Clayton Antitrust Act of 1914 facts for kids

The Clayton Antitrust Act of 1914 is an important United States antitrust law. Its main goal is to stop unfair business practices before they become a big problem. This law built upon the Sherman Antitrust Act of 1890, which was the first federal law against harmful business practices like monopolies and cartels. The Clayton Act explained specific actions that were not allowed. It also set up how the law would be enforced and what exceptions there were.

Like the Sherman Act, much of what the Clayton Act means has been shaped by U.S. courts, especially the Supreme Court.

Why the Act Was Needed

Before the Clayton Act, the Sherman Antitrust Act of 1890 was sometimes used against worker unions. This made it hard for workers to organize and get fair treatment from their employers.

Also, businesses found a way around the Sherman Act. Instead of forming cartels (groups of companies agreeing on prices), they simply merged into one big company. This gave them similar market power as a cartel.

To address these issues, a group called the Commission on Industrial Relations was formed. Based on their findings, a bill was introduced by Henry De Lamar Clayton Jr. from Alabama. The Clayton Act was passed in 1914.

What the Act Does

The Clayton Act added new rules to federal antitrust law. It aims to stop unfair business practices early on. The Act focuses on four main areas of business and trade:

• Price Discrimination: This means selling the same product at different prices to different buyers. It is illegal if it greatly reduces competition or helps create a monopoly. (Act Section 2)
• Exclusive Dealings and Tying:
  • Exclusive dealings happen when a seller makes a buyer promise not to do business with the seller's competitors.
  • Tying is when a seller makes a buyer purchase one product to get another product they want.
  • Both of these are only illegal if they significantly reduce competition. (Act Section 3)
• Mergers and Acquisitions: These are when companies combine. The Act prohibits mergers if they might greatly reduce competition or lead to a monopoly. (Act Section 7)
• Interlocking Directorates: This stops one person from being a director on the boards of two or more companies that compete with each other. This is illegal if the companies are large enough that a merger between them would break antitrust laws. (Act Section 8)

How it Compares to Other Laws

The Sherman Act mainly dealt with agreements between companies and monopolies. The Clayton Act went further. For example, Section 7 of the Clayton Act allows more control over mergers than the Sherman Act. It doesn't require a merger to create a full monopoly before it's considered illegal.

Today, the Federal Trade Commission and the Department of Justice review mergers. They often use a tool called the Herfindahl-Hirschman Index (HHI) to check if a merger might harm competition.

Section 7 Details

Section 7 of the Clayton Act also defined a "holding company" as a company whose main purpose is to own stocks of other companies. The government saw these as a way to promote monopolies. Section 7 stops companies from buying others if it might reduce competition or create a monopoly.

In 1950, Section 7 was updated. These changes made it even stronger, covering not just stock purchases but also asset purchases (like buying a company's buildings or equipment).

Before a Merger Happens

Section 7a of the Act requires companies to tell the Federal Trade Commission and the Antitrust Division of the Department of Justice about any planned mergers. This applies if the merger meets certain size requirements. These requirements are updated every year based on changes in the country's gross national product.

Section 8 Details

Section 8 of the Act prevents one person from serving as a director for two or more competing companies. This rule applies if the companies meet certain financial thresholds. These thresholds are also updated yearly by the Federal Trade Commission.

Other Rules

The Act specifically mentions exclusive dealing and tying arrangements. Tying is generally considered illegal if it harms competition. Exclusive dealings are judged based on whether they cause significant economic harm.

Who is Exempt?

An important difference between the Clayton Act and the Sherman Act is that the Clayton Act protected worker unions. Section 6 of the Act states that "the labor of a human being is not a commodity or article of commerce." This means that labor unions can work towards their goals.

Therefore, activities like boycotts, peaceful strikes, peaceful picketing, and collective bargaining are not regulated by this law. Courts could only stop labor disputes with injunctions if property damage was threatened. The AFL, a major labor organization, strongly supported this part of the Act.

However, in 1922, the Supreme Court decided in the case Federal Baseball Club v. National League that Major League Baseball was not "interstate commerce." This meant it was not subject to federal antitrust law.

How the Act is Enforced

The Clayton Act allows private citizens or companies who are harmed by violations of the Act to sue. They can sue for three times the actual damages they suffered. They can also ask the court to stop the harmful actions. The Supreme Court has said that this power to stop actions includes forcing companies to sell off parts of their business.

Under the Clayton Act, only civil lawsuits (not criminal cases) can be brought. If a lawsuit is successful, the harmed party can get three times their actual damages, plus court costs and lawyer fees.

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