ROCKFORD MEMORIAL CORPORATION, ET AL., PETITIONERS V. UNITED STATES
OF AMERICA

   No. 90-162

   In The Supreme Court Of The United States

   October Term, 1990

   On Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Seventh Circuit

   Brief For The United States In Opposition

            TABLE OF CONTENTS
   Questions Presented
   Opinions below
   Jurisdiction
   Statement
   Argument
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. b1-b46) is reported
at 898 F.2d 1278.  The opinion of the district court (Pet. App.
a1-a286) is reported at 717 F. Supp. 1251.

                             JURISDICTION

   The judgment of the court of appeals was entered on April 3, 1990.
The petition for a writ of certiorari was filed on July 2, 1990.  The
jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

                          QUESTIONS PRESENTED

   1. Whether the court of appeals erred in holding that petitioners'
agreement to merge violated Section 1 of the Sherman Act.

   2. Whether the district court's determinations of the relevant
geographic and product markets were clearly erroneous.

   3. Whether the lower courts erred in finding a merger presumptively
unlawful based on market concentration measured in several different
ways, where both courts also addressed other relevant competitive
factors before declaring the merger unlawful.

                               STATEMENT

   1. In September 1987, petitioners, who own two of the three general
acute care hospitals in Rockford, Illinois, agreed to consolidate.
The government sued to prevent this merger, claiming that it would
diminish competition in acute inpatient hospital care in the Rockford
area, in violation of both Section 7 of the Clayton Act, 15 U.S.C. 18,
and Section 1 of the Sherman Act, 15 U.S.C. 1.  After a 13-day trial,
the district court entered judgment in the government's favor and
permanently enjoined the transaction.  /1/ The court entered a
108-page opinion (accompanied by 41 pages of additional findings of
fact) concluding that the challenged transaction violated Section 7 of
the Clayton Act.  Pet. App. a1-a286.

   a. The court held that Section 7 of the Clayton Act applied to the
challenged transaction despite petitioners' not-for-profit status.  It
read United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963), as
ruling that Section 7 covered, with respect to all persons (including
not-for-profit corporations), "the entire amalgamation of corporate
mergers, from pure stock acquisitions to everything up to, but not
including, a pure asset acquisition not accomplished by merger." Pet.
App. a17, citing Philadelphia Nat'l Bank, 374 U.S. at 343-344.
Accordingly, because the challenged transaction was not a pure assets
acquisition not accomplished by merger, it was within Section 7.  Pet.
App. a7-a35.  The court therefore did not reach the government's
Sherman Act claim.  Id. at a211 n.22.

   b. The court then determined the relevant product market for
analyzing the competitive impact of the merger.  See Pet. App.
a36-a53.  Quoting from Brown Shoe Co. v. United States, 370 U.S. 294,
325 (1962), the district court began with the principle that "(t)he
outer boundaries of a product market are determined by the reasonable
interchangeability of use or the cross-elasticity of demand between
the product itself and substitutes for it." Pet. App. a37.  It then
reasoned that "(t)he purpose of defining a market based on a product's
interchangeability with respect to other products is to distill the
product market into a product or group of products sufficiently
distinct that buyers could not defeat an attempted exercise of market
power on the part of the sellers of these products by shifting
purchases to different products." Id. at a37-a38.

   With those guideposts, the court considered the government's
contention that the relevant product market was acute inpatient
hospital care and petitioner's contention that the relevant product
market included both inpatient and outpatient care provided by all
health care providers.  The court recognized that developments in
technology over time had led to substitution of outpatient care for
inpatient care, Pet. App. a41-a42, but it distinguished that pattern
of substitution from the substitutability relevant to product market
definition.  The court concluded that cost containment pressures
generally limited the use of inpatient care to those "too 'sick' to
receive outpatient care," so that "to a great extent, patients now
receiving inpatient care could not have received outpatient care as a
substitute." Id. at a43.  /2/ Accordingly, the court concluded, as had
the defendants' own economist, /3/ that the relevant product market
was acute inpatient hospital care.  Id. at a48, a52-a53.

