Section 1 of the Sherman Act and the Per Se Rule

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CHAPTER I

SECTION 1 OF THE SHERMAN ACT

AND THE PER SE RULE

This chapter provides an overview of Section 1 of the Sherman Act

and analyzes the criminal ramifications of per se violations of the Sherman

Act, including price fixing, bid rigging, and allocation of markets or

customers. This chapter also discusses the international reach of the

Sherman Act and the application of the Sherman Act to corporate entities,

and concludes with a review of other types of anticompetitive conduct that

can lead to criminal liability.

A. Section 1 of the Sherman Act and the Per Se Rule

Enacted in 1890, the Sherman Act1 is the United States’ primary

federal antitrust statute. It contains two principal substantive provisions:

Section 1 and Section 2. Section 1 broadly prohibits agreements between

distinct actors that unreasonably restrain trade. 2 It provides: “Every

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.”3

Section 1 imposes both criminal and civil liability for violations. For

criminal violations, Section 1 provides:

Every person who shall make any contract or engage in any combination

or conspiracy hereby declared to be illegal shall be deemed guilty of a

felony, and, on convic tion thereof, shall be punished by fi ne not

exceeding $100,000,000 if a corporation, or, if any other person,

$1,000,000, or by imprisonment not exceeding 10 years, or by both said

punishments, in the di scretion of the court.4

1. 15 U.S.C. §§ 1-7.

2. Section 2 of the Sherman Act prohibits unilateral action and combinatio ns

and conspiracies that monopolize or attempt to monopolize trade or

commerce. 15 U.S.C. §2.

3. 15 U.S.C. §1.

4. Id.

2 International Antitrust Cartel Handbook

The Supreme Court has explained that, despite its literal wording,

Section 1 does not prohibit every type of agreement in restraint of trade.5

Rather, Section 1 only prohibits agreements that restrain trade

unreasonably.6 To determine whether a restraint of trade is unreasonable,

and thus prohibited by the Sherman Act, courts have traditionally applied

one of two modes of analysis: the rule of reason and the per se rule of

illegality.7 The rule of reason is the presumptive test under Section 1.8

Courts applying the rule of reason conduct a detailed analysis of the

challenged conduct by weighing its perceived anticompetitive effects

against its procompetitive efficiencies.9

The per se rule of illegality is an exception to the rule of reason, under

which certain conduct is considered categorically anticompetitive and

therefore illegal under Section 1 without extensive analysis.10 Application

5. See Am. Needle, Inc. v. NFL, 560 U.S. 183, 189 (2010) (“[E]ven though,

‘read literally,’ § 1 would address ‘the entire body of private contract,’ that

is not what the statute means.”); Texaco Inc. v. Dagher, 547 U.S. 1, 5

(2006) (“This Court ha s not taken a literal approach to this language,

however.”).

6. Standard Oil Co. v. United States, 221 U.S. 1, 58-60 (1911); see also

Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877, 885 (2007)

(“While § 1 could be interpreted to proscribe all contracts . . . the Court has

never taken a literal approach to its language . . . Rather, the Court has

repeated time and time again that § 1 outlaws only unreasonable

restraints.”) (citations omitted); State Oil Co. v. Khan, 522 U.S. 3, 10

(1997) (“[T]his Court has long recognized that Congress intended to

outlaw only unreaso nable restraints.”).

7. In recent decades, courts have also begun to apply an intermediate standard

of analysis, often referred to as the “quick look” or “truncated rule of

reason analysis.” T his method of analysis is often use d when a full-scale

rule of reason analysis is inappropriate, but the challenged conduct would

not trigger traditional per se treatment. See JULIAN O. VON KALINOWSKI ET

AL., ANTITRUST LAWS AND TRADE REGULATION § 12.01(3) (2d. ed. 2018).

8. Dagher, 547 U.S. at 5 (“[T]his Court presumptively applies rule of reason

analysis.”); Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 726

(1988) (“[T]here is a presumption in favor of a rule-of-reason standard.”).

9. Nat’l Soc’y of Prof’l Eng’rs. v. United States, 435 U.S. 679, 691 (1978)

(explaining that the “the inquiry mandated by the Rule o f Reason is

whether the challenged agreement is one that promotes competition or one

that suppresses competition”).

10. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958) (“[T]here are certain

agreements or practices which because of their pernicious effect on