Restraints of Trade
| Author | Ronan P. Harty |
| Pages | 1-222 |
1
CHAPTER 1
RESTRAINTS OF TRADE
A. Introduction
Section 1 of the Sherman Act provides that “[e]very contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations, is declared to be illegal.”1 The U.S. Supreme
Court explained the statute’s purpose in Northern Pa cific Railway v. United States:2
The Sherman Act was designed to be a comprehensive charter of economic liberty
aimed at preserving free and unfettered competition as the rule of trade. It rests on the
premise that the unrestrained interaction of competitive forces will yield the best
allocation of our economic resources, the lowest prices, the highest quality and the
greatest material progress, while at the same time providing an environment conduciv e
to the preservation of our democratic political and social institutions. But even were that
premise open to question, the policy unequivocally laid down by the Act is competition.3
Read literally, Section 1 would prohibit all concerted activity in restraint of trade.4
The Supreme Court has recognized, however, that “the legality of an agreement or
1. 15 U.S.C. § 1. Both criminal and civil sanctions may be imposed for § 1 violations. The statute
provides that a § 1 violation is a felony for which convicted individuals may be imprisoned for up to
10 years and fined $1 million, and for which convicted corporations may be fined up to $100 million.
See id. The Department of Justice (DOJ) has obtained fines from convicted criminal defendants far
in excess of these statutory maxima under the theory that those defendants are liable for twice the
pecuniary gain that they derived from the offense or twice the pecuniary loss suffered by victims.
See 18 U.S.C. § 3571(d). Criminal enforcement is discussed in Chapter 10. Violations of § 1 may be
enjoined under § 4 of the Sherman Act, 15 U.S.C. § 4, and § 16 of the Clayton Act, 15 U.S.C. § 26.
Persons injured in their business or property by reason of a violation may recover treble damages
under § 4 of the Clayton Act, 15 U.S.C. § 15. Private antitrust actions are discussed in Chapter 9.
2. 356 U.S. 1 (1958).
Sherman Act] was the prevention of restraints to free competition in business and commercial
transactions which tended to restrict production, raise prices or otherwise control the market to the
detriment of purchasers or consumers of goods and services . . . .”); Standard Oil Co. v. United
States, 221 U.S. 1, 52 (1911). Certain courts have interpreted this to mean that the sole purpose of
the Sherman Act is to promote allocative efficiency. See, e.g., Schachar v. American Acad. of
Ophthalmology, 870 F. 2d 397, 399 (7th Cir. 1989) (“[A]ntitrust law is about consumers’ welfare
and the efficient organization of production. It condemns reductions in output that drive up prices as
consumers bid for the remaining supply.”). Other courts have recognized broader purposes. See, e.g.,
McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1497-98 (11th Cir. 1988) (“In passing
antitrust legislation, Congress’s purpose was not only an economic one, but was also a political one,
a purpose of curbing the power some individuals and corporations had over the economy.”).
4. See National Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 687-88 (1978) (“[R]ead literally,
§ 1 would outlaw the entire body of private contract law.”); United States v. Topco Assocs., 405
2 ANTITRUST LAW DEVELOPMENTS (NINTH)
regulation cannot be determined by so simple a test, as whether it restrains competition.
Every agreement concerning trade, every regulation of trade, restrains.”5
Consequently, the Court has construed Section 1 to render unlawful only those
restraints that restrict competition unreasonably.6
This chapter considers a variety of practices that may be challenged under
Section 1, including horizontal arrangements such as price fixing, bid rigging, and
boycotts, and vertical agreements such as resale price maintenance, tying, and
exclusive dealing.7 It also addresses the applicability of Section 3 of the Clayton Act
to the last two practices.8
B. Elements of a Section 1 Violation
Regardless of the nature of the practice challenged, a violation of Section 1 requires
proof of three elements: (1) the existence of a contract, combination, or conspiracy
among two or more separate entities that (2) unreasonably restrains trade and (3)
affects interstate or foreign commerce.9
This chapter first considers the standards for establishing each of these elements
and then follows with an examination of specific practices challenged under Section 1
of the Sherman Act or Section 3 of the Clayton Act.
U.S. 596, 606 (1972) (“Were § 1 to be read in the narrowest possible way, any commercial contract
could be deemed to violate it.”).
5. Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918).
6. See Standard Oil, 221 U.S. at 58. After reviewing the legislative history of the Sherman Act and
common-law rules relating to restraints of trade, the Court concluded that Congress did not intend
to prohibit contracts that caused insignificant or attenuated restraints of trade but only those
agreements “which were unreasonably restrictive of competitive conditions.” Id. The Supreme Court
has repeatedly reaffirmed the principle that § 1 prohibits only unreasonable restraints of trade. See,
e.g., California Dental Ass’n v. FTC, 526 U.S. 756, 769-81 (1999); NYNEX Corp. v. Discon, Inc.,
435 U.S. at 687-91; Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977).
7. Horizontal agreements are those among competitors at the same level of the market structure (e.g.,
between two manufacturers), while vertical agreements are those among persons at different levels
of the market structure (e.g., between a manufacturer and its distributors). See part D of this chapter;
Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 730 & n.4 (1988).
