Earl Warren: United States, Appellant, versus Pabst Brewing Company, et al.
Edwin M. Zimmerman: Mr. Chief Justice --
Earl Warren: Mr. Zimmerman.
Edwin M. Zimmerman: -- and may it please the Court. The United States is here on direct appeal under the Expediting Act from a final judgment of the District Court of the Eastern District of Wisconsin. In this case, the United had sued under Section 7 of the Clayton Act to set aside the acquisition by the Pabst Brewing Company of the assets and business of the Blatz Brewing Company. After the Government had put its evidence into the record and before the defendant submitted any evidence or attempted a rebuttal, the District Court granted defendant's motion for dismissal upon the ground that the plaintiff had shown no right to relief upon the facts and upon the law. The United States had alleged that the merger of these two substantial competing beer companies violated Section 7 because of probable anticompetitive effects in three markets, the sale of beer in Wisconsin; the sale of beer in the three-state region consisting of Wisconsin, Illinois and Michigan; and the sale of beer in the United States as a whole. The District Court held that the evidence submitted by the United States had not established that either Wisconsin or the three-state region constituted valid geographic markets. The Court, therefore, confined its consideration of probable anticompetitive effects to the national market. But in making that evaluation, it refused to consider the fact that the merger occurred in an industry that was experiencing a pronounced trend toward concentration. It refused to consider this fact because a showing had not been made that that concentration trend had resulted from mergers. The District Court therefore concluded that by itself, evidence of the combined share of the national market held by Pabst and Blatz did not suffice to make the acquisition unlawful and the District Court dismissed the case with prejudice. We believe that the District Court used an erroneous standard for the determination of a geographic market. Under a proper standard, we believe that the Government's unrebutted evidence compelled the conclusion that valid regional markets existed in Wisconsin and in the three-state region. Where you --
Speaker: Do you -- are you seeking the defendant's case from the premise assuming that the United States is the relevant market?
Edwin M. Zimmerman: We also believe that the United States is a relevant market Mr. Justice Harlan. But we believe that Wisconsin and the three-state areas are also relevant markets and perhaps more accurately reflect the impact of this merger.
Speaker: Well, assuming that the country as a whole is a relevant market, what do you say about the dismissal?
Edwin M. Zimmerman: The dismissal is inaccurate in that case too, Mr. Justice, because the judge refused to consider the fact that the merger took place in the context of a dramatically accelerating trend toward concentration. And therefore, we believe, that had he taken that fact into consideration as we believe he is required to, the merger would be unlawful even though measured on a national basis. We believe that where these errors corrected, the errors of market definition and the errors of consideration of concentration trends, that the unrebutted case submitted by the Government, establishes a violation of Section 7. Accordingly, we propose that the case should be remanded to the District Court with instructions to that court to hear the defendant's evidence to determine whether the Government's showing has been rebutted. I should like first to turn to the question of geographic market definition --
Byron R. White: Excuse me, Mr. Zimmerman.
Edwin M. Zimmerman: Yes, Mr. Justice.
Byron R. White: Perhaps you've already covered this with the district judge. In examining what the judge said about this below or we -- is this the question clearly erroneous or not?
Edwin M. Zimmerman: There is one finding which we submit is clearly erroneous but we believe in a major --
Byron R. White: This is our standard for review.
Edwin M. Zimmerman: Yes. We believe the -- with respect to one finding, we believe the major difficulty however is a question of law and that is the proper standard by which to determine geographic market which we believe to be a legal question.
Byron R. White: To the extent you want us to review the findings or the extent we think we have to that the standard isn't clearly erroneous.
Edwin M. Zimmerman: Yes, sir.
William J. Brennan, Jr.: I don't follow that Mr. Zimmerman and I understood this is a dismissal without hearing the defense. Wasn't this in effect a disposition made or that there was no prima facie case?
Edwin M. Zimmerman: Yes.
William J. Brennan, Jr.: How does that involved if it were?
Edwin M. Zimmerman: I beg your pardon.
William J. Brennan, Jr.: How does that involved in a clearly erroneous standing?
Edwin M. Zimmerman: The dismissal was under Rule 41 (b).
William J. Brennan, Jr.: Yes.
Edwin M. Zimmerman: And the stated that there's no question -- there's no case made in fact or in law.
William J. Brennan, Jr.: That's why I wonder why -- why you suggest it. We approach this on the basis of whether it is clearly erroneous finding.
Edwin M. Zimmerman: Mr. Justice Brennan, I believe we should approach this on the basis of whether an error of law had been committed below. I think there is one finding that is clearly erroneous but our basic argument is that it is an error of law below in the definition of geographic market.
Speaker: What's the finding of the statute?
Edwin M. Zimmerman: That there are no locational advantages which affect the beer industry.
Speaker: What number is that?
Edwin M. Zimmerman: I believe it's finding 30 on page 467 of the record.
Speaker: That's the only finding on the Government's record?
