⚠ Meta Description: The Sherman Antitrust Act is the cornerstone of US competition law. Learn about the two primary violations—Section 1 (agreements in restraint of trade) and Section 2 (monopolization)—and the severe criminal and civil penalties, including treble damages and huge corporate fines. Essential compliance guide for business owners and legal experts.
For over a century, the Sherman Antit Antitrust Act of 1890 has stood as the bedrock of competition law in the United States. Its core purpose is straightforward: to preserve a competitive marketplace, ensuring that consumers benefit from lower prices, higher quality products, and greater innovation. Passed in the era of powerful corporate “trusts,” the Act prohibits business practices that restrict trade or create unfair monopolies.
A violation of the Sherman Act can lead to devastating consequences for a business, ranging from massive corporate fines to criminal imprisonment for individuals involved. Understanding its two main sections is crucial for robust corporate compliance.
Section 1: Prohibiting Agreements in Restraint of Trade
Section 1 of the Sherman Act (15 U.S.C. § 1) targets collusive behavior. It declares that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce… is hereby declared to be illegal”. Since a literal reading would make all contracts illegal, courts have interpreted this to prohibit only those agreements that “unreasonably” restrain trade.
Per Se Violations (The Automatic Offense)
Certain agreements among competitors (known as horizontal agreements) are considered so inherently harmful to competition that they are deemed illegal per se, meaning a plaintiff does not need to prove the specific harm to the market—only that the agreement occurred. These actions are the most likely to be prosecuted criminally.
- Price Fixing: Any agreement between competitors to raise, set, maintain, or otherwise tamper with prices or price levels. This includes setting minimum or maximum prices or agreeing on terms and conditions of sale.
- Bid Rigging: A form of price fixing where competitors coordinate bidding strategies, such as agreeing not to bid (bid suppression), submitting artificially high bids (complementary bidding), or taking turns winning contracts (bid rotation).
- Market Allocation: Agreements between competitors to divide customers, product types, or geographic territories among themselves, eliminating competition within those segments.
- Group Boycotts: Agreements among competitors not to deal with a particular supplier, customer, or competitor in an attempt to exclude them from the market.
Always remember that illegal agreements do not have to be written down or formalized. Oral, informal, or even tacit “understandings” among competitors are sufficient to constitute a violation, often proven through circumstantial evidence of parallel conduct.
The Rule of Reason
Most other agreements that restrain trade, particularly vertical agreements (between a manufacturer and a distributor, for example), are examined under the “Rule of Reason”. This analysis is a case-by-case balancing test where the court weighs the pro-competitive benefits of the action against its potential anticompetitive harm. If the restraint is found to unreasonably reduce competition without sufficient justification, it violates Section 1.
Section 2: The Monopolization Offense
Section 2 of the Sherman Act (15 U.S.C. § 2) addresses unilateral conduct, prohibiting monopolization, attempts to monopolize, or conspiracies to monopolize any part of interstate commerce. Unlike Section 1, which requires an agreement, Section 2 can be violated by a single company’s actions.
Key Elements of Monopolization:
A company is an illegal monopolist only if it satisfies two elements:
- Possession of Monopoly Power: This is generally defined as the power to control prices or exclude competition in the relevant market (often requiring a market share over 70%).
- Willful Acquisition or Maintenance: The company must have acquired or maintained that power through exclusionary or anticompetitive tactics, as opposed to simply achieving dominance through superior product, skill, or historical accident.
Actions like predatory pricing, exclusive dealing contracts, and refusals to deal can contribute to a finding of willful maintenance.
