Document: 378 U.S. 158 84 S.Ct. 1710 12 L.Ed.2d 775 UNITED STATES, Appellant,v.PENN-OLIN CHEMICAL COMPANY et al. No. 503. Argued April 30, 1964. Decided June 22, [Syllabus from pages 158-159 intentionally omitted] Sol. Gen. Archibald Cox for appellant. H. Francis DeLone, Philadelphia, Pa., and Albert R. Connelly, New York City, appellees. Mr. Justice CLARK delivered the opinion of Court. 1 Pennsalt Chemicals Corporation Olin Mathieson Chemical jointly formed Penn-Olin Company to produce sell sodium chlorate in southeastern United States. The Government seeks dissolve this joint venture as violative both § 7 Clayton Act1 Sherman Act.2 This direct appeal, 32 Stat. 823, 15 U.S.C. 29, States District Court Delaware, raises two questions. First, whether Act is applicable where corporations form a third engage new enterprise; and, second, if question answered affirmative, there violation or under facts case. trial court found that venture, on record, violated neither these sections it unnecessary reach first question. 217 F.Supp. 110. In view importance each questions administration antitrust laws, we noted probable jurisdiction. 375 938, 350, 11 270. We have concluded organized here would be subject regulation reaching merits, hol while present record no Act, erred dismissing complaint Act. Accordingly, judgment vacated remanded further consideration. 2 1. LINE OF COMMERCE, RELEVANT MARKET, ETC. 3 At outset well note some troublesome ordinarily cases been eliminated by parties. line commerce chemical known chlorate. It produced commercially electrolysis an acidified solution chloride. All like purity usable interchangeably used primarily pulp paper industry bleach pulp, making brighter higher quality paper. done using principal raw material generate chlorine dioxide, gaseous which bleaches cellulose fibers maximum whiteness with minimum loss strength. consumes about 64% total production also employed herbicides, agricultural chemicals certain derivatives, such ammonium perchlorate. Next, relevant market not disputed. part Nor fact has never engaged commercial contested. purchased does purchase amounts internal consumption acted sales agent territory contracts dated December 1957 February 1958. owns patented process bleaching dioxide. requires widely manufacturers royalty-free licenses. 4 additionThe shows are competition sale nonchlorate chemicals, only one was selected 'guinea pig' determine alleged violations extended those chemicals. calcium hypochlorite, limited plant built at Calvert City constructed only. jurisdictional statement indicated might argue had illegal impact calicum hypochlorite commerce, but raised brief argument merits. 5 2. THE COMPANIES INVOLVED. 6 solely products throughout Its assets around hundred million dollars its same amount. located Portland, Oregon, capacity 15,000 tons 1959. occupied 57.8% west Rocky Mountains. marketed extent since 1957. shipments into 1960 were 4,186 sold 3,202 agency ontract. large diversified corporation, result merger Industries, Inc., 1954. One seven divisions operates plants produces wide range accounting 30% Olin's revenues. grossed $690,000,000 $860,000,000. 8 Pennsalt. Each 50% stock officers directors divided equally between parents. Kentucky, equal contribution parents cost $6,500,000. 26,500 annually began operations 1961. handles sales. deals other 9 3. BACKGROUND AND STATISTICS INDUSTRY. 10 Prior 1961 made up three producing companies. largest producer, Hooker Corporation, entered 1956 when acquired Oldbury Electro Company, over half century. now plants, marketing area Columbus, Mississippi, originally 16,000 doubled 1962. Niagara Falls, York, 18,000 tons. almost $200,000,000. American Potash & 1955 acquisition Western Company. Henderson, Nevada, 27,000-ton Aberdeen, Mississippi (built 1957), $100,000,000. 'had virtual monopoly' southeast market, holding 90% market. A company 15,392-ton Oregon. seriously through arrangement finalized 1958, aimed testing availability exclusive seller undertake 2,000 per year mills (except Buckeye Cellulose Co., Foley, Florida, reserved serve directly). 