Document: 399 U.S. 350 90 S.Ct. 2035 26 L.Ed.2d 658 UNITED STATES, Appellant,v.PHILLIPSBURG NATIONAL BANK AND TRUST COMPANY et al. No. 1093. Argued April 28, 1970. Decided June 29, [Syllabus from pages 350-351 intentionally omitted] Daniel M. Friedman, Washington, D.C., for appellant. Philip L. Roache, Jr., and Robert B. Meyner, Newark, N.J., appellees. Mr. Justice BRENNAN delivered the opinion of Court. 1 This direct appeal under Expediting Act, 15 U.S.C. § is taken by United States a judgment District Court New Jersey dismissing, after full hearing, Government's complaint seeking to enjoin as violation 7 Clayton 18,1 proposed merger appellees, Phillipsburg National Bank Trust Co. (PNB) Second (SNB), both located in Phillipsburg, Jersey. The Comptroller Currency, also an appellee here, approved December 1967 intervened this action defend it, he was authorized do Merger Act 1966, 12 1828(c)(7)(D) (1964 ed., Supp. V).2 required that engage two-step process, v. First City Houston, 386 361, 87 1088, 18 151 (1967); Third Nashville, 390 171, 88 882, 19 1015 (1968), first which decide whether would violate antitrust prohibitions Act. If court found be violated, then 'the anticompetitive effects transaction are clearly outweighed public interest probable effect meeting convenience needs community served.' 1828(c)(5)(B). 'failed establish preponderance evidence have any anti-competitive and, further, even if there were de minimis narrowly drawn market government, such served merged bank.' 306 F.Supp. 645, 667, (1969). We noted jurisdiction. 397 933, 945, 25 114 (1970). reverse. concluded our examination record erred its definitions relevant product geographic markets these errors invalidate court's determination no significant effects. 2 * Factual Setting 3 small industrial city on Delaware River southwestern corner Warren County, Its population 18,500 1960, 28,500 counting bordering suburbs. Although suburbs has been increasing, itself not grown. Easton, Pennsylvania, lies directly across river. It had 32,000 60,000 growth pattern paralleled Phillipsburg. cities linked two bridges testimony they 'in one town.' 4 'one town' seven commercial banks, four Easton three PNB SNB respectively third fifth largest overall banking business. All fall within category their assets ranging $13,200,000 $75,600,000.3 PNB, with approximately $23,900,000, $17,300,000, second banks. produce bank over $41,100,000, size six remaining banks 5 competitors. Their main offices opposite another same downtown street. SNB's only branch suburban highway PNB's branches. Both offer wide range services products available at including, instance, demand deposits, COMPARISON OF PHILLIPSBURG—EASTON BANKS* TOTAL DEMAND ASSETS DEPOSITS LOANS % 6 Amt. Phill Offices East. Only 8 Nat. 9 $23.9 11.2 44.0 $22.4 13.7 44.3 $6.5 11.3 45 $14.5 15.8 48.9 10 17.3 8.1 31.8* 16.0 9.8 31.7 4.6 7.9 31.3 10.5 11.4 35.2 11 (Resulting Bank) 41.1 19.3 75.8 38.4 23.4 76.1 11.1 19.2 76.4 24.9 27.3 84.1 13.2 6.2 24.2 12.1 7.4 23.9 3.4 6.0 23.6 4.7 5.2 15.9 13 & 75.6 35.5 — 67.7 41.4 25.4 44.1 32.6 35.7 14 Northampton 23.2 10.9 19.0 11.6 6.4 11.0 6.5 7.1 16 Lafayette 27.7 13.0 24.3 14.8 10.8 18.8 11.8 12.9 17 Nazareth 32.0 15.0 2.3 1.4 0.5 0.9 11.9 Totals $212.8 100 $163.7 $57.7 $91.5 savings time consumer loans, real estate mortgages, trust services, safe deposit boxes escrow services. As characteristic operating communities, less loans than larger They emphasize relatively more deposits deposits. Similarly, quite small. In short, oriented toward depositors borrowers. Thus, 75% number 73% $1,000 or less; 98% 97% $10,000 less. loan accounts 59% $2,500 less, 93% 87% serve predominantly residents. 1967, although 91.6% 92% residents town,' 5.3% 9% lived Easton. And, 78.6% 87.2% made 14.8% 11.6% went persons living A witness testified all 8,500 families deal city. town's businessmen prefer same. preference local strikingly evidenced fact substantially increased during 1962—1967, though passbook rates lower those being paid other readily accessible At when paying 3.5% 3%, 13-mile radius offering 4%. 20 Phillipsburg-Easton northeastern part Lehigh Valley, region 1,000 square miles, 492,000 1960 38 1968. There considerable mobility among area social, shopping, employment purposes. Customer conservative practices, however, tended limit bulk each bank's business immediate area. Neither nor aggressively sought outside most Valley shown little customers Phillipsburg-Easton. '(t) here attitude complacency many (in Valley). content continue outmoded practice reluctant risk changes improve service extend greater segment population.' F.Supp., 661. 21 reduce six, five environs times large bank; it 75.8% city's assets, 76.1% 84.1% loans. Within PNB—SNB become bank, having 19.3% total 23.4% 19.2% 27.3% concentration give 54.8% 64.8% 63.3% 63% offices. 