What Is the Clayton Antitrust Act?

The Clayton Antitrust Act is a piece of legislation passed by the U.S. Congress in 1914. The Act 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.

Key Takeaways

  • The Clayton Antitrust Act, passed in 1914, continues to regulate U.S. business practices today.
  • Intended to strengthen earlier antitrust legislation, the Clayton Antitrust Act prohibits anti-competitive mergers, predatory and discriminatory pricing, and other forms of unethical corporate behavior.
  • The Clayton Antitrust Act also protects individuals, allowing lawsuits against companies and upholding the rights of labor to organize and protest peacefully.

Understanding the Clayton Antitrust Act

At the turn of the 20th century, a handful of large U.S.corporations had come to dominate entire industry segments by engaging in predatory pricing, exclusive dealings, and mergers designed to destroy competitors. While the Sherman Antitrust Act of 1890 prohibited trusts and outlawed monopolistic business practices, the vague language of the bill 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.

In 1914, Rep. Henry De Lamar Clayton, of Alabama, introduced legislation to regulate the behavior of such massive entities. The bill passed the House of Representatives with a vast majority on June 5, 1914. President Woodrow Wilson signed the initiative into law on Oct. 15, 1914.

The Clayton Antitrust Act provided further clarification and substance to the Sherman Antitrust Act, addressing issues the older act didn't cover, and outlawing incipient forms of unethical behavior. For example, while the Sherman Antitrust Act made monopolies illegal, the Clayton Antitrust Act banned operations intended to lead to the formation of monopolies.

The Clayton Antitrust Act mandates that companies wishing to merge must notify and receive permission from the Federal Trade Commission to do so.

Provisions of the Clayton Antitrust Act

The Clayton Antitrust Act continued the Sherman Act's ban on anti-competitive mergers and the practice of price discrimination. More specifically, it prohibits exclusive sales contracts, certain types of rebates, discriminatory freight agreements, and local price-cutting manuevers; it also it forbids certain types of holding companies.

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 were all legal under federal law.

The Clayton Antitrust Act has 26 sections.

  • The second section deals with the unlawfulness of price discrimination, price cutting, and predatory pricing. 
  • Exclusive dealings or the attempt to create a monopoly is addressed in the third section. 
  • The fourth section states the right of private lawsuits of any individual injured by anything forbidden in the antitrust laws. 
  • Labor and the exemption of the workforce are covered in the sixth section.
  • The seventh section handles mergers and acquisitions and is often referred to when multiple companies attempt to become a single entity.

Successors to the Clayton Antitrust Act

The Clayton Antitrust 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 reinforced laws against price discrimination among customers. The Celler-Kefauver Act prohibited one company from acquiring the stock or assets of another firm, if an acquisition reduced competition. It further extended antitrust laws to cover all types of mergers across industries, not just horizontal ones within the same sector.