The Sherman Anti Trust Act of 1890 - Case Study Example

THE SHERMAN ANTI TRUST ACT (1890 AN ANALYSIS By Xxxxxx Yyyyyyy June 2008 Table of Contents Introduction Background Implementation Hiccups Impact of the Act and Results Thereof Salient Features of the Sherman Antitrust Act Ramifications of the Act till Date Pros and Cons Conclusion Introduction The Sherman Anti Trust Act of 1890 was the brainchild of Senator John Sherman of Ohio. He was a senior functionary in the state finance and treasury departments (www.usnews.com). The Act was the first to be passed by the United States Congress to abolish Trusts which were monopolizing trade practices during that era. It aimed at empowering the Congress to regulate interstate commerce. Similar Acts were being enforced intrastate, till that time, and this was the first and the most historical Act which had a national impact. Background At that point of time in history, the major companies exercised great financial powers and grew from strength to strength, post civil war. There was growing resentment among the people, specially the farmers who had to shelve out large amounts for transportation of their products to the cities. Economic power was at that time being concentrated within themselves by the large corporations, by appointing boards of trustees who exercised tremendous control and benefitted by establishing monopolistic control of the business areas in which they specialized (www.bellevuelinux.org). A ‘Trust’ was an arrangement in which the stockholders of a company transferred their stocks to a single set of ‘Trustees’ who ensured a specified share of the profits to the stockholders by awarding them ‘Certificates’. Many large companies adopted this procedure thereby establishing monopoly in vital industries of the nation and eliminated healthy competition. “The ‘Trusts’ used a number of unfair techniques to eliminate competition, either by buying them out, temporarily undercutting their prices, forcing customers to by unwanted products & sign long term contracts and using force to impose their decisions if all other means failed” (www.bellevuelinux.org). The Sherman Act considered all these unfair practices of the large business corporations and introduced the Bill, which was passed by an overwhelming majority of 51 to1 by the Senate, and unanimously in the House by 242 to 0 votes. It was enacted as a law by President Benjamin Harrison on July 2, 1890 (www.usanews.com). The Act empowered the Federal Government to dissolve the ‘Trusts’. It declared illegal any activity which restrained trade between the constituent states of the US as well as with foreign companies and imposed heavy fines and imprisonment for anyone indulging in such practice. Implementation Hiccups The Sherman Anti Trust Act, though very sound in its aims was difficult to implement due to some inherent flaws. The large corporations which had flourished after the Civil War naturally resented its implementation and found legal loopholes to bypass it. The act itself has been described as ‘loosely worded’ and failing to define critical terms such as ‘trust’, ‘combination’, ‘conspiracy’ and ‘monopoly’(www.usanews.com ). The large corporation trusts wielded their political clout to confuse and find favorable judicial interpretations of the Act in order to suit their own needs up to such an extent that the Act itself was not put into application for as long as a decade as it failed to pinpoint monopolies and was used sparingly and that too only against the labor unions. Five years after the Act had become a Law; it was literally dismantled by the Supreme Court when it ruled in favor of the American Sugar Refining Company in its appeal against the Act by stating that although the Company controlled 98% of the sugar refining in the US, the control was in ‘manufacturing’ which did not constitute control of ‘trade’ (www.bellevuelinux.org). Impact of the Act & Results Thereof The successful implementation of the Act did not happen until 1898 when President William McKinley appointed several Senators to the US Industrial Commission and ushered in the ‘Trust-Busting’ era (www.bellevuelinux.org). The Commission then prepared a report which was submitted to President Theodore Roosevelt who then initiated measures for the successful and complete implementation of the Sherman Act. Many large companies were then subsequently brought under the purview of the Act and had to modify their trade practices accordingly. The first one to comply with subsequent dissolution of the company was the ‘Northern Securities Company’ a railroad holding company in 1904 in the State of Minnesota. In 1911, the main company which originally initiated the concept of ‘Trusts’, The Standard Oil Company of New Jersey was proven to be violating the Act by indulging in restrictions on trade by eliminating competition by either buying them out or temporarily reducing prices in particular regions of the country. The company was directed by the Supreme Court to dismantle 33 of its affiliates and distribute the stocks to shareholders rather than a trust. This resulted in a very healthy distribution of the resources which encouraged vigorous competition and subsequent expansion and rise of the oil industry in the country. The Act was later applied on the American Tobacco Company too, by President Taft (www.usanews.com). There were subsequent amendments in the Act to make it more profound and sensible. The Clayton Antitrust Act of 1914 specified and defined the illegal practices which resulted in monopolization and outlawed certain practices like ‘price discrimination’ and ‘buying out of competitors’ (www.bellevuelinux.org). This was followed up by the setting up of a Federal Trade Commission which became the watchdog of violations in antitrust laws and unfair competition amongst companies. In order to strengthen the government’s antitrust policies further amendments to the Clayton Act were made during the tenure of President Franklin D. Roosevelt. In 1936, the Robinson-Patman Act (www.bellevuelinux.org) was brought in force which prohibited large sellers from offering different prices for the same product to different buyers if it harmed the interests of even a single Firm. Similarly another act, The Celler-Kefauver Act of 1950 (www.bellevuelinux.org) made improvements in the Clayton Act by preventing