1960, aid agreement. accounted 8.9% During previous decade firms industry, little effort existing companies expand their facilities prior 1953 available dioxide latter installed 100% all western mills. uses time likewise available, royalty free, entire industry. By most generated being controlled process. created expanding demand heaviest concentration purchasers territory. increasing Columbus doubled. sensed need compete Aberdeen completed 15,000-ton 1959, expanded 13 Olin, previously mentioned, superseded agreement 11, i Pittsburgh Plate Glass announced build Lake Charles, Louisiana, operated Canada. 14 As expansions entries projected more than 1962 32,000 tons; Potash, 22,500 Penn-Olin, Glass, tons—a 96,000 contrasted 41,150 Penn-Olin's share 27.6%. Outside Pacific Engineering Production July construct 5,000-ton Cyanamid put 'know-how' loan necessary money options. 4. SETTING FROM WHICH JOINT VENTURE EMERGED 16 early 1951 considered building starting initiated several studies southeast. Three different proposals within own organization rejected 1957, apparently because rate return so unattractive 'the expense refining figures unwarranted.' When going increase plant, interest management reactivated. appointed 'task force' evaluate company's future eastern market; retained consultants study chief engineer prepared estimates. However, decided estimated 'unlikely' go alone. suggested 'logical partner' interim interested distributing East Portland production. heretofore eventually made. final draft parties agreed 'neither * should move perchlorate field without keeping party informed *' 'bring attention any unusual aspects business make desirable proceed plans.' claims finally decided, agreement, itself decision reconsidered changed. But contrary. 17 period—beginning slightly earlier—Olin investigating possibility entering commercially, although predecessor years before. electrolytic intimately related required general knowledge. possessed extensive experience technical intimate 1958 division wrote circulated 'Whither Report' stated part: 18 'We unparalleled opportunity our work installation generators. captive chlorate.' 19 And engineering supervisor entry 'an attractive venture' 'represents logical expansion product Industrial Division respect 'one major markets, bleaching, (with which) favorable position, particularly southeast.' 20 staff, however, did agree Whither 'that they didn't feel particular project showed merit worthy serious consideration corporation time.' They dubious estimates felt temper scientists' enthusiasm uncertainties construction operation. But, found, testimony enter determining could independent competitor. That question, 'never reached point decision.' 21 led find president testified, '(t)he individual completely either before upon venture.' 110, 128—129. 22 5. SECTION CLAYTON ACT APPLIES TO 'JOINT VENTURES.' 23 Appellees applies 'engaged' apply newly Penn-Olin. test, say, enterprise commerce—not instrumentality moment formation. believe logic fails light wording section legislative background. test effect acquisition. Certainly formation organizers substantially lessen competition—indeed foreclose it—as them, commerce. true actual potential even though create wholly enterprise. Realistically, progeny. Moreover, case progeny parents, already specifically bring coverage 7. addition, long actually To hold 'would illogical disre-spectful plain congressional purpose amending (for) loophole statute designed close loophole.' v. Philadelphia National Bank, 374 321, 343, 83 1715, 1730, 915 (1963). event, suit economic effects measured rather E. I. du Pont de Nemours 353 586, 607, 77 872, 884, 1057 (1957). technicality could, therefore, averted merely refiling amended trial. useless requirement. 24 6. APPLICATION MERGER DOCTRINE. 25 written directly involves validity participation creation domestic organization.3 are, plowing ground. true, problem Terminal Assn., 224 383, 507, 56 L.Ed. 810 (1912), Associated Press States, 326 1, 65 1416, 89 2013 (1945), ventures great power subjected control, amendment 26 said utilized ancient times, according Taubman, who traces them Babylonian 'commenda' Roman 'societas.' Joint Venture Tax Classification, 27—81 Their significance grown tremendously last score years, having spurred speed size fashioning war machine during forties. Postwar use subsidiaries projects spawning thousands perform tasks confronting economy. 