   c. The court began its analysis of the geographic market by noting
that the relevant geographic market is the "area in which the seller
operates, and to which the purchaser can practicably turn for
supplies." Pet. App. a53-a54 (quoting Philadelphia Nat'l Bank, 374
U.S. at 359, quoting in turn Tampa Electric Co. v. Nashville Coal Co.,
365 U.S. 320, 327 (1961)) (emphasis added by the district court).  The
court then drew on this Court's refinements of the concept in
Philadelphia Nat'l Bank and Brown Shoe.  In applying those standards,
the court relied on a variety of different types of evidence, such as
the admitting practices and preferences of physicians, patients, and
third-party payors, Pet. App. a54-a59, the relatively limited scope of
services provided by other hospitals in the area surrounding Rockford,
id. at a62-a63, and county- and zip code-level data concerning the
origins and destinations of patients -- that is, data indicating the
geographic areas from which hospitals draw their clients for acute
inpatient care and the hospitals to which residents of various
geographic areas go for acute inpatient care, id. at a64-a131.
Recognizing that determination of the relevant geographic market is
inherently imperfect, id. at a124, the court found that the relevant
geographic market was an area including some or all of six counties,
within which there were six hospitals.  Id. at a131-a132.  That
geographic market was larger than the one proposed by the government
and smaller than the one proposed by the defendants.

   d. The court then found that the proposed consolidation would
greatly increase concentration within the market it had defined and
would result in an extremely high level of concentration, whether
measured by beds, admissions, or patient days.  Pet. App. a145-a149.
Whatever measure is chosen, the merged hospitals would have at least a
64% share of the market;  the share of the two largest hospitals would
increase from approximately two-thirds to 90%.  Id. at a147-a148;  see
also id. at a209-a210.  In light of such cases as Philadelphia Nat'l
Bank, the court concluded that this increase in concentration meant
that one firm would control an undue percentage share of the market.
Id. at a152-a153.

   The court, however, did not rest its analysis of the likely
anticompetitive effect of the merger entirely on market shares.  The
court examined barriers to entry into the market, Pet. App. a154-a161,
and concluded that legal barriers to both de novo entry and expansion
by existing competitors reinforced the likely anticompetitive
tendencies indicated by concentration levels before and after the
merger, id. at a161.  It examined the "type of competition that exists
in the acute inpatient hospital market in order to determine whether
the market is susceptible to anti-competitive behavior," ibid., and
concluded that "hospitals in the relevant market could benefit from a
variety of anti-competitive activity." Id. at a167.  It noted a prior
instance of anticompetitive collusion by all three Rockford hospitals,
id. at a178-a181, and the merging hospitals' perception that
competition threatened them, id. at a181-a183, and concluded that
not-for-profit entities do not lack incentives to behave
anticompetitively.  Id. at a167-a176.  Thus "(b)ased on an examination
of the relevant market's concentration, barriers to entry, nature of
competition, and market participants," the court found that "the
post-merger market is ripe for anti-competitive behavior." Id. at
a184;  see also id. at a210.  /4/

   2. The court of appeals affirmed.  Pet. App. b1-b46.  It concluded
that "as the parties have framed the issues the merger is not subject
to section 7" of the Clayton Act, even though there was a "solid
argument, based on section 11 of the Clayton Act," that the merger was
subject to Section 7 of that law.  Pet. App. b17-b18.  /5/ The court
of appeals decided this case under Section 1 of the Sherman Act
because "the subordinate findings that the judge made demonstrate a
section 1 violation" and because both sides had briefed and argued the
Sherman Act issue.  Pet. App. b18-b19.  The court of appeals
accordingly found it unnecessary to decide whether the district judge
was correct in holding that Section 7 of the Clayton Act reaches
mergers between nonprofit corporations.  Pet. App. b44-b45.  The court
of appeals also discussed the question whether, as pertinent here, the
standards of Section 1 of the Sherman Act and Section 7 of the Clayton
Act have "converged," Pet. App. b19-b27, /6/ but the court held that,
regardless of the answer to that question, this transaction was
unlawful under Section 1 of the Sherman Act, as interpreted in United
States v. Columbia Steel Co., 334 U.S. 495 (1948).  Pet. App. b27-b28.
 The court explained that the resulting level of concentration here
would be far higher than that in Columbia Steel, and that conditions
in the hospital industry "reinforce rather than undermine the
inference naturally to be drawn from (petitioners') combined market
share." Id. at b28.

