Clayton Antitrust Act

United States 1914

Synopsis

In 1914 the U.S. Congress responded to populist antitrust sentiments and deficiencies in the Sherman Antitrust Act of 1890 with a new act. The Clayton Act, authored by Alabama congressman Henry Clayton, outlawed, among other things, anticompetitive mergers and acquisitions, interlocking directorates, and price discrimination. Like the Sherman Act, the Clayton Act made restraint of trade a felony offense punishable by fine and imprisonment. Unlike the Sherman Act, Clayton exempted labor unions and agricultural cooperatives from antimonopoly rules, thus allowing for peaceful strikes and picketing. Nonetheless, although the new legislation formed part of President Woodrow Wilson's New Freedom economic reform program, the bill became so watered down in the Senate that many progressives felt abandoned and Wilson himself lost interest in it.

Timeline

• 1895: Brothers Auguste and Louis Lumière show the world's first motion picture—Workers Leaving the Lumière Factory—at a café in Paris.
• 1900: China's Boxer Rebellion, which began in the preceding year with attacks on foreigners and Christians, reaches its height. An international contingent of more than 2,000 men arrives to restore order, but only after several tens of thousands have died.
• 1905: Albert Einstein presents his special theory of relativity.
• 1910: Revolution breaks out in Mexico.
• 1915: A German submarine sinks the Lusitania, killing 1,195, including 128 U.S. citizens. Theretofore, many Americans had been sympathetic toward Germany, but the incident begins to turn the tide of U.S. sentiment toward the Allies.
• 1915: Italy enters the war on the side of the Allies, and Bulgaria on that of the Central Powers.
• 1915: At the Second Battle of Ypres, the Germans introduce a terrifying new weapon: poison gas.
• 1915: Turkey's solution to its Armenian "problem" becomes the first entry in a long catalogue of genocidal acts undertaken during the twentieth century. Claiming that the Armenians support Russia, the Turks deport some 1.75 million of them to the Mesopotamian desert, where between 600,000 and 1 million perish.
• 1915: D. W. Griffith's controversial Birth of a Nation is the first significant motion picture. As film, it is an enduring work of art, but its positive depiction of the Ku Klux Klan influences a rebirth of the Klan in Stone Mountain, Georgia.
• 1915: Albert Einstein publishes his General Theory of Relativity.
• 1917: On both the Western Front and in the Middle East, the tide of the war begins to turn against the Central Powers. The arrival of U.S. troops, led by General Pershing, in France in June greatly boosts morale, and reinforces exhausted Allied forces. Meanwhile, Great Britain scores two major victories against the Ottoman Empire as T. E. Lawrence leads an Arab revolt in Baghdad in March, and troops under Field Marshal Edmund Allenby take Jerusalem in December.
• 1919: Treaty of Versailles is signed by the Allies and Germany, but rejected by the U.S. Senate. This is due in part to rancor between President Woodrow Wilson and Republican Senate leaders, and in part to concerns over Wilson's plan to commit the United States to the newly established League of Nations and other international duties. Not until 1921 will Congress formally end U.S. participation in the war, but it will never agree to join the League.

Event and Its Context

Curbing Corporate Power

With the advance of industrial capitalism in the late nineteenth century, prominent companies were growing toward monopoly, which created public concern that they would be able to control interstate commerce and prices. In the 1870s and early 1880s, banks and financiers poured huge amounts of capital into rapidly growing industries such as the railroads, mining, and steel. These investments ultimately contributed to a concentration of economic power that was cemented by informal collusion in the form of alleged "gentlemen's agreements." Populist disapproval of the growing power of large corporations, business mergers, and corporate trusts led to the Sherman Antitrust Act of 1890. Drawing legitimacy from the U.S. Congress's power to regulate interstate commerce, this act, which was named after its sponsor, Senator John Sherman, was the federal government's first attempt to thwart monopoly. Section 1 of the act prohibited "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Section 2 made it illegal to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations." Violators of either section would be guilty of a felony offense and subject to a fine up to $10 million (if a corporation) or $350,000 (if an individual) and up to three years in prison.