Edwin M. Zimmerman: Yes, Mr. Justice. I should like to divide my argument into three parts. I would first want to review the question of what the appropriate standard for discerning a geographic market is, and I wish to attempt to show why the Government's unrebutted evidence suffice to prove that regional markets existed. Secondly, I would wish to examine the standards applied by the District Court and indicate the error of that court. Finally, I would wish to indicate why under proper market definitions and given a proper consideration to concentration trends, we believe that the acquisition has been shown to be unlawful, unlawful at least, until such time as the defendants on remand can refute the Government's contentions. Turning to the question of geographic market definition, this problem has been before the Court. You had it before the Court in the Philadelphia National Bank case, a Section 7 suit and it's also been before the Court in other context such as the Tampa Electric case and the Standard Oil case, Clayton Act cases under Section 3. I doubt, however, that the issue has been presented as cleanly as it is here between the defendant's contention with which the District Court agrees that the sale of beer is a national market and the Government's contention that it has established that regional markets exist. For purposes of analysis, I propose to deal principally with the State of Wisconsin and deal with the facts in the record on that state. The results of that analysis, however, can be easily applied to the three-state area, the other region in the case. First, I should like to review the teaching of the Court on the question of delineation of a geographic market. We are speaking here of a case involving a horizontal merger, and in such a case, there are at least two reasons why the question of the geographic dimension of the market is essential. For one, unless we know that outlines of the market, we would not in fact know that true horizontal competition existed if a firm sold in California and another firm sold in New York, it would not make sense to speak of a horizontal merger or horizontal competition. We want to be sure that the firms are in the same geographic area competing one with the other. Secondly and more importantly, since for reasons which have been developed in all the Section 7 cases in this Court, market shares are a principle guide to the evaluation of probable anticompetitive effect. It is essential that we have a geographic market definition that avoids meaningless market percentages. Market percentages would be meaningless in the case of an improper geographic definition because the market may be so narrowly drawn as to yield huge and terrifying results when in fact no such economic consequence exists or market shares may be so broadly drawn as to water down the true economic consequences of a merger. Now, if we consider the purpose of market definition, the necessary implication is that what we wish to know is whether other sellers are capable of providing direct restraints on the ability of the merging firm to raise prices. Let me illustrate what I mean. I shall take two extreme cases. Let us suppose we have 100 paper clip producers in Maryland and Virginia and the District of Columbia but mysteriously this month, only two sell in the District of Columbia and they merged. To take advantage of the fact that this month these two constituted 100% of the sales in the District of Columbia by calling the District of Columbia a market, would be a meaningless act. If after the merger, the company fills its oaths and raises its prices, it may be that every buyer in the District of Columbia will instantaneously switch to 98 other producers of paper clips in the area. In other words, to generalize, if other sellers can sell to consumers in the area as readily as those selling there, the definition of the District of Columbia as a geographic market is economically meaningless. Now, to take the other illustration, let us assume we have two producers of concrete in and around the District of Columbia. We have other producers of concrete in Florida, New York, Tennessee, and points west. A merger of the two local producers would cause concern since prices can be raised quite a bit before the buyers can economically turn to alternate sources of supply in distant parts of the country. Hence, in that case, it would be appropriate to say that sales in the District of Columbia are the market that the District of Columbia is the market. Note that the barrier is relative, it is always relative. The question is not whether there is an absolute impossibility of other sellers coming in. The question is, whether those in the market have a significant advantage which they can utilize before other sellers are going into the market? Now, I should like to apply this to the State of Wisconsin and to the record in this case. The question is whether we have appropriately defined the market when we complain that the acquisition substantially affected competition in the State of Wisconsin. I believe that the evidence compels the conclusion that the companies selling in Wisconsin did in fact have an appreciable advantage over those not selling in Wisconsin. I believe that we have two types of evidence in the record which establishes that there was such an advantage. I believe that the evidence for one indicated that location of production does play a role and --
Abe Fortas: You said selling. I think you meant producing, didn't you, those producing in the State of Wisconsin?
Edwin M. Zimmerman: Mr. Justice Fortas, I meant selling in Wisconsin since we include in our market all those companies that sell in Wisconsin whether they produce in Wisconsin, Minnesota or Illinois.Our concern is those selling in Wisconsin and not producing in Wisconsin.
Abe Fortas: And you say that they have a distinct advantage over those who don't sell in Wisconsin --
Edwin M. Zimmerman: Yes, Mr. Justice.
Abe Fortas: -- and that is relevant to the definition of market?
Edwin M. Zimmerman: Yes, Mr. Justice. I believe these advantages therefore consist of two overlapping factors. One, locational advantages; and secondly, and more importantly, the sustained investment in advertising to create brand preferences and sustained attention to distributorship relationships. We believe that these factors together mean that the companies not now selling in Wisconsin, even though conveniently located, do not represent a direct competitive restraint upon those companies now selling in Wisconsin. We believe that these two major factors, locational advantages and brand differentiation and distributorship relationships together present the barrier that --
Abe Fortas: Excuse me, Mr. Zimmerman.
Edwin M. Zimmerman: -- warrants Wisconsin as a market. Mr. Justice.
Abe Fortas: Excuse me sir. What do you mean by locational advantages in terms of selling?
Edwin M. Zimmerman: I mean, the location of the source of production, Mr. Justice. I should like to -- I'm going right into that if you --
Abe Fortas: So, you're telling that the location of the source of production.
Edwin M. Zimmerman: Yes. But that is not inconsistent with defining the market in terms of those selling there as I shall show in the moment. Now, dealing with locational advantages, I should like to demonstrate that the record establishes that such advantages exist. I should like first to ask the Court's indulgence and request that it look at page 193 of the transcript of record.
Earl Warren: What page?
Edwin M. Zimmerman: 193.
Byron R. White: Mr. Zimmerman, I take it that your -- this addressed to this -- to overcome the Court finding of the contrary?
Edwin M. Zimmerman: Yes, Mr. Justice.
Byron R. White: But there was an expressed finding in location that had nothing to do with the marketing?
Edwin M. Zimmerman: Yes. Finding 30 which --
Byron R. White: Finding 30?
Edwin M. Zimmerman: Right.
Byron R. White: This is the one finding you think is clearly erroneous?
Edwin M. Zimmerman: Yes. Now, I asked the Court to look at the chart on page 193 which shows the sales of Pabst and Blatz and to look at the State of California where in 1957, Blatz sold 17,653 barrels of beer. The merger occurred in 1958 and the record demonstrates that as soon as the merger occurred, the Pabst Brewing Company began to brew Blatz beer in the California brewery of Pabst. Prior to that, Blatz beer was brewed in Milwaukee and only in Milwaukee. In 1958, a minor amount of production of Blatz beer began and if we look at page 194, we see that sales of Blatz in California went up to 28,000 odd barrels. In 1959, Blatz beer was produced in quantity in California for the first time. I ask the Court to look at page 195 and California production -- California sales of Blatz beer has jumped to 80,600 barrels, an increase of 450% over the year prior to the merger.
Byron R. White: It could be by the weight that it puts in advertising, could it not?
Edwin M. Zimmerman: I'm sure that advertising played a role Mr. Justice White but I cannot believe that advertising can account for that dramatic shift and I wish to bring the Court's attention to confirming facts. Pabst had three other breweries, one in Milwaukee which need not concern us, one in Illinois and one in Newark. If we go through the same exercise on pages 193, 194, and 195 and if we look at sales in Illinois after Pabst begins to brew Blatz beer in Illinois, and if we look at sales in New York and New Jersey which the Newark brewery of Pabst supplied, we find a dramatic, less dramatic than 450% or nonetheless dramatic rise in the sale of Blatz beer associated with the production of Blatz beer for the first time in those areas.
