Monopolies and Antitrust Law

Feeling the push of populist pressure, Congress passed two landmark pieces of federal legislation. Utilizing its constitutional power to regulate interstate business, it first put in effect the Interstate Commerce Act of 1887, which required the railroads to maintain fair rates and to cease discrimination. Three years later came the passage of the Sherman Anti-Trust Act of 1890, a sweeping assault on the trusts that remains the basis of federal antitrust law today. The Sherman Anti-Trust Act forbade the formation of trusts, monopolies, and, generally, the restraint of free trade. Allowing both criminal and civil prosecution of offenders, the law placed special emphasis on civil lawsuits by authorizing the award of triple the amount of damages suffered. Today, each criminal violation of the Sherman Anti-Trust Act is a felony carrying a maximum $350,000 fine and imprisonment of up to three years.

Although seeming to usher in a new era in business regulation, antitrust law was sluggishly enforced and quickly hit judicial roadblocks. In fact, the Supreme Court dealt a blow to the Sherman Anti-Trust Act in its first consideration of the law, United States v. E. C. Knight (1895), where the majority ruled that manufacturing was not a form of interstate business. The Court therefore held that the law did not apply to a trust which refined over 98 percent of the nation's sugar. Only in the late 1890s did the Court uphold prosecutions, first against the railroads. Two major trusts were toppled in 1911, when the Supreme Court ordered the dissolution of the Standard Oil Company and the American Tobacco Company. Yet even in Standard Oil Co. of New Jersey v. United States (1911), the Court championed the Sherman Anti-Trust Act, holding that it did not ban all restraints upon trade, but only ones found to be anticompetitive. Moreover, lower courts were still free to interpret cases subjectively according to the "rule of reason".