Despite the act's potential as a weapon against corporate power, the government lacked the federal legislation and agencies necessary to make it effective. Moreover, its applicability was for more than a decade weakened by Supreme Court decisions. Those arguing that the Sherman Act was ineffective could point to a post-Sherman period bringing the greatest corporate consolidation in American history. In the five-year fiscal period 1898-1902, there were 1,797 consolidations, 857 of these in 1899 alone. The tide began to change, however, with the launch of President Theodore Roosevelt's "trust-busting" campaigns and a subsequent Supreme Court acknowledgement of the federal government's right to bust the Northern Securities Company. In 1906 Roosevelt filed a federal suit against Standard Oil, which controlled most of the crude oil refined in the United States. The Supreme Court in 1911 found the company in violation of the Sherman Antitrust Act and ordered it to get rid of more than 30 of its primary affiliates. Although the Sherman Act was strengthened during the Taft administration, critics felt it was vague and lacked the juridical teeth to make it effective. Reform would come in 1914, with the founding of the Federal Trade Commission and the passing of the Clayton Antitrust Act.

Wilson's New Freedom

The beginning of the Woodrow Wilson administration in March 1913 brought promises of antimonopoly actions and restoration of free competition. With his "New Freedom" economic reform program, Wilson aimed at banking reform and increased government regulation of business. One part of the new president's economic reform strategy was an interstate trade commission to replace the old Bureau of Corporations; the measure, presented by James Covington of Maryland, passed both houses and was signed into law on 10 September, thus creating the Federal Trade Commission. On 20 November, after successfully defending the Underwood (tariff reform) bill and the Federal Reserve Bill, Wilson met with leading congressional Democrats to discuss an antitrust act. Wilson's rise to power was accompanied by Democratic control of Congress and a number of southern Democrats in positions of influence. Although the president originally considered reforming and clarifying the Sherman Act, the legislators convinced him to seek a new solution. In January 1914 he announced his antitrust plan before a joint session of Congress. Most of Wilson's antitrust measures, at first reflected in several different bills, were later represented in a single House bill authored by Representative Henry Clayton of Alabama.

The Clayton Act of 1914 outlawed or curtailed several specific business practices considered to be unreasonable attempts to restrain trade or commerce. In the words of Montana senator Thomas J. Walsh, the act was meant "to preserve competition where it exists, to restore it where it is destroyed, and to permit it to spring up in new fields." The act, for example, banned mergers and acquisitions in cases in which the result would reduce competition or lead toward monopoly. Section 2 outlawed price discrimination, thus making it illegal for commodities to be sold to different buyers at different prices (except for cases in which the price discrepancy is the result of transportation or selling costs). Section 3 ruled out exclusive dealing, establishing that producers could not sell to a retailer or wholesaler on the understanding that no other distributor in the trade area would receive similar products and that the purchaser would not deal in products supplied by the seller's competitors.

Violators of both sections would be considered guilty of a felony punishable by a fine of up to $10 million (if a corporation); individuals could be fined up to $350,000 and imprisoned for up to three years.

The act established that corporations could not hold stock in competing companies if the result was to reduce competition substantially. It also outlawed so-called interlocking directorates, prohibiting the same individual from serving on the boards of directors of two or more competing companies having capital surplus and undivided profits greater than $1 million. Moreover, it gave power to the new Federal Trade Commission and the U.S. Justice Department to block any merger that was in violation of antitrust laws.

The Clayton bill saw considerable opposition from many camps. Although huge corporations threatened with dissolution may have seen the bill as dangerous, progressives saw it as weak. Southern Democrats and agrarians, for example, wanted to break all trusts completely. Labor unions took issue with the "combinations in restraint of trade" provisions of the bill for fear their actions would be affected.