Potter Stewart: But firstly, am I right in reading these figures that the sales of Pabst beer went down in those states?
Edwin M. Zimmerman: Pabst beer went down. I don't know the answer to that. That could be do for any number --
Potter Stewart: (Voice Overlap) clear inference to be made, isn't it?
Edwin M. Zimmerman: No, I don't believe so, Mr. Justice.
Potter Stewart: Well, I think --
Speaker: (Voice Overlap) I thought you said it would have illuminated that testimony at all.
Edwin M. Zimmerman: No, Mr. Justice Harlan, this was a documentary case. But we have other evidence in the record to which I should like to turn to confirm cumulatively the inference I am asking this Court to draw from this data.
Byron R. White: It wouldn't hurt your case even if it were to solely the advertising. One of your positions --
Edwin M. Zimmerman: But we believe advertising is very important.
Byron R. White: But that's advertising that makes the lead so much, don't you think?
Edwin M. Zimmerman: Yes. And it may well be that there were some increase in the advertising expenditures, I do not know.
Byron R. White: Yes.
Edwin M. Zimmerman: Now, a second piece of evidence establishing that there locational advantages in the brewing industry, is the fact that Blatz, the acquired company which had but one brewery in Milwaukee, had in fact over the years sold most of its beer in the area proximate to Milwaukee. In 1957, it sold 30% of its beer in Wisconsin alone. It sold over 60% of its beer in the three-state area, Wisconsin, Illinois, and Michigan. I submit that this again indicates clearly the presence of locational advantages associated with the production. Thirdly, I note that Pabst itself which had four breweries located throughout the country sold 50% -- made 50% of its sales in the four states in which it had breweries, Wisconsin, California, Illinois, and New York rather than New Jersey since the Newark brewery supplied New York, 50% of all Pabst sales were made where it had breweries. Fourth, I suggest that the record shows that most of the sales to Wisconsin buyers came from Wisconsin breweries or from breweries right across the state line. Over 90% of the sales of beer in Wisconsin came from Wisconsin or Minnesota. There were a few importers from Illinois but the overwhelming amount of beer consumed in Wisconsin came from breweries near Wisconsin. I submit that this evidence together requires the conclusion that production -- location of production does necessarily affect competition and I suggest that this evidence at least gives us an outer limit in defining the sellers who can affect price restraints on the ability of the merging company to raise prices or exploit their market position. I suggest that only those breweries proximate to Wisconsin or in Wisconsin need be considered. Now, in addition to that outer limit and overlapping it, I suggest that there are major advertising and distributional elements in this case which again limit the ability of sellers to market in Wisconsin. I have at this point, I hope, defined the outer limits of possible sellers in Wisconsin. I shall now hope to show that within those outer limits, those companies that have made substantial investment in creating brand preferences and distributional outlets have a distinct and decided advantage over those companies that have not. I wish to turn first to a statement by the Chairman of the Board of Pabst on page 130 of the record. We find there that the Chairman Harris Perlstein testifies, this is a deposition, that you can only increase sales by winning more consumers to your brand. The real sale struggle is the struggle between brands of beer and everything that goes with reaching the consumer place a part in increasing sales. You've got to secure a distribution in retail outlets in a maximum number of retail outlets, that's point number one. You've got to get your beer where people can buy it. You've got to present it through advertising, one kind or another, whether it would be media advertising or whether it would be what we call point of sale advertising. You've got to do all these things. It's a many sided process. Secondly, on page 272 of the record, we got an indication of advertising expenditures in this industry. We find that Pabst spent over $8 million in 1956 on advertising, over $8.5 million in 1958, the year of -- I'm sorry -- in 1957, the year before the merger, over $6 million in 1958, etcetera. We find that about three quarters of a million dollars were spent by Pabst in 1960 in Wisconsin alone, half a million dollars in 1958. Obviously, this is an industry in which advertising is of critical importance as television will tell you. Another indication of the importance of brand preference which is indicated by this record is the phenomenon of Blatz prior to the merger, though, it had a far -- a smaller brewery in Milwaukee itself than Pabst. Nonetheless, outselling Pabst year in and year out in Wisconsin, it was as both companies were conveniently located and yet it was perfectly clear that Blatz had a greater grip on the Wisconsin market. Finally, we note that the prices charged the Wisconsin distributors for Blatz beer after the merger in 24 12-ounce bottles was higher than prices charged elsewhere. It would indicate that if one could differentiate in prices that a separate market exist.I wish to call the Court's attention --
Abe Fortas: You mean -- are you telling us that after the merger, after Pabst required Blatz to raise the prices on Blatz in Wisconsin?
Edwin M. Zimmerman: There is a finding of the court below to that effect on page 467, Mr. Justice.
William J. Brennan, Jr.: What's the number of the finding?
Edwin M. Zimmerman: It's finding 29.
William J. Brennan, Jr.: Thank you.
Edwin M. Zimmerman: After the acquisition, the price charge distributors in Wisconsin for Blatz beer were generally higher than that charge elsewhere. I wish to call the Court's attention to --
Speaker: (Inaudible)
Edwin M. Zimmerman: I do not know, Mr. Justice. I do not believe so.
Speaker: You said a moment ago to the Court (Inaudible).
