Source: https://supreme.justia.com/cases/federal/us/365/320/
Timestamp: 2019-04-22 18:12:46+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 365 › Tampa Elec. Co. v. Nashville Coal Co.
Petitioner produces electric energy and sells it to a 60-mile by 30-mile service area in the vicinity of Tampa, Fla. In 1954, it had two generating plants which consumed only oil in their burners, as did all electric generating plants in peninsular Florida. It decided to construct a new generating plant, and to try burning coal in at least two, and possibly all, units of that plant, and it contracted to purchase from respondents all coal it would require as boiler fuel at the new plant over a 20-year period. Petitioner's estimated maximum requirements exceeded the total consumption of coal in peninsular Florida, but it did not amount to more than 1% of the total amount of coal of the same type produced and marketed by the 700 coal suppliers in respondents' producing area. Respondents repudiated the contract on the ground that it was illegal under the antitrust laws, and petitioner sued for a declaratory judgment that it was valid, and for its enforcement. The District Court declared the contract violative of § 3 of the Clayton Act, and denied enforcement. The Court of Appeals affirmed.
Held: the judgment is reversed. Pp. 365 U. S. 321-335.
1. The contract here involved did not violate § 3 of the Clayton Act. Pp. 365 U. S. 325-335.
(a) Even though a contract is an exclusive dealing arrangement, it does not violate § 3 unless its performance probably would foreclose competition in a substantial share of the line of commerce affected. Pp. 365 U. S. 325-328.
(b) In order for a contract to violate § 3, the competition foreclosed by it must constitute a substantial share of the relevant market. Pp. 365 U. S. 328-329.
(c) On the record in this case, the relevant market is not peninsular Florida, the entire State of Florida, or Florida and Georgia combined; it is the area in which respondents and the other 700 producers of the kind of coal here involved effectively compete. Pp. 365 U. S. 330-333.
(d) In the competitive bituminous coal marketing area here involved, the contract sued upon does not tend to foreclose a substantial volume of competition. Pp. 365 U. S. 333-335.
2. Since the contract does not fall within the broader proscription of § 3 of the Clayton Act, it is not forbidden by § 1 or § 2 of the Sherman Act. P. 365 U. S. 335.
consider respondents' additional argument that such illegality is a defense to the action and a bar to enforceability.
"total requirements of fuel . . . for the operation of its first two units to be installed at the Gannon Station . . . not less than 225,000 tons of coal per unit per year,"
"if, during the first 10 years of the term . . . , the Buyer constructs additional units [at Gannon] in which coal is used as the fuel, it shall give the Seller notice thereof two years prior to the completion of such unit or units, and, upon completion of same, the fuel requirements thereof shall be added to this contract."
to completion of said unit or units of determining whether coal or some other fuel shall be used in same."
Tampa Electric had the further option of reducing, up to 15%, the amount of its coal purchases covered by the contract after giving six months' notice of an intention to use as fuel a by-product of any of its local customers. The minimum price was set at $6.40 per ton delivered, subject to an escalation clause based on labor cost and other factors. Deliveries were originally expected to begin in March, 1957, for the first unit, and for the second unit at the completion of its construction.
Station commenced operation 14 months after the first, i.e., October, 1958. Construction of a third unit, the coal for which was to have been provided under the original contract, was also begun.
The record indicates that the total consumption of coal in peninsular Florida, as of 1958, aside from Gannon Station, was approximately 700,000 tons annually. It further shows that there were some 700 coal suppliers in the producing area where respondents operated, and that Tampa Electric's anticipated maximum requirements at Gannon Station, i.e., 2,250 tons annually, would approximate 1% of the total coal of the same type produced and marketed from respondents' producing area.
Petitioner brought this suit in the District Court pursuant to 28 U.S.C. § 2201 for a declaration that its contract with respondents was valid and for enforcement according to its terms. In addition to its Clayton Act defense, respondents contended that the contract violated both §§ 1 and 2 of the Sherman Act, which, it claimed, likewise precluded its enforcement. The District Court, however, granted respondents' motion for summary judgment on the sole ground that the undisputed facts, recited above, showed the contract to be a violation of § 3 of the Clayton Act. The Court of Appeals agreed. Neither court found it necessary to consider the applicability of the Sherman Act.
Decisions of District Court and Court of Appeals.
Application of § 3 of the Clayton Act.
"sought to reach the agreements embraced within its sphere in their incipiency, and in the section under consideration to determine their legality by specific tests of its own. . . ."
