Sherman Antitrust Act
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The Sherman Antitrust Act (Sherman Act[1], July 2, 1890, ch. 647, 26 Stat. 209, 15 U.S.C. § 1-7), was the first United States federal government action to limit monopolies, and is the oldest of all U.S. antitrust laws..
The Sherman Act provides: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal".[2] The Act also provides: "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [. . . ]"[3] The Act put responsibility upon government attorneys and district courts to pursue and investigate trusts, companies and organizations suspected of violating the Act.
The Act was signed by President Benjamin Harrison in 1890 and was named for its author, Senator John Sherman of Ohio.
The Act was not used in court cases for some years, but Theodore Roosevelt used the Act extensively in his antitrust campaign, managing to divide the Northern Securities Company. It was further used by President Taft to split and divide the American Tobacco Company.
Despite its name, the Act was not aimed at trusts in particular, but at any form which would create a "restraint of trade". The word "antitrust" was used because the Act was initially proposed to break up the Standard Oil trust. Ironically, by the time antitrust laws were finally brought to bear against the company, it was no longer using the form of a trust. Since then, the term "antitrust law" has persisted in the United States for what the rest of the world calls "competition law", even though antitrust laws are almost never used against trusts anymore.
Although the Act was aimed at regulating the businesses of the time, it was not specific (prohibiting combinations in restraint of trade). It was used for many years as an anti-union tool, until that use was finally revoked in 1914 by the Clayton Antitrust Act, which contained the word monopoly.
The Act was intended to prevent arrangements designed to, or which tend to, increase the cost of goods to the consumer. It was not specifically intended to prevent the dominance of an industry by a specific company, despite misconceptions to the contrary. According to Senator George Hoar, an author of the bill, any company which "got the whole business because nobody could do it as well as he could" would not be in violation of the act. The law attempts to prevent the artificial raising of prices by restriction of trade or supply[1].
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[edit] Enforcement
For many years the Sherman Act went unenforced, but Congress began seeking out violators of the act, starting with the sugar combine E.C Knight Co. in 1895, and has increased the penalties over the years with larger fines and jail time. In June of 2004, President George W. Bush signed into law the Antitrust Criminal Penalty Enhancement and Reform Act, increasing the maximum criminal penalty for individuals to ten years' imprisonment and a $1 million fine, and the maximum penalty for corporations to a $100 million fine. //..alleged violations of the Sherman Act are not prosecuted criminally, but rather are adjudicated in civil proceedings under a "rule of reason" standard, which examines the economic benefits and harm of allegedly anti-competitive conduct to determine whether it is, on balance, beneficial to consumers and should be permitted to continue. However, the United States Supreme Court has deemed three types of conduct so lacking in economic justification as to be per se illegal. The per se violations include price fixing, bid rigging, and market allocation schemes, and are generally prosecuted criminally by the Antitrust Division of the United States Department of Justice. The Antitrust Division has sole authority within the federal government to file criminal antitrust cases, though it shares responsibility for civil enforcement with the Federal Trade Commission.
Companies facing potential prosecution for criminal violations can suffer severe consequences. Fines in excess of the statutory maximum fine are often imposed under the alternative sentencing provisions of 18 U.S.C. § 3571, which permits courts to impose fines up to twice the loss caused to victims or twice the gain to the conspirators. In order to avoid criminal sanctions and to limit civil damages, companies that discover violations within their companies often avail themselves of the Antitrust Division's Corporate Leniency Policy, which permits companies that self-report violations or offer early cooperation with criminal investigations to avoid criminal prosecution.
Within the Antitrust Division, primary responsibility for the investigation and prosecution of criminal violations of the Sherman Act lies with the Division's field offices located in Chicago, Cleveland, Dallas, Atlanta, Philadelphia, New York, and San Francisco. The National Criminal Enforcement section, located in Washington, D.C., also handles criminal antitrust cases.
There have been many supplementing acts to increase the power of the Sherman Act. Some of these were the Clayton Antitrust Act in 1914, Robinson-Patman Act of 1936 and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 among others.
[edit] Criticism of the Sherman Antitrust Act
Many have questioned whether the act improves competition and benefits consumers, claiming that it merely aids inefficient businesses at the expense of larger, more innovative ones. Alan Greenspan, in his essay entitled Antitrust[2] condemns the Sherman Act as stifling innovation and harming society. He says: "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible."
Others debate what the ultimate goal of antitrust legislation should be — increased competition or lower prices. For example, debating in favor of the Act in 1890, Rep. William Mason said "trusts have made products cheaper, have reduced prices; but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to people of this country by the trusts which have destroyed legitimate competition and driven honest men from legitimate business enterprise."[4] On the other hand, some believe that as long as a monopoly is not a coercive monopoly where a firm is securely insulated from potential competition, it will keep prices low in order to discourage competition from arising. Hence, they believe legal action is uncalled for, and wrongly harms the firm and consumers.
Some believe that antitrust laws have a protectionist effect. Economist Thomas DiLorenzo notes that Senator Sherman sponsored the 1890 McKinley tariff just three months after the Sherman Act, and agrees with the New York Times which wrote on October 1, 1890: "That so-called Anti-Trust law was passed to deceive the people and to clear the way for the enactment of this...law relating to the tariff" and said Sherman attacked trusts because they "subverted the tariff system; they undermined the policy of government to protect American industries by levying duties on imported goods." Dilorenzo says: "Protectionists did not want prices paid by consumers to fall. But they also understood that to gain political support for high tariffs they would have to assure the public that industries would not combine to increase prices to politically prohibitive levels. Support for both an antitrust law and tariff hikes would maintain high prices while avoiding the more obvious bilking of consumers."[5]
Another possible angle is that provided by energy rents, that is the difference between the value (to producer or consumer) of energy and its cost. The Sherman Act, being directed specifically at Rockefeller's Standard Oil trust, can be seen as a precursor to the PUC's (Public Utility Commissions) established in the 1930s in response to electrification and the corresponding profit opportunities. Historically, new energy sources have yielded rents to both consumers and producers (of energy). The mood in the 1880s was that no one individual should be given reign over as large a chunk of energy rents, despite the fact that Standard Oil's gas, kerosene, and oil prices were below those of its competitors.
[edit] Notes
[edit] See also
- Alcoa
- American Tobacco Company
- AT&T
- Microsoft
- Northern Securities Company
- Standard Oil
- Antitrust
- Cartel
- Clayton Antitrust Act of 1914
- Corporate Executives Charged with Crimes
- DRAM price fixing
- Monopoly
- Price fixing
[edit] External links
[edit] Official websites
- U.S. Department of Justice: Antitrust Division
- U.S. Department of Justice: Antitrust Division - text of SHERMAN ANTITRUST ACT, 15 U.S.C. §§ 1-7
[edit] Additional information
- Antitrust Division's "Corporate Leniency Policy"
- Antitrust by Alan Greenspan
- Dr. Edward W. Younkins (February 19, 2000). "Antitrust Laws Should Be Abolished".
- DiLorenzo, Thomas Cato Handbook for Congress, Antitrust.
- Sherman Anti-Trust Act Full text and commentary
