Clayton Antitrust Act
Encyclopedia
The Clayton Antitrust Act of 1914 , 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
.
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.
" 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.
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 and 16 C.F.R. 801.)
. 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.
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, boycott
s, 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.
Major League Baseball
is another company exempt from the Clayton Act due to the national heritage associated with it.
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.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
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
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
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
Woodrow Wilson
Thomas Woodrow Wilson was the 28th President of the United States, from 1913 to 1921. A leader of the Progressive Movement, he served as President of Princeton University from 1902 to 1910, and then as the Governor of New Jersey from 1911 to 1913...
administration, the legislation was first introduced by Alabama
Alabama
Alabama is a state located in the southeastern region of the United States. It is bordered by Tennessee to the north, Georgia to the east, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama ranks 30th in total land area and ranks second in the size of its inland...
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
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
.
Provisions
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 discriminationPrice discriminationPrice discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...
between different purchasers if such a discrimination substantially lessens competition or tends to create a monopolyMonopolyA monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
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 dealingExclusive dealingExclusive dealing refers to when a retailer or wholesaler is ‘tied’ to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies in a given area...
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 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 directorBoard of directorsA board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
of two or more competing corporations, if those corporations would violate the anti-trust criteria by merging (Act Section 8; codified 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 approve a merger or not, which it still commonly does today. The government often employs the Herfindahl-Hirschman Index
Herfindahl index
The Herfindahl index is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust and also...
(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 companyHolding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
" 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.
Pre-merger notification
Section 7a, , requires that companies notify the Federal Trade CommissionFederal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
and the Assistant Attorney General of the United States Department of Justice Antitrust Division
United States Department of Justice Antitrust Division
The United States Department of Justice Antitrust Division is responsible for enforcing the antitrust laws of the United States. It shares jurisdiction over civil antitrust cases with the Federal Trade Commission and often works jointly with the FTC to provide regulatory guidance to businesses...
of any contemplated mergers and acquisitions
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
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 and 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 seIllegal per se
The term illegal per se means that the act is inherently illegal. Thus, an act is illegal without extrinsic proof of any surrounding circumstances such as lack of scienter or other defenses...
. 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
Rule of reason
The Rule of Reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. The rule, stated and applied in the case of Standard Oil Co. of New Jersey v. United States, 221 U.S...
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
Price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
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.
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 unionsTrade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
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, boycott
Boycott
A boycott is an act of voluntarily abstaining from using, buying, or dealing with a person, organization, or country as an expression of protest, usually for political reasons...
s, peaceful strikes
Strike action
Strike action, also called labour strike, on strike, greve , or simply strike, is a work stoppage caused by the mass refusal of employees to work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became...
, peaceful picketing, and collective bargaining
Collective bargaining
Collective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions...
are not regulated by this statute. Injunctions could be used to settle labor disputes only when property damage was threatened.
Major League Baseball
Major League Baseball
Major League Baseball is the highest level of professional baseball in the United States and Canada, consisting of teams that play in the National League and the American League...
is another company exempt from the Clayton Act due to the national heritage associated with it.
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.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
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
, 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.
Legacy
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.See also
- Celler-Kefauver ActCeller-Kefauver ActThe 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 loophole regarding asset acquisitions and acquisitions involving...
- Hart–Scott–Rodino Antitrust Improvements Act
- Internet Freedom and Nondiscrimination Act of 2006Internet Freedom and Nondiscrimination Act of 2006The Internet Freedom and Nondiscrimination Act of 2006 is a bill in the United States House of Representatives. It is one of several bills on the topic of network neutrality proposed as part of a major overhaul of the Telecommunications Act of 1996. The Act is sponsored by Rep. James Sensenbrenner...
- Robinson-Patman ActRobinson-Patman ActThe Robinson–Patman Act of 1936 is a United States federal law that prohibits anticompetitive practices by producers, specifically price discrimination. It grew out of practices in which chain stores were allowed to purchase goods at lower prices than other retailers...
- Sherman Antitrust ActSherman Antitrust ActThe Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
- United States v. Continental Can Co.United States v. Continental Can Co.United States v. Continental Can Co., , was a U.S. Supreme Court case which addressed antitrust issues. One issue it addressed was how should a market segment be defined for purposes of reviewing a merger of companies which manufacture different but related products.-Background:In 1956, Continental...