The Sherman Antitrust Act is the foundational federal law against practices that kill competition. Passed by Congress in 1890, it prohibits two kinds of conduct: agreements between separate businesses that restrain trade, and monopolization of a market by a single dominant firm.1National Archives. Sherman Anti-Trust Act Violations are federal felonies. Corporations face fines up to $100 million, individuals face fines up to $1 million and prison terms up to ten years, and anyone injured by the illegal conduct can sue for triple their losses.2Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty
What the Act Prohibits
The law has two operative sections that work together.
Section 1 makes it illegal for two or more separate businesses to agree to restrain trade in interstate or international commerce.2Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty The key word is “agree.” A single company acting alone cannot violate Section 1 no matter how aggressively it competes. There has to be some understanding between independent parties. Courts don’t require a signed contract or a handshake in a back room; circumstantial evidence of a shared understanding is enough, including parallel pricing that can only be explained by coordination, leaked communications, or testimony from a cooperating insider.
Section 2 makes it a felony to monopolize, attempt to monopolize, or conspire to monopolize any part of interstate or international commerce.3Office of the Law Revision Counsel. 15 USC 2 – Monopolizing Trade a Felony; Penalty This is subtler than most people expect. Simply being a monopoly isn’t illegal. A company that dominates its market because it built a better product hasn’t broken any law. The violation happens when a firm uses anticompetitive tactics to gain or keep its dominance: pricing below cost long enough to bankrupt competitors and then raising prices, locking customers into exclusive deals that shut out rivals, controlling a platform that competitors depend on and using that control to disadvantage them.
Proving a Section 2 case requires two things. First, the company must have monopoly power in a defined market, which courts typically assess by asking whether the firm can raise prices significantly above competitive levels without losing enough customers to make it unprofitable. Second, the company must have acquired or maintained that power through exclusionary conduct rather than by being good at what it does. Both elements must be present.
Per Se Violations and the Rule of Reason
Not every agreement gets analyzed the same way. Certain arrangements are treated as automatically illegal because they have no plausible benefit to consumers. Courts call these “per se” violations and don’t bother analyzing whether the agreement actually harmed competition in a specific market. The logic is that these arrangements exist only to cheat.
- Price-fixing: competitors agree on prices, price floors, or price ceilings instead of setting them independently.
- Market allocation: competitors divide up territories or customer groups so they don’t compete with each other.
- Bid-rigging: companies coordinate their bids so a predetermined winner gets the job at an inflated price.
- Group boycotts: competitors agree to refuse to deal with a particular supplier, customer, or rival.
These categories cover the vast majority of criminal antitrust prosecutions. The Department of Justice rarely brings criminal charges for anything else, because the automatic-condemnation framework makes per se cases far easier to prove.
Agreements outside those categories get evaluated under the “rule of reason.” A judge weighs the actual effect on competition, looking at market shares, how easy it is for new competitors to enter the industry, and whether the agreement has actually raised prices or reduced output. A joint venture between two companies might reduce competition in one way but lower costs in another, and the question becomes whether the anticompetitive harm outweighs the benefits. These cases are fact-intensive and expensive to litigate.
Vertical agreements between parties at different levels of a supply chain (a manufacturer and a retailer, for example) also get rule-of-reason treatment. The Supreme Court held in 2007 that minimum resale price agreements, once condemned automatically, should be judged under the same balancing test as other non-cartel agreements.4Justia Law. Leegin Creative Leather Products, Inc. v. PSKS, Inc.
Criminal Penalties
Every Sherman Act violation is a federal felony. The statutory maximums under Sections 1 and 2 are the same:2Office of the Law Revision Counsel. 15 USC 1 – Trusts, Etc., in Restraint of Trade Illegal; Penalty3Office of the Law Revision Counsel. 15 USC 2 – Monopolizing Trade a Felony; Penalty
- Corporations: fines up to $100 million per offense.
- Individuals: fines up to $1 million and up to ten years in federal prison per offense.
