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Antitrust Law

The Sherman Act And Early Enforcement

In 1890, Congress took aim at the trusts with passage of the SHERMAN ANTI-TRUST ACT, named for Senator JOHN SHERMAN (R-Ohio). It went far beyond the common law's refusal to enforce certain offensive contracts. Clearly persuaded by the more restrictive view that saw great harm in restraint of trade, the Sherman Act outlawed trusts altogether. The landmark law had two sections. Section 1 broadly banned group action in agreements, forbidding "every contract, combination in the form of trust or otherwise, or conspiracy," that restrained inter-state or foreign trade. Section 2 barred individuals from monopolizing or trying to monopolize. Violations of either section were punishable by a maximum fine of $50,000 and up to one year in jail. The Sherman Act passed by nearly unanimous votes in both houses of Congress.

Although sweeping in its language, the Sherman Act soon revealed its limitations. Congress had wanted action even though it did not know what steps to take. Historians would later dispute what its precise aims had been, but clearly the lawmakers intended for the courts to play the leading role in promoting competition and attacking monopolization: Judges would make decisions as cases arose, slowly developing a body of opinions that would replace the confusing precedents of state courts. For a public that expected overnight change, the process worked all too slowly. President GROVER CLEVELAND's Department of Justice, which disliked the Sherman Act, made little effort to enforce it.

Initial setbacks also came from the U.S. Supreme Court's first consideration of the statute, in United States v. E. C. Knight Co., 156 U.S. 1, 15 S. Ct. 249, 39 L. Ed. 325 (1895). Rejecting a challenge to a sugar trust that controlled over 98 percent of the nation's sugar-refining capacity, the Court held that manufacturing was not interstate commerce. This was good news for trusts. If manufacturers were exempt from the Sherman Act, then they would have little to worry about from federal antitrust regulators. The Court only began strongly supporting the use of the law in the late 1890s, starting with cases against railroad cartels. By 1904, some 300 large companies still controlled nearly 40 percent of the nation's manufacturing assets and influenced at least 80 percent of its vital industries.

After the turn of the twentieth century, federal enforcement picked up speed. President THEODORE ROOSEVELT's announcement that he was a "trustbuster" foreshadowed one important aspect of the future of antitrust enforcement: It would depend largely on political will from the EXECUTIVE BRANCH of government. Roosevelt and his successor, President WILLIAM HOWARD TAFT, responded to public criticism over the rapid merger of even more industries by pursuing more vigorous legal action. Steady prosecution in the first decade of the twentieth century brought the downfall of trusts.

In 1911, the U.S. Supreme Court ordered the dissolution of the Standard Oil Company and the American Tobacco Company in landmark rulings that brought down two of the most powerful industrial trusts. But these were ambiguous victories. In Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619, for example, the Court dissolved the trust

This 1907 political cartoon by Clifford Berryman humorously depicts President Theodore Roosevelt in his roles of "trustbuster" and sportsman. His administration filed 44 antitrust lawsuits in eight years.

into 33 companies, but held that the Sherman Act outlawed only restraints that were anticompetitive—subject, furthermore, to a rule of reason. Critics of all stripes jumped on this decision. Some feared that conservative judges would now gut the Sherman Act; others predicted a return to lax enforcement; and businesses worried that in the absence of specific unlawful restraints, the rule of reason gave courts too much freedom to read the law subjectively.

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Law Library - American Law and Legal InformationFree Legal Encyclopedia: Air weapon to Approximation of lawsAntitrust Law - Origins, The Sherman Act And Early Enforcement, Congressional Reform Up To 1950, The U.s. Supreme Court And Evolving Doctrine