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Matched Legal Cases: ['§ 7', '§ 7', '§ 7', '§ 7', '§ 7', '§ 7', '§ 7', '§ 3', '§ 7']

US Supreme Court Decisions On-Line> Volume 384 > UNITED STATES V. VON'S GROCERY CO., 384 U. S. 270 (1966)
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233 F.Supp. 976, reversed. chanrobles.com-red
On March 28, 1960, three days later, the District Court refused to grant the Government's motion for a temporary restraining order, and immediately Von's took over all of Shopping Bag's capital stock and assets, including 36 grocery stores in the Los Angeles area. After chanrobles.com-red
The record shows the following facts relevant to our decision. The market involved here is the retail grocery market in the Los Angeles area. In 1958, Von's retail sales ranked third in the area, and Shopping Bag's ranked sixth. In 1960, their sales together were 7.5% of the total two and one-half billion dollars of retail groceries sold in the Los Angeles market each year. For many years before the merger, both companies had enjoyed great success as rapidly growing companies. From 1948 to 1958, the number of Von's stores in the Los Angeles area practically doubled from 14 to 27, while at the same time, the number of Shopping Bag's stores jumped from 15 to 34. During that same decade, Von's sales increased four-fold and its share of the market almost doubled, while Shopping Bag's sales multiplied seven times and its share of the market tripled. The merger of these two highly successful, expanding and aggressive competitors created the second largest grocery chain in Los Angeles, with sales of almost $172,488,000 annually. In addition, the findings of the District Court show that chanrobles.com-red
the number of owners operating single stores in the Los Angeles retail grocery market decreased from 5,365 in 1950 to 3,818 in 1961. By 1963, three years after the merger, the number of single store owners had dropped still further to 3,590. [Footnote 3] During roughly the same period, from 1953 to 1962, the number of chains with two or more grocery stores increased from 96 to 150. While the grocery business was being concentrated into the hands of fewer and fewer owners, the small companies were continually being absorbed by the larger firms through mergers. According to an exhibit prepared by one of the Government's expert witnesses, in the period from 1949 to 1958, nine of the top 20 chains acquired 126 stores from their smaller competitors. [Footnote 4] Figures of a principal defense witness, set out below, illustrate the many acquisitions and mergers in the Los Angeles grocery industry from 1954 through 1961 including acquisitions made by Food Giant, Alpha Beta, Fox, and chanrobles.com-red
United States v. Trans-Missouri Freight Assn., 166 U. S. 290, 166 U. S. 323. [Footnote 7] The Sherman Act failed to protect the smaller businessmen chanrobles.com-red
Like the Sherman Act in 1890 and the Clayton Act in 1914, the basic purpose of the 1950 Celler-Kefauver Act was to prevent economic concentration in the American economy by keeping a large number of small competitors in business. [Footnote 9] In stating the purposes of their bill, both of its sponsors, Representative Celler and Senator Kefauver, emphasized their fear, widely shared by other members of Congress, that this concentration was rapidly driving the small businessman out of the market. [Footnote 10] The period from 1940 to 1947, which was at chanrobles.com-red
To arrest this "rising tide" toward concentration into too few hands and to halt the gradual demise of the small businessman, Congress decided to clamp down with vigor on mergers. It both revitalized § 7 of the Clayton Act by "plugging its loophole" and broadened its scope so chanrobles.com-red
The facts of this case present exactly the threatening trend toward concentration which Congress wanted to halt. The number of small grocery companies in the Los Angeles retail grocery market had been declining rapidly before the merger, and continued to decline rapidly afterwards. This rapid decline in the number of grocery store owners moved hand in hand with a large number of significant absorptions of the small companies by the larger ones. In the midst of this steadfast trend toward concentration, Von's and Shopping Bag, two of the most successful and largest companies in the area, jointly owning 66 grocery stores merged to become the second largest chain in Los Angeles. This merger cannot be defended on the ground that one of the companies was about to fail, or that the two had to merge to save themselves from destruction by some larger and more powerful competitor. [Footnote 13] What we have, on the contrary, chanrobles.com-red
These figures as they appear in a table in the Brief for the United States show acquisitions of retail grocery stores in the Los Angeles area from 1954 to 1961. See 384 U. S. Table 1, substantially reproducing the above-mentioned table.
See 384 U. S. Table 2.