Edwin M. Zimmerman: No, I have not said that but Mr. Justice, whether it was true before or after, the implication would be the same namely that Wisconsin constitutes a disparate market in which a different price can be maintained. Now, I should like to ask the Court to look at Appendix B, in the Government's brief on page 50, because we think that the evidence set forth on that appendix -- this is the compilation of evidence in the record of course, can only lead to one conclusion. What we see in Appendix B is a list of the identity of those selling in Wisconsin over a seven-year period. We also see their market shares. If you look at the market shares and if you look at the identity of the sellers, one is struck by the remarkable uniformity of figures. There are changes indeed. But if Wisconsin were meaningless, if Wisconsin had no economic significance, if those outside the Wisconsin market and not now selling there could instantaneously invade and pick up and sell. If there were no significant barriers, we would not get this type of uniformity in identity and uniformity in market shares. Now, the selection of Wisconsin in the first instance as a market area in which to measure the impact of the market was not fortuitous. Wisconsin is the home state of both breweries. The only Blatz brewery was in Wisconsin. A major Pabst brewery was in Wisconsin. Wisconsin was a very important state for both companies. 30% of Blatz's business had been done in Wisconsin, 13% of Pabst business had been done in Wisconsin. Far above what one would have expected to find had Wisconsin had been just another state. Thirdly, we believe that state borders do have some relevance to the economic reality of the marketplace. There are regulations on advertising and promotion which are statewide. There is evidence in the record indicating that beer companies address their advertising and promotions on a statewide basis because of these regulations. Fourth, Wisconsin has a unique importance as a beer consuming state. Beer is associated with Wisconsin and it has greater per capita consumption than any other state in the union. Fifth, it is a substantial market. Three million barrels of beer are sold in Wisconsin. The federal excise tax on sales of beer in Wisconsin amounted to $27 million alone. Department of Commerce figures indicate a total beer industry of something like $6 billion, that Wisconsin represents 3.3% of total beer consumption. We have a Wisconsin market of $200 million not a de minimis market. We submit that the evidence in the record unrebutted at this point of locational advantages which sets the outer perimeter of those that can sell in Wisconsin. And of advertising and distributional advantages which suggest that those selling in Wisconsin now have a distinct advantage over those not now selling in Wisconsin whether located in Wisconsin or nearby. We suggest that these two factors are sufficient to establish that Wisconsin is a meaningful, not a perfect but a meaningful geographic market, a realistic market in which to evaluate the impact of this merger. The District Court was largely impressed by the fact that beer was shipped interstate and indeed it was. But the District Court appeared unable to recognize the fact that regional markets could exist despite interstate shipments. This Court was able to find such markets in the Brown Shoe case. The District Court, we believe, erroneously deemed that absolute barriers to entry must exist, if a proper market were to be established. We believe this is error. Perfect markets exist only in economic textbooks. The District Court relied on the Tampa Electric case. In Tampa Electric, this Court looked to all the places that the sellers of coal sold to determine what portion of the market was foreclosed to those sellers. The District Court similarly looked to all the places that Pabst and Blatz sold and said this was the market but I submit that this is erroneous. The question in Tampa was foreclosure of opportunities to other sellers. The question here is foreclosure of opportunities to the Wisconsin consumers. In Tampa, there was no advertising expenditure by coal companies seeking to carry grand preferences from public utility companies. Here, advertising is critical. In Tampa, the public utility went on the market every 10 or 20 years and indeed it would search up and down the country to find an adequate source of supply and a chief source of supply. Obviously, beer consumers have no such option. We believe that we are entirely consistent with the teaching of this Court in Tampa and with the Court's language in that case, which says that in defining the market, we must consider to whom the purchases can practicably turn. And we submit that the purchasers can practicably turn to those now selling in the State of Wisconsin. I should like briefly to indicate why it is. Assuming that the Government has established on the unrebutted evidence that Wisconsin is a market, why it is that we believe a violation of Section 7 has been shown by the record. I wish to note first that this is an industry which has undergone a radical transformation. In 1934, there were 708 brewing companies. In 1957, there were 206 brewing companies. In 1961, there were 162 brewing companies. Three out of every four brewing companies disappeared over this period yet national consumption of beer more than doubled over this period. This clearly is an industry undergoing a highly unusual change.
Tom C. Clark: Set by a merger or by failure?
Edwin M. Zimmerman: Mr. Justice Clark, we do not have evidence in the record as to the cause of this change and it is our contention that for purposes of evaluating this merger, we need not inquire into the cause because this merger is an acquisition of a viable company. If it isn't a viable company, that is for the defense to prove and we assert that it is.
Potter Stewart: How about the relative comparative numbers of units -- selling units within the State of Wisconsin this year.
Edwin M. Zimmerman: The -- in the State of Wisconsin, we find a similar change in the structure of the beer industry and what we have in the record is that in the six-year period from 1955 to 1961 alone, we have a 30% decline. They were 77 selling in 1955. There were 54 selling in 1961. Now, less 54 brewing companies appeared to be very substantial number. Let me bring the Court's attention to the fact of concentration in the Wisconsin market. There are indeed 54 companies but the top four accounts for 48% of all sales in 1957 and a considerably higher percentage of all sales now. So it's a highly concentrated market with declining numbers of participants and an increasing share possessed by the largest sellers.
Potter Stewart: Do you think that it's -- you obviously do but it strikes me as that it might be rather artificial to define a market for the purposes of Section 7 in terms of the adventitious political boundaries of a particular state. A state might represent a part of one region or it might represent a part of two or three or four different economic and social regions.
Edwin M. Zimmerman: Mr. Justice Stewart, I agree with you that it is partly accidental. What I am suggesting is that the factor of the state boundary contributes to other economic factor. Now, I am quite certain that Northern Wisconsin is different from Southern Wisconsin. I'm quite certain that just over the Wisconsin border isn't as different from Milwaukee as Northern Wisconsin might be. But I submit that these are relative imperfections and that there is no alternative to this type of imperfection. The question is, are we substantially right in saying that substantially, we aren't making too much in an error in considering the State as having uniform economic qualities. And I submit that on the evidence that we have presented as to this state not as to any state, as to this state, there is an indication adequate to establish a uniform economic situation.
Potter Stewart: At the trial, there was a minimal consideration of the three-state market, was there not?
Edwin M. Zimmerman: Yes Mr. Justice there was and I can turn to that if you would like. In the three-state area, we find an even greater concentration of sales of the two companies.We find persistence of market shares. And we find that the two companies, again, represented a substantial portion of the three-state area. I would argue --
Potter Stewart: Those states were Wisconsin, Illinois and Michigan?
Edwin M. Zimmerman: Yes, they're all in a region.
Potter Stewart: Minnesota, one of the big producers and sellers here is what, Hamm's in Minnesota?
Edwin M. Zimmerman: Yes, Hamm's are just over the line from Wisconsin and it sells into Wisconsin.
Potter Stewart: Minneapolis and St. Paul --
Edwin M. Zimmerman: Yes.
Potter Stewart: -- are basically one metropolitan area.
Edwin M. Zimmerman: Yes.
Potter Stewart: I would like to think so sometimes but they --
Edwin M. Zimmerman: Yes.
Potter Stewart: Is Hamm's in the --
Edwin M. Zimmerman: Hamm's is considered, the sales of Hamm's in Wisconsin as part of our market. We have included Hamm's in our markets and since I suggested earlier to Mr. Justice Fortas, our market is defined by the sales of those selling in Wisconsin wherever they are located.And so we have Hamm's in that market.