Severe Enforcement and Penalties
Sherman Act violations are enforced by federal agencies and private parties, and the penalties can be exceptionally harsh.
| Enforcement Type | Maximum Penalties |
|---|---|
| Criminal (DOJ) | Corporations: Up to $100 million fine (or twice the gain/loss) Individuals: Up to 10 years in prison and a $1 million fine |
| Civil (FTC & DOJ) | Injunctions, consent decrees, and significant monetary settlements. |
| Private Lawsuits | Treble damages (three times the amount of the actual financial harm suffered by the plaintiff), plus court costs and legal expert fees. |
Summary: Key Takeaways for Compliance
To mitigate the immense risk associated with antitrust violations, a strong compliance program is not optional—it is essential. Businesses must ensure that all personnel, especially those in sales, procurement, and management, understand the boundaries of competitive behavior.
- Never Discuss Price, Customers, or Markets with Competitors: Avoid all discussions, formal or informal, with rivals concerning pricing, discounts, costs, profit margins, sales territories, or customer allocation.
- Act Independently: Each business must determine its own prices and terms of sale based solely on its own independent business judgment and market conditions.
- Scrutinize Dominant Market Share: If your company possesses significant market share (e.g., above 50-70%), review all exclusionary tactics, pricing policies, and refusals to deal with your legal expert to ensure compliance with Section 2 rules against willful monopolization.
- Document Pro-Competitive Reasons: Any vertical restraints (like exclusive dealing) or business practices that could raise concerns should be carefully documented with clear, pro-competitive business justifications (e.g., enhanced efficiency, lower costs, improved quality).
Card Summary: The Two Pillars of Antitrust Law
● Sherman Act Section 1:
Prohibits anti-competitive *agreements* among separate entities. Violations can be per se (e.g., price fixing) or judged by the Rule of Reason.
● Sherman Act Section 2:
Prohibits unilateral conduct aimed at achieving or maintaining monopoly power through unfair means.
Frequently Asked Questions (FAQ)
Q1: What is the difference between Section 1 and Section 2 of the Sherman Act?
Section 1 addresses agreements, combinations, or conspiracies between two or more parties that unreasonably restrain trade (collusion). Section 2 addresses monopolization or attempts to monopolize by a single entity (unilateral conduct).
Q2: What does “per se” illegal mean in antitrust law?
“Per se” refers to actions that are so blatantly anticompetitive—such as price fixing or bid rigging—that they are automatically illegal without needing an inquiry into their actual effect on the market or their reasonableness.
Q3: Can an individual go to jail for a Sherman Act violation?
Yes. The most serious violations, such as criminal price fixing or bid rigging, are felonies. Individuals can be sentenced to up to 10 years in federal prison and fined up to $1 million per violation.
Q4: Are vertical agreements, like setting a minimum resale price, also per se illegal?
Historically, some vertical agreements were considered per se illegal, but the current standard often subjects them to the “Rule of Reason” analysis to balance pro-competitive justifications against anticompetitive effects. However, vertical resale price maintenance is still considered unlawful.
Q5: What are “treble damages”?
Treble damages are a statutory remedy under the Sherman Act that allows private parties who were injured by an antitrust violation to recover three times the amount of their actual damages, plus legal expert fees.
Disclaimer of AI Generation and Legal Advice
⚠ Important Notice: This blog post was generated by an AI model and is for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, legal advice. Antitrust law is complex, and specific compliance guidance should always be sought from a qualified legal expert or antitrust counsel familiar with the latest statutes and case law. Neither the AI model nor its creators represent themselves as legal experts. All information is based on public domain knowledge and compliance standards.
Staying compliant with the Sherman Act is a critical component of risk management for any enterprise operating in the U.S. market. A proactive approach to training and internal audits can be the difference between a competitive advantage and a criminal investigation.
Sherman Act violations, antitrust law, price fixing, bid rigging, market allocation, monopolization, Section 1 Sherman Act, Section 2 Sherman Act, rule of reason, per se violations, cartel activity, treble damages, DOJ Antitrust Division, FTC enforcement, corporate compliance, exclusive dealing, tying arrangements, group boycotts, predatory pricing, criminal penalties.
Please consult a qualified legal professional for any specific legal matters.