"where the effect of such sale or contract . . . would under the circumstances disclosed probably lessen competition, or create an actual tendency to monopoly."
affected" was not "insignificant or insubstantial," and that the effect was "to foreclose competitors from any substantial market." At p. 332 U. S. 396. It was only two years later, in Standard Oil Co. v. United States, 337 U. S. 293 (1949), that the Court again considered § 3 and its application to exclusive supply, or, as they are commonly known, requirements contracts. It held that such contracts are proscribed by § 3 if their practical effect is to prevent lessees or purchasers from using or dealing in the goods, etc., of a competitor or competitors of the lessor or seller, and thereby "competition has been foreclosed in a substantial share of the line of commerce affected." At p. 337 U. S. 314.
competition will be quantitatively the same if a given volume of the industry's business is assumed to be covered, whether or not the affected sources of supply are those of the industry as a whole or only those of a particular region, a purely quantitative measure of this effect is inadequate, because the narrower the area of competition, the greater the comparative effect on the area's competitors. Since it is the preservation of competition which is at stake, the significant proportion of coverage is that within the area of effective competition."
At p. 337 U. S. 299, note 5.
In the Standard Oil case, the area of effective competition -- the relevant market -- was found to be where the seller and some 75 of its competitors sold petroleum products. Conveniently identified as the Western Area, it included Arizona, California, Idaho, Nevada, Oregon, Utah and Washington. Similarly, in United States v. Columbia Steel Co., 334 U. S. 495 (1948), a § 1 Sherman Act case, this Court decided the relevant market to be the competitive area in which Consolidated marketed its products, i.e., 11 Western States. The Court found Consolidated's share of the nationwide market for the relevant line of commerce, rolled steel products, to be less than 1/2 of 1%, an "insignificant fraction of the total market," at p. 334 U. S. 508, and its share of the more narrow but only relevant market, 3%, was described as "a small part," at p. 334 U. S. 511, not sufficient to injure any competitor of United States Steel in that area or elsewhere.
16% of the retail outlets in the relevant market -- and the large number of contracts, over 8,000, together with the great volume of products involved. This combination dictated a finding that "Standard's use of the contracts [created] just such a potential clog on competition as it was the purpose of § 3 to remove" where, as there, the affected proportion of retail sales was substantial. At p. 337 U. S. 314. As we noted above, in United States v. Columbia Steel Co., supra, substantiality was judged on a comparative basis, i.e., Consolidated's use of rolled steel was "a small part" when weighed against the total volume of that product in the relevant market.
To determine substantiality in a given case, it is necessary to weigh the probable effect of the contract on the relevant area of effective competition, taking into account the relative strength of the parties, the proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area, and the probable immediate and future effects which preemption of that share of the market might have on effective competition therein. It follows that a mere showing that the contract itself involves a substantial number of dollars is ordinarily of little consequence.
The Application of § 3 Here.
Electric. They are whether the contract in fact satisfies the initial requirement of § 3, i.e., whether it is truly an exclusive dealing one, and, secondly, whether the line of commerce is boiler fuels, including coal, oil and gas, rather than coal alone. [Footnote 7] We therefore, for the purposes of this case, assume, but do not decide, that the contract is an exclusive dealing arrangement within the compass of § 3, and that the line of commerce is bituminous coal.
Relevant Market of Effective Competition.
amount of trade. Respondents contend that the coal tonnage covered by the contract must be weighed against either the total consumption of coal in peninsular Florida, or all of Florida, or the Bituminous Coal Act area comprising peninsular Florida and the Georgia "finger," or, at most, all of Florida and Georgia. If the latter area were considered the relevant market, Tampa Electric's proposed requirements would be 18% of the tonnage sold therein. Tampa Electric says that both courts and respondents are in error, because the "700 coal producers who could serve" it, as recognized by the trial court and admitted by respondents, operated in the Appalachian coal area, and that its contract requirements were less than 1% of the total marketed production of these producers; that the relevant effective area of competition was the area in which these producers operated, and in which they were willing to compete for the consumer potential.
The coal continued to come from at least seven States. [Footnote 15] From these statistics, it clearly appears that the proportionate volume of the total relevant coal product as to which the challenged contract preempted competition, less than 1%, is, conservatively speaking, quite insubstantial. A more accurate figure, even assuming preemption to the extent of the maximum anticipated total requirements, 2,250,000 tons a year, would be .77%.
Effect on Competition in the Relevant Market.
