What Is the Clayton Antitrust Act?
The Clayton Antitrust Act is a piece of legislation, passed by the U.S. Congress and signed into law in 1914, that defines unethical business practices, such as price fixing and monopolies, and upholds various rights of labor.
The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) enforce the provisions of the Clayton Antitrust Act, which continue to affect American business practices today.
- The Clayton Antitrust Act of 1914 continues to regulate U.S. business practices today.
- Intended to strengthen earlier antitrust legislation, the act prohibits anti-competitive mergers, predatory and discriminatory pricing, and other forms of unethical corporate behavior.
- The act also protects individuals by allowing lawsuits against companies and upholding the rights of labor to organize and protest peacefully.
- There have been several amendments to the act, expanding its provisions.
- The law is jointly enforced by the FTC and DOJ.
Understanding the Clayton Antitrust Act
At the turn of the 20th century, a handful of large U.S. corporations began to dominate entire industry segments by engaging in predatory pricing, exclusive dealings, and mergers designed to destroy competitors.
In 1914, Rep. Henry De Lamar Clayton of Alabama introduced legislation to regulate the behavior of massive entities. The bill passed the House of Representatives with a vast majority on June 5, 1914. Then the Senate passed its own version, and a final version, based on deliberation between House and Senate, passed the Senate on Oct. 6 and the House on Oct. 8. President Woodrow Wilson signed the initiative into law on Oct. 15, 1914.
The act is enforced by the FTC and prohibits exclusive sales contracts, certain types of rebates, discriminatory freight agreements, and local price-cutting maneuvers. It also forbids certain types of holding companies. According to the FTC, the Clayton Act also allows private parties to take legal action against companies and seek triple damages when they have been harmed by conduct that violates the Clayton Act. They may also seek and get a court order against any future anti-competitive practice.
In addition, the Clayton Act specifies that labor is not an economic commodity. It upholds issues conducive to organized labor, declaring peaceful strikes, picketing, boycotts, agricultural cooperatives, and labor unions as legal under federal law.
Sections of the Clayton Antitrust Act
There are 27 sections to the Clayton Act. Among them, the most notable include:
- The second section, which deals with the unlawfulness of price discrimination, price cutting, and predatory pricing.
- The third section, which addresses exclusive dealings or the attempt to create a monopoly.
- The fourth section, which states the right of private lawsuits of any individual injured by anything forbidden in the antitrust laws.
- The sixth section, which covers labor and the exemption of the workforce.
- The seventh section, which handles mergers and acquisitions and is often referred to when multiple companies attempt to become a single entity.
The Clayton Antitrust Act mandates that companies that want to merge must notify and receive permission from the government through the Federal Trade Commission (FTC) to do so.
Clayton Antitrust Act Amendments
The Clayton Act is still in force today, essentially in its original form. However, it was somewhat amended by the Robinson-Patman Act of 1936 and the Celler-Kefauver Act of 1950. The Robinson-Patman Act reinforces laws against price discrimination among customers. The Celler-Kefauver Act prohibits one company from acquiring the stock or assets of another firm if an acquisition reduces competition. It further extends antitrust laws to cover all types of mergers across industries, not just horizontal ones within the same sector.
The Clayton Act was also amended by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. This amendment requires that companies planning big mergers or acquisitions make their intentions known to the government before taking any such action.
Clayton Antitrust Act vs. Sherman Antitrust Act
The Sherman Antitrust Act of 1890 was proposed by Sen. John Sherman of Ohio and later amended by the Clayton Antitrust Act. The Sherman Act prohibited trusts and outlawed monopolistic business practices, making them illegal in an effort to bolster competition within the marketplace.
The act contained three sections. The first section defined and banned different types of anti-competitive conduct, the second section addressed the end results considered to be anti-competitive, and the third and final section extended the provisions in the first section to include the District of Columbia and any U.S. territories.
But the language used in the Sherman Act was deemed too vague. This allowed businesses to continue engaging in operations that discouraged competition and fair pricing. These controlling practices directly impacted local concerns and often drove smaller entities out of business, which necessitated the passing of the Clayton Antitrust Act in 1914.
While the Clayton Act continues the Sherman Act’s ban on anti-competitive mergers and the practice of price discrimination, it also addresses issues that the older act didn’t cover by outlawing incipient forms of unethical behavior. For example, while the Sherman Act made monopolies illegal, the Clayton Act bans operations intended to lead to the formation of monopolies.
Is the Clayton Act the Only Piece of Antitrust Legislation?
What Is the Clayton Act’s Overall Goal?
The Clayton Act, in conjunction with other antitrust laws, is responsible for making sure that companies behave themselves and that there is fair competition in the marketplace, which, according to economic theory, should lead to lower prices, better quality, greater innovation, and wider choice.
Is the Clayton Act Necessary?
Most people agree that these types of antitrust laws benefit society. If companies were given free rein to make profits by any means necessary, it would likely prove detrimental to everyone other than the company that came out on top.
There are, however, many people who oppose antitrust laws like the Clayton Act. In their view, allowing businesses to compete without restraints and to fully capitalize on their market power would ultimately prove favorable to consumers and the economy.
What Are the 4 Main Points of the Clayton Antitrust Act?
The Clayton Antitrust Act targeted four anti-competitive practices in particular:
- interlocking board directorates, and
- price price discrimination
The Bottom Line
While America is touted as a free market economy, there are several federal laws and regulations that prohibit anti-competitive practices and prevent the formation of monopolies. Among these pieces of legislation is the Clayton Antitrust Act of 1914, which made certain monopolistic practices illegal, enforceable by both the Federal Trade Commission and Dept. of Justice. Since then, other pieces of antitrust legislation have also been passed in order to promote competition, encourage fair practices, and benefit consumers.