Those caps don’t tell the full story. Under a separate federal sentencing statute, courts can impose fines up to twice the gross gain from the illegal conduct or twice the loss it caused to victims, whichever is greater.5Office of the Law Revision Counsel. 18 USC 3571 – Sentence of Fine In a price-fixing conspiracy that inflated prices across an entire industry, the actual fine can blow past $100 million.6Federal Trade Commission. The Antitrust Laws The alternative calculation is where the real financial exposure lies for large-scale cartels.
The current penalty levels date to 2004, when Congress substantially raised them. Before that, the maximum corporate fine was $10 million and the maximum prison term was three years. The statute of limitations for criminal antitrust cases is five years.
Private Lawsuits and Treble Damages
Criminal prosecution isn’t the only consequence. Anyone injured by conduct that violates the Sherman Act can file a civil lawsuit in federal court and recover three times their actual financial losses, plus attorney’s fees and court costs.7Office of the Law Revision Counsel. 15 USC 15 – Suits by Persons Injured The treble-damages provision itself comes from the Clayton Act, but it applies to Sherman Act violations and is one of the most powerful enforcement mechanisms in American law.
The math makes private antitrust cases enormously high-stakes. A company that overcharged customers by $50 million through a price-fixing scheme faces potential private liability of $150 million in damages alone, on top of whatever criminal fines the government imposes. Class actions brought by direct purchasers are common and often settle for hundreds of millions of dollars.
State attorneys general can also bring civil antitrust suits on behalf of their residents, recovering treble damages and attorney’s fees the same way a private plaintiff would.8Office of the Law Revision Counsel. 15 USC 15c – Actions by State Attorneys General Private civil claims must generally be filed within four years of the violation.
Who Enforces the Law
Two federal agencies share antitrust enforcement, though they approach it differently. The Department of Justice Antitrust Division is the only agency that can bring criminal charges under the Sherman Act, handling felony prosecutions for cartels, bid-rigging rings, and other hard-core violations. The Federal Trade Commission doesn’t directly enforce the Sherman Act. Instead it uses its own statute, which declares “unfair methods of competition” unlawful, to challenge much of the same conduct through civil and administrative proceedings.9Office of the Law Revision Counsel. 15 USC 45 – Unfair Methods of Competition Unlawful; Prevention by Commission The two agencies coordinate to avoid investigating the same company for the same conduct.
One of the DOJ’s most effective tools is the Corporate Leniency Program, which offers the first company in a cartel to come forward and confess complete immunity from criminal prosecution.10United States Department of Justice. Leniency Policy The program covers price-fixing, bid-rigging, and market allocation. The company must self-report before the DOJ has opened an investigation and must cooperate fully, including turning over evidence against its co-conspirators. Every member of a cartel knows that the first to confess walks free while everyone else faces felony prosecution, which creates a race to the DOJ’s door the moment anyone suspects the conspiracy might be discovered.
What the Sherman Act Does Not Reach
The law is broad, but several categories of activity are immune from antitrust liability even when they restrict competition.
Federal law explicitly provides that labor organizations are not illegal combinations under the antitrust laws, and the same protection extends to agricultural and horticultural cooperatives.11Office of the Law Revision Counsel. 15 USC 17 – Antitrust Laws Not Applicable to Labor Organizations Without this exemption, a union negotiating wages on behalf of all its members would look a lot like a price-fixing agreement among competing workers. A union that teams up with a business group to suppress competition in a product market can still lose the protection.
Under the Noerr-Pennington doctrine, businesses are immune when they petition the government for action, even if the action they want would harm competition. Lobbying Congress, filing lawsuits, and engaging with administrative agencies all fall within this immunity. The exception is “sham” petitioning, where the activity is really a cover for directly attacking a competitor.
When a state government deliberately replaces competition with regulation in a particular industry, businesses operating under that regulatory scheme are generally immune from federal antitrust claims. The state must have a clearly expressed policy to displace competition and must actively supervise the anticompetitive conduct.
Professional baseball has enjoyed a unique antitrust exemption since a 1922 Supreme Court decision held that the sport wasn’t interstate commerce. Congress partially narrowed it in 1998 to allow claims related to major league player employment, but the broader exemption still covers areas like minor league operations and broadcasting.