William J. Brennan, Jr.: Well, Hamm's are just across the line.
Edwin M. Zimmerman: It's just across the line.
William J. Brennan, Jr.: Minnesota.
Edwin M. Zimmerman: That's right.
Tom C. Clark: How do you account for some of this in-state having such a small percent in your Exhibit B or Appendix B?
Edwin M. Zimmerman: There are probably small breweries Mr. Justice Clark and I probably don't have very much capacity. There is a substantial export --
Tom C. Clark: Take Miller -- take Miller though, he still go over the country.
Edwin M. Zimmerman: Yes. There -- I should say that there is substantial export of beer from Wisconsin. Wisconsin is second leading producer of beer in the country and the --
Tom C. Clark: But you have Budweiser that's 2.5%.
Edwin M. Zimmerman: Budweiser sells from St. Louis and they're about as far away as you go and get any substantial sales in Wisconsin.
Tom C. Clark: You mean it is twice as much is alleged and the jury says they never heard of it.
Edwin M. Zimmerman: Well, you probably never heard of them because their capacity isn't very large which is why their sales are so small.
William J. Brennan, Jr.: Did I understand you Mr. Zimmerman to say on the argument of this complete national market falling into fewer, fewer hand. What you have to show has left you demonstrated that -- namely that since 1934 the 708 number of suppliers has come down to 170 odd whatever that figure is with you without regard to whether those result of charges or otherwise people going to the mall or whatever it may be.
Edwin M. Zimmerman: Yes. May I turn to that issue?It is one of the basic issues in the case. I would just like to conclude my discussion of the competitive effect issue by noting that in Wisconsin, if Wisconsin were the market, you have a combination of these two companies representing 24% of the industry of the market. We believe that this is well within the reasoning of this Court in Philadelphia National Bank considering the great concentration in that market already and considering the ongoing concentration trend. We believe that a similar result is achievable in the three-state area. The percentages are somewhat smaller, about 11% but in the face of the great concentration trend, we think that this is sufficient to establish unless rebutted that there is probable anticompetitive effect.
Hugo L. Black: Could you relate it to Wisconsin?
Edwin M. Zimmerman: I beg your pardon?
Hugo L. Black: Could you relate -- you said that has been this decrease --
Edwin M. Zimmerman: Yes. It has --
Hugo L. Black: -- of numbers --
Edwin M. Zimmerman: In --
Hugo L. Black: It decreased also in Wisconsin on a number of (Voice Overlap)?
Edwin M. Zimmerman: Yes, Mr. Justice. In Wisconsin between 1955 and 1961, the number of brewers selling declined from 77 to 54, a 30% decline in a six-year period.
Hugo L. Black: What years were those?
Edwin M. Zimmerman: 1955 to 1961 bracketing the merger year.
William J. Brennan, Jr.: And here, again, we don't know whether the (Voice Overlap) of mergers or what?
Edwin M. Zimmerman: Right. Now, let me turn to the issue of the significance of concentration trends without evidence of the cause of the concentration trend. Now, I might say in passing, I don't think that that would be particularly important in the Wisconsin area though it would certainly assist our case.I think it becomes quite important in determining whether the court below properly dismissed this on a national market. Percentages in a national market are not anywhere as substantial or as indicative by themselves. Now, the District Court stated that it was possible that the decline in the number of sellers was due to natural economic forces and that we haven't shown that it wasn't, and with this, I agree. Now, I'm willing to assume that the decline for purposes of argument that each and everyone of the decline represented a business failure and that this is the natural attrition of an industry that's transforming itself.
William J. Brennan, Jr.: Any new entrance?
Edwin M. Zimmerman: There were no new entrance in Wisconsin, Mr. Justice Brennan. And by and large there are few, I don't think there's any evidence of new entrance in the national business. This is a greatly diminishing business in terms of number of participants.
William J. Brennan, Jr.: But not in volume produced or consumed?
Edwin M. Zimmerman: The volume produced has doubled over the 30-year period. The number of producers has been cut to one quarter of its former number. Now, even if it were true that every disappearance was through business failure and therefore reflected normal economic events, I would argue that nonetheless it is of consequence to the court below and of consequence to this Court that this merger be evaluated in the context of a change in the industry because this merger is not a business failure unless the defendants so establish which they have not had the opportunity so to do. This merger is a merger of viable substantial companies. We think that when the market is decreasing at this rapid pace, whatever the cause, it's all more important to preserve the healthy companies, the substantial companies, and the substantial competitors. And for this reason, we think the District Court was plainly wrong when it disregarded concentration trends. It has to consider whatever the cause of the concentration.
Byron R. White: Does the Government make any -- take any position in this case that if needed, the Wisconsin or the three-state market is sustainable that you should win the case anyway on a national market basis?
Edwin M. Zimmerman: Mr. Justice, I believe that a more accurate indication of the economic impact of this merger is discernable in Wisconsin and in the three-state area than nationally. I believe on the basis of everything I have said here that you begin to lose accuracy when you talk about a nationwide market and when it isn't meaningful as I believe this nationwide market is not in comparison with Wisconsin. However, the merger does not take place in a vacuum. It has to be tested somewhere and we believe that even on a national basis, if the concentration hence are indicated, it would be appropriate to find this merger in violation of Section 7.
Byron R. White: If -- did you make this contention in the lower court on the national basis?
Edwin M. Zimmerman: Yes. I'm sorry sir.
Byron R. White: On the national basis?
Edwin M. Zimmerman: Yes, we contended that that merger was illegal on a national basis as well but the Court refused to consider our concentration figures. It just worked with market shares.
Abe Fortas: Excuse me. Did the Government asked for a temporary restraining order or preliminary injunction here?
Edwin M. Zimmerman: Not to my knowledge, Mr. Justice. The case was brought about a year after the acquisition took place.
Abe Fortas: Has there been a merger or consolidation or bringing together the distribution outlets of the two companies?
Edwin M. Zimmerman: Yes, Mr. Justice. The -- as I indicated or should have made clear however that Blatz brewery was closed down quite promptly and Pabst --
Abe Fortas: The brewery itself.
Edwin M. Zimmerman: The brewery itself and Pabst began brewing Blatz beer in its various plants and there has been a consolidation of distributional facilities. However, the Blatz trade name has been kept very much alive and substantial advertising expenditures have been made.
Abe Fortas: And what sort of relief did the Government request here?
