Sherman Antitrust Act

Passd by the U.S. Congress in 1890, the first measure meant to prohibit trusts. Named after its sponsor, Senator John Sherman, who was an expert on the regulation of commerce.

The act, based on the constitutional power of Congress to regulate interstate commerce, declared that every contract, combination (in the form of trust or otherwise), or conspiracy that acted in restraint of interstate and foreign trade was illegal. This prohibition applies not only to cartels but also to agreements to fix prices, share markets, limit industrial output, or exclude competition. A second provision makes all attempts to monopolize any part of trade or commerce within the United States illegal.

Firms violating the Act can be dissolved by the courts, and injunctions can be issued to prohibit illegal practices. Violations are punishable by fines and/or imprisonment. Private parties injured by such violations can sue for triple the amount of any damages.

Ironically, its only effective use at first was against trade unions, which were held by the courts to be illegal combinations.

Followed up by the Clayton Antitrust Act (1914) and the establishment of the Federal Trade Commission (FTC). The latest revision was the Hart-Scoss-Rodino Anti-Trust Improvement Act (1976) which dealt with mergers.

The Sherman Act was the basis of the complaint that lead to the American Telephone and Telegraph (AT&T) breakup in 1982. Recently, U.S. District Judge Thomas Penfield Jackson ruled that Microsoft violated the Sherman Antitrust Act by "unlawfully tying its Web browser to its operating system" and also could be sued under state anti-competition laws.

June 28, 2001

A federal appeals court unanimously overturned Judge Jackson's order that Microsoft Corporation be broken up. The appeals court criticized Judge Jackson as being a media hound and unprofessional in his treatment of the Microsoft case. The appeals court suggested that a breakup of Microsoft would be inappropriate anyway since breakups are normally reserved for businesses that have grown primarily through mergers and acquisitions, unlike Microsoft. However, the appeals court concluded that Microsoft had violated Section 2 of the Sherman Antitrust Act, a 111-year old document which states that "every person who shall... attempt to monopolize... any part of the trade or commerce... shall be deemed guilty of a felony." Microsoft hopes to reopen settlement negotiations as a result of this ruling.

It is impossible for a successful businessmen to not violate Section 2 of the Sherman Antitrust Act. For instance, in the 1945 antitrust case United States v. Aluminum Company of America (ALCOA), Judge Learned Hand judged that "It was not inevitable that it (ALCOA) should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel." If applied consistently, The Sherman Antitrust Act would impoverish America. Presently, the Act is used as a tool by some businessmen to attempt to destroy their more successful competitors. The Sherman Antitrust Act should be dissolved immediately.