Clayton Antitrust Act - Business in United States of America

The Law: Federal legislation that extended and modified antitrust regulation of businesses
Date: Became effective on October 15, 1914
Significance: Along with the Sherman Antitrust Act of 1890, the Clayton Antitrust Act protected competition in the marketplace by proscribing various anticompetitive business practices. It also exempted certain union activities from antitrust prosecution, preserving the ability of unions to exert reasonable pressure on employers during negotiations.
During the initial period following the enactment of the first federal antitrust law, the Sherman Antitrust Act of 1890, the law proved to be a disappointment to those who were anticipating its expansive and vigorous enforcement. The American economy was beset by a wave of corporate mergers between 1895 and 1905, leading to renewed concerns about greater concentration of power among fewer firms in various industries. Another disquieting development occurred with the emergence of the “rule of reason” standard of proof in antitrust cases. In the 1911 case Standard Oil Co. v. United States, the U.S. Supreme Court announced that only unreasonable contracts and combinations in direct restraint of trade were illegal. In the aftermath of this decision, many feared that the rule of reason would greatly impair future antitrust enforcement by allowing firms to assert any legitimate business reason in defense of their anticompetitive conduct.
As a consequence of these concerns, antitrust policy emerged as a major issue in the presidential election of 1912. All three principal candidates— Democrat Woodrow Wilson, Republican incumbent William Howard Taft, and independent former president Theodore Roosevelt—called for amendments to the Sherman Antitrust Act to strengthen federal antitrust enforcement. Following his election that year, President Wilson began work on a proposal to reform antitrust law. In January of 1914,Wilson addressed a joint session of Congress to urge the passage of new legislation that would explicitly delineate the anticompetitive practices outlawed by the Sherman Antitrust Act. The former law had simply but vaguely outlawed every “contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce.” Subsequently, Representative Henry D. Clayton, who was chair of the House Committee on the Judiciary, introduced a bill that was eventually enacted into law and became known as the Clayton Antitrust Act.
The Clayton Antitrust Act explicitly prohibited price discrimination, exclusive dealing, and tying—or the anticompetitive linking of a sale price to the purchase of other commodities. The act also outlawed mergers between firms that threatened substantially to lessen competition or to create a monopoly within an industry. If these practices reduced competition, they were rendered illegal by the act whether or not they were “reasonable” from a business perspective. In addition, the new statute exempted labor unions from antitrust regulation and expanded the availability of treble damages and injunctive relief to private plaintiffs who brought civil antitrust lawsuits.