Celler-Kefauver Act Amends Antitrust Legislation Summary

  • Last updated on November 10, 2022

The Celler-Kefauver Act was an amendment to the Clayton Antitrust Act, which had guided federal antitrust actions since it was passed in 1914. It closed a loophole in the earlier law, preventing mergers that did not involve acquisition of stock between companies, and otherwise increased the ability of the government to prevent corporate mergers that would tend to reduce competition.

Summary of Event

The Celler-Kefauver Act of 1950 amended the Clayton Antitrust Act by closing a loophole that had allowed companies to avoid antitrust suits by acquiring the assets (rather than the stock) of another company. Government enforcement of the Celler-Kefauver Act encouraged companies to seek growth through a strategy of diversification. Thus, the Celler-Kefauver Act contributed to the conglomerate movement of the early 1960’s. [kw]Celler-Kefauver Act Amends Antitrust Legislation (Dec. 29, 1950)[Celler Kefauver Act Amends Antitrust Legislation] [kw]Kefauver Act Amends Antitrust Legislation, Celler- (Dec. 29, 1950) [kw]Act Amends Antitrust Legislation, Celler-Kefauver (Dec. 29, 1950) [kw]Antitrust Legislation, Celler-Kefauver Act Amends (Dec. 29, 1950)[Antitrust Legislation, Celler Kefauver Act Amends] Celler-Kefauver Act (1950)[Celler Kefauver Act] Antitrust legislation Clayton Antitrust Act (1914) Celler-Kefauver Act (1950)[Celler Kefauver Act] Antitrust legislation Clayton Antitrust Act (1914) [g]North America;Dec. 29, 1950: Celler-Kefauver Act Amends Antitrust Legislation[03360] [g]United States;Dec. 29, 1950: Celler-Kefauver Act Amends Antitrust Legislation[03360] [c]Laws, acts, and legal history;Dec. 29, 1950: Celler-Kefauver Act Amends Antitrust Legislation[03360] [c]Trade and commerce;Dec. 29, 1950: Celler-Kefauver Act Amends Antitrust Legislation[03360] [c]Business and labor;Dec. 29, 1950: Celler-Kefauver Act Amends Antitrust Legislation[03360] Celler, Emanuel Kefauver, Estes Truman, Harry S. [p]Truman, Harry S.;antitrust policy

The roots of the Celler-Kefauver Act can be traced to passage of the Clayton Act in 1914. Section 2 of this law prohibited business firms from acquiring the stock of another company if the resulting merger lessened competition between the two companies. The Clayton Act, however, made no mention of mergers based on the purchase of another company’s assets. During the 1920’s, American companies took advantage of this loophole to form mergers based on the acquisition of assets. The Federal Trade Commission Federal Trade Commission (FTC) prosecuted the companies involved in these mergers but, in 1926, the Supreme Court Supreme Court, U.S.;antitrust law ruled that the Clayton Act did not apply to acquisition of corporate assets. The Court’s interpretation made the Clayton Act an ineffective weapon against monopoly.

Senator Estes Kefauver leaves the White House after meeting with President Harry S. Truman in 1952.

(National Archives)

In 1927, the FTC asked Congress to amend the Clayton Act to close the loophole, but the prosperity of the mid-1920’s had caused Congress to lose interest in strict enforcement of antitrust laws. During the late 1920’s and early 1930’s, as the Great Depression Great Depression began, the government downplayed antitrust policy; President Herbert Hoover encouraged corporations to survive by cooperating in a wide range of activities. Similarly, in the mid-1930’s, President Franklin D. Roosevelt Roosevelt, Franklin D. [p]Roosevelt, Franklin D.;and business[business] granted antitrust exemptions to those companies cooperating with the National Recovery Administration National Recovery Administration (NRA). NRA officials hoped that cooperation—in the form of mergers and price controls—would lift the nation out of the Great Depression.

During the late 1930’s, Roosevelt reversed direction and attempted to silence his critics in big business by supporting a renewed antitrust campaign led by Thurman Arnold Arnold, Thurman , head of the Justice Department’s Antitrust Division. Roosevelt also called for the creation of the Temporary National Economic Committee Temporary National Economic Committee (TNEC) to study the effects of monopoly on the American economy. In its final report in 1941, the TNEC recommended passage of legislation designed to close the asset loophole. Along with officials in the FTC and the Justice Department, the members of the TNEC formed an activist community committed to strengthening the nation’s antimonopoly legislation. Although World War II brought a temporary halt to its activity, this antitrust community pledged to resume its antimonopoly crusade once the war ended.

