The Sherman Antitrust Act 1890
John Sherman (1823–1900)
The Sherman Anti-Trust Act, passed on July 2, 1890, was the first federal law to prohibit monopolistic corporate activities.
The Sherman Antitrust Act of 1890 was the first legislation to abolish trusts in the United States. Senator John Sherman of Ohio, who served as Chairman of the Senate Finance Committee and Secretary of the Treasury under President Hayes, was honored with the name. Similar legislation had been established in other states, but they were only applicable to intrastate firms.
The Sherman Antitrust Act was enacted in response to Congress’ constitutional authority to control interstate trade. (See earlier milestone documents: the Constitution, Gibbons v. Ogden, and the Interstate Commerce Act for additional information.) On April 8, 1890, the Senate enacted the Sherman Anti-Trust Act 51–1, and on June 20, 1890, the House passed it unanimously by a vote of 242–0. On July 2, 1890, President Benjamin Harrison signed the measure into law.
A trust was created when investors from many firms agreed to transfer their interests to a single group of trustees. In exchange, investors got a certificate entitling them to a certain portion of the jointly managed enterprises’ consolidated earnings. The trusts grew to control a number of significant sectors, effectively eliminating competition. The Standard Oil Trust, for example, was established on January 2, 1882. A trust was initially proposed by Standard Oil attorney Samuel Dodd.
All of the Standard properties were put in the hands of a board of trustees. For each share of Standard Oil stock, each investor receives 20 trust certificates. All of the component firms’ profits were paid to the nine trustees, who decided on the payouts. All of the component firms’ directors and officials were chosen by the nine trustees. Because the nine trustees controlled all of the component firms, Standard Oil was able to operate as a monopoly.
The Sherman Act gave the government the power to file lawsuits against trusts in order to dissolve them. Any arrangement “in the form of trust or otherwise that impeded trade or commerce among the different states, or with foreign powers,” was ruled unlawful. Individuals who formed such combinations faced penalties of $5,000 and a year in prison. Individuals and businesses that have suffered losses as a result of trusts can now sue in Federal court for treble damages.
The Sherman Act was intended to restore competition, but it was poorly written and omitted definitions for key phrases like “trust,” “combination,” “conspiracy,” and “monopoly.” In United States v. E. C. Knight Company, the Supreme Court demolished the Sherman Act five years later (1895). Despite controlling over 98 percent of all sugar refining in the United States, the Court found that the American Sugar Refining Company, one of the other defendants in the case, had not broken the law. The company’s control of manufacturing, the Court reasoned, did not establish a control of trade.
The Supreme Court’s decision in E. C. Knight appeared to signal the end of government control of trusts. Despite this, the Sherman Act was successfully applied during President Theodore Roosevelt’s “trust busting” initiatives at the turn of the century. In State of Minnesota v. Northern Securities Company, the Court affirmed the government’s suit to dissolve the Northern Securities Company in 1904. The legislation had already been invoked by President Taft against the Standard Oil Company and the American Tobacco Company by 1911. The Federal Government utilized the Sherman Act, which was almost 100 years old at the time, against the massive Microsoft computer software corporation in the late 1990s, in another attempt to preserve a competitive free market system.
Busting the Trusts (1911);
The Clayton Antitrust Act (1914);
The Microsoft Monopoly (2000).
The Law Book: From Hammurabi to the International Criminal Court, 250 Milestones in the History of Law (Sterling Milestones) Hardcover – Illustrated, 22 Oct. 2015, English edition by Michael H. Roffer (Autor)