Sherman Antitrust Act

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The Sherman Antitrust Act was enacted in 1890 to curtail combinations of power that interfere with trade and reduce economic competition. It outlaws both formal cartels and attempts to monopolize any part of commerce in the United States.

The Sherman Antitrust Act was named for U.S. Senator John Sherman, an expert on the regulation of commerce. It is also sometimes called, simply, the Sherman Act. Sherman also played a leading role in the establishment of the national banking system.

The Sherman Antitrust Act comprises two main provisions that prohibit interferences with trade and economic competition and that make illegal the attempt to monopolize any part of trade or commerce. These provisions are enforceable by the U.S. Department of Justice.

The U.S. Supreme Court applied the “rule of reason” interpretation to the Sherman Antitrust Act in 1920 to specify that only “unreasonable” restraint of trade is unlawful, allowing large firms more latitude. The interpretation was reversed in 1945, and the prohibition of monopolies was subsequently periodically enforced, including the breakup of the American Telephone and Telegraph Company in 1984.

Sherman Antitrust Act, first legislation enacted by the U.S. Congress (1890) to curb concentrations of power that interfere with trade and reduce economic competition. It was named for U.S. Sen. John Sherman of Ohio, who was an expert on the regulation of commerce.

One of the act’s main provisions outlaws all combinations that restrain trade between states or with foreign nations. This prohibition applies not only to formal cartels but also to any agreement to fix prices, limit industrial output, share markets, or exclude competition. A second key provision makes illegal all attempts to monopolize any part of trade or commerce in the United States. These two provisions, which constitute the heart of the Sherman Act, are enforceable by the U.S. Department of Justice through litigation in the federal courts. Firms found in violation of the act can be ordered dissolved by the courts, and injunctions to prohibit illegal practices can be issued. Violations are punishable by fines and imprisonment. Moreover, private parties injured by violations are permitted to sue for triple the amount of damages done them.

For more than a decade after its passage, the Sherman Act was invoked only rarely against industrial monopolies, and then not successfully, chiefly because of narrow judicial interpretations of what constitutes trade or commerce among states. Its only effective use was against trade unions, which were held by the courts to be illegal combinations. The first vigorous enforcement of the Sherman Act occurred during the administration of U.S. Pres. Theodore Roosevelt (1901–09). In 1914 Congress passed two legislative measures that provided support for the Sherman Act. One of these was the Clayton Antitrust Act, which elaborated on the general provisions of the Sherman Act and specified many illegal practices that either contributed to or resulted from monopolization. The other measure created the Federal Trade Commission, providing the government with an agency that had the power to investigate possible violations of antitrust legislation and issue orders forbidding unfair competition practices.

In 1920, however, the U.S. Supreme Court applied the so-called “rule of reason” interpretation of the Sherman Act, which specifies that not every contract or combination restraining trade is unlawful. Only “unreasonable” restraint of trade through acquisitions, mergers, exclusionary tactics, and predatory pricing constitute a violation of the Sherman Act. This interpretation allowed large firms considerably more latitude. But in a case involving the Aluminum Company of America (1945), the court reversed its stance, declaring that the size and structure of a corporation were sufficient grounds for antitrust action. Since that ruling, the prohibition against monopoly has been periodically enforced, involving in some cases the dismemberment of the offending firm. One notable example late in the 20th century was the 1984 breakup of the American Telephone & Telegraph Company, which left the parent company, AT&T, as a provider of long-distance service while seven regional “ Baby Bell” companies provided local telephone service. Many of the original Baby Bell companies subsequently merged.

One of the largest antitrust suits since that time was brought against Microsoft Corporation. A decision in 1999 found the company had attempted to create a monopoly position in Internet browser software, but a court-ordered breakup of Microsoft was overturned by an appeals court in 2001. In 2019 the Supreme Court allowed a large class action lawsuit alleging violations of antitrust law to proceed against Apple Inc. In the same year, the Justice Department began a broad review of potentially anticompetitive behaviour by “market-leading online platforms,” presumably including Google and Facebook, and a coalition of attorneys general from 48 states, the District of Columbia, and Puerto Rico announced coordinated antitrust investigations into alleged monopolistic practices by Google.

The Editors of Encyclopaedia Britannica This article was most recently revised and updated by Brian Duignan.