22 entertain doubt factual requires passes muster standards Philadelphia Bank, 374 321, 83 1715, 915 (1963), preserved 1966. supra; supra. Mergers competing subject scrutiny standards. Indeed, competitive cluster play particularly role unable support variety alternative financial institutions. anything, true town 'if businessman denied credit because his alternatives eliminated mergers, whole edifice entrepreneurial system threatened; costs allowed excessive absence pressures, virtually costs, economy, will affected *.' U.S., 372, S.Ct., 1746. 23 When Comptroller's approval merger, 1828(c), independent reports factors involved obtained, 1828(c)(4), Federal Reserve Board, Deposit Insurance Corporation, Attorney General. viewed problem involving reported significantly harmful upon competition nevertheless finding agencies defined too narrowly. He treated but area, evaluated 34 finance companies institutions, well 30 enable resultant effectively community. II Product Market 24 we said 'cluster (various kinds credit) (such checking administration) denoted term 'commercial banking' composes distinct line commerce.' 356, 1737. indicated, customarily provided contrary finding, actual evaluation competition, looked market. See 655—661. Earlier opinion, appeared reject appropriate commerce. Rather focusing attention diminishing emphasized between types institutions—for example, associations, pension funds, mutual insurance, companies. expressed view '(i)n terms function defendant comparable institutions banks,' 648, continued: 'So, while may used designate general commerce embracting must given analysis different groupings separating where sources so widespread question diminution could raised.' 650—651. erred. true, course, determine nature entities face. See, e.g., Continental Can Co., 378 441, 456—457, 84 1738, 1746—1747, 953 (1964). Submarkets relevant, analyzing type institution. But submarkets basis disregard broader economic significance. Brown Shoe States, 370 294, 326, 82 1502, 1524, 510 (1962). 27 full-service matter trade reality makes Commercial services—some unique others not—are gathered together place. clustering facilitates convenient access them customers. For some customers, possible certain otherwise unavailable them; customer without collateral, who patronized particular likely able obtain specialty institution turns simply borrow money. termed significance beyond various involved.4 28 Customers need use uses usually looks well, encouraged so. case maintain higher elsewhere. supra, 357 n. 34, 1738. perhaps principally borrowers whom one-stop advantages good relationship banker—and thus favorable consideration loans—are especially important. id., 358 35, 369, 29 Moreover, rejected similar ratios deny banks—and towns protection entitled since, already stated, peculiarly significants economy communities whose array differentiated businesses. III Relevant Geographic determining market, held 357, '(t)he proper asked parties compete, where, overlap, immediate. depends structure suppliercustomer relations." More specifically stated 'area effective known charted careful selection seller operates, purchaser can practicably turn supplies. *" Id., 359, 1739. 31 selected Phillipsburg-Easton, 216,000 included Bethlehem, Pennsylvania. 652—653, 656 658. explicitly claim constitutes hold 32 realities industry make clear generally very localized observed 358, banking, industries, location essential competition. Individuals corporations typically confer patronage community; find impractical conduct distance. factor inconvenience localizes high transportation industries.' locating operates,' important consider places draws business, offices, seeks banks' statistics show drew 85% that, about 10% nearly every family deals suburbs; sufficiently easy necessary open branches because, testified, 'where are.' compete few miles. 33 localization typical pronounced involved. 1740, geographical separate customer's scale'—that smaller customer, geographically,' 359 36, Small reason geographically them. persons, powerful influence availability rate distant, still nearby, bank. borrower, met, often depend reputation banker. numerous unsecured character, difficult get 1745, '(s)mall are, practical matter, confined locality satisfaction needs. reduced, vigor filling marginal borrower's diminish.' borrower frequently cannot 'practicably supplies' depositor—because habit, custom, personal relationships, above all, convenience—is unwilling patrons SNB, customers: almost amounts $1,000, $10,000, falling below $2,500. helped conclusion regarding 'by federal regard competition." Here General exists merger's should judged it.5 agree. shows 'direct immediate.' operate, merging must, will, banking. mistakenly contention 'section country' 7. 35 Appellee argue 'cannot conceivably considered 'market' purposes,' ground 'economically section country.' cite language Shoe, 320, 1521, deletion word 'community' original (Clayton) Act's description illustration Congress' desire indicate concern adverse economically 'section' 'relevant markets' 'with exceeding 10,000 environs.' 