company mergers if it resulted in reduction of healthy competition. These amendments made the Sherman Antitrust Act more powerful and precise in the sense that clear cut definitions of illegal activities which discouraged competition and were monopolistic in nature were defined so that it became easy for the authorities to identify such practices even if undertaken surreptitiously. Salient Features of the Sherman Antitrust Act The gist of the main sections of the Sherman Act, 1890 is as follows (www.stolaf.edu; www.usdoj.gov ): 1. Section 1 of the Act identifies that any contract in the form of a trust or otherwise that puts restraint on trade or commerce amongst the states or with any foreign country is to be declared as an illegal activity. Any person or a corporation found guilty would be liable to a fine as well as imprisonment, as decided by the court of law. 2. According to Section 2, any person or corporation found to be indulging in or attempting the monopolization of part of a trade with the states as well as any foreign country and declared guilty of felony shall be punishable with a fine as well as imprisonment. 3. Section 3 deals with any contract or a combination in the form of a trust indulges in any conspiracy to restrict trade in any territory of the United States or the District of Columbia shall be considered illegal and punishable as above with a fine as well as imprisonment. 4. Section 4 states the jurisdiction of courts of several districts to identify and restrain violations of all 7 Sections of the Act and defines that it is the duty of all District Attorneys under the direction of the Attorney General to prevent and restrain violations identified by the Act. 5. Section 5 deals with the power of the courts to summon any additional parties which are party to the offence even when normally not residing in the district where the court is located. 6. Section 6 deals with the forfeiture of property in transit within states or to a foreign country, which is owned under any contract or conspiracy to the United States of America. This also includes forfeiture of property if it is being imported into the United States contrary to law. 7. Section 7 A specifies the conduct involving trade or commerce with foreign nations and specifies that excepting import trade or commerce, the sections 1 to 7 of the act will not be applicable unless such conduct has a direct and foreseeable effect on export and import trade with foreign nations. Injury to export business of the United States will be considered as reason for applying Sections 1 to 7. 8. Section 7 defines ‘person’ or ‘persons’ deemed to include any corporations or associations existing under the laws of either the United States, laws of any territory or State or the laws of any foreign country. Ramifications of the Act till Date The Act has served its purpose and had some important landmarks in the history of the United States as evident from important decisions taken in the de monopolization of the American Telephone and Telegraph Company (AT & T) in the second half of the twentieth century. It was agreed upon to break up the monopoly of the company in early 1982 and was brought into effect on January 1, 1984 (www.bellevuelinux.org). This brought about beneficial effects not only in the telecommunication sector but the whole economy of the United States. Another example is that of the Microsoft Corporation, wherein its allegedly monopolistic policies were brought under the purview of the Act in 1998 but despite the government’s victory in both trial and appeal, corrective measures were not applied due to political pressures (www.bellevuelinux.org). However the credibility and the intelligence with which the Sherman Act was prepared over a century ago deserves accolades as it put an end to the hegemonic, monopolistic and restrictive policies of large corporations at the right time which ensured more competitiveness and better turn for the economy of the nation which turned into a superpower on this planet. Pros and Cons The Sherman Act was a timely intervention which laid down the foundations of removing the control of large corporations and their wealth from a certain group of people to the general stock holders and masses which attributed towards a more democratic running of the system. Although it had inherent weaknesses and flaws they were set right by the subsequent amendments which impartment more clear cut powers and definitions to the enforcement of the Act. The Act played a pivotal role in stabilizing the economy of the country as is exemplified by the resurgence in economy and healthy competition after its application on the giant corporations like the Standard Oil Company, American Tobacco Company and AT&T. Conclusion The Sherman Act is a comprehensive package of law which discourages monopoly and is very discreet and comprehensive in the present day scenario. It has guided and enforced certain regulations on large corporations which have had a beneficial effect on the overall economy of the nation and better wealth distribution among the stockholders. Healthy competition between organizations as a result of removal of restrictive trade practices have resulted in better products for the common people with a uniform pricing policy. The mere presence of the Act and its validity in the present day economic scenario deters large corporations with monopolistic designs to desist from such activities as has been lately exemplified by the case of the software giant, Microsoft Corporation. The foresight of John Sherman and his sharp acumen in recognizing the need for such an act almost 100 years ago deserves accolades as it has shaped the destiny of the country’s economy and its success. It is a matter for the politicians to use such Acts with honesty and dedication and not be influenced by political reasons. Works Cited Antitrust Division Manual, Chapter II, Statutory Provisions and Guidelines of the Antitrust Division, Available at: http://www.usdoj.gov/atr/foia/divisionmanual/ch2.htm The Sherman Antitrust Act, Available at: http://www.bellevuelinux.org/sherman.html The Sherman Antitrust Act (1890) Available at: http://www.stolaf.edu/people/becker/antitrust/statutes/sherman.html U.S. News, Sherman Anti-Trust Act (1890), Available at: http://www.usnews.com/usnews/documents/docpages/document_page51.htm Read More