Labor and the Clayton Act

By the mid-1890s labor unions had learned to hate the Sherman Antitrust Act, given that its attack on capital could also be turned on labor. This became apparent with the Pullman Strike in 1894. In that year, Cleveland attorney general Richard Olney used the Sherman Act against the American Railway Union and was thus able to imprison the union's president, Eugene Debs, for contempt of court. After labor unions protested language in the Clayton bill that they feared might make unions illegal, Congress amended the act to state that unions were not "illegal combinations or conspiracies in restraint of trade." Labor unions and agricultural cooperatives were thus exempted from the proscriptions of the Sherman Act. Nonviolent labor movements, strikes, boycotts and picket lines would all be legal.

Section 17 of the act specifically declared that antitrust laws would not be applicable to labor organizations. Most significantly, it recognized that "the labor of a human being is not a commodity or article of commerce." Nothing in the antitrust laws, it said, should be understood to prohibit the existence or activities of labor, agricultural, or horticultural activities "instituted for the purposes of mutual help, and not having capital stock or conducted for profit." Moreover, it stated that individual members could not be restrained from carrying out their "legitimate objectives." Samuel Gompers, president of the American Federation of Labor (AFL), hailed the legislation as the Magna Carta of labor, though this original euphoria would soon dissipate with court interpretations that practically nullified labor's expected advances.

Although historians generally attribute passage of the Clayton Antitrust Act to popular antitrust sentiment and the need to address the inadequacies of the Sherman Antitrust Act, some economists believe that congressional approval of the act was also the product of lobbying by interest groups. Because the Clayton Act essentially redistributed wealth among the nation's different economic interest groups and agents, those groups presumably influenced legislators' votes on the act. In the case of Senate voting patterns, although senators from the industrialized New England states (with higher numbers of manufacturing pressure groups) tended to oppose the act, those from the agricultural southern states (with corresponding agrarian interest groups) tended to support it.

With the passage of the Clayton Act, Wilson considered his economic reform package complete. The satisfaction of some of his fellow Democrats was summed up by Alabama congressman Tom Heflin when he declared that "laborers are employed, wages are good, the earth has yielded abundantly, the Democratic Party is in control, God reigns, and all is well with the Republic." Many progressives, agrarians, and labor activists nonetheless considered Wilson's reforms insufficient. The bill's original proponents felt that they had been abandoned, as the bill's strongest measures had been amended and thus rendered harmless.

"When the Clayton bill was first written … it was a raging lion with a mouth full of teeth," complained Missouri senator James A. Reed. "It has degenerated to a tabby cat with soft gums, a plaintive mew, and an anemic appearance." Like other antitrust proponents, he considered the amended bill to be a legislative apology to the trusts, "delivered hat in hand, and accompanied by assurances that no discourtesy is intended." Wilson himself complained that Senator Charles Culberson of Texas, chairman of the Judiciary Committee, had worked to water down the bill and had effectively neutralized it. Nonetheless, he lost interest in the bill and did nothing to restore its original force. Congress passed it and he signed it into law on 15 October 1914.

In 1921, in the case of Duplex Printing Press v. Deering, the United States Supreme Court essentially gutted the labor provisions of the Clayton Act by ruling that federal courts could enjoin labor unions for actions in restraint of trade.

Key Players

Clayton, Henry De Lamar (1857-1929): Clayton represented Alabama in the House of Representatives from 1897 to 1915. A Democrat, he was the author of the Clayton Antitrust Act of 1914.

Culberson, Charles Allen (1855-1925): A Texas Democrat, Culberson served in the U.S. Senate from 1899 to 1923. He chaired the Senate Committee on the Judiciary from 1899 to 1929. President Wilson accused him of working to weaken the provisions of the Clayton Antitrust Act.

Wilson, Woodrow (1856-1924): Wilson, a Democrat, was the28th president of the United States, serving from 1913 to1921. His New Freedom program passed economic reforms in the form of banking and antitrust legislation. He complained that the Clayton Antitrust Act was a weak version of the bill he originally supported.

