Sherman Act

The Sherman Act is a law of the United States from the year 1890. It is meant to prevent individual companies from completely controlling a market. Two things are prohibited in it. First, firms may not collude to eliminate competition, for instance by jointly fixing prices. Second, a firm may not secure or expand its overwhelming market power through unfair means. The law is remarkably short, its decisive sections fit on half a page. What exactly is permitted has been determined case by case by the courts over more than 130 years.

Why a law from 1890 shapes the tech industry

The Sherman Act arose at a time when a few corporations dominated railroads, oil, and steel in the USA. The best-known consequence was the breakup of the oil company Standard Oil in 1911. At the time, the court split the company into more than 30 individual firms. Some of these later became corporations such as ExxonMobil and Chevron.

Today the same law applies to digital markets. The reason is that these markets have a strong tendency toward concentration. A search engine gets better the more people use it, and a social network is worthless without friends. Such effects often lead to a single provider capturing almost everything.

For investors, the Sherman Act is therefore a real risk factor. A lost case can hit a business model that generates billions. However, an important distinction must be made: being big is not prohibited. What is prohibited is only defending one’s own size through unfair means. A company that simply has the better product does not violate the law.

From lawsuit to verdict

A lawsuit can be filed by the U.S. Department of Justice, the antitrust authority FTC, an individual state, or an injured company. First, the court must define the relevant market. This question sounds technical, but it often decides the entire case. Is the market “internet search engines” or “digital advertising as a whole”? In the first case, Google has a share of about 90 percent; in the second, considerably less.

Once the market has been determined, the court examines the company’s conduct. Typical allegations are exclusive contracts that lock out competitors, or the favoring of one’s own products on one’s own platform. Payments for being the pre-installed default provider have also been challenged in the past.

In the end, there is a ruling on possible remedies. The mildest form consists of behavioral requirements, such as banning certain contracts. The harshest is a breakup, in which a corporation must divest parts of itself. Such proceedings often take many years and go through several instances. The case against Microsoft in the 1990s initially ended with an ordered breakup, which was overturned on appeal.

The ongoing proceedings against the tech giants

In the news, the Sherman Act currently appears mainly in connection with Google. A U.S. court ruled in 2024 that the company holds an illegal monopoly in search. A central point were billions of dollars in payments to Apple for Google being pre-installed as the default on the iPhone. Further proceedings are directed against Apple, Amazon, and Meta.

The boom in artificial intelligence also raises such questions. Few companies control the necessary specialized chips, the large data centers, and the most powerful models. Authorities are therefore closely examining stakes and close partnerships between chip manufacturers, cloud providers, and AI companies.

A common misconception: the Sherman Act applies only in the USA. The EU has its own rules, above all the Digital Markets Act. This differs fundamentally, because it imposes obligations directly on certain large platforms without a court first having to establish misconduct. So when a report speaks of an “antitrust case,” it is worth checking which legal jurisdiction it concerns.