   The court of appeals upheld the district court's product market
determination, observing that competition between inpatient and
outpatient care in some services offered by acute care hospitals
provides no check on the ability of hospitals to raise prices for
services not available on an outpatient basis.  Pet. App. b31-b33.
The court of appeals also upheld the district court's geographic
market determination.  The court of appeals concluded that, while the
district court's determination was imperfect and subject to "pot
shots," it was not clearly erroneous, whereas petitioner's proposal
was "ridiculous," id. at b37, b38.  Finally, the court noted that
"(petitioners') immense shares in a reasonably defined market create a
presumption of illegality," and that, as in Hospital Corp. of America
v. FTC, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 U.S. 1038
(1987), the inference of market power drawn from market shares was
strengthened by many other factors in this case.  Pet. App. b38.  The
court specifically considered the significance of petitioners'
non-profit status, concluding that petitioners had presented no
evidence that "non-profit suppliers of goods or services are more
likely to compete vigorously than profit-making suppliers." Id. at
b40-b41.

                               ARGUMENT

   1. Petitioners' principal claim is that the court of appeals erred
in ruling that the standards under Section 1 of the Sherman Act and
Section 7 of the Clayton Act have converged.  Pet. 11-15.  See also
VHA Br. 16-19.  But the court of appeals' discussion of that issue was
not necessary to the result it reached.  The court specifically held
that the district court's factual findings established a violation of
the Sherman Act under this Court's precedents even if the Sherman Act
and Clayton Act standards have not converged and even if the Sherman
Act establishes a higher and more demanding standard.  Accordingly,
this case is not an appropriate vehicle for this Court to resolve the
principal legal question presented in the petition.

   2. There is no merit to petitioners' claim that the court of
appeals, in affirming the district court's determinations of the
relevant product and geographic markets, departed from this Court's
decisions in Brown Shoe and Tampa Electric.  Pet. 17.

   a. The district court began its analysis of the relevant product
market with the Brown Shoe concepts of reasonable interchangeability
and cross-elasticity of demand.  See p. 3, supra.  The district court
concluded that there generally was no outpatient substitute for most
patients receiving inpatient care, and therefore that outpatient care
could not prevent the exercise of market power in the inpatient care
market.  Pet. App. a51.  The court of appeals upheld that finding and
simply restated the point.

   Since the courts below plainly applied the Brown Shoe legal
standards, petitioners fall back to a conflict of factual findings,
based on different records, between the district court's decision in
this case and the district court's decision in United States v.
Carilion Health System, 707 F. Supp. 840 (W.D. Va.) (reprinted at Pet.
App. D), aff'd without published opinion, 892 F.2d 1042 (4th Cir.
1989) (Table) (reprinted at Pet. App. e1-e20).  /7/ A conflict between
different findings by two different district courts on different
records, however, does not warrant this Court's review.  /8/

   b. The decision below comports with this Court's precedents on the
issue of the proper definition of the geographic market.  Contrary to
petitioners' claim, Pet. 20-21, the district court followed this
Court's decision in Tampa Electric and asked where buyers could
practicably turn for supplies.  Pet. App. a53, a64-a65, a78-a121.  In
fact, petitioners' real complaint appears to be that the district
court misapprehended a single exhibit and therefore allegedly erred in
applying a particular test urged by petitioners to zip code-level
patient origin and destination data, and that the court of appeals
failed to reverse the district court's judgment on that ground.  Pet.
20-21 & n.8.  But the district court based its market analysis on many
other factors as well, including county-level origin and destination
data, analyzed by the district court without a similar claim of error
by petitioners.  See pp. 4-5, supra;  Pet. App. a14-a114.  /9/ In any
event, a question of the proper analysis of one item of evidence,
already considered by two courts, does not warrant this Court's
review.  See, e.g., United States v. Doe, 465 U.S. 605, 614 (1984);
United States v. Johnston, 268 U.S. 220, 227 (1925).

   3. Petitioners' remaining claims rest on the erroneous assertion
that the court of appeals never looked beyond market shares in holding
the merger unlawful.  Pet. 22.  The court of appeals itself found that
additional factors supported the inference of market power flowing
from market shares, Pet. App. b28.  The district court's analysis of
additional factors was more extensive, see Pet. App. a154-a184;  pp.
5-6, supra.  The court of appeals was not required to restate the
district court's entire analysis in order to uphold its judgment.