As I read the Court's opinion, which I join, it does not hold that in any industry exhibiting a decided trend towards concentration, any merger between competing firms violates § 7 unless saved by the failing company doctrine; nor does it declare illegal each and every merger in such an industry where the resulting firm has as much chanrobles.com-red
We first gave consideration to the 1950 amendment of § 7 of the Clayton Act in Brown Shoe Co. v. United States, 370 U. S. 294. The thorough opinion The Chief Justice wrote for the Court in that case made two chanrobles.com-red
The Court makes no effort to appraise the competitive effects of this acquisition in terms of the contemporary economy of the retail food industry in the Los Angeles area. [Footnote 2/3] Instead, through a simple exercise in sums, it finds that the number of individual competitors in the market has decreased over the years, and, apparently on the theory that the degree of competition is invariably proportional to the number of competitors, it holds that chanrobles.com-red
The principal danger against which the 1950 amendment was addressed was the erosion of competition through the cumulative centripetal effect of acquisitions by large corporations, none of which, by itself, might be sufficient to constitute a violation of the Sherman Act. Congress' immediate fear was that of large corporations buying out small companies. [Footnote 2/4] A major aspect of that fear was the perceived trend toward absentee ownership of local business. [Footnote 2/5] Another, more generalized, congressional chanrobles.com-red
The concept of arresting restraints of trade in their "incipiency" was not an innovation of the 1950 amendment. The notion of incipiency was part of the report on the original Clayton Act by the Senate Committee in the Judiciary in 1914, and it was reiterated in the Senate report in 1950. [Footnote 2/7] That notion was not left undefined. chanrobles.com-red
The legislative history leaves no doubt that the applicable standard for measuring the substantiality of the effect of a merger on competition was that of a "reasonable probability" of lessening competition. [Footnote 2/8] The standard was thus more stringent than that of a "mere possibility," on the one hand, and more lenient than that of a "certainty," on the other. [Footnote 2/9] I cannot agree that the retail grocery chanrobles.com-red
The Court rests its conclusion on the "crucial point" that, in the 11-year period between 1950 and 1961, the number of single store grocery firms in Los Angeles decreased 29% from 5,365 to 3,818. [Footnote 2/11] Such a decline chanrobles.com-red
I believe that even the most superficial analysis of the record makes plain the fallacy of the Court's syllogism that competition is necessarily reduced when the bare number of competitors has declined. [Footnote 2/12] In any meaningful sense, the structure of the Los Angeles grocery market remains unthreatened by concentration. Local competition is vigorous to a fault, not only among chain stores chanrobles.com-red
Section 7 was never intended by Congress for use by the Court as a charter to roll back the supermarket revolution. Yet the Court's opinion is hardly more than a requiem for the so-called "Mom and Pop" grocery stores -- the bakery and butcher shops, the vegetable and fish markets -- that are now economically and technologically obsolete in many parts of the country. No action by this Court can resurrect the old single-line Los Angeles food stores that have been run over by the automobile or obliterated by the freeway. The transformation of American society since the Second World War has not completely shelved these specialty stores, but it has relegated them to a much less central role in our food economy. Today's dominant enterprise in food retailing is the supermarket. Accessible to the housewife's automobile from a wide radius, it houses under a single roof chanrobles.com-red
the entire food requirements of the family. Only through the sort of reactionary philosophy that this Court long ago rejected in the Due Process Clause area can the Court read into the legislative history of § 7 its attempt to make the automobile stand still, to mold the food economy of today into the market pattern of another era. [Footnote 2/14] chanrobles.com-red
The District Court's finding of fact that there was no increase in market concentration before or after the merger is amply supported by the evidence if concentration is gauged by any measure other than that of a census of the number of competing units. Between 1948 and 1958, the market share of Safeway, the leading grocery chain in Los Angeles, declined from 14% to 8%. The combined market shares of the top two chains declined from 21% to 14% over the same period; for the period 1952-1958, the combined shares of the three, four, and five largest firms also declined. It is true that, between 1948 and 1958, the combined shares of the top 20 firms in the market increased from 44% to 57%. The crucial fact here, however, is that seven of these top 20 firms in 1958 were not even in existence as chains in 1948. Because of the substantial turnover in the membership of the top 20 firms, the increase in market share of the top 20 as a group is hardly a reliable indicator of any tendency toward market concentration. [Footnote 2/15] chanrobles.com-red
Yet even these dramatic statistics do not fully reveal the dynamism and vitality of competition in the retail grocery business in Los Angeles during the period. The record shows that, at various times during the period 1953-1962, no less than 269 separate chains were doing business in Los Angeles, of which 208 were two- or three-store chains. During that period, therefore, 173 new chains made their appearance in the market area, and 119 chains went out of existence as chain stores. [Footnote 2/17] The vast majority of this market turbulence represented turnover in chains of two or three stores; 143 of the 173 new chains born during the period were chains of this chanrobles.com-red
To support its conclusion the Court invokes three sets of data regarding absorption of smaller firms by merger with larger firms. In each of the acquisitions detailed chanrobles.com-red
in the Appendix, Tables 384 U. S. 1 and 384 U. S. 2 of the Court's opinion, the acquired units were grocery chains. Not one of these acquisitions was of a firm operating only a single store. [Footnote 2/20] The Court cannot have it both ways. It is only among single store operators that the decline in the unit number of competitors, so heavily relied upon by the Court, has taken place. Yet the tables reproduced in the Appendix show not a trace of merger activity involving the acquisition of single store operators. And the number of chains in the area has in fact shown a substantial net increase during the period, in spite of the fact that some of the chains have been absorbed by larger firms. How then can the Court rely on these acquisitions as evidence of a tendency toward market concentration in the area?
