Agreements in unreasonable restraint of trade are prohibited by Section 1 of the Sherman Act, 15 U.S.C.S. § 1. While Section 1 of the Sherman Act provides that "every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal," the courts have decided that not all agreements in restraint of trade are illegal. Only restraints of trade considered unreasonable are deemed illegal based on the rational that otherwise, every contract in some sense restrains trade and would be illegal.
A violation of Section 1 of the Sherman Act may result in imposition of a prison term or a fine in an action by the U.S. Department of Justice or in the assessment of damages in a civil action brought by the Department of Justice, the states, or by private parties. Violation of the statute is shown through proof of:
- An agreement by more than one entity,
- A restraint of trade that is unreasonable, and
- An effect on interstate or foreign commerce.
Each of the three elements of a Section 1 violation -- agreement, restraint of trade, and effect on commerce -- has been the subject of substantial case law.
To prove the existence of an agreement, it must be shown that more than one actor was involved. Thus, issues regarding whether members of a joint venture or different divisions or subsidiaries of a corporation can agree to restrain trade either among themselves or with other competitors continue to be litigated. Also, to prove an agreement, it must be shown that there was some conscious decision to engage in some course of anti-competitive conduct.
Whether trade is restrained by the agreement or whether the agreement has some pro-competitive effect or consumer benefit is often litigated. Only some restraints on trade such as price-fixing or market allocation will be considered unreasonable and illegal without further inquiry into the reasonableness of the restraint.
Finally, it must be shown that there has been an effect on interstate or foreign commerce as a result of the agreement in restraint of trade. Under traditional notions of the scope of the Commerce Clause, the demonstration of an effect on interstate commerce is not considered difficult. However, the effect on foreign commerce that must be shown is an effect that is substantial and foreseeable.
Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.