   a. Neither the district court nor the court of appeals disregarded
the teaching of Brown Shoe and United States v. General Dynamics
Corp., 415 U.S. 486 (1974), that "statistics on market share and
concentration are not conclusive." Pet. 23.  The district court
explicitly treated concentration as but one of "several salient
competitive factors" in the predictive determination of competitive
effects, Pet. App. a139, and examined other factors at length, id. at
a154-a184.  The court thus gave concentration statistics only the
presumptive effect that this Court assigned them in Philadelphia Nat'l
Bank, 374 U.S. at 363.  See Pet. App. a142-a143.  Similarly, the court
of appeals said that the "defendants' immense shares in a reasonably
defined market" did no more than "create a presumption of illegality,"
id. at b38.  The court of appeals found that other factors
strengthened the inferences to be drawn from these market shares,
ibid., and that "defendants responded (to the market share evidence)
with conjectures about the motives of nonprofits, and other will o'
the wisps, that the district judge was free to reject, and did," id.
at b44.  /10/

   b. The district court extensively considered, and rejected,
petitioners' claim that as not-for-profit entities they lacked a
motive to act anticompetitively.  See page 6, supra.  The court of
appeals, which had treated the motivation of not-for-profit hospitals
at greater length in its earlier decision in Hospital Corp. of America
v. FTC, 807 F.2d at 1390-1391, also discussed and rejected
petitioners' theories.  Pet. App. b40-b41.  Thus, contrary to
petitioners' claim, Pet. 25-27, the courts below did address the issue
of motive;  they simply disagreed with petitioners on that issue.
/11/ Petitioners' fact-bound disagreement with the lower courts'
findings on that subject does not warrant review by this Court.  /12/

   c. The fact that the court of appeals did not explicitly address
St. Anthony's opposition to the merger, Pet. 26, is irrelevant.  The
court of appeals had no obligation to discuss every point raised by
petitioners.  The district court considered this argument at length,
and it found a plausible reason why St. Anthony's might rationally
oppose an anticompetitive merger as exclusionary.  Pet. App. a186.
Moreover, the district court correctly concluded that even if St.
Anthony's believed that the merger would be procompetitive, its belief
would be less than decisive "where the evidence, as is true in this
case, supports the anti-competitive effect of the merger." Id. at
a186-a187.  There was no need for the court of appeals to add to that
discussion.  /13/

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   JAMES F. RILL

      Assistant Attorney General

   ROBERT B. NICHOLSON

   DAVID SEIDMAN

      Attorneys

   SEPTEMBER 1990

   /1/ Amicus City of Rockford overlooks the fact that the injunction
was a permanent one.  For that reason, the City errs in arguing, City
Br. 26-30, that the court of appeals misapplied the standard for
entering a preliminary injunction.

   /2/ The district court relied on evidence that third-party payors
insisted that patients be admitted to hospitals only when medically
necessary.  Pet. App. a42-a43, a236-a240.  Thus, the court reasoned
that the number of inpatients who could "possibly utilize outpatient
care" was not "significant enough to break an exercise of market power
in the inpatient care market." Id. at a51.

   /3/ The defendants' economist, Dr. Lynk, testified that acute
inpatient hospital services are a reasonable, economically justifiable
product market within which to assess the future competitive
consequences of the consolidation, that most economists who study the
hospital industry consider it to be the product market definition most
relevant for analysis of hospital competition, and that he was aware
of no basis for requiring a broader product market definition that
would include outpatient services.  Tr. 1195-1199.

   /4/ The court also considered the significance of opposition to the
merger by the third hospital in Rockford, St. Anthony's, concluding
that St. Anthony's might well fear exclusionary behavior by the merged
hospitals rather than the emergence of a more efficient competitor,
but that in any event a competitor's opposition was not dispositive.
Pet. App. a184-a187.

   /5/ In the district court and the court of appeals, the government
had argued that the merger was subject to Section 7 of the Clayton
Act, relying on the theory that the district court accepted.  The
government did not rely on Section 11 of the Clayton Act, 15 U.S.C.
21, in the district court, and the court of appeals held the
government had waived that argument.  Pet. App. b14.  Accordingly, the
argument made by amicus Voluntary Hospitals of America, Inc. (VHA),
that the court of appeals misconstrued Section 11 of the Clayton Act,
VHA Br. 13-16, is irrelevant to this case.

   /6/ The court of appeals stated that standards for determining the
legality of a merger under Clayton Act Section 7 and Sherman Act
Section 1 have converged through judicial interpretation.  Pet. App.
b20.  Consequently, the court said, in light of United States v. First
National Bank & Trust Co., 376 U.S. 665 (1964), a merger likely to
hurt consumers by facilitating collusion and supracompetitive pricing
would be unlawful under either law.  Pet. App. b23-b25.

