The Sherman Antitrust Act is the foundational federal law prohibiting business conduct that unfairly reduces competition in the United States. Passed by Congress in 1890, it outlaws two broad categories of behavior: agreements between separate businesses that restrain trade, and unilateral efforts by a single firm to monopolize a market. Violations are federal felonies, with fines reaching $100 million for corporations and prison sentences up to 10 years for individuals.
What Section 1 Prohibits
Section 1 makes it illegal for two or more separate businesses to agree to restrain trade or commerce.1Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty The operative word is “agree.” A single company acting on its own cannot violate Section 1 no matter how aggressively it competes. There has to be evidence that two independent entities reached an understanding, whether through a formal contract, a handshake, or coordinated conduct that only makes sense if the parties were working together.
Courts sort these agreements into two types. Horizontal agreements are between competitors at the same level of the market, such as two rival retailers coordinating their behavior. Vertical agreements run up and down the supply chain, such as between a manufacturer and its distributors. The legal treatment differs sharply depending on which kind is at issue.
Per Se Violations
Some horizontal agreements are considered so reliably harmful that courts treat them as automatically illegal, with no business justification accepted. These per se violations include:2Federal Trade Commission. The Antitrust Laws
- Price fixing, meaning competitors agreeing on what to charge, whether by setting identical prices, establishing a floor, or coordinating discounts.
- Bid rigging, meaning companies that should be competing for a contract instead coordinating their bids so a predetermined winner gets the deal.
- Market allocation, meaning rivals dividing up territories or customer groups so they avoid competing with each other.
If your competitors propose any arrangement touching pricing, bids, or territory, the legal risk is severe regardless of how reasonable the proposal sounds.
The Rule of Reason
Everything else is analyzed under the rule of reason, which weighs an agreement’s competitive benefits against its harms. A manufacturer requiring its retailers to provide certain customer services, for example, restricts how those retailers operate but may improve the consumer experience enough to justify the restraint. Rule of reason cases are fact-intensive, expensive, and hard to predict, which is precisely why the per se categories carry so much weight.
What Section 2 Prohibits
Section 2 targets individual companies rather than agreements. It makes it a felony to monopolize, attempt to monopolize, or conspire to monopolize any part of interstate trade.3Office of the Law Revision Counsel. 15 US Code 2 – Monopolizing Trade a Felony; Penalty Being dominant in a market is not itself illegal. A company that earned its position through better products, smarter strategy, or fortunate timing has done nothing wrong.
The violation happens when a firm acquires or maintains monopoly power through anticompetitive conduct rather than legitimate competition. Courts look for what the FTC calls “significant and durable market power,” generally meaning the firm can raise prices or exclude rivals for an extended period.4Federal Trade Commission. Monopolization Defined As a rough benchmark, firms holding less than 50 percent of a defined market rarely face monopolization charges, and some courts require considerably higher shares.
The types of conduct that cross the line include predatory pricing (selling below cost to drive out competitors, then raising prices once they are gone), exclusive dealing arrangements that lock rivals out of distribution channels, and refusing to deal with competitors when the refusal has no business purpose beyond harming them. The question is whether the company is competing on the merits or building artificial barriers to keep others out.
Attempted monopolization is a separate offense. A prosecutor or plaintiff has to show the company had a specific intent to monopolize and a dangerous probability of actually getting there. That claim is harder to prove because it requires defining the relevant market precisely and showing the company was genuinely close to dominating it.
Penalties for a Violation
Sherman Act offenses are federal felonies. The statutory maximums are:1Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty3Office of the Law Revision Counsel. 15 US Code 2 – Monopolizing Trade a Felony; Penalty
- Corporations: fines up to $100 million per violation.
- Individuals: fines up to $1 million per violation and up to 10 years in prison.
Those caps can be exceeded. Under federal sentencing law, a court may impose a fine of up to twice the gross gain the conspirators made or twice the gross loss victims suffered, whichever is greater.5Office of the Law Revision Counsel. 18 USC 3571 – Sentence of Fine In major price-fixing cases involving billions of dollars in affected commerce, that alternative calculation can push actual fines well above the $100 million number. The DOJ has used the provision to secure some of the largest criminal fines in American legal history.
Civil exposure is often larger still. Anyone injured by an antitrust violation can sue in federal court and recover three times their actual damages, plus the cost of the suit and reasonable attorney fees.6Office of the Law Revision Counsel. 15 US Code 15 – Suits by Persons Injured When a cartel affects an entire industry, the combined weight of government fines, prison time for executives, and treble-damages class actions can be staggering.
