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The Clayton Antitrust Act of 1914 (, codified at , ), is a part of
United States antitrust law In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherm ...
with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipiency. That regime started with the
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. ...
of 1890, the first Federal law outlawing practices that were 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. Like the Sherman Act, much of the substance of the Clayton Act has been developed and animated by the
U.S. courts The courts of the United States are closely linked hierarchical systems of courts at the federal and state levels. The federal courts form the judicial branch of the US government and operate under the authority of the United States Constitution a ...
, particularly the
Supreme Court A supreme court is the highest court within the hierarchy of courts in most legal jurisdictions. Other descriptions for such courts include court of last resort, apex court, and high (or final) court of appeal. Broadly speaking, the decisions of ...
.


Background

Since the
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. ...
of 1890, courts in the United States had interpreted the law on cartels as applying against
trade unions A trade union (labor union in American English), often simply referred to as a union, is an organization of workers intent on "maintaining or improving the conditions of their employment", ch. I such as attaining better wages and benefits ( ...
. This had created a problem for workers, who needed to organize to balance the equal bargaining power against their employers. The Sherman Act had also triggered the largest wave of
merger Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...
s in US history, as businesses realized that instead of creating a cartel they could simply fuse into a single
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
, and have all the benefits of
market power In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market powe ...
that a cartel could bring. At the end of the Taft administration, and the start of the
Woodrow Wilson Thomas Woodrow Wilson (December 28, 1856February 3, 1924) was an American politician and academic who served as the 28th president of the United States from 1913 to 1921. A member of the Democratic Party, Wilson served as the president of ...
administration, a Commission on Industrial Relations was established. During its proceedings, and in anticipation of its first report on October 23, 1914, legislation was introduced by
Alabama (We dare defend our rights) , anthem = " Alabama" , image_map = Alabama in United States.svg , seat = Montgomery , LargestCity = Huntsville , LargestCounty = Baldwin County , LargestMetro = Greater Birmingham , area_total_km2 = 135,7 ...
Democrat
Henry De Lamar Clayton Jr. Henry De Lamar Clayton Jr. (February 10, 1857 – December 21, 1929) was a United States representative from Alabama and a United States federal judge, United States district judge of the United States District Court for the Middle District of Al ...
in the U.S. House of Representatives. The Clayton 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 A senate is a deliberative assembly, often the upper house or chamber of a bicameral legislature. The name comes from the ancient Roman Senate (Latin: ''Senatus''), so-called as an assembly of the senior (Latin: ''senex'' meaning "the el ...
and the
House A house is a single-unit residential building. It may range in complexity from a rudimentary hut to a complex structure of wood, masonry, concrete or other material, outfitted with plumbing, electrical, and heating, ventilation, and air cond ...
), did not pass the Senate until October 6 and the House until October 8 of 1914.


Contents

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 Antitrust 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 A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
in any line of commerce (Act Section 2, codified at ); * sales on the condition that (A) the buyer or lessee not deal with the competitors of the seller or lessor ("
exclusive dealing In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Austra ...
s") or (B) the buyer also purchase another different product (" tying") but only when these acts substantially lessen competition (Act Section 3, codified at ); *
mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...
where the effect may substantially lessen competition (Act Section 7, codified at ) or where the voting securities and assets threshold is met (Act Section 7a, codified at ); * any person from being a director of two or more competing corporations, if those corporations would violate the antitrust criteria by merging (Act Section 8; codified 1200 at ).


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 give approval to 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

Section 7 elaborates on specific and crucial concepts of the Clayton Act; "
holding company A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
" defined as "a company whose primary purpose is to hold stocks of other companies", which the government saw as a "common and favorite method of promoting monopoly"Martin, David Dale, Mergers and the Clayton Act, University of California, Berkeley and Los Angeles, 1959 and a mere corporated form of the 'old fashioned' trust. Section 7 prohibits acquisitions where the effect may be substantially to lessen competition, or to tend to create a monopoly. 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.


