Clayton Antitrust Act Definition
Clayton antitrust act is an antitrust law in the United States codified in 1914 which prevents in its infancy the trade practices that are unfair and harmful to the competitiveness of markets. Henry De Lamar Clayton was the person behind drafting this Act and the act came into being under the presidency of Woodrow.
Background
Due to the growing number of companies of all sizes, the United States law bodies sought to address the unfair and anti-competitive practices that could victimize the smaller companies at the hands of the larger organizations. In the late nineteenth century, the Sherman law was passed by US congress.
The Clayton Antitrust Act further removed any unclarified and missing provisions in order to safeguard the spirit of competitiveness. It listed some prohibitions, enforcements and remedial measures in this regard and aimed at strengthening the provisions of the Sherman antitrust act.
Sections of the Clayton Antitrust Act
The act has several provisions described in several sections of the text. For the purpose of this article, it should be sufficient to introduce three of the most important and widely used sections.
- The act provides for prohibiting the companies to restrict the formation of labor unions. Thus, labor unions can protest against employers on considerations of wages, exploitation, etc. Hence the exemption to strikes, boycotts, bargaining, etc., by labor parties.
- The Act prohibits companies from merging with other companies in any way that lessens competition and/or creates a monopoly in the market. This has been inscribed in section 7 of the act. this is described in section 8 of the act.
- The Clayton antitrust act also sets restrictions for pricing of products. In some situations, the price floor is exploited by larger manufacturers thereby eating away the margins and revenues of smaller firms. These practices are regulated by setting minimum price levels for certain products.
There are several other antitrust laws that are worth mentioning:
- Sherman Antitrust Act (1890) – Outlawed trusts, monopolies, and cartels.
- Federal Trade Commission Act (1914) – Unfair trade practices.
- Robinson Patman Act (1936) – Anti-price discrimination act.
Examples of the Clayton Antitrust Act
A simple example can be used to understand price discrimination. Suppose a firm is fixed the selling price of an air cooler at $150. A lawyer files a lawsuit in the interest of a group of people who bought 5 air coolers. The reason for the litigation is the evidenced finding that the price of air cooler should have been $125. The matter is taken to the court as a civil suit and the judges agree to the Public lawyer upon factual testimonies.
The court shall now order to pay for the damages suffered by the people who bought 5 air coolers. The number of damages would be three times the overcharge paid or ‘treble damage’ as laid down in the Clayton act. Hence, each consumer is liable to get ($150 – $125) times 3 the amount, or $75 in reparation.
US antitrust lawsuits have come a long way and two of the well-known examples are as follows:
#1 – Kodak
Kodak has a long history with antitrust lawsuits. Kotak dominated the camera and film market for a very long time. It had to deal with lawsuits over competition and trade practices several of which it won. However, some of the cases led to improvements in the federal antitrust law regime in the United States.
#2 – Heinz Inc
Another example in this regard is the intended merger of Heinz Inc with Gerber and Beech-Nut. Heinz Inc. is the leader in the food industry and combined with the other two companies, the post-merger entity would have become a significant player in the baby food space. This would have led to monopolistic prices in the markets. The proposed merger was challenged by the US antitrust body, Federal Trade Commission in 2001. Following a lawsuit, Heinz dropped the merger and thus competition was safeguarded in the industry.
Advantages
- The act brought all the participating firms on a similar level of competitiveness. It largely eliminated the practice of predatory pricing and shielded every firm on this account.
- The act regulates the conduct of mergers and acquisitions in such a way that a person cannot serve on the boards of two competing companies. In precision, he/she cannot be in a position to make decisions on two boards.
Limitations
- Stricter antitrust laws in us make it difficult for us companies to compete with companies from other geographies.
- In general, antitrust laws can be difficult to interpret as they contain provisions that have extensive applicability. For example, ‘unfair’ trade practices can be interpreted differently in different contexts and circumstances.
Important Points about the Clayton Antitrust Act
- The Act, under Section 4 and 16, issues authorization to oppressed parties for imposing treble damage in cases of violations to either the Sherman Act or the Clayton Act. This means that the oppressed party can sue the violating party for three times the damages suffered; this can also include costs incurred in seeking attorney aid, court fees, etc.
- The Clayton Antitrust Act was amended in 1976. The improvements came through the Hart-Scott-Rodino Act which required firms to notify beforehand the governments of any mergers and acquisitions.
Conclusion
Prior to the Clayton Antitrust Act of 1914, the formation of cartels was prevalent. The regard to anti-competitive practices was negligible and it sparked the labor commissions and labor unions of that time to compel the US to make strong amendments to the existing Sherman act. The Clayton act made procedural and substantive amendments to US federal antitrust law. It took cognizance of malpractices in competing markets in their inception.
The Clayton Act has been the basis for some of the most popular historical lawsuits involving large corporations. It being more detailed and foolproof than its predecessor Sherman act has served a great deal to the cause of fair competition and trade practices.
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