8. 15 U.S.C. § 14. Practices that violate the Sherman or Clayton Acts also have been held to be “unfair
methods of competition” that the Federal Trade Commission (FTC) may challenge under § 5 of the
Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45. See, e.g., FTC v. Brown Shoe Co., 384
U.S. 316, 321-22 (1966); FTC v. Motion Picture Adver. Serv. Co., 344 U.S. 392, 394 (1953); Fashion
Originators’ Guild v. FTC, 312 U.S. 457, 463-64 (1941). Although portions of this chapter address
the application of Sherman Act concepts to cases arising under the FTC Act, a more detailed
treatment of FTC enforcement is contained in Chapter 8.A.
9. See, e.g., Realcomp II, Ltd. v. FTC, 635 F.3d 815, 824 (6th Cir. 2011); In re Insurance Brokerage
Antitrust Litig., 618 F.3d 300, 314-15 (3d Cir. 2010); American Ad Mgmt. v. GTE Corp., 92 F.3d
781, 788 (9th Cir. 1996); Maric v. Saint Agnes Hosp. Corp., 65 F.3d 310, 313 (2d Cir. 1995). In
addition, a private plaintiff seeking damages or injunctive relief must prove that, respectively, he has
suffered or is likely to suffer antitrust injury. See Chapter 9.B.3.
RESTRAINTS OF TRADE 3
1. Proof of a Contract, Combination, or Conspiracy
a. DEFINING “AGREEMENT”: DISTINGUISHING UNILATERAL
FROM CONCERTED ACTION
To prevail under Section 1 of the Sherman Act, a plaintiff must establish a
“contract, combination . . . or conspiracy” that unreasonably restrains trade.10 Section 1
does not proscribe independent action by a single entity, regardless of its purpose or
effect on competition.11 As the Supreme Court has stated:
The Sherman Act contains a “basic distinction between concerted and independent
action.” The conduct of a single firm is governed by § 2 alone and is unlawful only when
it threatens actual monopolization. . . . Section 1 of the Sherman Act, in contrast, reaches
unreasonable restraints of trade effected by a “contract, combination . . . or conspiracy”
between separate entities. It does not reach conduct that is “wholly unilateral.”12
An express agreement can, of course, show concerted action,13 but a formal contract
is not necessary.14 Early Supreme Court decisions, such as American Tobacco Co. v.
United States,15 defined agreement as “a unity of purpose or a common design and
understanding, or a meeting of minds in an unlawful arrangement.”16 Later decisions
established that such understandings may be tacit and can arise without verbal
communication.17 As one court stated, “[a] knowing wink can mean more than
10. 15 U.S.C. § 1; see a lso Standard Oil, 221 U.S. at 59-60 (§ 1 prohibits only those contracts or
combinations that constitute an undue restraint on trade).
11. See Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984); Anderson News L.L.C. v.
American Media, Inc., 680 F.3d 162, 183 (2d Cir. 2012); see also City of Oakland v. Oakland
Raiders, 2021 U.S. App. LEXIS 35621 (9th Cir. 2021) (holding that the City of Oakland failed to
sufficiently allege a group boycott where only a single producer, the Raiders football team, refused
to deal). Unsuccessful attempts to reach an anticompetitive agreement, which are not subject to § 1
because of the lack of concerted action, are sometimes prosecuted under wire fraud and other
statutes. See part C.1.d of this chapter and Chapter 10.B.2. As described in more detail in Chapter
8.A.3, the FTC also has authority, under § 5 of the FTC Act, 15 U.S.C. § 45, to investigate conduct
that falls short of the agreement required for a § 1 violation. In United States v. American Airlines,
743 F.2d 1114, 1119 (5th Cir. 1984), the Fifth Circuit accepted the Justice Department’s theory that
attempted price fixing can violate § 2 of the Sherman Act. See Chapter 2.E.3.
12. Copperweld Corp. v. Independendence Tube Corp., 467 U.S. 752, 767-68 (1984) (citations and
footnote omitted).
13. See, e.g., Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 213-18 (1899); United States
v. Andreas, 216 F.3d 645, 652-53 (7th Cir. 2000) (horizontal agreement to fix prices and reduce
output established by videotaped surveillance of conspirators’ meetings); New York ex rel. Abrams
v. Anheuser-Busch, Inc., 811 F. Supp. 848, 869 (E.D.N.Y. 1993) (vertical agreement to allocate
territories established by contract between brewer and its distributor).
14. See, e.g., United States v. General Motors Corp., 384 U.S. 127, 142-43 (1966) (“it has long been
settled that explicit agreement is not a necessary part of a Sherman Act conspiracy”); Toledo Mack
Sales & Serv. v. Mack Trucks, 530 F.3d 204, 220-22 (3d Cir. 2008) (testimony introduced by
plaintiff of “unwritten” or “gentlemen’s” agreements among Mack dealers to refrain from price
competition was sufficient direct evidence from which a jury could find an agreement); Alvord-Polk,
Inc. v. F. Schumacher & Co., 37 F.3d 996, 1000 (3d Cir. 1994); ES Dev. v. RWM Enters., 939 F.2d
547, 553 (8th Cir. 1991); Gainesville Utils. Dep’t v. Florida Power & Light Co., 573 F.2d 292, 301
(5th Cir. 1978).
15. 328 U.S. 781 (1946).
16. Id. at 810; accord Copperweld, 467 U.S. at 771 (quoting American Tobacco Co. v. United States,
328 U.S. 781, 810 (1946)).
17. Mayor & City Council of Balt., Md. v. Citigroup, Inc., 709 F.3d 129, 136 (2d Cir. 2013) (“[I]n many
antitrust cases, [a] ‘smoking gun’ can be hard to come by, especially at the pleading stage. Thus a
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