The Court's use of market acquisition data for the period 1954-1961, [Footnote 2/21] prepared by the Government from the worksheets of a defense witness, is also questionable for another reason. During that period, Food Giant, Alpha Beta, Fox, and Mayfair were ranked 7th, 8th, 9th, and 10th, respectively, on the basis of the percentage of their sales in Los Angeles in 1958, so that the impact of their acquisitions, made in the face of competition by the top six chains, is considerably blunted. The remarkable feature disclosed by these data is that none of the top six firms in the area expanded by acquisition during the period. [Footnote 2/22] chanrobles.com-red
Further, the table relied on by the Court to sustain its view that acquisitions have continued in the Los Angeles area at a rapid rate in the three-year period following this merger indiscriminately lumps together horizontal and market extension mergers. [Footnote 2/23] Only 29 stores, representing 13 acquisitions, were acquired in horizontal mergers, and the record reveals than nine of these 29 stores were acquired in the course of dispositions in bankruptcy. Such acquisitions of failing companies, of course, are immune from the Clayton Act. International Shoe Co. v. Federal Trade Commission, 280 U. S. 291, 280 U. S. 301-303. Thus, at a time when the number of single store concerns was well over 3,500, horizontal mergers over a three-year period between going concerns achieved, at most, only the de minimis level of 10 acquisitions involving 20 stores. It cannot seriously be maintained that chanrobles.com-red
The great majority of the post-merger acquisitions detailed in 384 U. S. ante, were of the market extension type, involving neither the elimination of direct competitors in the Los Angeles market nor increased concentration of the market. There are substantial economic distinctions between such market extension mergers and classical horizontal mergers. [Footnote 2/24] Whatever the wisdom or logic of the Court's assumed arithmetic proportion between the number of single store concerns and the level of competition within the meaning of § 7 as applied to horizontal mergers, it is simply not possible to make the further assumption that the mere occurrence of market extension mergers is adequate to prove a tendency of the local market toward decreased competition.
Moreover, contrary to the assumption on which the Court proceeds, the record establishes that the present merger itself has substantial, even predominant, market extension overtones. The District Court found that the Von's stores were located in the southern and western portions of the Los Angeles metropolitan area, and that the Shopping Bag stores were located in the northern and eastern portions. In each of the areas in which Von's and Shopping Bag stores competed directly, there were also at least six other chain stores, and several chanrobles.com-red
The irony of this case is that the Court invokes its sweeping new construction of § 7 to the detriment of a merger between two relatively successful, local, largely family-owned concerns, each of which had less than 5% of the local market and neither of which had any prior history of growth by acquisition. [Footnote 2/26] In a sense, the defendants chanrobles.com-red
are being punished for the sin of aggressive competition. [Footnote 2/27] The Court is inaccurate in its suggestions, ante, pp. 384 U. S. 277-278, that the merger makes these firms more "powerful" than they were before, and that Shopping Bag was itself a "powerful" competitor at the time of the merger. There is simply no evidence in the record, and the Court makes no attempt to demonstrate, that the increment in market share obtained by the combined stores can be equated with an increase in the market power of the combined firm. And, although Shopping Bag was not a "failing company" within the meaning of our decision in International Shoe Co. v. Federal Trade Commission, 280 U. S. 291, 280 U. S. 301-303, the record at chanrobles.com-red
With regard to the "plight" of the small businessman, the record is unequivocal that his competitive position is strong and secure in the Los Angeles retail grocery industry. The most aggressive competitors against the larger retail chains are frequently the operators of single stores. [Footnote 2/31] The vitality of these independents is directly chanrobles.com-red
attributable to the recent and spectacular growth in California of three large cooperative buying organizations. Membership in these groups is unrestricted; through them, single store operators are able to purchase their goods at prices competitive with those offered by suppliers even to the largest chains. [Footnote 2/32] The rise of these cooperative organizations has introduced a significant new source of countervailing power against the market power of the chain stores without in any way sacrificing the advantages of independent operation. In the face of chanrobles.com-red
