Clayton Act history

One of the three major ANTITRUST laws in the United States, the law was passed following congressional hearings in 1912 that revealed much about the nature of American business and finance. Many business combinations had been formed despite the existence of the SHERMAN ACT since 1890, and Congress decided to attempt to plug some of the loopholes.

Largely as a result of the Standard Oil decision in 1911, both conservatives and liberals were unhappy with judicial interpretations of the Sherman Act. While the Supreme Court approved the antitrust conviction and breakup of Standard Oil, it also announced a rule of reason that seemed wishy-washy to Progressives. All three political parties (Republican, Progressive, and Democrat) advocated significant congressional supplementation of the antitrust laws. Wilson’s victory guaranteed that the revision would be substantial. The Clayton Act, which was passed in 1914, defined prohibited practices much more specifically than the Sherman Act had.

Section two of the Clayton Act condemned a type of PREDATORY PRICING attributed to Standard Oil, whereby the large firm charged a very low price in the victim’s market, “recouping” its costs by charging higher prices in other markets where it already had a monopoly. Section three prohibited tying, or the monopolist’s insistence that the buyer could purchase a desired product only if it took a second, perhaps undesired, product as well; and exclusive dealing, or a seller’s requirement that the buyer take the contracted good only from that seller. Section four included an expanded right of private plaintiffs to seek treble damages plus attorney fees for antitrust suits. Section five provided that, if the government should win an antitrust case, private plaintiffs suing the same defendant need not prove the case again, but must show only their injury. Section six was designed to immunize labor unions—a form of cartel—from antitrust claims of price fixing or boycott. Section seven prohibited anticompetitive MERGERS between competing firms. Finally, section eight prohibited interlocking directorates—that is, prohibited the same person from serving on the board of directors of two competing companies.

Almost immediately the Clayton Act had a significant effect on antitrust jurisprudence, with the Supreme Court condemning several practices under the new statute, such as both tying and exclusive dealing, that had been approved under the older Sherman Act standards. The development of a more aggressive merger policy came later. The labor exemption proved ineffectual and had to be supplemented by further legislation during the NEW DEAL.