Section 1 of the Sherman Antitrust Act concerns business negations that may restrain interstate commerce or in some cases foreign trade or commerce. Depending on the violation the Sherman Antitrust Act provides for different punishments, yet it was up to the courts to decide how to interpret and implement the law. Indeed, all business agreement, in some form or another, cuase a level of restraint on the market. In obvious cases of interstate commerce being restrained the court emploies per se logic of reasoning. The most common forms that fall under ‘per se’, for example, are price fixing and bid rigging. Under the Sherman Antitrust Act these are both blantant and inheriently obvious violations. Other business agreements that can be deemed illegal by the use of the Sherman Antitrust Act need for rule of reason to be used.

Rule of reason illustrates the innate complexity of the Sherman Antitrust Act. It was not until 1918 when one of the most famous Supreme Court Justices, Louis Brandies, first employed the method of rule of reason. Business agreements are subject to the first section of the Sherman Antitrust Act, but all business agreements without the use of rule of reason would violate the law. Whenever a company enters into a deal with another company it will always constrain the activities of some third party that was not included in the deal. In fact, brandies noted that this is inherent in business. In the United States free market system there are always winners and losers, the rule of reason puts business agreements, either oral or written, to a test of application. That is to say if the business agreement is intended to create losers for the sole benefits of the winners then it will most likely be deemed illegal. Certain elements come into play though, to make sure that business can actually operate. The extent and intent of the agreement need to be analyzed closely. If it is an effort to form a horizontal agreement or vertical agreement between companies it will most likely be deemed illegal. However, if two firms enter into an agreement the court also takes into account if the firms can effectively excused the purpose of the agreement and what effects it would have on competition with the market. When Time Warner-AOL merged some worried that it was going to be subjected to the Sherman Antitrust Law, however, as seen by their eventual breakup and the inability to turn a consistent high yielding profit their agreement would not have broken any of the Sherman Antitrust Laws. One interesting note concerning the rule of reason, which the courts also take into great account, is whether or not the companies in the agreement could have taken another approach to achieve the same goals. If they could have achieved their goals without coming to some form of agreement, let’s say between rival competitors within the same market, and then it would probably be deemed illegal. Probably deemed, because the courts, under the rule of reason, take the aforementioned factors into account as well.

While the per se method targets the blatant form of corporate agreements that restrain interstate commerce or foreign trade and commerce, the rule of reason delves into murky waters. Although murky the may be , Justice Brandies correctly deduced that without the rule of reason all business agreements would come to violate the Sherman Antitrust Act.