Numerous other factors attest to the pugnacious level of grocery competition in Los Angeles, all of them silently ignored by the Court in its emphasis solely on the declining number of single store competitors in the market. Three thousand five hundred and ninety single store firms is a lot of grocery stores. The large number of separate competitors and the frequent price battles between them belie any suggestion that price competition in the area is even remotely threatened by a descent to the sort of consciously interdependent pricing that is characteristic of a market turning the corner toward oligopoly. The birth of dynamic new competitive forces -- discount food houses and food departments in department stores, bantams and superettes, deli-liquor stores and drive-in dairies -- promises unremitting competition in the future. In the more than four years following the merger, the District Court found not a shred of evidence that competition had been in any way impaired by the merger. Industry witnesses testified overwhelmingly chanrobles.com-red
United States v. Philadelphia Nat. Bank, supra, at 374 U. S. 363. [Footnote 2/34] The merger chanrobles.com-red
between Von's and Shopping Bag produced a firm with 1.4% of the grocery stores and 7.5% of grocery sales in Los Angeles, and resulted in an increase of 1.1% in the market share enjoyed by the two largest firms in the market and 3.3% in the market share of the six largest firms. The former two figures are hardly the "undue percentage" of the market, nor are the latter two figures the "significant increase" in concentration, that would make this merger inherently suspect under the standard of Philadelphia Nat. Bank. Instead, the circumstances of the present merger fall far outside the simplified test established by that case for precisely the sort of merger here involved. [Footnote 2/35] chanrobles.com-red
The tests of illegality under § 7 were "intended to be similar to those which the courts have applied in interpreting the same language as used in other sections of the Clayton Act." H.R.Rep. No. 1191, 81st Cong., 1st Sess., p. 8. In Philadelphia Nat. Bank, the Court was at pains to demonstrate that its conclusion was consistent with cases under § 3 of the Clayton Act. See United States v. Philadelphia Nat. Bank, 374 U. S. 321, 374 U. S. 365-366. The Court disdains any such effort today. Untroubled by the language of § 7, its legislative history, and the cases construing either that section or any other provision of the antitrust laws, the Court grounds its conclusion solely on the impressionistic assertion that the Los Angeles retail food industry is becoming "concentrated" because the number of single store concerns has declined. chanrobles.com-red
Although Congress eschewed exclusively mathematical tests for assessing the impact of a merger, it offered several generalizations indicative of the sort of merger that might be proscribed, e.g.: whether the merger eliminated an enterprise that had been a substantial factor in competition; whether the increased size of the acquiring corporation threatened to give it a decisive advantage over competitors; whether an undue number of competing enterprises had been eliminated. H.R.Rep. No. 1191, 81st Cong., 1st Sess., p. 8. See Brown Shoe Co. v. United States, 370 U. S. 294, 370 U. S. 321, n. 36. Only the first of these generalizations is arguably applicable to the present merger; the market extension aspects of the merger, as well as the evidence of Shopping Bag's declining profit margin and weak price competition, suggest that any conclusion under this test would be equivocal. See pp. 295- 384 U. S. 296, 384 U. S. 298, 384 U. S. 30, infra. Senator Kefauver stated explicitly on the Senate floor that the mere elimination of competition between the merged firms would not make the acquisition illegal; rather, "the merger would have to have the effect of lessening competition generally." 96 Cong.Rec. 16456.
As to 384 U. S. this fact is obvious on the face of the table. As to 384 U. S. examination of the record discloses that each of the nine acquisitions listed as involving a single store represented purchases of single stores from chains ranging in size from two to 49 stores.
See 384 U. S.
384 U. S. The complete data of the witness included several acquisitions of one- and two-store concerns, together with the disposition of one ten-store chain to various individuals.
See 384 U. S. This table, not a part of the record, was submitted by the Government in its reply brief, filed on the eve of oral argument.
Brown Shoe Co. v. United States, 370 U. S. 294, 370 U. S. 319; cf. House Hearing, supra, 384 U. S. 277, undercuts even that principle by confining it to cases in which competitors are obliged to merge to save themselves from destruction by a larger and more powerful competitor.