Several factors sparked a renewed interest in antitrust enforcement in the immediate postwar period. First, a growing number of observers worried that the wartime placement of military contracts with big business had increased the overall level of economic concentration. In December, 1946, the House Small Business Committee’s House Committee on Small Business Subcommittee on Monopoly House Subcommittee on Monopoly —chaired by Estes Kefauver, a liberal Democrat from Tennessee—issued a report concluding that big business had benefited disproportionately from the wartime boom. The Kefauver report criticized the lackluster wartime performance of the government’s antitrust agencies and called for an amendment to the Clayton Act that would close the asset loophole.

Second, the FTC tried to justify its existence by securing passage of stronger antitrust legislation. The FTC described the weak merger movement of the late 1940’s as a grave threat to competition. The commission enjoyed the support of President Harry S. Truman, a longtime advocate of antitrust enforcement. During his presidency, Truman appointed ardent antitrust advocates to the FTC and secured additional appropriations from Congress for the enforcement of antitrust legislation.

At the conclusion of World War II, congressional antitrust advocates introduced a flurry of bills designed to strengthen the Clayton Act. In 1945, Senator Joseph O’Mahoney O’Mahoney, Joseph (a Democrat from Wyoming) and Representative Estes Kefauver introduced legislation that would close the asset loophole. Their bills remained in committee, however, and for the next several years they failed in efforts to push their legislation through a Republican-controlled Congress.

In 1948, the Democrats secured control of both houses of Congress, thus increasing the likelihood that a major piece of antitrust legislation could become law. During the presidential campaign, Truman had supported legislation to close the assets loophole. He interpreted his victory in the election as a mandate to go forward with strict enforcement of the antitrust laws. In 1949, Truman encouraged the chairman of the House Judiciary Committee, Emanuel Celler (a Democrat from New York), to go forward with an investigation of monopolies. Celler used his committee hearings as a forum to promote his bill to amend the Clayton Act. Newly elected as a senator, Kefauver introduced a companion bill in the Senate. The Celler and Kefauver bills prohibited companies from acquiring the assets of other companies if the resulting mergers substantially lessened competition.

Celler and Kefauver broke with antitrust tradition by emphasizing the alleged evils of bigness per se. In the past, the government had been concerned with the intent behind mergers and their actual effect on competition. The Supreme Court had established a “rule of reason” to govern antitrust cases. According to the Court, antitrust law applied only to unreasonable restraints upon trade. Celler and Kefauver believed that bigness automatically reduced efficiency, dampened innovation, and diminished opportunities for small business. They also argued that big business had given rise to big labor and big government: Ultimately, big business threatened the foundations of American democracy, since an all-powerful state would be required to regulate the nation’s monopolies. Celler and Kefauver resorted to Cold War rhetoric, arguing that their legislation would prevent the emergence of a totalitarian state.

The business press feared that the legislation would radically restructure the American economy. Critics of the legislation, led by the U.S. Chamber of Commerce, believed that existing antitrust laws were sufficient to prevent the development of monopolies. These opponents also criticized the FTC for exaggerating the extent of the postwar merger movement and for failing to show that mergers actually had lessened competition. Republican conservatives, however, failed to block passage of the bills. On August 15, the House passed Celler’s bill (H.R. 2734) by a vote of 223 to 92. The Senate subsequently passed Kefauver’s bill, and on December 29, 1950, President Truman signed the Celler-Kefauver Act into law.

Significance

The Celler-Kefauver Act of 1950 sent a message to the business community that the federal government would closely examine the effects of any mergers between companies in the same industry. The act also gave the nation’s antitrust agencies a powerful new weapon in their campaign against monopoly. At first, however, the act did not apply to mergers between companies in unrelated industries. Consequently, numerous articles appeared in the business press encouraging companies to seek growth through diversification. Thus, the Celler-Kefauver Act temporarily facilitated the conglomerate Conglomeration in business merger wave of the 1950’s and 1960’s. This wave was cut short, however, by the Supreme Court’s decision in Federal Trade Commission v. Procter & Gamble Company, Federal Trade Commission v. Procter & Gamble Company (1967)[Federal Trade Commission v. Procter and Gamble Company] which held that conglomerate mergers could be subject to antitrust actions under the Celler-Kefauver Act.

Despite its active role in the passage of the Celler-Kefauver Act, the Truman administration failed to enforce the law, in large part because the government reduced its antitrust activity in order to secure the cooperation of business during the Korean War. A budget-conscious Congress also reduced funding for the antitrust agencies. Corporate executives nevertheless remained cautious about acquiring competitors, and the number of mergers dropped off in the early 1950’s.

Under the administration of President Dwight D. Eisenhower Eisenhower, Dwight D. [p]Eisenhower, Dwight D.;and business[business] (1953-1961), the Justice Department and the FTC responded to renewed merger activity by acting more aggressively in their prosecution of antitrust cases. In 1955, the attorney general’s National Committee to Study the Antitrust Laws National Committee to Study the Antitrust Laws, U.S. issued a report calling for stricter enforcement of antitrust legislation. The report also outlined the government’s interpretation of the Celler-Kefauver Act. According to the committee, the government need not prove that a company had intended to lessen competition by acquiring a rival; instead, the government could simply use market share as a measure of competition in an industry. The committee’s report did not address the question of conglomerate mergers.

