Horizontal Price Fixing—a Per Se Sherman Antitrust Violation, Except When it Doesn’t Restrain Trade
February 18, 2025
Written by: Charles Dresser
Price fixing between horizontal competitors is a per se violation of Section One of the Sherman Antitrust Act
Section One of the Sherman Antitrust Act declares that “[e]very contract . . . or conspiracy, in restraint of trade or commerce among the several States . . . is . . . illegal.” The text of Section One requires an illegal act to include:
(1) an agreement between more than one party;
(2) the agreement must restrain trade or commerce; and
(3) the trade or commerce being restrained must be between the States (or with a Foreign Nation), and, thus, within the purvey of the Commerce Clause powers of Congress.
The first and third requirements are clear from the text of the statute; however, what qualifies as a restraint of trade needs some elucidation from the courts.
The courts decided that naked restraints of trade, such as price fixing between horizontal competitors, are a per se violation of Section One of the Sherman Antitrust Act. In U.S. v. Socony-Vacumm Co. Inc., the Supreme Court established this per se rule, stating that “[p]roof that there was a conspiracy, that its purpose was to raise prices, and that it caused or contributed to a price rise is proof of the actual consummation or execution of a conspiracy under [Section One] of the Sherman Act, 15 U.S.C.A. [§] 1.” 310 U.S. 150, 219–20 (1940).
This per se rule against price fixing is consistent with the text of Section One of the Sherman Antitrust Act. And, per se legal rules, generally, provide policy benefits of predictability and clarity. Antitrust law, which was left very open to interpretation by Congress, benefits from having at least one bright line per se rule which can be consistently applied.
This per se rule is clear and predictable, but still requires precise application, as there are circumstances where literal price fixing is not per se price fixing. Per se price fixing between horizontal competitors requires (1) an agreement between multiple parties; (2) restraining trade or commerce by artificially controlling the price of goods or services; and (3) in most cases, a resulting effect on interstate commerce.
Some literal price fixing may not restrain trade or commerce and, thus, not a per se violation of Sherman One.
In Broadcast Music Inc. v. Columbia Broadcast Systems, Inc. (BMI v. CBS), “literal price fixing,” by way of the American Society of Composers, Authors, and Publishers (ASCAP) blanket license agreement, was held not to be a per se violation of Section One of the Sherman Antitrust Act. 441 U.S. 1, 9, 24 (U.S. 1979).
The ASCAP blanket license is literal horizontal price fixing. The ASCAP blanket license is an agreement made between individual, horizontally-competing musical composers that licenses performance of any musical composition in ASCAP’s repertory for a single annual fee.
However, the ASCAP blanket license does not exclude competition among music composers and publishers, as even those who participate in the ASCAP blanket license agreement are free to individually license their music outside of the ASCAP license. Id., 24. As a result, the Supreme Court reasoned that CBS was unrestrained from making individual license agreements for only the musical compositions they wanted, at whatever price they could bargain for—and, trade was unrestrained. Thus, the ASCAP blanket license does not limit consumer choice but adds to it. Conversely, if multiple composers and/or publishers were to agree only to license their compositions collectively for a set price, this would limit the consumer’s choice and be both (1) literal price fixing; and (2) per se price fixing, presumptively violative of Section One of the Sherman Antitrust Act.