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- The Clayton Antitrust Act is one of several laws prohibiting anti-competitive business behavior in the US.
- The Clayton Antitrust Act is meant to prevent conflicts of interest, price discrimination, and guarantees the right to sue for certain unethical business practices.
- The Clayton Antitrust Act amended the Sherman Antitrust Act, which was passed in 1890.
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The Clayton Antitrust Act is one of several antitrust laws passed in the US. Its goal is to prevent anticompetitive behavior by businesses and protect consumers from monopolies – as well as the inflated prices monopolies can lead to.
"Without the Clayton Act, businesses could engage in mergers until there was only a single monopolist left providing particular goods or services," says Marc Schildkraut, a partner and antitrust attorney at BakerHostetler.
Understanding the Clayton Antitrust Act of 1914
Congress passed the Clayton Antitrust Act in 1914 in an attempt to strengthen the Sherman Antitrust Act, which was established in 1890. According to House documents, the original bill failed to effectively regulate corporations, leading to unfair competition.
"The Sherman Antitrust Act was the first rule of its kind, so it was a little broad," says Christy Matzen, director of financial planning at Zoe Financial. "As companies have searched for loopholes to get around it, a few more rules have come into play like the Clayton Antitrust Act and the Federal Trade Commission Act. The spirit of these rules are all the same – to promote business rivalry and keep markets competitive, but they just approach the topic from different angles."
The Clayton Act does a few things, including banning price discrimination and anticompetitive mergers, which we'll go into more below. Labor unions, boycotts, and strikes are exempt under the law.
Provisions of the Clayton Antitrust Act
There are several provisions - or sections - of the Clayton Antitrust Act. We'll go into the bigger ones in detail below.
- Price discrimination: The first provision is the Act's ban on price discrimination. This prevents businesses from charging different customers different prices for the exact same product or service. This was later amended by the Robinson-Patman Act in 1936.
- Monopolies: Under Section 3, the Act bans companies from working together to fix prices, reduce competition, or create a monopoly around a certain good or service.
- The right to sue: The Act also establishes the right to take legal action against companies that take part in anticompetitive business practices. Here's how it reads: "... any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue … and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee."
- Exemption for labor unions, agricultural organizations, and horticultural organizations: Labor unions and agricultural and horticultural organizations are not considered "a commodity or article of commerce" and are therefore exempt from antitrust laws, including the Clayton Act and the Sherman Act.
- Mergers and acquisitions: One of the more detailed provisions prohibits companies from acquiring or merging with other similar businesses if it would significantly lessen competition in the marketplace.
- Conflicts of interest: Under this provision, individuals cannot be directors, officers, or employees of more than one bank, banking association, or trust company with more than $5 million in assets.
- Fraudulent activity: This provision says that company presidents, directors, officers, or managers of businesses engaged in commerce can be charged a felony for embezzling, stealing, abstracting, or willfully misapplying company funds.
- Enforcement: Section 11 gives the Interstate Commerce Commission, the Federal Reserve Board, and the Federal Trade Commission the power to enforce various provisions of the act. It also establishes the process by which violations are investigated and penalized.
Amendments made to the Clayton Antitrust Act
The Clayton Act has been amended a few times since its passage in 1918. The big amendments include the Robinson-Patman Act of 1936, the Celler-Kefauver Anti-Merger Act of 1950, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Here's what each of those did:
- Robinson-Patman Act: This amendment strengthened the original act's ban on price discrimination. It specifically aimed to protect small businesses from unfair pricing competition from larger retailers.
- Celler-Kefauver Anti-merger Act: This act closed a loophole that allowed companies to acquire assets from other businesses in an effort to reduce market competition. It also broadened the law to include acquisitions that aren't direct competitors.
- Hart-Scott-Rodino Antitrust Improvements Act: Under this act, companies must notify the FTC and the U.S. Justice Department in advance of any major mergers or acquisitions.
A new bill, dubbed the Competition and Antitrust Law Enforcement Reform Act of 2021, also aims to amend the Clayton Act. According to the current text, it would modify the standards by which acquisitions are deemed anticompetitive and enhance enforcement abilities, among other efforts. It was introduced by Sen. Amy Klobuchar (D-Minn.) in February and has since been referred to the judiciary committee.
The financial takeaway
At the end of the day, Matzen says, the Clayton Act - and all other antitrust legislation - exists to "protect customers from businesses gaining too much power and using it against them."
If you think a business may be violating the Clayton Antitrust Act or participating in anticompetitive behavior, report it to the Justice Department or the Federal Trade Commission immediately. The government will begin an investigation if warranted.