The FTC and the Justice Department followed the guidelines set forth by the attorney general’s committee. During the Eisenhower administration, the two agencies prosecuted more than fifty cases involving alleged violations of the Celler-Kefauver Act. In one important case, brought against the Pillsbury Company, the FTC ruled that the Celler-Kefauver Act allowed the agency to prohibit mergers that lessened competition in regional or local, as opposed to national, markets. The government also brought cases against a number of the nation’s largest companies, including Bethlehem Steel, Lever Brothers, Crown Zellerbach, Minute Maid, and Anheuser-Busch. Nearly all of these cases involved mergers within the same industry.

President John F. Kennedy’s attorney general continued to charge many companies with violations of the Celler-Kefauver Act. The U.S. Supreme Court approved of the government’s strict enforcement of the law. In the landmark Brown Shoe Co. v. United States (1962) Brown Shoe Co. v. United States (1962) , the Court ruled that the government could halt a merger if there was a chance that it might lessen competition in any region of the country. During the 1960’s, the Court continued to consider mergers a threat to competition and, between 1962 and 1970, the nation’s highest court decided in favor of the government in all but one of the merger cases. Of those decisions, one of the most significant was the one handed down in the Procter & Gamble case. That ruling broadened the scope of antitrust law to include conglomerate mergers when such mergers greatly increased the marketing power of a corporation that already had significant market share or when they eliminated potential competition rather than actual competition. Celler-Kefauver Act (1950)[Celler Kefauver Act] Antitrust legislation Clayton Antitrust Act (1914)

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Areeda, Phillip, Louis Kaplow, and Aaron Edlin. Antitrust Analysis: Problems, Text, Cases. 6th ed. New York: Aspen, 2004. Textbook containing case studies of the major antitrust cases in American history. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Bork, Robert H. The Antitrust Paradox: A Policy at War with Itself. New York: Basic Books, 1978. A critical study of the American antitrust tradition. Chapter 9 argues that the Supreme Court’s interpretation of the Celler-Kefauver Act has deviated from the original intent of Congress. Assumes some knowledge of antitrust law.
  • citation-type="booksimple"

    xlink:type="simple">Celler, Emanuel. You Never Leave Brooklyn: The Autobiography of Emanuel Celler. New York: J. Day, 1953. Provides insight into the personal and philosophical motivations behind Celler’s crusade against big business. Most of the work is devoted to Celler’s concern with immigration and other issues.
  • citation-type="booksimple"

    xlink:type="simple">Fligstein, Neil. The Transformation of Corporation Control. Cambridge, Mass.: Harvard University Press, 1990. Shows how antitrust policy has influenced corporate strategy by shifting the emphasis away from control of market share to control of companies in unrelated fields. Chapter 5, “The Emergence of the Celler-Kefauver Act, 1938-1950,” explores the legislative history of the act in depth. Chapter 6, “The Impact of the Celler-Kefauver Act, 1948-1980,” analyzes the implementation of the act and its effects on merger activity.
  • citation-type="booksimple"

    xlink:type="simple">Fontenay, Charles L. Estes Kefauver: A Biography. Knoxville: University of Tennessee Press, 1980. A balanced account of the career of one of the nation’s leading politicians during this period. Part 1 discusses Kefauver’s relations with Emanuel Celler and other key figures in the antitrust community.
  • citation-type="booksimple"

    xlink:type="simple">Hylton, Keith N. Antitrust Law: Economic Theory and Common Law Evolution. New York: Cambridge University Press, 2003. Comprehensive text on economic principles behind antitrust and the development of American antitrust law over more than one hundred years of litigation. Bibliographic references and index.
  • citation-type="booksimple"

    xlink:type="simple">Kovaleff, Theodore Philip. Business and Government During the Eisenhower Administration: A Study of the Antitrust Policy of the Antitrust Division of the Justice Department. Athens: Ohio University Press, 1980. A sympathetic account of the government’s antitrust policy under President Dwight D. Eisenhower. The author believes that Eisenhower viewed an aggressive antitrust campaign as an alternative to direct government regulation of business.
  • citation-type="booksimple"

    xlink:type="simple">Peritz, Rudolph J., Jr. Competition Policy in America, 1888-1992: History, Rhetoric, Law. New York: Oxford University Press, 1996. History of federal government policies relating to antitrust issues. Includes a substantial bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Williamson, James R. Federal Antitrust Policy During the Kennedy-Johnson Years. Westport, Conn.: Greenwood Press, 1995. Begins with a lengthy discussion of U.S. antitrust law and american economic development from the nineteenth century through World War II. Places Celler-Kefauver Act in context and details its effects in the 1950’s and 1960’s.

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