See also: Pullman Strike.

Bibliography

Books

Byrd, Robert C. "The Woodrow Wilson Years: 1913-1920."In The Senate, 1789-1989. Washington, DC: Government Printing Office, 1994.

Periodicals

USIA. "Summary of Major U.S. Antitrust Laws." Economic Perspectives 4, no. 1 (February 1999).

Other

Bonney, Doug. "The Right to Strike." Kansas City Labor Advocate Online. Know Your Rights [cited 17 October 2002]. <http://www.kclabor.org/knowstrike.htm>.

Lucash, Gesmer, and Updegrove, LLC. Web site, ConsortiumInfo.org. The Sherman Antitrust Act of 1890. 2002 [cited 17 October 2002]. <http://www.consortiuminfo.org/antitrust/sherman.shtml>.

Micheloud, Francois. "John D. Rockefeller and the Standard Oil Company. The 1890 Sherman Antitrust Act" [cited 17 October 2002]. <http://www.micheloud.com/FXM/SO/antitrust.htm>.

A Moment in Time Archives. "The South's Revenge: The Amazing Congress of 1912." 24 June 2002 [cited 17 October 2002]. <http://www.ehistory.com/world/amit/display.cfm?amit_id=1258>.

Ramírez, Carlos D., and Christian Eigen-Zucchi. "Why Did the Clayton Act Pass? An Analysis of the Interest Group Hypothesis." Department of Economics, George Mason University. April 1998 [cited 17 October 2002]. <http://www.gmu.edu/departments/economics/working/Papers/98_03.pdf>.

Spartacus Educational. Anti-Trust Act [cited 17 October2002]. <http://www.spartacus.schoolnet.co.uk/USAtrust.htm>.

—Brett Allan King

Clayton Act (1914)

Herbert Hovenkamp

The political seed for the Clayton Act (38 Stat. 730) was sown in the 1912 presidential election, a three-way contest between William Howard Taft, the incumbent Republican; Woodrow Wilson, the Democrat challenger; and Theodore Roosevelt, running for his old job on the Progressive Party, or "Bull Moose," ticket. All three parties believed that the Supreme Court had been far too lenient to large corporations and that antitrust laws needed to be strengthened. When Wilson won the election, he instructed Congress to work on new legislation, and the Clayton Act emerged two years later in 1914.

The principal provisions of the Clayton Act, which is far more detailed than the Sherman Act, the law it was meant to supplement, include (1) a prohibition on anticompetitive price discrimination; (2) a prohibition against certain tying and exclusive dealing practices; (3) an expanded power of private parties to sue and obtain treble (triple) damages; (4) a labor exemption that permitted union organizing; and (5) a prohibition against anticompetitive mergers.

PRICE DISCRIMINATION

Section 2 of the Clayton Act states that: "It shall be unlawful ... to discriminate in price between different purchasers of commodities ... where the effect of such discrimination may be to substantially lessen competition or tend to create a monopoly." The drafters of the Clayton Act believed that large firms such as Standard Oil perpetuated their monopolies by engaging in selective, or discriminatory predatory pricing. For example, Standard might be charging ten cents per gallon for its fuel oil in towns where it had a monopoly. It might then cut the price to below cost in a competitive town until it drove the competitors out of business, using the high profits from the monopoly towns to finance the below-cost prices in the competitive town. Section 2 was intended to prevent this strategy by forbidding Standard from charging two different prices in the two sets of town if the result was to extend Standard's monopoly.

The provision against predatory pricing was widely used through the 1960s to condemn this type of price discrimination. However, critics increasingly argued that the provision condemned hard competition and actually forced firms to charge more than they otherwise would. In Brooke Group Ltd. v. Brown & Williamson Tobacco Co. (1993), the Supreme Court developed strict standards for proving that price discrimination did in fact "substantially lessen competition." Since then, it has been almost impossible for plaintiffs to win any cases.

