Sherman Antitrust Act is a landmark federal statute in the history of United States antitrust law (or “competition law”) passed by Congress in 1890.
The Act’s reference to “trusts” and to “antitrust” law in general, is sometimes misunderstood by modern readers.
In 19th century America, the term “trust” was synonymous with monopolistic practice, because the trust was a popular way for monopolists to hold their businesses and a way for cartel participants to create enforceable agreements.
In most countries outside the United States, antitrust law is known as “competition law”, instead.
In 1890, when the Sherman Act was adopted, there were only a few federal statutes imposing penalties for obstructing or misusing interstate transportation.
With an expanding commerce, many others have since been enacted safeguarding transportation in interstate commerce as the need was seen, including statutes declaring conspiracies to interfere or actual interference with interstate commerce by violence or threats of violence to be felonies.
The law was enacted in the era of “trusts” and of “combinations” of businesses and of capital organized and directed to control of the market by suppression of competition in the marketing of goods and services, the monopolistic tendency of which had become a matter of public concern.
The goal was to prevent restraints of free competition in business and commercial transactions which tended to restrict production, raise prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services, all of which had come to be regarded as a special form of public injury.
For that reason the phrase “restraint of trade,” which, as will presently appear, had a well understood meaning in common law, was made the means of defining the activities prohibited.
Persons forming such combinations were subject to fines of $5,000 and a year in jail.
Individuals and companies suffering losses because of trusts were permitted to sue in Federal court for triple damages.
The Sherman Act was designed to restore competition but was loosely worded and failed to define such critical terms as “trust,” “combination,” “conspiracy,” and “monopoly.” Five years later, the Supreme Court dismantled the Sherman Act in United States v. E. C. Knight Company (1895).
The Court ruled that the American Sugar Refining Company, one of the other defendants in the case, had not violated the law even though the company controlled about 98 percent of all sugar refining in the United States.
The Sherman Act authorized the federal government to institute proceedings against trusts in order to dissolve them, but Supreme Court rulings prevented federal authorities from using the act for some years.
As a result of President Theodore Roosevelt’s “trust-busting” campaigns, the Sherman Act began to be invoked with some success, and in 1904 the Supreme Court upheld the government in its suit for dissolution of the Northern Securities Company.
The act was further employed by President Taft in 1911 against the Standard Oil trust and the American Tobacco Company.
By the 1990s, still a time of large corporate mergers, the FTC became more litigious in antitrust actions, and the Justice Dept. aggressively pursued the Microsoft Corp.