Gavin Howe
The history of antitrust law in the United States began with the Sherman Antitrust Act of 1890, passed by Congress almost unanimously and signed into law by President Benjamin Harrison. The Act was designed to restore competition and prevent monopolies by outlawing every contract, combination, or conspiracy in restraint of trade. The Sherman Act was followed by the Clayton Antitrust Act and the Federal Trade Commission Act of 1914, which further strengthened antitrust laws and created the Federal Trade Commission (FTC) to enforce them. These laws have been revised over time but remain the core of federal antitrust legislation, aiming to protect competition and benefit consumers.
| Characteristics | Values |
|---|---|
| First antitrust law passed | Sherman Act, 1890 |
| Passed by | Congress |
| Signed into law by | President Benjamin Harrison |
| Purpose | To restore competition, protect free enterprise in America, and prevent monopolies |
| Core federal antitrust laws | Sherman Act, Clayton Act, Federal Trade Commission Act |
| Scope | Interstate commerce |
| Enforcement | Federal Trade Commission (FTC), Antitrust Division of the U.S. Department of Justice, State Attorneys General, Private Parties |
| Focus | Consumer benefits, efficiency, controlling economic power |
| Exemptions | Collective bargaining |
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What You'll Learn
The Sherman Act (1890)
The Sherman Act, passed by Congress in 1890, was the first federal antitrust law in the United States. Named for Senator John Sherman, its principal author, the act was designed to preserve "free and unfettered competition" as the rule of trade. It aimed to prevent monopolies and protect consumers from unfair business practices, ensuring strong incentives for businesses to operate efficiently, keep prices down, and maintain quality.
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." However, the Supreme Court has ruled that not all restraints of trade are prohibited, only those that are unreasonable. Certain acts, such as price-fixing, market-rigging, and bid-rigging, are considered so harmful to competition that they are almost always illegal and are considered per se violations of the Sherman Act.
The Sherman Act was passed at a time when trusts were dominating several major industries and destroying competition. A trust is an arrangement where stockholders in multiple companies transfer their shares to a single set of trustees in exchange for a certificate entitling them to a share of the consolidated earnings of the jointly managed companies. The act was designed to restore competition and prevent the formation of these trusts, which were seen as a threat to free enterprise and the decentralized nature of industrial power.
While the Sherman 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 control of manufacture did not constitute a control of trade. Despite this setback, the act was later used successfully during President Theodore Roosevelt's "trust-busting" campaigns, and it continues to form the basis of antitrust law in the United States, along with the Clayton Act and the Federal Trade Commission Act, passed in 1914.
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The Clayton Act (1914)
The Clayton Antitrust Act of 1914 is a piece of legislation passed by the U.S. Congress and signed into law by President Woodrow Wilson on October 15, 1914. The act was introduced by Alabama Democrat Rep. Henry De Lamar Clayton Jr. in the U.S. House of Representatives. The Clayton Act was created to regulate the behaviour of massive entities and strengthen earlier antitrust legislation, such as the Sherman Act of 1890.
The Clayton Act defines unethical business practices and upholds various rights of labour. It prohibits anti-competitive mergers, predatory and discriminatory pricing, and other forms of unethical corporate behaviour. The act also protects individuals by allowing private parties to take legal action against companies and seek triple damages when they have been harmed by conduct that violates the act. It also upholds the rights of labour to organize and protest peacefully.
The act makes both substantive and procedural modifications to federal antitrust law. Substantively, it seeks to capture anticompetitive practices by prohibiting specific types of conduct not deemed in the best interest of a competitive market. Procedurally, it empowers private parties injured by violations of the act to sue for treble damages and injunctive relief.
Section 7 of the Clayton Act is particularly important, as it prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly. This section gives the Federal Trade Commission and the Department of Justice greater regulatory power over mergers than the Sherman Act, allowing them to approve or disapprove mergers at their discretion.
The Clayton Antitrust Act continues to be enforced by the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, affecting American business practices today. It has been amended several times to expand its provisions and remains one of the core federal antitrust laws in the United States.
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The Federal Trade Commission Act (1914)
The Federal Trade Commission Act was passed in response to the Supreme Court's decision in Standard Oil, which was seen as an attempt to "`soften`" the Sherman Antitrust Act and narrow its scope. The Sherman Act, passed in 1890, was the first federal act to outlaw monopolistic business practices and prohibit trusts. It was designed to preserve free and unfettered competition and protect the process of competition for the benefit of consumers. The act outlaws "every contract, combination, or conspiracy in restraint of trade" and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize".
