging. Early enforcement of the Act was difficult, and even today, it is often not enforced. Consumers found it hard to understand, and even those with legal knowledge questioned how its enforcement would benefit them. Federal enforcement of the Act ceased for several years in the late 1960s due to industry pressure. While the Federal Trade Commission is responsible for upholding the Act, it is not widely enforced by the government.
The Robinson-Patman Act has faced legal challenges and changes over the years. There was an unsuccessful attempt to repeal it in the mid-1970s. In the late 1980s, the Federal Trade Commission revived its use, alleging discriminatory pricing against bookstores by publishers. However, enforcement has declined since the 1990s. The Act has been used in several notable legal cases, such as Federal Trade Commission v. Morton Salt in 1948, where the Supreme Court upheld the Federal Trade Commission's enforcement of the Act.
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The Celler-Kefauver Act of 1950
The first antitrust law in the United States was the Sherman Antitrust Act, passed by Congress in 1890. The Sherman Act was a "comprehensive charter of economic liberty" aimed at preserving free and unfettered competition in the market. It outlawed monopolies, attempted monopolies, and conspiracies to monopolize. The Clayton Antitrust Act, passed in 1914, amended the Sherman Act. The Clayton Act outlawed using mergers and acquisitions to achieve monopolies and created an antitrust law exemption for collective bargaining.
The Celler-Kefauver Act also targeted conglomerate mergers, where companies involved in different sectors or geographic areas merge to expand their markets and product reach. Conglomerate mergers can prevent fair consumer access to identical products offered by competitor firms and create barriers to entry for small enterprises. The Act gave the government the power to prevent vertical and conglomerate mergers that could limit competition.
The Celler-Kefauver Act helped to close existing antitrust loopholes by ensuring that all mergers across industries, and not just horizontal mergers within the same sector, would be carefully scrutinized and policed. The Act also prohibited companies from buying competitors' assets if competition would be reduced as a result of the asset acquisition.
The first significant case citing the Celler-Kefauver Act materialized in 1962 when the U.S. court blocked a merger between Brown Shoe Co. and Kinney Company Inc. Judges took note of the “the trend toward vertical integration in the shoe industry” and concluded that the proposed tie-up threatened to substantially eliminate competition in that market.
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Frequently asked questions
The first antitrust law in the US was the Sherman Antitrust Act, passed in 1890.
The Sherman Antitrust Act was designed to restore competition and prevent monopolies, trusts, and cartels. It was also meant to protect free enterprise in America and prohibit the use of power to control the marketplace.
The act did not define critical terms such as "trust", "combination", "conspiracy", and "monopoly". It also failed to effectively regulate monopolies for over a decade due to narrow judicial interpretations of what constituted trade or commerce among states.
In 1914, Congress passed two additional antitrust laws: the Clayton Antitrust Act and the Federal Trade Commission Act. These laws further elaborated on the Sherman Antitrust Act and provided an agency to investigate possible violations.
