The Guiding Principles of U.S. Antitrust Law

by JRO on September 18, 2013

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U.S. Antitrust law was one of the significant tools used during President Theodore Roosevelt’s term in the White House (1901-1909) to regulate businesses and usher in a new era of competition and innovation in commerce. The law made it illegal for corporations to employ devices of unfair competition or create monopolies for the purpose of restraining trade.

The Sherman Antitrust Act, named after its author Senator John Sherman of Ohio, was passed by Congress in 1890. It existed on the books as law for nearly a decade before it saw wide enforcement during Roosevelt’s term.

History of Commerce in America Prior to the Sherman Act

Before passage of the Sherman Act, business in America was controlled by a handful of corporations. Specifically, energy by means of oil production was controlled by the Standard Oil Company and John D. Rockefeller; the railroads, shipping, and interstate commerce through Cornelius Vanderbilt; and, steel production, as well as the raw materials used in buildings, bridges, and rails came from Andrew Carnegie’s Carnegie Steel Company (now known as USX).

Each of these men, bitter rivals, amassed significant fortunes during America’s “Gilded Age” and engaged in a system of anti-competition that served as the basis for the passage of the Act in 1890. When Roosevelt became President after the assassination of William McKinley in 1901, he engaged in a series of progressive actions designed to protect the environment, improve the quality and safety of food, and bust up huge corporate trusts. This began in 1904 with the U.S. Supreme Court’s 5-4 ruling in Northern Securities Co. v. United States, 193 U.S. 197, which upheld the constitutionality of the Sherman Act.

Key Provisions of the Law

The main thrust of the Sherman Antitrust Act is to create a competitive environment for all businesses to operate. Section 1 of the act states, “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.”

The act takes aim at all arrangements, contracts, and other agreements that set to fix prices, collude, and rig contracts for the benefit of a single corporation or closely held trust or that engage in other anti-competitive measures that place a restraint on free trade. Monopolies that influence or control interstate commerce are deemed illegal and may be subject to criminal penalties.

The Impact of the Sherman Act on Present Competition

One of the most significant cases of anti-monopolization that arose in more recent times was that of American Telephone and Telegraph (AT&T). In 1982 (and again in 1984) the U.S. Department of Justice successfully brought suit against the telephone conglomerate, which at the time controlled all telecommunications in the country through several distinct subsidiaries: Western Electric, which made telephones; Bell Labs, the R&D arm of AT&T; and AT&T, which delivered local and long distance telephone service through what were at the time known as Regional Bell Operation Companies (RBOCs).

Using the Sherman Act, the government was able to show that the growth experienced by AT&T was not only based on its ownership of its cable and telephone lines installed more than a century prior but also through organic means such as microwave technology that the company could not assert complete control over. The impact of the ruling created a spinoff of the RBOCs into such companies as Cingular Wireless and Verizon and encouraged additional innovation to take place, giving birth to the mobile telephone and computing industry.

Darius Moberly writes on a plethora of complex legal topics including Consumer Rights, Bankruptcy Law, Business Law, Securities Litigation and others as well.

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