While the Sherman Act was a significant step towards regulating interstate commerce and protecting free enterprise, it was loosely worded and failed to define critical 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 had not violated the law despite controlling about 98% of all sugar refining in the United States.
The Federal Trade Commission Act and the Clayton Act were both passed to strengthen antitrust enforcement and provide clearer guidelines. The Clayton Act outlaws mergers and acquisitions that may substantially lessen competition or create a monopoly, while the Federal Trade Commission Act established the FTC as the primary enforcer of antitrust laws, with the power to prohibit unfair methods of competition. These two laws, along with the Sherman Act, form the core of federal antitrust legislation in the United States, with some revisions, and continue to shape the competitive landscape even in the digital age.
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The Robinson-Patman Act (1936)
The Robinson-Patman Act (RPA) of 1936 is a United States federal law that prohibits anticompetitive practices by producers, specifically price discrimination. The law was co-sponsored by Senator Joseph T. Robinson and Representative Wright Patman and was designed to protect small retail shops against competition from chain stores by fixing a minimum price for retail products.
The Robinson-Patman Act is an amendment to the 1914 Clayton Antitrust Act and is intended to prevent "unfair" competition. The Act requires businesses to sell their products at the same price, regardless of the buyer. It was designed to prevent large-volume buyers from gaining an advantage over small-volume buyers by ensuring equal opportunities for competitors across the market. The Act only applies to sales of tangible goods that are completed within a reasonably close timeframe and where the goods sold are similar in quality.
The Robinson-Patman Act also forbids discriminatory allowances or services furnished or paid to customers. It requires sellers to treat all competing customers in a proportionately equal manner. Services covered include advertising, 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 Act has been criticised by economists and legal scholars as being anti-competitive, favouring the interests of some businesses over consumers, and being highly subject to potential abuse. It has also been difficult to enforce due to its complexity and the challenge of understanding how consumers can benefit from it. Enforcement of the Act is the responsibility of the Federal Trade Commission, but it is seldom enforced by the government.
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The Celler-Kefauver Act (1950)
The Celler-Kefauver Act, also known as the Anti-Merger Act, was passed by the United States Congress in 1950. It was enacted to strengthen the Clayton Antitrust Act of 1914, which had amended the Sherman Antitrust Act of 1890. The Celler-Kefauver Act aimed to close loopholes in the Clayton Act that allowed monopolistic vertical and conglomerate mergers.
The Clayton Act had prohibited stock purchase mergers that reduced competition, but it did not prevent companies from merging vertically along the supply chain. This loophole was exploited by unscrupulous businessmen, who found ways around the Clayton Act by simply buying up a competitor's assets. The Celler-Kefauver Act addressed this issue by prohibiting asset acquisitions that reduced competition.
The Act also targeted vertical mergers, where two or more companies that provide different supply chain functions for a common good or service unite. Such mergers can cause an antitrust problem if a company buys its competitors' suppliers, effectively blocking rivals from accessing raw materials or other essentials. The Act argued that vertical mergers could be used to create a monopoly in one market by using resources and money from different markets.
Additionally, the Celler-Kefauver Act targeted conglomerate mergers, where companies involved in different sectors or geographic areas merge to expand their markets and product reach. These mergers raise barriers to entry for competitors and limit consumer access to identical products offered by rival firms.
The Celler-Kefauver Act was a significant step in curbing greedy corporate behaviour and remains one of America's strongest antitrust laws, empowering the government to prevent monopolies and promote market competition.
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Frequently asked questions
The US Congress created the first antitrust law, the Sherman Act, in 1890.
The Sherman Act was created to restore competition and prevent monopolies. It was designed to protect free enterprise in America.
The history of antitrust law in the US is generally considered to have begun with the Sherman Antitrust Act in 1890. However, policies to regulate competition in the market economy have existed throughout the history of common law. In 1914, Congress passed two additional antitrust laws: the Clayton Act and the Federal Trade Commission Act.
The three core federal antitrust laws in the US today are the Sherman Act, the Clayton Act, and the Federal Trade Commission Act. These laws are enforced by the Federal Trade Commission (FTC) and the Department of Justice's Antitrust Division.
