Clayton Antitrust Act
The Clayton Antitrust Act of 1914 (Pub.L. 63-212, 38 Stat. 730, enacted October 15, 1914, codified at 15 U.S.C. §§ 12–27, 29 U.S.C. §§ 52–53), was enacted in the United States to add further substance to the U.S. antitrust law regime by seeking to prevent anticompetitive practices in their incipiency. That regime started with the Sherman Antitrust Act of 1890, the first Federal law outlawing practices considered harmful to consumers (monopolies, cartels, and trusts). The Clayton Act specified particular prohibited conduct, the three-level enforcement scheme, the exemptions, and the remedial measures.
Passed during the Wilson administration, the legislation was first introduced by Alabama Democrat Henry De Lamar Clayton, Jr. in the U.S. House of Representatives, where the act passed by a vote of 277 to 54 on June 5, 1914. Though the Senate passed its own version on September 2, 1914 by a vote of 46-16, the final version of the law (written after deliberation between Senate and the House), did not pass the Senate until October 5 and the House until October 8 of the same year.
Like the Sherman Act, much of the substance of the Clayton Act has been developed and animated by the U.S. courts, particularly the Supreme Court.
Competition law Basic concepts Anti-competitive practices Enforcement authorities and organizations
The political environment when the Clayton Act was passed was one where government was concerned by the growing economic sphere and monopoly of certain areas of commerce. The 1912 presidential election put the issue at the center of a debate between the three political parties running for the presidency: the Republican Party of William H. Taft, the Democratic Party candidate Woodrow Wilson, and the Progressive Party candidate Theodore Roosevelt. There was also mention of the need for an agency to supervise the regulation. This agency was not included in the Sherman Act of 1890. The Act was an attempt to define more clearly the basic policy of the United States with respect to the organization and control of industry.
- Loewe v. Lawlor, 208 U.S. 274 (1908
- Pujo Committee
- Louis Brandeis, Other People's Money And How the Bankers Use It (1914)
The Clayton Act made both substantive and procedural modifications to federal antitrust law. Substantively, the act seeks to capture anticompetitive practices in their incipiency by prohibiting particular types of conduct, not deemed in the best interest of a competitive market. There are 4 sections of the bill that proposed substantive changes in the antitrust laws by way of supplementing the Sherman Act of 1890. In those sections, the Act thoroughly discusses the following four principles of economic trade and business:
- price discrimination between different purchasers if such a discrimination substantially lessens competition or tends to create a monopoly in any line of commerce (Act Section 2, codified at 15 U.S.C. § 13;
- sales on the condition that (A) the buyer or lessee not deal with the competitors of the seller or lessor ("exclusive dealings") or (B) the buyer also purchase another different product ("tying") but only when these acts substantially lessen competition (Act Section 3, codified at 15 U.S.C. § 14);
- mergers and acquisitions where the effect may substantially lessen competition (Act Section 7, codified at 15 U.S.C. § 18) or where the voting securities and assets threshold is met (Act Section 7a, codified at 15 U.S.C. § 18a);
- any person from being a director of two or more competing corporations, if those corporations would violate the anti-trust criteria by merging (Act Section 8; codified at 15 U.S.C. § 19).
Comparisons to other Acts
Unilateral price discrimination is clearly outside the reach of Section 1 of the Sherman Act, which only extended to "concerted activities" (agreements). Exclusive dealing, tying, and mergers are all agreements, and theoretically, within the reach of Section 1 of the Sherman Act. Likewise, mergers that create monopolies would be actionable under Sherman Act Section 2.
Section 7 of the Clayton Act allows greater regulation of mergers than just Sherman Act Section 2, since it does not require a merger-to-monopoly before there is a violation. It allows the Federal Trade Commission and Department of Justice to regulate all mergers, and gives the government discretion whether to approve a merger or not, which it still commonly does today. The government often employs the Herfindahl-Hirschman Index (HHI) test for market concentration to determine whether the merger is presumptively anticompetitive; if the HHI level for a particular merger exceeds a certain level, the government will investigate further to determine its probable competitive impact.
