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 act prohibits anticompetitive mergers, predatory and discriminatory pricing, and other forms of unethical corporate behavior.
  • The Clayton Antitrust 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.

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. 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 against the Clayton Act. They may also seek and get a court order against any future anticompetitive 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 were all legal under federal law.

There are 26 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
  • Exclusive dealings or the attempt to create a monopoly, which is addressed in the third section. 
  • The fourth section, which states the right of private lawsuits of any individual injured by anything forbidden in the antitrust laws.
  • Labor and the exemption of the workforce, which are covered in the sixth section.
  • 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 to do so.

Special Considerations

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.

The act was also amended by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. This amendment made it a requirement 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 John Sherman from Ohio and was later amended by the Clayton Antitrust Act. The Sherman Antitrust Act prohibited trusts and outlawed monopolistic business practices, making them illegal in an effort to bolster competition within the marketplace.

The act contained three different sections. The first defined and banned different types of anticompetitive conduct. The second section addressed the end results considered to be anticompetitive. The third and final section extended the provisions in the first section to include D.C. 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 continued the Sherman Act's ban on anticompetitive mergers and the practice of price discrimination, it also addressed issues the older act didn't cover by 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.