Clayton Antitrust Act of 1914

The Clayton Antitrust Act of 1914, (October 151914, ch. 323, 38 Stat. 730, 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 and cartels). The Clayton act specified particular prohibited conduct, the three-level enforcement scheme, exemptions, and remedial measures.

Passed during the Wilson administration, the legislation was first introduced by Alabama Democrat Henry De Lamar Clayton in the U.S. House of Representatives, where the act passed by a vote of 277 to 54 on June 5th, 1914. Though the Senate passed its own version on September 2nd, 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 5th and the House until October 8th 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.

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. Notably, the act prohibits:

• price discrimination between different purchasers if such 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);
• any person from being a director of two or more competing corporations (Act Section 8; codified at 15 U.S.C. § 19).

It is noteworthy how the substantive provisions differ from the Sherman act. Unilateral price discrimination is clearly outside the reach s. 1 of the Sherman act, which only extended to "concerted activities" (agreements). However, the other provisions seem somewhat redundant. Exclusive dealing, tying, and mergers are all agreements, and theoretically, within the reach of Sherman-1. Likewise, mergers that create monopolies would be actionable under Sherman-2.

However, the substantive provisions of the act are significant. First, Clayton-7 allows greater regulation of mergers than just Sherman-2, since it doesn't require a merger-to-monopoly before there is a violation; it allows the FTC and DOJ to regulate all mergers, and gives the government discretion whether to approve a merger or not. Today, the test used for whether a merger is approved is based on the Herfindahl-Hirschman Index (HHI") test for market concentration.

Second, Clayton-3 is notable as well. At the time of its passage, the legislature that enacted the Sherman act was largely concerned with horizontal restraints. For many years, enforcement of antitrust law using Sherman-1 focused on horizontal agreements. The clear focus of Clayton-3 is vertical agreements. This clarifies that both horizontal and vertical agreements are within the scope of federal antitrust law.

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.

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 15 U.S.C. § 17) exempts labor unions and agricultural organizations. 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.

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 Act is also enforced by the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.

See also

• Celler-Kefauver Act
• Hart-Scott-Rodino Antitrust Improvements Act
• Robinson-Patman Act
• Sherman Antitrust Act
• United States v. Continental Can Co.

External links

• Brief History of the Federal Trade Commission (PDF)
• Why Did The Clayton Act Pass? An Analysis of the Interest Group Hypothesis (PDF)
• Full Text of the Clayton Antitrust Act