Section 7 elaborates on specific and crucial concepts of the Clayton Act; "holding company" defined as a "common and favorite method of promoting monopoly", but more precisely as "a company whose primary purpose is to hold stocks of other companies" which the government saw as an abomination and a mere corporated form of the 'old fashioned' trust.
Another important factor to consider is the amendment passed in Congress on Section 7 of the Clayton Act in 1950. This original position of the US government on mergers and acquisitions was strengthened by the Celler-Kefauver amendments of 1950, so as to cover asset as well as stock acquisitions.
Section 7a, 15 U.S.C. § 18a, requires that companies notify the Federal Trade Commission and the Assistant Attorney General of the United States Department of Justice Antitrust Division of any contemplated mergers and acquisitions that meet or exceed certain thresholds. Pursuant to the Hart–Scott–Rodino Antitrust Improvements Act, section 7A(a)(2) requires the Federal Trade Commission to revise those thresholds annually, based on the change in gross national product, in accordance with Section 8(a)(5) and take effect 30 days after publication in the Federal Register. (For example, see 74 F.R. 1687 and 16 C.F.R. 801.)
Section 8 of the Act refers to the prohibition of one person of serving as director of two or more corporations if the certain threshold values are met, which are required to be set by regulation of the Federal Trade Commission, revised annually based on the change in gross national product, pursuant to the Hart–Scott–Rodino Antitrust Improvements Act. (For example, see 74 F.R. 1688.)
Because the act singles out exclusive dealing and tying arrangements, one may assume they would be subject to heightened scrutiny, perhaps they would even be illegal per se. That is not the case. When exclusive dealings or tying arrangements are challenged under Clayton-3 (or Sherman-1), they are treated as rule of reason cases.
Under the 'rule of reason', the conduct is only illegal, and the plaintiff can only prevail, upon proving to the court that the defendants are doing substantial economic harm. Despite what the statute may suggest, the regime makes sense. The reason for the per se rule in Sherman-1 price fixing cases is the overwhelming likelihood that price fixing is harmful. It is a recognizable fact that exclusive dealings and tying arrangements are quite common, and potentially beneficial to consumers, and the economy. Therefore, the Court has seen fit not to apply a per se rule to Clayton-3 conduct.
An important difference between the Clayton Act and its predecessor, the Sherman act, is that the Clayton Act contained safe harbors for union activities. Section 6 of the Act (codified at 15 U.S.C. § 17) exempts labor unions and agricultural organizations, saying ‘that the labor of a human being is not a commodity or article of commerce, and permit[ting] labor organizations to carry out their legitimate objective’. Therefore, boycotts, peaceful strikes, peaceful picketing, and collective bargaining are not regulated by this statute. Injunctions could be used to settle labor disputes only when property damage was threatened.
Procedurally, the Act empowers private parties injured by violations of the Act to sue for treble damages under Section 4 and injunctive relief under Section 16.
Under the Clayton Act, only civil suits could be brought to the court's attention and a provision "permits a suit in the federal courts for three times the actual damages caused by anything forbidden in the antitrust laws", including court costs and attorney's fees.
The Act is enforced by the Federal Trade Commission, which was also created and empowered during the Wilson Presidency by the Federal Trade Commission Act, and also the Antitrust Division of the U.S. Department of Justice.
The Clayton Act of 1914 reformed and emphasized certain concepts of the Sherman Act of 1890 that are still active today in a growing interconnected market and merging of the industries.
- Celler-Kefauver Act
- Hart–Scott–Rodino Antitrust Improvements Act
- Internet Freedom and Nondiscrimination Act of 2006
- Robinson-Patman Act
- Sherman Antitrust Act
- United States v. Continental Can Co.
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