What are the Sherman Antitrust and Clayton Acts?

In the late 1800’s and early 1900’s, the U.S. government struggled with anti-competitive practices between businesses. Part of the concern was related to artificial pricing practices that harmed consumers. In response to these monopolies, cartels, and trusts, Congress passed two major pieces of legislation:  The Sherman Antitrust Act and the Clayton Act.

The Sherman Antitrust Act

Passed in 1890, the Sherman Antitrust Act was the first major legislation passed to address oppressive business practices associated with cartels and oppressive monopolies.  The Sherman Antitrust Act is a federal law prohibiting any contract, trust, or conspiracy in restraint of interstate or foreign trade.

Even though the title of the act refers to trusts, the Sherman Antitrust Act actually has a much broader scope. It provides that no person shall monopolize, attempt to monopolize or conspire with another to monopolize interstate or foreign trade or commerce, regardless of the type of business entity.

Penalties for violating the act can range from civil to criminal penalties; an individual violating these laws may be jailed for up to three years and fined up to $350,000 per violation. Corporations may be fined up to $10 million per violation. Like most laws, the Sherman Antitrust Act has been expanded by court rulings and other legislative amendments since its passage. One such amendment came in the form of the Clayton Act. 

The Clayton Act

The purpose of the Clayton Act was to give more enforcement teeth to the Sherman Antitrust Act. Passed in 1914, the Clayton Act regulates general practices that may be detrimental to fair competition. Some of these general practices regulated by the Clayton Act are: price discrimination, exclusive dealing contracts, tying agreements, or requirement contracts; mergers and acquisitions; and interlocking directorates. 

The Clayton Act is enforced by the Federal Trade Commission (FTC) and the Department of Justice (DOJ). Many of the provisions of the Clayton Act set out how the FTC or DOJ can respond to violations. Other parts of the Clayton Act are designed to proactively prevent anti-trust issues. For example, before two companies can merge, they must notify the FTC and obtain approval prior to the merger. The Clayton Act also created exemptions from enforcement for certain organizations, the most significant being labor unions.

Getting Legal Help

Both the Sherman Antitrust Act and the Clayton Act are federal laws. Many states have passed their own legislation regulating business entities. If you are considering starting a business or merging your business with another entity, consult with a corporate attorney who can advise you of the state and federal limitations of your business planning activities.