TYING AND EXCLUSIVE DEALING

Section 3 of the Clayton Act provides that: "It shall be unlawful ... to make a sale ... of goods ... on the condition ... that the ... purchaser ... shall not use or deal in the goods ... of a competitor ... where the effect ... may be to substantially lessen competition or tend to create a monopoly...." This provision of the Clayton Act was passed in response to the Supreme Court's decision in Henry v. A.B. Dick & Co. (1912). The Court had found no violation when A. B. Dick required users of its mimeograph machines (an early form of copy machine) to purchase all their paper and ink from that company as well. Congress believed that firms like A.B. Dick used such "tying arrangements" to expand one monopoly into two. In this case, the company already had a monopoly on its patented mimeograph machine. By requiring everyone who used the machine to use its paper and ink, the company could also monopolize the market for paper and ink used in those machines.

Today most economists and others interested in antitrust law believe this practice is rarely competitively harmful. In fact, A.B. Dick may have had good reasons to tie paper and ink. For example, its machine might work better when its own paper and ink are used, making consumers happier. In its 1984 decision in Jefferson Parish Hospital v. Hyde, the Supreme Court made unlawful tying more difficult to prove. That case approved an arrangement under which the hospital required all surgical patients to use its own approved anesthesiology firm. Competition was not harmed, the Supreme Court concluded, because the hospital admitted only 30 percent of the patients in the area, meaning there was ample room for other anesthesiologists to practice their profession.

The other practice that section 3 of the Clayton Act occasionally condemns is exclusive dealing, which occurs when a firm insists that retailers handle its brand exclusively. In Standard Oil of California v. United States (1949), the Supreme Court found it unlawful for Standard to require its gasoline stations to sell Standard's gasoline exclusively. In more recent years we are inclined to think decisions like this are harmful, because they limit a manufacturer's power to control the quality of its products. For example, in Krehl v. Baskin-Robbins Ice Cream Co. (1982), the court held that Baskin-Robbins could require its stores to sell only Baskin-Robbins ice cream. Otherwise, customers might be deceived into buying cheaper brands when they thought they were getting the real thing. Today most, but not all, exclusive dealing is legal.

PRIVATE LAWSUITS

Both the United States government and individual states have the power to enforce antitrust laws. Yet 90 percent of lawsuits are brought by private parties such as consumers or business firms. Section 4 of the Clayton Act states: "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore in any district court of the United States ... and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee." This provision creates a major inducement to sue because it means that a private plaintiff can obtain a damage award three times as large as the actual loss. Further, if the plaintiff wins, the defendant will have to pay the plaintiff's attorneys' fees.

For example, suppose that compact disc (CD) manufacturers fix the price of music CDs, including those that you buy, at $18. Price fixing is an automatic violation of section 1 of the Sherman Act. The lawyer managing this suit would probably bring a "class action" on behalf of thousands of people who paid too much for CDs. The lawyer would also hire an expert economist who would testify about the price of CDs in a competitive market. Suppose the jury accepted this expert's testimony that if the price fixing had not occurred the price of CDs would have been $15. In that case you are the victim of an "overcharge" equal to the difference between the cartel price and the competitive price, or $3. At that point you would have to show how many CDs you purchased during the cartel period. Suppose you had purchased twelve. Your "actual" injury would then be $3 times 12, or $36. However, under the antitrust laws this number would be trebled to $108.

Damages awards in antitrust cases can be very high, sometimes as much as $1 billion. This makes antitrust litigation very attractive to lawyers and explains why so many antitrust cases are filed. By some estimates there are as many as 700 antitrust cases filed in the United States every year.

THE LABOR EXEMPTION

Section 6 of the Clayton Act provides that: "The labor of a human being is not a commodity or article of commerce. Nothing contained in the antitrust laws shall be construed to forbid the existence and operation of labor ... organizations?; nor shall such organizations, or the members thereof, be held or construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws."