339, 1531. 90,000 1960. Seven country purposes IV Anticompetitive Effects 36 now ultimate 7: 'may lessen competition.' pointed out 362, 1741, prediction 'is sound based firm understanding market; yet data complex elusive. And unless assess legal consequences confidence, planning retarded. So also, alert danger subverting congressional intent permitting too-broad investigation. possible, doing violence objective embodied 7, simplify test illegality, courts ought judicial administration.' 315, 1518, dominant theme pervading 1950 amendments (to 7) fear what rising tide American economy.' 363, '(t)his intense trend warrants dispensing, cases, elaborate proof structure, behavior, Specifically, think produces controlling undue percentage share results increase firms inherently enjoined showing effects.' That principle applicable case. 37 concentrated. Of Co.—had 49% 56% 1959. union would, turn, combined $41,100,000 (19.3% area's assets), $38,400,000 (23.4%), $24,900,000 (27.3%). 55%, 65%, 63%, 10. 60% 68%, 70% 80%, 64% 76%, 12. alone, impact much greater: reduced two; controlled firm. consummated, substantially.' Cf. Nashville Von's Grocery 384 270, 86 1478, 555 (1966); Pabst Brewing 546, 1665, 765 (1966). presently lack personnel resources vigorously. contend procompetitive effects: enhancing position, stimulate aggressive meet alleged challenge large, considerations certainly 'convenience community' persuasive context U.s., 371, 'a competition' saved reckoning social debits credits, deemed beneficial.' 39 stated: 'Ease deserves evaluating merger. group men raise sufficient capital new warrant charter.' 659. Appellees, attempt move start approved. laws Pennsylvania severely restrict capacity existing operations Relying recent statute, N.J. Stat. Ann. 17:9A—19 (Supp.1969), appellees '(t)here fair game attractive proposals Bergen, Passaic, Essex, Hudson Morris Counties.' But, out, 'Large Newark populated counties mentioned County (only) municipality principal office 7,500 660. mergers existence there. Accordingly, statute bear question, Since decision below, Appeals Circuit national avoid bar against branching, 17:9A—19(B)(3) moving headquarters into protected community, simultaneously reopening former branch. Ramapo Camp, Cir., 425 F.2d 333 intimate correctness decision. observe, affirmed ruling, handed down months before present opinions written Judge. interested Nothing suggests apply city; therefore, us, possibility does V 40 Meeting Convenience Needs Community 41 Court's necessarily require reexamination caused contribution community's conclusion, moreover, undermined erroneous application convenience-and-needs standard. balancing benefit needs, '(t)o weigh adequately each.' 183, 890. 42 misapplied standard assessing broad, multi-community adopted alone. Appellees '(n)owhere district equate Phillipsburg.' disagree. improved satisfy rapidly increasing need. Lending limits requirements substantial enterprise. definite competent servicing obtained *. approved, (loan trust) departments staff capable kind part, seek community.' cited examples inadequate. 662—666. several provide appreciable lending combined, obvious primarily concerned possibilities hold, whole. 43 Section 1828(c)(5)(B) provides 'any (shall responsible agency) finds Representative Reuss explained debate '(w)hat meant (§ (c)(5)(B)) counts conveniences sought-to-be serves.' 112 Cong.Rec. 2457. indicated say, equal size, difficulty—say management succession best permitted merge despite resulting 2445. 44 These comments market—the 'community serves'—is evaluated. realities, served' always larger, constituent prior Further, result throughout countervailing beneficial Under approach Court, parts justified benefits it. Such subvert purpose assessed served, unfairly sustain effects.6 370, 1745. failing 190, 893, 'before injurious (must) gain expected reasonably through means.' approving 'reliably unavailability solutions woes' faced Ibid. remand, concrete detail adequacy attempts overcome loan, trust, difficulties methods short own Beyond serving seekers rather 46 reversed remanded further proceedings consistent opinion. No shall 47 ordered. 48 Judgment remanded. 49 STEWART took case, BLACKMUN 50 HARLAN, CHIEF JUSTICE joins, concurring dissenting part. 51 My reaction vantage point depicted briefs, wonderment Department bothered sue. How agency I myself, efficiently allocating scarce chose attack case? compared cases contested, minuscule.1 measured 1968 ranked 1346th 2429th 3100 powers States. merged, 1323d—only ahead alone.2 With tigers jungle, why taking aim game? 52 disposition justification enough Department's view. After today's legality banks—no how small—is placed court, exercise 'antitrust numerology,' Lexington, 376 665, 673, 1033, 1037, (1964) (Harlan, J., dissenting), concludes 'produces market,' ante, 366. 