   /7/ In its unpublished, per curiam opinion affirming the Carilion
findings, the Fourth Circuit observed that "the district court may not
have stated its findings (on the product market issue) with the
precision that would facilitate appellate review," but nonetheless
concluded that those findings "were sufficiently set forth that we can
fairly say that they are not clearly erroneous." Pet. App. e16-e17.
In so ruling, the Fourth Circuit purported to apply (albeit
erroneously in our view) the same reasonable interchangeability
standard that the district court applied in this case.  Id. at e14.
There is, accordingly, no basis for petitioners' claim, see Pet. 17,
that the decision below conflicts with the Fourth Circuit's decision
in Carilon.

   /8/ The claim that the court of appeals here "treated the question
of appropriate market definition as a question of law rather than as a
question of fact," American Hospital Ass'n Br. 11;  id. at 11-17,
ignores that court's clear statement that market definition is
reviewed as a question of fact.  Pet. App. b38.

   /9/ The court's county-level analysis yielded a three-county market
containing the same six hospitals as the court's zip code-based
market.  Compare Pet. App. a117 with id. at a118.

   /10/ There is no basis for petitioners' suggestion that the
anticompetitive effect of their merger in current markets should be
ignored because the merger might increase competition with respect to
certain hospital services.  Pet. 23-25.  Without even addressing
whether merger analysis properly relies on "some ultimate reckoning of
social or economic debits and credits," Philadelphia Nat'l Bank, 374
U.S. at 371, it is sufficient to note that petitioners' suggestion
would divert a court's attention from substantial and immediate
effects on competition to trying to ascertain effects in a remote and
speculate future.  Nothing in Brown Shoe or General Dynamics
authorizes or requires a court to indulge in such speculation.
Petitioners' scenario for the competitive future relies on proposed
but not enacted state legislation, Pet. 23, and on their mere stated
intent to strengthen their hospitals' "tertiary services," Pet. 24;
see Pet. App. a187, a192.  Contrary to their assertion, Pet. 10, the
district court did not find that the merger would result in
development of a "regional referral center." The district court merely
noted that petitioners "proclaim(ed)" that this benefit would
"eventually" result from the merger.  Pet. App. a187.  The district
court concluded that the merger "might also allow the new entity to
improve its services to the extent that it might become a major
medical center, providing tertiary care in * * * a broader
geographical area," id. at a206 (emphasis added).

   The related argument of amicus American Medical Association (AMA)
rests on extra-record materials referring to hospitals other than
petitioners' hospitals, see AMA Br. 6-32, and on a view of the
competitive weaknesses of petitioners' hospitals, see AMA Br. 33-36,
that cannot be reconciled with the district court's findings, Pet.
App. a193-a194, a221-224, a226-a227.

   The district court may be forgiven for ignoring Amicus City of
Rockford's alleged support for the merger, see City Br. 4-5, since the
then-mayor testified that the city had taken no position concerning
the merger, Tr. 854.

   /11/ Neither Matsushita Elec. Industrial Corp. v. Zenith Radio
Corp., 475 U.S. 574 (1986) (Pet. 23), nor NAACP v. Claiborne Hardware
Co., 458 U.S. 886 (1982) (Pet. 26), involved a merger, and neither
case suggests that a court must evaluate the parties' motives to act
anticompetitively where the structural effects of their merger would
clearly threaten competition.

   /12/ The contention of amicus VHA that hospital markets generally
depart from the "competitive paradigm," VHA Br. 3-13, was not raised
in district court.  Moreover, that argument rests almost entirely on
extra-record materials, including materials postdating the court of
appeals' decision, VHA Br. 9, 1a-3a, and testimony on direct
examination (but not the accompanying testimony on cross-examination)
given in another case, VHA Br. 9, 14a-23a.  VHA's implicit argument
that competition in hospital markets is undesirable because it is
costly, VHA Br. 9, is properly addressed to Congress, not to the
courts.  See National Soc'y of Professional Engineers v. United
States, 435 U.S. 679, 695 (1978).

   /13/ In a prior case, the court of appeals held that although a
competing hospital's opposition to a merger might indicate that the
competitor thought the merger would lead to lower prices, that was
"just one firm's opinion," and not binding on the Federal Trade
Commission.  Hospital Corp. of America, 807 F.2d at 1392.