27 'merger' 'conglomeration,' often creates anticompetitive dangers. chosen competitive instrument acting independently usually competitively another. 'a triumvirate associated corporations.'4 If parent competition, absent may assumed will Inevitably, frozen lines latter, token foreclosed venture's 28 say criteria conglomeration. eliminates participating force therein. See supra; Brown Shoe Co. 370 294, 82 1502, 510 (1962); Aluminum America, 377 271, 1283, 314 (1964). rule El Paso Natural Gas 376 651, 1044, (1964), sought protect acquiring competitor, would, course, intent corporation. 29 Overall, considerations mergers, instance expounding national policy enunciated Congress preserve promote free furtherance policy, 75th year, formulated appropriate criteria, now, also, legislation. Celler-Kefauver Amendment 7, deal, answer exist original enactment. supra, supra. earlier case, Court, considering declared 592, 876: another competitor not, whenever reasonable likelihood appears restraint *.' grand design acquisitions, Amendment, assets, arrest incipient threats reach. follows restraints proved. requirements satisfied 'tendency' toward monopoly 'reasonable likelihood' substantial lessening shown. arrangements gauged broader scale words 'may competition' 'indicate concern probabilities, certainties.' 323, 1522. And, reference merger, 362, 1741: 30 'Clearly, kind quest susceptible ready precise cases. appraisal immediate predication conditions future; what meant intended tendencies 'incipiency.' U.S., 317, 322 (82 S.Ct., 1519—1520, 1522, 510). Such prediction sound based firm understanding structure yet data complex elusive.' 31 recent appellee small Rome Cable Corporation. gave 1.3% additional control aluminum conductor 'But setting,' said, seems us reasonably likely meaning seem situation oligopolistic. condition develops, greater parallel policies mutual advantage, emerge. tendency thwarted presence significant competitors.' 280, 1289. CRITERIA GOVERNING CASES. 33 here. 'Pennsalt resources capability needed (American Potash) wished.' 129.5 that, contrary position Pennsalt, forecasts profit.' Ibid. 34 held, controlling significance, except 'as factor matter probability competitors formed. Only event Id., 130. regard 'impossible conclude created.' concerning hae 'while continued ponder.' 'hypothesized affords basis concluding competition.' depend, 'upon against resulted entrant.' determined 'Solely theory,' '* reason exists suppose less effective been. conclusion reasonable.' 131. 35 regard. sole There still remained edge continually threatening enter. Just prospect difference, merger's foreclosure prospective. Nevertheless, '(p)otential substitute (actual competition) restrain producers overcharging whom underpaying buy. Potential insofar threat survives (as absence Penn-Olin), compensate imperfection characteristic majority markets.' Wilcox, Competition Monopoly Industry, TNEC Monograph (1940) 7—8. cannot subjective test. 'susceptible answer.' 660, 1049, 'effect nature nearness absorbed it, eagerness resourcefulness, on.' disproved *. (I)t irrelevant incremental needs booming.' existence aggressive, equipped financed waiting anxiously oligopolistic incentive underestimated. Witness undertaken soon heard come alone aloof watching developments. 36 8. PROBLEM PROOF. 37 Here evidence beyond rapidly expanding; requiring one-half chlorate; few inclination, know-how resources; identified owning valuable patent rights years; right evidenced long-sustained strong area; enjoyed good reputation connections consumers i.e., mills; finally, individually profit. compelling reasons southeast, do economically area. motivated t (it was) buying fair quantity (of chlorate) chlorite promoting generation Unless require evidence, array certainly reaches prima facie stage. indicated, read statutory requirement certainty. do. 38 despite circumstances, disposed disturb court's finding 'need decided.' clear erroneous assumption show existed, theory (which opinion) compared base finding. prefer pass thereon. Since concerned point,6 reiterate impossible demonstrate elimination Report Attorney General's Committee Study Antitrust Laws (1955) it: 39 'The basic sense seller, group sellers concert, choose level profits giving charging more. Where workable rival sellers, entrants field, keep check offering offer inducements 320. 