Clayton Antitrust Act

The Clayton Antitrust Act of 1914, (October 15 ,1914, ch. 323,, codified at , ), 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, 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.

Precedent
The political environment under which the Clayton Act was erected was one of protectionism and interventionist policies by the government fearing the growing economic sphere and monopoly of certain areas of commerce. The presidential campaign of 1912 was at the center of a debate on the issue between the three political parties running for the presidency; the Republican Party of William H. Taft, the Democratic candidate Woodrow Wilson and the Progressive Party candidate Theodore Roosevelt. The idea emerged during the Taft presidency to further prevent abuse of corporate power, particularly in terms of stock, with no specific mention of mergers and asset acquisitions, which surprisingly became one of the main and the most applied policy of the Clayton Act to this day. There was also mention of the need for an agency to supervise the regimentation, a concept not included in the Sherman Act of 1890 which was lacking in order to enforce the regulations.

The Act was an attempt to define more clearly the basic policy of the United States with respect to the organization and control of the industry.

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 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 ; if not for this particular concept, the Government would have to intervene in the fixing of prices which was to be avoided because of its comparison to a socialism state;
 * 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 );
 * mergers and acquisitions where the effect may substantially lessen competition (Act Section 7, codified at );
 * any person from being a director of two or more competing corporations (Act Section 8; codified at ).

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, Section 7 of the Clayton Act 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 Federal Trade Commission and Department of Justice to regulate all mergers, and gives the government discretion whether to approve a merger or not, which is still a widely approved action by the government today. It employs the Herfindahl-Hirschman Index (HHI") test for market concentration, to see if the merger is a positive one.

Section 7 is probably the most notable one as it 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 8 of the Act refers to the prohibition of one person of serving as director of two or more corporations.

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 ) 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.

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.

Legacy
The Clayton Act of 1914 reformed and emphasized certain concepts of the Sherman Act of 1890 which are still active today in a growing interconnected market and merging of the industries.