Pre-merger notification

Section 7a, , requires that companies notify the
Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction o ...
and the Assistant Attorney General of the United States Department of Justice Antitrust Division of any contemplated
mergers and acquisitions Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...
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 The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product ( GDP), plus factor incomes earned by foreig ...
, in accordance with Section 8(a)(5) and take effect 30 days after publication in the Federal Register. (For example, see an
16 C.F.R. 801
)


Section 8

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 .)


Other

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 remains true for tying, under the authority of '' Jefferson Parish Hospital District No. 2 v. Hyde''. However, when exclusive dealings are challenged under Clayton-3 (or Sherman-1), they are treated under the
rule of reason The rule of reason is a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law. While some actions like price-fixing are considered illegal ''per se', ''other actions, such as po ...
. 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.


Exemptions

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 ) exempts labor unions and agricultural organizations, saying "that the labor of a human being is not a commodity or article of commerce, and permit inglabor organizations to carry out their legitimate objective". Therefore,
boycott A boycott is an act of nonviolent, voluntary abstention from a product, person, organization, or country as an expression of protest. It is usually for moral, social, political, or environmental reasons. The purpose of a boycott is to inflict so ...
s, peaceful strikes, peaceful
picketing Picketing is a form of protest in which people (called pickets or picketers) congregate outside a place of work or location where an event is taking place. Often, this is done in an attempt to dissuade others from going in (" crossing the pick ...
, and
collective bargaining Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. The ...
are not regulated by this statute. Injunctions could be used to settle labor disputes only when property damage was threatened. The
AFL AFL may refer to: Sports * American Football League (AFL), a name shared by several separate and unrelated professional American football leagues: ** American Football League (1926) (a.k.a. "AFL I"), first rival of the National Football Leagu ...
strongly supported Section 6 of the Act, with AFL head Samuel Gompers describing the law as "Labor's Magna Charta" or "Bill of Rights." The Supreme Court ruled in the 1922 case '' Federal Baseball Club v. National League'' that
Major League Baseball Major League Baseball (MLB) is a professional baseball organization and the oldest major professional sports league in the world. MLB is composed of 30 total teams, divided equally between the National League (NL) and the American League (A ...
was not "interstate commerce" and thus was not subject to federal antitrust law.


Enforcement

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. The Supreme Court has expressly ruled that the "injunctive relief" clause in Section 16 includes the implied power to force defendants to divest assets. 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 The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction o ...
, 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.


See also

*
Celler–Kefauver Act The Celler–Kefauver Act is a United States federal law passed in 1950 that reformed and strengthened the Clayton Antitrust Act of 1914, which had amended the Sherman Antitrust Act of 1890. The Celler–Kefauver Act was passed to close a loophol ...
* Hart–Scott–Rodino Antitrust Improvements Act * Internet Freedom and Nondiscrimination Act of 2006 * Robinson–Patman Act *
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author. ...
*'' United States v. Continental Can Co.''


Footnotes


Further reading

* Louis B. Boudin, "Organized Labor and the Clayton Act: Part I," ''Virginia Law Review,'' vol. 29, no. 3 (Dec. 1942), pp. 272–315
In JSTOR
* Louis B. Boudin, "Organized Labor and the Clayton Act: Part II," ''Virginia Law Review,'' vol. 29, no. 4 (Jan. 1943), pp. 395–439
In JSTOR


External links


Brief History of the Federal Trade Commission
(PDF) *
How-does-the-Clayton-Antitrust-Act-differ-from-the-Sherman-Antitrust-ActPre-Merger Review and Challenges Under the Clayton Act and the Federal Trade Commission Act
Congressional Research Service The Congressional Research Service (CRS) is a public policy research institute of the United States Congress. Operating within the Library of Congress, it works primarily and directly for members of Congress and their committees and staff on a ...
, September 27, 2017.
Why Did The Clayton Act Pass? An Analysis of the Interest Group Hypothesis
(PDF) {{USArticleI 1914 in American law 63rd United States Congress United States federal antitrust legislation Presidency of Woodrow Wilson United States federal legislation articles without infoboxes Progressive Era in the United States