One thing that surprised many Progressives in the United States was the degree to which the Supreme Court permitted use of the antitrust laws to break labor strikes. A labor strike is an agreement among laborers that they will not work unless they get paid a certain wage. Economically, this agreement is identical to a price fixing agreement in a product such as a CD. Because section 1 of the Sherman Act did not distinguish between price fixing in goods and price fixing in labor, the Supreme Court held that labor strikes were just as unlawful as cartels. (An example can be found in Loewe v. Lawlor [1908], known as the Danbury Hatters case.)

Section 6 was intended to change these outcomes by immunizing labor strikes from antitrust suits. The statute had to be strengthened by other legislation passed during the New Deal and after, but the ultimate outcome was that labor unions are free to organize and agree on a wage without violating the antitrust prohibition against price fixing.

MERGERS

Probably the most often used section of the Clayton Act is the prohibition of anticompetitive mergers. A merger occurs when one company buys another and the two firms become one. For example, Chrysler Motors at one point acquired Jeep, Inc. Later, Chrysler was itself acquired by Daimler-Benz, the maker of Mercedes-Benz automobiles. As a result, Mercedes-Benz cars, Jeeps, and Chrysler cars such as Dodge and Plymouth are all manufactured today by the same very large company.

Most mergers are legal, and in general economists think they benefit the economy by enabling manufacturers to produce or distribute goods more cheaply. A few mergers are anticompetitive, however. They might create a monopoly or make price fixing much easier than it was before the merger occurred. Section 7 of the Clayton Act provides: "No person engaged in commerce ... shall acquire ... the whole or any part of ... another person engaged also in commerce ... where in any line of commerce or in ... any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." The term "person" in this provision refers to a "legal" rather than a biological person. Legally, corporations are also treated as persons. As a result, the provision applies both to firms owned by a single person but also to very large corporations. Only acquisitions involving fairly large firms, however, are typically found to be unlawful.

Mergers are unlawful when they either create a monopoly or make it much easier for the remaining firms in the market to fix prices. A good example is Federal Trade Commission v. Heinz, Inc. (2001), which prohibited a merger between two manufacturers of baby food. Gerber, Heinz, and Beech-Nut were the three major producers of baby food in the United States. Heinz offered to purchase Beech-Nut so the two would become a single firm. Under the law, large mergers have to be reported to the Department of Justice or the Federal Trade Commission, the two federal agencies that enforce the antitrust laws. In this case the Federal Trade Commission challenged the merger. The court accepted its evidence that with three firms in the market there was a significant amount of competition in the baby food market, and this tended to keep prices low. If the merger were permitted, the market would have only two firms and these would not compete as fiercely as firms in a three-firm market. As a result of the court's decision, Heinz abandoned the merger plans and the market continued to have three major baby food producers.

See also: Federal Trade Commission Act; Sherman Antitrust Act.

BIBLIOGRAPHY

Chamberlain, John. The Enterprising Americans: A Business History of the United States. New York: Harper & Row, 1974.

Faulkner, Harold U. American Economic History. New York: Harper, 1960.

Hovenkamp, Herbert. Federal Antitrust Policy: The Law of Competition and Its Practice, 2d ed. St. Paul, MN: West Group, 1999.

Sklar, Martin J. The Corporate Reconstruction of American Capitalism, 1890–1916. Cambridge, UK: Cambridge University Press, 1988.

Progressive Party of 1912

The Progressive Party of 1912 was founded by former members of the Republican Party who opposed the Republicans' presidential nominee, William Howard Taft, who they perceived as being too conservative and promoting business interests at the expense of the worker. The Progressives rallied their supporters around issues including tariffs, income tax, and conservation. Their first presidential candidate, Theodore Roosevelt, had already served as president from 1901 to 1909, first succeeding to the office after the assassination of William McKinley. On the Progressive ticket, Roosevelt received 25 percent of the popular vote, but the Democratic candidate, Woodrow Wilson, won the election. The Progressives did not field another presidential candidate until Senator Robert M. La Follette of Wisconsin in 1924. Basing his candidacy on some of the original platform, La Follette won 17 percent of the popular vote, with much of his support coming from antiestablishment organizations. After Calvin Coolidge, a pro-business Democrat, won the election, the Progressive Party collapsed. In 1948 the name was resurrected by an unrelated group that also espoused liberal causes.