Edwin M. Zimmerman: Well, I suppose that we could request the divestiture of the Blatz trade name, the sale to someone who would put a brewery and distributional facilities behind it and perhaps we would request the divestiture of some of the distributional facilities. It's possible to revive these animals once they're gone.
Abe Fortas: You say what?
Edwin M. Zimmerman: It's possible to revive these animals once they're gone.
Abe Fortas: Yes. And --
Edwin M. Zimmerman: The Blatz trade name is valuable.
Abe Fortas: Yes. And since I have a vague recollection if there is some precedent for requesting relief in the form of an order directing here would be Pabst to divest itself to rehabilitate and reestablish in going enterprise.
Edwin M. Zimmerman: That would be a feasible solution. I have not examined the problem of relief. We've been told --
Abe Fortas: Can you recall a case of that sort? I seem to --
Edwin M. Zimmerman: I believe that United -- the United Fruit Company has been asked in a monopolization case to create a competing company and it has not succeeded in doing so as yet but it has been asked to do so.
Abe Fortas: So that in this case, the Department of Justice brought this action a year after the merger.
Edwin M. Zimmerman: Yes.
Abe Fortas: And that the major complaint -- major complaint asked for the remedy of divestiture?
Edwin M. Zimmerman: Yes, I'm sure it does Mr. Justice. That would be the logical relief and I'm sure that we asked for it. And on page 26 of the transcript, the complaint shows that under such terms and conditions as the Court proscribed, we ask that defendant Pabst be required to divest itself of the business and assets of Blatz.
Tom C. Clark: Do they maintain Blatz label and everything?
Edwin M. Zimmerman: They maintain the Blatz trade name, Mr. Justice, and I assume that they maintain the Blatz label, yes.
Tom C. Clark: Are they dismantling the plant of Blatz?
Edwin M. Zimmerman: They have dismantled the brewery, the Blatz brewery and they brew Blatz beer in the four Pabst breweries.
Tom C. Clark: They could've divested on that.
Edwin M. Zimmerman: I beg your pardon?
Tom C. Clark: That you couldn't get much divestiture on that.
Edwin M. Zimmerman: Oh but the trade name is of extreme value as we indicate in terms of the importance of advertising.
Tom C. Clark: They could have a trade name.
Edwin M. Zimmerman: Yes. Thank you, Mr. Justice.
Earl Warren: Mr. Chadwell.
John T. Chadwell: Mr. Chief Justice and may it please the Court. I don't think we've come to the time to discuss relief yet, if Your Honor please, because I hope to be able to convince the Court that the decision of the lower court was right. I wish to give a brief setting for this discussion, if Your Honors please, to start with in two respects. The first is that the beer industry, the economics of the beer industry is something that the Court should have in mind, I think, in considering and evaluating the Court's findings of fact. I have attached, we have attached to our brief facing page 12, a map of the United States in which there is a -- an aid to the Court in looking at the underlying economics of this industry. This is based upon finding 32, Record 467 and it is based upon JX11 Record 149. This map shows, if Your Honors please, that there are 17 states in the United States which have no production of beer at all. There are 20 states in the United States in which there is an excess of consumption over production. Leaving only 12 states in the United States where there's an excess of production over consumption, those states being able to and called upon to supply the deficit in the 37 other states where there either is no production at all or where the production is much less than the consumption.
Potter Stewart: Figures or product -- consumption in barrels, is that it?
John T. Chadwell: Yes, Yes, sir. Throughout my discussion in the consumption or presumption where I refer to figures will be in -- on the basis of barrels and that is the situation in this matter.
Potter Stewart: These figures are consumption figures.
John T. Chadwell: There are -- they are consumption figures or production -- they are production figures or consumption figures. Now, let me show you, if Your Honors please.
Potter Stewart: Alright.
John T. Chadwell: Wisconsin is shown here has 7,080,407. That's the excess of production over consumption in Wisconsin in 1961. That means they have seven million barrels to export. They produce seven million barrels more than they consume.
Abe Fortas: Does --
John T. Chadwell: Now --
Abe Fortas: -- the record show -- does the record show how much beer is imported into Wisconsin and --
John T. Chadwell: Yes, sir.
Abe Fortas: -- and those states?
John T. Chadwell: Yes, sir.
Abe Fortas: And what is that and what's --?
John T. Chadwell: That, I might say is not shown here in the year 1961 despite this heavy excess shipment or production over consumption, they also imported beer to the extent of about 25% of their -- of their consumption in that year. That is shown by the record, Your Honor. Now, I direct the Court's attention also, if Your Honors please, to the fact that the three states in the Middle West, Missouri with a five million excess production, Wisconsin with seven million excess production, and Minnesota with two million excess production, a total of 14 million barrels. That total represents about 60% of the excess production over consumption throughout the United States, which means that out of these three states of Wisconsin, Missouri, and Minnesota comes 60% of the supply for the 37 states that have deficit production in addition to imports in other states that have excess production over consumption like Wisconsin which is I say imports 25%. Now, I wish to start out by calling those facts to the attention of the Court because I think they are of importance to have in mind in connection with what I have to say. We filed our motion for judgment at the end of a two-day trial. The end of a two-day trial in which the Government put in evidence only statistics and documentary evidence, nothing else. Now, this was in spite of the fact that they had interviewed 404 witnesses according to pretrial discovery information which we have and which is in the record, 404 witnesses, substantially every brewery in the United States, a great, many distributors in United States and molesters. They had chosen out of the 404 witnesses whom they had interviewed to their representatives, 71 witnesses who had been subpoenaed to appear at the trial. They represented to the Court in the pretrial briefs as the Court said in his opinion. They represented to the Court that these witnesses were going to testify as to actual conditions, competitive conditions in the beer industry and that they were going to testify -- and that their testimony was essential in order to prove the economic facts with respect to this industry.
Speaker: What year is this trial?
John T. Chadwell: This -- this was in 19 -- the trial was in January of 1964. If you're referring --
Speaker: Before or after the Philadelphia Bank?
John T. Chadwell: I beg your pardon?