40 proof specific vehicle eliminate nor collateral restrictive agreements venturers, situations side. generally following take account assessing competition: number background growth; venturers; relationship commerce; dealing other; setting created; necessities existence; thereof parents; adaptability non-competitive practices; venturers instead Penn-Olin; effect, occurrence, venturer's competition; factors indicate risk weighing remember mandate terms compe ition, tangible restraint. 41 therefore proceedings conformity opinion. 42 Vacated remanded. 43 WHITE dissents. 44 DOUGLAS, BLACK agrees, dissenting. 45 Agreements among competitors1 divide markets se detailed, grandiose scheme disclosed Addyston Pipe Steel 175 211, 96, 136, industrialists, commissars modern communist countries, tonnage 'free' 'bonus.' said: 'Total suppression trade commodity order render combination trade. limiting restricting members transact ordinary way, volume commodity, regarded.' 244—245, 108. 46 Lead 332 319,3 67 1634, 91 2077, world titanium pigments, key allocation territories license agreements. similar struck down Timken Roller Bearing 341 593, 71 971, 95 1199, allocated American, British, French intercorporate called 'joint Nationwide Trailer Rental System, 355 10, 78 (affirming 156 800), held laws establishing member set regulate one-way trailer rental empowering prevent operator becoming his 47 late 1950's appellees No decade. Prices seemed stable develop ones. grow, chiefly adoption chorine Domestic quadrupled 1950 1960. growth pronounced buyers, nearly productive capacity. follows: Hooker, 49.5%, 41.6%, 8.9%. 48 whose became growing project; continuous explore doing Olin. received staff experts various negotiations postponed unilateral pending receipt ord 25, pursuant weeks earlier. 49 too possibilities took steps looking establishment numerous reports went far November 1959 tentative British plant. were, dropped reached. 50 discussing entry. agreeing directly. Another provided 'move informed.' bound 'to assure advise plans definite action own. 51 So substance eve join forces. principle decide division-of-markets summarized. Through indeed fifty-fifty. device formal saw 'agreements legally separate persons suppress themselves others' justified 'by labeling venture." 598, 975. added, 'Perhaps every labeled.' What surely convenient legal umbrella common ownership (see Kiefer-Stewart Joseph Seagram Sons, 340 215, 259, 261, 219)—under achieve objective moving unison. 52 An has, I think, 'substantially Act.4 idea hypothesis acceptable Olin—but both—would materialized. On be, competitor.' posture unwilling competition. 53 know happened certainties. lively, probably beginning periphery potent factor. Cf. 661, 12. dividing consistently decisions after so. allow obtain immunity launched very threshold let avoided sophisticated devices. 54 remand Ante, pp. 175-176. case—now litigation—has extending 23-day period, introduction approximately 450 exhibits, 1,600-page record. investment time, money, where, here, turns crucial sufficient enable competent Court—to supply it. 55 HARLAN, can see served give retrieve lost, properly Believing lend affirm Section 731, amended, 18, provides 'No shall acquire, indirectly, whole capital jurisdiction Federal Trade Commission acquire country, tend monopoly.' 209, 'Every contract, trust otherwise, conspiracy, foreign nations, For discussion problem, Kaysen Turner, Policy, 136—141 (1959). Note, Applicability Venture, U.S.C.L.A.L.Rev. 393, 396. explained further: 'At manufacturing selling Although manufacturer, developed technique own, Vickers-Krebs negotiating contacts lacked, Pennsalt's adequate support build. suitable location company—Calvert Kentucky TVA Chattanooga, Tennessee financing company.' regard, should, open desire. White Motor 372 253, 696, 738, vertical involving territorial restriction trial, motion summary judgment. Oppenheim, Booms Boomerangs, 59 Nw.U.L.Rev. 33, findings detailed D.C., 63 513. covers interstate qualifies conducting intending preparing inception immediately arrange conduct business. stock.

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