Excerpt from Clayton Act Defining the Term "Person"

Title 15, Chapter 1, Section 12:

The word "person" or "persons" wherever used in this Act shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country.

CLAYTON ANTI-TRUST ACT

Passed by Congress in 1914, the Clayton Anti-Trust Act strengthened the legislation of the Sherman Anti-Trust Act of 1890. The Clayton Act thus provided the government with more power to prosecute trusts (large business combinations that conspired to limit competition and monopolize a market). The Sherman legislation declared as illegal every "contract, combination, or conspiracy in restraint of interstate and foreign trade." The Clayton legislation outlawed price fixing (the practice of pricing below or above cost to eliminate a competitive product), made it illegal for the same executives to manage two or more competing companies (a practice called interlocking directorates), and prohibited any corporation from owning stock in a competing corporation. The price-cutting provision was later strengthened (in 1936) by the passage of the Robinson-Patman Act. The Clayton Act also exempted labor unions from prosecution under the Sherman Anti-Trust Act; before the 1914 legislation, businesses had invoked, with some success, the Sherman legislation when labor strikes affected business in more than one state, citing the interruption as a conspiracy of interstate trade. Since organized labor had not been the target of the Sherman legislation, lawmakers exempted them from the antitrust legislation of 1914.

Between 1880 and the early 1900s, corporate trusts proliferated in the United States, becoming powerful business forces. The vague language of the Sherman Anti-Trust legislation and the courts' reluctance to prosecute big business based on that act did little to break up the monopolistic giants. The tide turned against corporate trusts when Theodore Roosevelt (1901–1909) became president in September 1901, after President William McKinley (1897–1901) was assassinated. Roosevelt launched a "trust-busting" campaign; through the attorney general's office, his administration launched some 40 lawsuits against American corporations such as American Tobacco Company, Standard Oil Company, and American Telephone and Telegraph (AT&T). Government efforts to break up the monopolies were strengthened in 1914, during the presidency of Woodrow Wilson (1913–1921), when Congress passed the Clayton Anti-Trust legislation and created the Federal Trade Commission (FTC), which is responsible for keeping business competition free and fair. Trust busting declined during the prosperity of the 1920s, but was again vigorously pursued during the 1930s by the administration of Franklin Roosevelt (1933–1945)

See also: Monopolies, Theodore Roosevelt, Sherman Anti-Trust Act, Tobacco Trust, Trust-Busting, Woodrow Wilson

CLAYTON ACT

A federal law enacted in 1914 as an amendment to thesherman anti-trust act(15 U.S.C.A. § 1 et seq. [1890]), prohibiting undue restriction of trade and commerce by designated methods.

The Clayton Act (15 U.S.C.A. § 12 et seq. [1914]) was originally enacted to exempt unions from the scope of antitrust laws by refusing to treat human labor as a commodity or an article of commerce. Today, it is used primarily to prohibit the suppression of free competition by making illegal four business practices: price discrimination, which is the sale of the same product to comparably situated buyers at different prices; tying and exclusive dealing contracts, which are the sale of products on condition that the buyer stop dealing with the seller's competitors; corporate mergers, the acquisition of competing companies by one company; and interlocking directorates, the members of which are common members on the boards of directors of competing companies.

These practices are illegal when they might substantially lessen competition or tend to create a monopoly in any line of commerce. By making the suppression of free competition unlawful the Clayton Act supplements the provisions of the Sherman Act, which outlaws monopolies.