Speaker: Before or after the Philadelphia Bank --
John T. Chadwell: Oh it was after the Philadelphia Bank case. Yes, sir. Now then, a few days before the trial, the Government excused all of these witnesses and didn't call any of them. Now then, in their brief -- in their brief, they make the statement that the reason that they excused the witnesses was that they thought it was unnecessary and they say in their reply brief that the witnesses which they intended to call were not going to testify on matters going to definition of relevant markets but on competitive effect and they thought it was unnecessary to put in the evidence on competitive effect and made that decision two days before the trial. But counsel told the Court -- counsel told the Court and I'm quoting from the Record 425, the Court's opinion. “These witnesses will show that the brewing industry is still to some extent at least an industry where control remains in the local community in the independent small company. Some of these witnesses would also -- will also testify as to probable effect of the changes about prices and so forth.” Now, the very essence of the contentions of the Government here -- the very essence of these contentions with respect to the -- to the competitive -- to the market, the -- is that the market for beer is localized. The market for beer is localized and indeed the Government says that that is the basis of their contention and they are making the assertion to Your Honors that finding 30 to which they refer. In which the Court said there is no evidence in this record to show that the beer industry is localized. That is, they say, clearly erroneous. Clearly erroneous they must say purely on the basis of the statistical evidence for though they could have done so. They had witnesses subpoenaed to come in to the trial, 39 of these 71 witnesses they had subpoenaed were brewers. A great many of the rest of them were distributors, who could have testified under oath with respect to the effect of long distance transportation on markets, whether their sales were within a close proximity to the plant or whether they were not. The extents to which these barriers are referred to by counsel are in fact barriers to interstate transportation. They didn't call one of them. They didn't call one of them in spite of the fact that they had represented to the Court that they have knowledge of these competitive conditions throughout the industry and that the Court should listen carefully to these witnesses in order to get this information. And that the Court, as they represent here, should listen to these witnesses who would tell about the localized markets and they didn't call one of them to say so. Now, what do they have left, what do they have left, this I say to the Court is a factual question as to whether or not their relevant market area is Wisconsin or its nation. They have statistics left and they have a few tables left and that's all they've got left, and I want to discuss -- I want to discuss that. That is what they're asking this Court to look at, to say whether or not this ruling -- this finding of the trial court finding 30 was or was not clearly erroneous.
Abe Fortas: I don't quite follow you, sir.
John T. Chadwell: Yes, sir.
Abe Fortas: It seems to me that the finding of the Court on 467, finding 30.
John T. Chadwell: Finding 30, Your Honor?
Abe Fortas: Yes, and the offer of proof for the description in the pretrial brief of the plaintiff, in page 425, are inconsistent. Are you arguing that they are consistent?
John T. Chadwell: I am arguing -- I don't think I quite got the point of Your Honor's question.
Abe Fortas: You call our attention to the statement of the plaintiff which appears on 425 of the record.
John T. Chadwell: Yes, sir.
Abe Fortas: To the effect that the witnesses were sure that the brewing industry is one where control remains in the local community --
John T. Chadwell: Localized.
Abe Fortas: -- in this independent small company. Then you call our attention to finding 30 on 467 in which the Court says, there's no evidence in the record that competition in the beer industry is in any manner localized or affected by the location of the brewery.
John T. Chadwell: Yes, sir. These witnesses didn't testify.
Abe Fortas: Is that your point?
John T. Chadwell: That they did not testify.
Abe Fortas: Because those two statements seem to me to inconsistent.
John T. Chadwell: Well, they are inconsistent.
Abe Fortas: I think so.
John T. Chadwell: They --
Abe Fortas: Thank you.
John T. Chadwell: They were saying to the Court that we will call witnesses to show that the beer is localized, that the distribution of beer is localized and they didn't call them.
Abe Fortas: That's your point.
John T. Chadwell: That's my point.
Abe Fortas: Thank you.
John T. Chadwell: Yes, sir. I'm sorry.
Hugo L. Black: That wasn't settled, was it?
John T. Chadwell: Oh! No, Your Honor. I don't say that but I say that is the point that the Court should have in mind in considering this question as to whether or not this finding is clearly erroneous. Now, they did not call any witnesses to show it. Now then, what do they have to show? That's the question and I shall now -- I would now like to discuss their point.
William J. Brennan, Jr.: Mr. Chadwell.
John T. Chadwell: Yes, sir.
William J. Brennan, Jr.: I gather Mr. Zimmerman made an alternative argument though, didn't he? Even assuming a national market, still, he says, it should be reversed.Even assuming a national market I think is (Voice Overlap).
John T. Chadwell: Oh! Yes, that's another point and I want to discuss that. But first, I would like to discuss the point which he dealt with primarily which is that Wisconsin is a relevant market area and that the Court's finding to the contrary was clearly erroneous. Now, I think I am correct in saying that the Government pays only lift service to the early stated guidelines of this Court in Philadelphia Bank -- the -- and in -- and in Tampa Electric which was incorporated and applied to Section 7 of the local bank, that a careful selection of the market area in which this owner operates and to which the purchaser can practically turn for supplies is the way in which a relevant market area should be determined. Now, the Government is really trying to avoid this rule. It seems to us by trying to define the area in terms of existing sellers in Wisconsin -- sellers in Wisconsin rather than in terms of the section of the country which constitutes an area of effective competition. It seems to be the Government's position as we understand it they may choose any area, in this case Wisconsin and the three-state area, where they deem the market shares to be favorable and rationalize it into an area of effective competition. On the theory that there are barriers of some indefinite significance imposing some disadvantage on out-of-state sellers entering the market, and this, even though out-of-state sellers are already in Wisconsin and have been to a very great extent as I shall show. The Government in making this contention, I submit, ignores the first of the guidelines established in the Philadelphia Bank and that is, there must be a careful selection of the market area where the sellers operate as well as where the buyers may turn for supplies. In this case, almost 80%, 78% to be precise, of the beer brewed in Wisconsin is not consumed in Wisconsin at all but it's sold and shipped out of the state. Under the first test in Philadelphia Bank, the area of effective competition must include Wisconsin plus the rest of the area far larger than Wisconsin where Wisconsin brewers and other brewers compete. 80% of the beer produced in Wisconsin is shipped out of the state to these deficit production areas and other areas. The Government made no effort to introduce any evidence as to the extent of the areas except for the sales and shipments which were stipulated. They introduced no evidence as to the extent of sales of other Wisconsin brewers except Pabst and Blatz. Now, as to where the buyers in Wisconsin may turn for supplies, the evidence is as I said, the 25% of Wisconsin consumption is imported from other states despite Wisconsin's large surplus production. Wisconsin buyers turn to these out-of-state brewers for supplies and Wisconsin buyers and out-of-state buyers may and turn -- may and do turn to these brewers and their competitors in and out of Wisconsin constantly through the years. The evidence as we submit fails to sustain the Government's burden of proof on the facts by their own standards as to this supposed barriers to sales in Wisconsin by out-of-state brewers and certainly, they fail to comply with the Government's standards. Now, the Government's basic assertion as I say is that the distribution of beer is localized that most beer sales by producers, and I am quoting, “are made within the immediate area of their breweries, that breweries considered important for effective distribution, that they have breweries proximate to their important market.” And they say and I quote, “This pattern holds across the nation in which 90% of all beers sold within the state come from brewers within the state.” While the evidence does not show that, there is no evidence in the record for that at all, those are assertions made in their brief without any support in the record of any kind.” I would like to point out to the Court that since the Wisconsin brewers shipped almost 80% of their state -- of their production of beer to out-of-state consumers. They have done that for 1958, it was 78%; 1961, it was 76%. Furthermore, in 1958, Blatz had one brewery located in Milwaukee, the only one they have yet they sold beer and ship beer to 40 states in the United States out of that one brewery. They sold beer -- Pabst sold beer in all 48 states. The record shows that the vast bulk of the sales of both Pabst and Blatz was made -- were made out of Wisconsin, Pabst, 78 -- 85% and Blatz, 77%. Almost 69% of the output of the Pabst brewery in Milwaukee was sold out of Wisconsin. And these shipments were made nationwide so far as Blatz was concerned. They were made in a great many states so far as the Pabst brand of beer was concerned and those states included the Southeast, the West Coast, the Northwest and other areas either out of Peoria which is in Illinois or out of Milwaukee showing the widespread distribution of beer throughout United States from the Middle West, necessarily so, in view of this large excess production in these three states to which I have referred.
