The Sherman Act prohibits all contracts and interactions that unreasonably restrain foreign trade and trade
between states (United States Department of Justice, n.d.). This prohibition does not mean that companies
cannot lower prices on goods in an effort to outsell the competition. Doing so would be considered fair
competition and trade. However, when a company is able to suppress the ability of others to compete through
some intentional unfair business practice, such as forming agreements with competitors to set prices, it is
considered a violation.
Figure 11.4
Competitive pricing is a normal part of business until it involves unfair trade practices. (Credit:
pixabay/ pexels/ CC0)
The Act is a criminal statute, meaning that violation of this Act would result in criminal penalties. Mergers or
other actions that would create agreements to fix prices or bids or allocate customers are considered criminal
felonies (The United States Department of Justice, n.d.). Violations of the Sherman Act could lead to penalties
of up to $100 million for larger corporations and up to $1 million for individuals (Federal Trade Commission,
n.d.). Those convicted could also face up to 10 years in prison. If the amount gained by the conspirators, or the
amount lost by the victims of the crime, is over $100 million, the fine could be increased to twice the amount
gained by the conspirators or lost by the victims—whichever is greater (Federal Trade Commission, n.d.).
The Sherman Act did have limitations. It did not provide clear and specific language, which left the courts to
make decisions on a case-by-case basis, without any consistent precedent on which to rely (West, n.d.).
Precedent occurs as courts make rulings in certain cases, and those rulings are followed in subsequent cases.
This lack of precedent left many larger companies in control of their restraint of trade practices, and new
legislation seemed necessary.
The Clayton Act
The Clayton Act was passed in 1914. The Clayton Act is a civil statute rather than a criminal statute, meaning
that it carries civil penalties rather than prison sentences (United States Department of Justice, n.d.). It
primarily focuses on unfair mergers and acquisitions (Jurist, 2013). This Act sought to create more specific
language to help the courts reduce unfair trade practices. As such, it established four acts as illegal, but not
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Chapter 11 Antitrust Law
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