Who Enforces the Law
Two federal agencies share enforcement responsibility. The Antitrust Division of the Department of Justice handles criminal prosecutions and can bring civil cases as well. The Federal Trade Commission pursues civil enforcement and administrative proceedings. The FTC does not technically enforce the Sherman Act itself, but it brings cases under the FTC Act against the same conduct the Sherman Act prohibits.2Federal Trade Commission. The Antitrust Laws
Only the DOJ can file criminal charges. Criminal prosecution is generally reserved for clear, intentional violations like price-fixing rings and bid-rigging schemes where the evidence shows the participants knew exactly what they were doing.
Private enforcement matters just as much. Injured businesses and consumers regularly sue for treble damages, and state attorneys general can file treble-damages actions on behalf of their residents.7Office of the Law Revision Counsel. 15 USC 15c – Actions by State Attorneys General That financial incentive effectively multiplies the enforcement resources beyond what the two federal agencies alone could provide.
The DOJ Leniency Program
The Antitrust Division runs a leniency program built to crack cartels open from the inside. The first company to self-report its participation in price fixing, bid rigging, or market allocation can receive full immunity from criminal prosecution for itself and its cooperating employees.8U.S. Department of Justice. Leniency Policy Only the first company through the door gets that deal. Later cooperators may get reduced sentences, not immunity.
The program also softens civil liability. Under the Antitrust Criminal Penalty Enhancement and Reform Act, a leniency applicant that cooperates satisfactorily with private plaintiffs owes only single damages rather than treble damages, and its liability is limited to harm caused by its own commerce rather than the entire conspiracy’s.9U.S. Department of Justice. Revised Leniency Policy FAQs The combination of criminal immunity and reduced civil exposure gives cartel members a powerful reason to defect.
Time Limits for Charges and Lawsuits
Criminal antitrust cases are subject to the general five-year federal statute of limitations. The government has to secure an indictment within five years after the offense ends.10Office of the Law Revision Counsel. 18 USC 3282 – Offenses Not Capital For an ongoing conspiracy such as a long-running price-fixing scheme, the clock does not start until the conspiracy is abandoned or its objectives are achieved, which can stretch the window considerably.
Civil antitrust suits by private parties or state attorneys general must be filed within four years after the cause of action accrues.11Office of the Law Revision Counsel. 15 US Code 15b – Limitation of Actions Because antitrust violations are often concealed, courts may pause that deadline until the injured party discovers or reasonably should have discovered the violation.
What the Sherman Act Does Not Reach
Several categories of conduct sit outside the law’s reach, each for its own policy reason.
Labor unions get the broadest exemption. The Clayton Act explicitly provides that labor organizations are not illegal combinations under the antitrust laws, and workers’ collective efforts to negotiate wages and conditions are protected.12Office of the Law Revision Counsel. 15 USC 17 – Antitrust Laws Not Applicable to Labor Organizations Without that carve-out, every collective bargaining agreement in the country would arguably be an illegal price-fixing conspiracy.
The insurance industry operates under a limited exemption created by the McCarran-Ferguson Act. Insurers can share historical loss data and jointly develop policy forms without federal antitrust liability, though they remain subject to state antitrust regulation and the exemption does not cover boycotts, coercion, or intimidation.
Lobbying and other petitioning of government is protected under the Noerr-Pennington doctrine, even when the laws sought would harm competitors. Sham petitions filed only to harass a rival do not qualify.
State-regulated conduct can also be immune when a state has clearly expressed a policy to displace competition in a particular area and actively supervises the private conduct at issue. That is why state-licensed professions can sometimes set fee schedules that would otherwise look like price fixing.
Related Federal Antitrust Laws
The Sherman Act does not stand alone. Two later statutes fill in gaps its broad language does not clearly reach.
The Clayton Act, passed in 1914, prohibits mergers and acquisitions where the effect may be to substantially lessen competition.13Office of the Law Revision Counsel. 15 US Code 18 – Acquisition by One Corporation of Stock of Another It also addresses price discrimination and exclusive dealing, and it created the treble-damages remedy that gives injured parties a financial reason to sue.
The Hart-Scott-Rodino Act requires companies planning large mergers or acquisitions to notify the FTC and DOJ before closing, so the agencies can challenge anticompetitive deals in advance rather than trying to unscramble them later. Current filing thresholds and fees are published annually by the FTC.14Federal Trade Commission. Current Thresholds
The FTC Act, also passed in 1914, created the Federal Trade Commission and prohibits unfair methods of competition. The Supreme Court has held that all Sherman Act violations also violate the FTC Act, giving the FTC a parallel enforcement path even though it does not directly enforce the Sherman Act itself.2Federal Trade Commission. The Antitrust Laws