Decoding Sherman Act Violations: A Crucial Guide for Business Compliance

The business landscape thrives on fair competition. Since its enactment in 1890, the Sherman Antitrust Act has served as the core federal statute safeguarding this principle in the United States, prohibiting activities that restrict interstate commerce and competition in the marketplace. For corporate leadership, compliance officers, and general counsel, understanding the prohibitions under this law is not just a best practice—it is a mandatory defense against potentially catastrophic legal and financial repercussions.

Broadly worded, the Act prevents businesses from artificially raising prices, restricting production, or controlling the market to the detriment of consumers. Its enforcement is shared primarily between the U.S. Department of Justice (DOJ) Antitrust Division and the Federal Trade Commission (FTC). Non-compliance can lead to massive fines, imprisonment for individuals, and debilitating private lawsuits. This guide delves into the two critical sections of the Sherman Act, detailing the actions that constitute a violation and the severe consequences that follow.

Section 1: Agreements in Restraint of Trade

Section 1 of the Sherman Act is aimed squarely at concerted activity, declaring illegal “[e]very contract, combination… or conspiracy, in restraint of trade or commerce”. Crucially, the Supreme Court has interpreted this literally broad language to apply only to unreasonable restraints of trade, as nearly all commercial contracts could be seen to restrain trade in some minor way.

To establish a Section 1 violation, a plaintiff must prove three elements:

1. An agreement (contract, combination, or conspiracy);
2. Which unreasonably restrains competition; and
3. Which affects interstate commerce.

Courts apply two primary analytical methods to determine if a restraint is unreasonable: the Per Se Rule and the Rule of Reason.

The Per Se Rule: Automatic Illegality

Certain agreements among competitors are considered so inherently harmful to competition that they are deemed illegal per se, meaning no further inquiry into their actual market effect or justification is needed.

The Rule of Reason: Weighing Effects

The Rule of Reason is the presumptive test for all other restraints, especially complex vertical agreements (between manufacturer and distributor). This analysis requires a detailed evaluation where the court weighs the pro-competitive effects of the conduct against its potential anticompetitive harm. The “totality of the circumstances” is considered, including the intent, competitive position of the defendant, and the market structure.

Section 2: The Prohibition of Monopolization

Section 2 of the Sherman Act addresses the actions of a single firm or a combination of firms to gain and hold excessive market power. It prohibits two main types of conduct: monopolizing and attempting to monopolize.

A Section 2 monopolization violation requires two elements:

1. The possession of monopoly power in the relevant market; and
2. The willful acquisition or maintenance of that power, as distinguished from growth based on a superior product, business acumen, or historical accident.

Severe Consequences: Penalties and Treble Damages

Violations of the Sherman Act, particularly per se offenses like price fixing and bid rigging, can be prosecuted as federal felonies, carrying some of the most severe penalties in US business law.

Criminal Penalties (DOJ Enforcement)

The DOJ typically reserves criminal prosecution for intentional and clear violations, such as horizontal price-fixing cartels. Penalties are severe and can be increased under the Alternative Fines Act to twice the gain or loss involved:

Sherman Act Criminal Penalties (15 U.S.C. §§ 1-2)

Entity	Maximum Fine (Per Violation)	Maximum Imprisonment
Corporations	$100,000,000	N/A
Individuals	$1,000,000	10 Years

The possibility of a 10-year prison sentence is a powerful deterrent, underscoring the severity with which the government views these “hard core” offenses.

Civil and Private Enforcement: Treble Damages

Perhaps the most common financial threat comes from private parties—individuals or businesses—who were “injured in [their] business or property” by the antitrust violation. Under Section 4 of the Clayton Act, a successful private plaintiff is entitled to recover treble damages (three times the actual damages suffered), plus the costs of the suit and attorney’s fees.

Summary of Compliance Imperatives

For any business operating in the US, antitrust compliance must be a top priority. A strong compliance program focuses on preventing agreements with competitors, carefully vetting mergers, and ensuring market success is driven by innovation, not anticompetitive conduct.

1. Horizontal Agreements are Fatal: Absolutely prohibit all discussion or agreement with competitors regarding price, market division, customer allocation, or bid intention, as these are typically per se illegal.
2. Vet All Vertical Restraints: Any agreement with non-competitors (e.g., distributors) involving pricing or exclusivity must be reviewed under the Rule of Reason standard by a qualified legal expert.
3. Monopoly Power Comes with Duty: Companies with significant market share must ensure their actions are justifiable and are not willful attempts to exclude competitors or maintain power through anticompetitive means, such as predatory pricing.
4. Mitigate Treble Damage Risk: Beyond criminal prosecution, the exposure to private civil lawsuits seeking three times the actual damages is often the largest financial risk associated with Sherman Act violations.

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Frequently Asked Questions (FAQ)

Stay informed and prioritize compliance to protect your enterprise.

antitrust law, Sherman Act Section 1, price fixing, bid rigging, monopolization, restraint of trade, per se violation, rule of reason, treble damages, Department of Justice, Federal Trade Commission, corporate compliance