"is, of course, not insignificant or insubstantial." While $128,000,000 is a considerable sum of money, even in these days, the dollar volume, by itself, is not the test, as we have already pointed out.
"may make possible the substantial reduction of selling expenses, give protection against price fluctuations, and . . . offer the possibility of a predictable market."
of a requirements contract in relation to the substantiality of the foreclosure of competition, particularized considerations of the parties' operations are not irrelevant. In weighing the various factors, we have decided that, in the competitive bituminous coal marketing area involved here, the contract sued upon does not tend to foreclose a substantial volume of competition.
We need not discuss the respondents' further contention that the contract also violates § 1 and § 2 of the Sherman Act, for, if it does not fall within the broader proscription of § 3 of the Clayton Act, it follows that it is not forbidden by those of the former. Times-Picayune Pub. Co. v. United States, supra, at pp. 345 U. S. 608-609.
The judgment is reversed, and the case remanded to the District Court for further proceedings not inconsistent with this opinion.
MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS are of the opinion that the District Court and the Court of Appeals correctly decided this case, and would therefore affirm their judgments.
"It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods . . . for use, consumption, or resale within the United States . . . on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods . . . of a competitor or competitors of the . . . seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce."
In addition to their claim under § 3 of the Clayton Act, respondents argue the contract is illegal under the Sherman Act, 15 U.S.C. §§ 1, 2.
The original contract was with Potter Towing Company, and, by subsequent agreements with Tampa Electric, responsibility thereunder was assumed by respondent West Kentucky Coal Company.
Cf. Kelly v. Kosuga, 358 U. S. 516.
For discussion of previous cases, see Standard Oil Co. v. United States, 337 U. S. 293, 337 U. S. 300-305.
See International Boxing Club of New York, Inc. v. United States, 358 U. S. 242.
In support of these contentions, petitioner urges us to consider that it remains free to convert existing oil-burning units at its other plants to coal-burning units, the fuel for which it would be free to purchase from any seller in the market; also, that just as it is permitted to use oil at its other plants, so, too, it may construct all future Gannon units as oil burners; and that, in any event, it is free to draw a maximum of 15% of its Gannon fuel requirements from by-products of local customers. Petitioner further argues that its novel reliance upon coal in fact created new fuel competition in an area that theretofore relied almost exclusively upon oil and, to a lesser extent, upon natural gas.
Oil and, to a lesser extent, natural gas are the primary fuels consumed in Florida.
Peabody Coal Company offered to supply petitioner with coal from its mines in western Kentucky, for use in the units at another of its Florida stations, and that offer prompted a renegotiation of the price petitioner was paying for the oil then being consumed at that station.
U.S. Bureau of the Census. I U.S. Census of Mineral Industries: 1954, Series: MI-12B, p. 4 (1957).
1,569,000 tons from counties in West Virginia, Virginia, Kentucky, Tennessee and North Carolina; 412,000 tons from counties in Alabama, Georgia and Tennessee; the balance was produced in other counties in West Virginia, Virginia and western Kentucky. Id. at 12B-10.
United States Dept. of Interior, Bureau of Mines, II Minerals Yearbook (Fuels), 1959.
United States Dept. of Interior, Bureau of Mines, Mineral Market Report, M.M.S. No. 3035, p. 23 (1960). These statistics were taken from sources cited by respondents.
1,787,000 tons from certain counties in West Virginia, Virginia, Kentucky, Tennessee and North Carolina; 1,321,000 tons from counties in Alabama, Georgia and elsewhere in Tennessee; 665,000 tons from the western Kentucky fields; 2,000 tons from other counties in West Virginia and Virginia. Ibid.
In this connection, we note incidentally that, in Appalachian Coals, Inc. v. United States, 288 U. S. 344, 288 U. S. 369 (1933), cited by respondents, Chief Justice Hughes quoted testimony showing that, in 1932, it was nothing those days "for one interest or one concern to buy several million tons of coal." At note 7. The findings of the District Court, 1 F.Supp. 339, showed that one utility consumed 2,485,000 tons of coal a year. Other concerns had requirements running from 30,000 to 250,000 tons annually, while a textile manufacturer used 600,000 tons. At p. 288 U. S. 370, note 8. The Chief Justice also stated in his opinion that, within 24 counties in Kentucky, Tennessee (in both of which respondents operate) and their competitive States of Virginia and West Virginia, "there are over 1,620,000 acres of coal bearing land, containing approximately 9,000,000,000 net tons of recoverable coal. . . ." At. 288 U. S. 369.

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