What is the Sherman Antitrust Act?

The Sherman Antitrust Act was the first antitrust legislation passed by the United States Congress and laid the groundwork for current antitrust regulation. It was intended to prevent a few large corporations from taking over a segment of the market and keeping out smaller businesses. While U.S. attorneys still rely on this law in antitrust suits, not everyone actually understands the history and intent of the Act.

The Sherman Antitrust Act was a law introduced during the term of former U.S. President Benjamin Harrison. It was the brainchild of Senator John Sherman, an Ohio politician and expert in trade and commerce regulation, which is why it was given his name. But why was it called "antitrust"?

Read More: What Is the Sherman Antitrust Act?: History, Purpose & Clayton Act

Sherman was concerned about business arrangements called "trusts" that were prevalent at the time. A trust was an arrangement under which shareholders in various companies transferred their stock shares to one set of trustees in exchange for a share of the earnings of all of the companies the trust managed.

The trust arrangement essentially formed conglomerates that monopolized major industries in the country, wiping out all competition. They conspired to carve up the market into zones where each entity would have a monopoly and could charge high prices to consumers.

Standard Oil formed the first trust, the Standard Oil Trust, uniting all Standard properties and putting them into the hands of a board of nine trustees. The trustees elected the management teams for all the companies and received all the profits. This essentially allowed Standard Oil to act as a monopoly.

In the end of the 1800s, the United States was an expanding country with enormous changes occurring in the country's government and economy. Because of higher wages earned in this country, millions of European immigrants came over, hoping to make more money.

The arrival of all these immigrants looking for work fueled rapid growth and expansion of industrialization. Ruthless competition for business share followed, and big companies became bigger and blotted out smaller and newer enterprises. This climate led to government concern and discussions about reining in large businesses to create a level playing field for all comers.

Senator Sherman and his colleagues wanted to stop big companies from monopolizing industries and choking out competition. The language of the Sherman Antitrust Act was intended to prohibit these business practices and all anti-competitive agreements that pushed small businesses out of the market.

The Sherman Antitrust Act was premised on the constitutional power of the U.S. Congress to regulate interstate commerce. The law had teeth too. It gave the Department of Justice the power to bring suits against trusts and enterprises supporting trusts for Sherman Act violations.

The Sherman Antitrust Act is codified in the United States Code at 15 U.S.C. §§ 1-38. It is still in effect. The U.S. Supreme Court essentially dealt a heavy blow to the Sherman Act in United States v. E. C. Knight Company (1895), ruling that a company controlling 98 percent of all sugar refining in the United States did not constitute a control of trade. However, the Sherman Act survived, was amended by the Clayton Act, and is still widely used today to restrict unlawful business combinations, allowing for lawsuits to be brought by the Department of Justice and private citizens. Although E. C. Knight was never expressly overruled, it was profoundly limited by the Court over time.

Antitrust cases for Sherman Act violations are usually brought by U.S. attorneys and heard in federal district courts. The Sherman Act statute of limitations is four years, and a lawsuit under the act must be brought within that period of time. That period starts when the violation occurs. If the limitations period has passed, no suit can be brought.