53 settled process order muster. First, evaluated, applying 181—183, 889—890, (1968). violation, proceed served.'3 54 stage analysis, appears following process: defines Second, Phillipsburg-Easton.4 next calculates bank,5 'concentration,' percent largest6 banks.7 magnitude figures 'significantly concentration' 'already concentrated' market.8 On alone 55 voiced my disagreement before, field, "numbers game' violations', 193, 895 part); see 1037 dissenting). myself bound 895, concur simplistic way applies numbers here. 56 did 'undue market' violated Instead established rule 'raise inference,' 365, 1742, left room, 'merger effects,' 1741. test, create rebuttable presumption illegality. 57 aspects largely ignored might rebut raised Consequently, remand opportunity 'clear evidence' figures, significant. 58 concerns 'entry.' tell nothing conditions entry can, quickly alleviate 'undue' concentration. act check power 59 Entry governed free conditions, limited regulatory laws. filed, restricted statutes.9 However, change statute10 rendered since trial case,11 considerably anywhere northern open, circumstances, Phillipsburg.12 60 assumes barriers permanently lowered, seem overstated Certainly easier dominated enormous absolute hundreds millions billions dollars, course unlikely entrant force. competitor is, terms, 61 recited fully Because developments regulation occurred inexcusable majority demonstrate entry, so, bank.13 62 Quite apart aspect affects commerce' eschews composition offered however. manages ignore completely extent companies, 63 closer do, plainly common big Bank. particular, comes opposed banks.14 proportion form loans.15 Savings unions, etc., analyzed nonbank close substitutes 64 choosing ignores subtleties instead emphasizes words 'makes explain combination synergistic cf. Anderson's-Black Rock, Inc. Pavement Salvage Inc., 396 57, 61, 305, 308, 258 (1969), choice seriously questioned. discriminating concerning implication percentages calculated appraisal 65 event, assuming preliminary analysis—if sake convenience—that excuse majority's failure appraising calculated, Maryland, 310 157, 175 (D.C.Md.1970). bare themselves presence By treating blithely represent degree power, irrespective amount neighboring markets. 66 Seen way, mode all-or-nothing either includes include far better recognize approximation—necessary calculate figures. alone—it 'overstate' offects approximate assumptions underlying definition 67 re-evaluate whether, light fairly threaten loss White Motor 372 253, 696, 738 (1963). then, manner suggests, advantages. amended Celler-Kefauver Antimerger pertinent part: 'No corporation engaged acquire, indirectly, stock jurisdiction Trade Commission acquire commerce, country, acquisition tend monopoly.' automatically stayed filing action. 1828(c)(7)(A) V). continued statutory stay pending appeal. table below. table, 30, While segregated branch, asset not. attributable accordingly, understates including appellees.* add rounding. statement 356 1737, '(s)ome distinctive entirely institutions; account category. Others enjoy cost insulated broad furnished small-loan personal-loan companies' invariably Finally, facilities which, price freely preference, insulating them, marked degree, competition; seems deposits.' Government initially constituted proposal, supported continues suggest inappropriate focus long accrue entire weight attached areas Appendix (at 831) contains (somewhat modified herein) showing, inter alia, contested initiated up suit CONTESTED SECTION MERGER CASES: Assets Case millions) Manufacturers Hanover..... $6,001.8 Illinois....... 3,248.3 Crocker-Citizens........... 3,217.4 California Bank—First Western. 2,421.2 1,805.3 Provident—Central Penn..... 1,069.1 City—Southern (Houston). 1,042.9 Mercantile Trust—Security Trust. 1,040.4 National—Nashville 428.2 National—Cooke Company. 389.7 National—Second National. App. 840. amending 18(c)(5)(B) quarrel improperly needs,' stage, 'community.' accept agree designated PERCENTAGE MARKET HELD BY MERGED BANKS Total Deposits Loans TWO LARGEST Before Change THREE 68 70 80 76 note smaller, whole, IN RELEVANT least 30%) 36* 72 77 BANKS** 93 98 holding 'shade[d]' 36% figure downward 'at 30%' compensate implicit shares, 364 40, 1742. ** Jersey, filed (1) prohibited counties; (2) county parent located; (3) precluded branching altogether 'principal office' (i.e., home office), located. N.J.Stat.Ann. 17:9A—19(B) July 17, 1969, came regulates, counties, districts, first. District-wide novo authorized, provision, (Supp.1970). (C.A.3d Cir. 1970). intimate, views office, home-office proviso thought preclude Circuit, operation 'home-office protection' law. Ramapo, willing shift 'home enter untenable bearing issue 'anticompetitive effect' '(n) othing city,' 369. developed, law inquiry irrelevant. found, effect. therefore reopen TIME SAVINGS AS Time Demand 71 Large Average* average 341 $100 million submit weekly Board. Calculated 788. REAL ESTATE PERSONAL Real Estate Personal Combined Average** 14,

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