The Sherman Antitrust Act (Sherman Act, July 2, 1890, ch. 647, 26 Stat. 209, 15 U. S. C. 1-7) was the first United States Federal statute to limit cartels and monopolies. It falls under antitrust law

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For more than a decade after its passage, the Sherman Antitrust Act was invoked only rarely against industrial monopolies, and then not successfully. Ironically, its only effective use for a number of years was against labor unions, which were held by the courts to be illegal combinations.

This was the result of intense political pressure from the trusts together with the loose wording of the Act. Its critics pointed out that it failed to define such key terms as combinationconspiracymonopoly and trust. Also working against it were narrow judicial interpretations as to what constituted trade or commerce among states.

Five years after its passage, the Supreme Court in effect dismantled the Sherman Antitrust Act in United States v. E. C. Knight Company (1895). The Court ruled that the American Sugar Refining Company, one of the other defendants in the case, had not violated the Act despite the fact that it controlled approximately 98 percent of all sugar refining in the U.S. The Court's explanation was that the company's control of manufacturing did not constitute control of trade.

President William McKinley launched the trust-busting era in 1898 when he appointed several senators to the U.S. Industrial Commission. The Commission's subsequent report to President Theodore Roosevelt then laid the groundwork for Roosevelt's attacks on trusts and finally resulted in the successful employment of the Act.

In a seminal 1904 decision, the Supreme Court upheld the Federal Government's suit under the Sherman Antitrust Act to dissolve the Northern Securities Company (a railroad holding company) in State of Minnesota v. Northern Securities Company. Then, in 1911, after years of litigation, the Court found Standard Oil Company of New Jersey in violation of the Sherman Antitrust Act because of its excessive restrictions on trade, particularly its practices of eliminating competitors by buying them out directly and by driving them out of business by temporarily slashing prices in a given region.

In this historic decision, the Supreme Court established an important legal standard termed the rule of reason. It stated that large size and monopoly in themselves are not necessarily bad and do not violate the Sherman Antitrust Act. Rather, it is the use of certain tactics to attain or preserve such position that is illegal.

The Court ordered Standard Oil to dismantle 33 of its most important affiliates and to distribute the stock to its own shareholders and not to a new trust. The result was the creation of a number of completely independent and vertically integrated oil companies, each of which ranked among the most powerful in the world. The consequent vigorous competition gave a big impetus to innovation and expansion of the oil industry as a whole.

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Source: US Department of Justice

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