Abe Fortas: Do you think that the definition of the market should be affected in any way by the words of Section 7 in reference to any section (Voice Overlap).
John T. Chadwell: Section in the country. They referred to a geographic section. Yes, sir. And --
Abe Fortas: And you think that affects the definition of the market under Section 7 case?
John T. Chadwell: I do. The Court has -- the Court have --
Abe Fortas: Now, how -- how does it affect the definition?
John T. Chadwell: Well, the Court has always -- this Court has held that the first thing to do, the necessary predicate to a determination of competitive effect is first to establish your market area. And the market area is established according to the rules this Court has laid down in Philadelphia Bank and elsewhere. And in Philadelphia Bank, they took evidence to show that the trial court did, that the business of banking was local.
Abe Fortas: Suppose (Voice Overlap). Isn't it conceivable that the purposes of a Section 7 case, you might have several alternative markets in which you could test the competitive effect or you might test them -- every one of them, all of them? For example here, is it possible that you might test the competitive effect and then object. That's all we're talking about here, isn't it? Market, the definition of market is just --
John T. Chadwell: In order --
Abe Fortas: -- an instrument --
John T. Chadwell: Yes, sir.
Abe Fortas: -- for appraising competitive effect.
John T. Chadwell: Correct.
Abe Fortas: Now, is it -- is it possible that we might here, for example, properly say we're going to test the competitive effect in California.
John T. Chadwell: Not unless it's an area of effective competition theory.
Abe Fortas: That's right. Now, what would be the way of going about that inquiry?I would want to find out whether both Pabst and Blatz sold there.
John T. Chadwell: You would want to find --
Abe Fortas: I would want to find out whether both Pabst and Blatz were sufficiently substantial taking into account, (a) production; (b) consumption. You might take those separately and together to find out whether Pabst and Blatz were sufficiently substantial in California so that their merger would or could have a -- could be measurable in terms of the totality of the figures in California?
John T. Chadwell: Your Honor, the first thing to do as established by the decisions of this Court is to ascertain a relevant market area for the product. Now, the product here is beer. You must ascertain the area and I agree, I agree. There could be, I presume, it's conceivable. There could be a relevant market area of effective competition in Wisconsin. I say that that's the area that they have chosen for the testing of this market along with the three-state area. They have chosen that and that they mention that. They haven't chosen any other. So the question now is, is Wisconsin taken out for an example, is Wisconsin an area of effective competition? Can the sellers in Wisconsin look to brewers outside of the state for their beer as well as within the state? If so, that broadens the area of effective competition and the percentages in Wisconsin are not controlling. The percentage are controlling as to the area which is one of effective competition within which customers or buyers can turn for supplies, and also, within which sellers competing in the area are actually in competition and I say to Your Honor that the sellers in Wisconsin can and do look far beyond the State of Wisconsin for supplies and that I have previously said that the sellers do complete -- compete over a very wide area much beyond Wisconsin and much beyond the three-state area because of this underlying economic fact of life which I stated to the Court at the outset of my remarks. Now, as further evidence of that Mr. Justice Fortas, I want to make this statement in which we considered to be of great importance to this decision and that is of the three top sellers in Wisconsin in 1961, three were out-of-state brewers. Three were out-of-state brewers. The second biggest producer, the second biggest seller in Wisconsin was Hamm's. The sixth biggest was Anheuser-Busch and the eighth biggest was (Inaudible). They're all out-of-state producers. Now, they have no breweries in Wisconsin. Now, it is true that Hamm's is located in St. Paul in Minneapolis. But St. Paul and Minneapolis is over 300 miles distance from the great population center of Wisconsin which is in the southern part including Milwaukee and Madison and those populous states across the southern part of -- populous counties across the southern part of the state.
William J. Brennan, Jr.: Well, I take it, that's not much in truck time, is it?
John T. Chadwell: Well, something over 300 miles. They have not included Minnesota or any area within 300 miles within their market area. If they do, they go, clear up into the way out into Ohio, down further south to northwest. St. Louis is where Anheuser-Busch is located. St. Louis is 370 miles from the Milwaukee, Madison, Green Bay area where the populous counties are. If you include Green Bay area, you've got 70% of the population of Wisconsin as we show in our brief. So, if you follow the rule which I think must be followed in this case that you turn to the area -- that you consider the area to which buyers in Wisconsin can turn for their supplies, you've got to go to a radius which would include St. Louis, which would include Minnesota, which would include areas east and west, and you have got an area far beyond Wisconsin. You've got an area far greater than Wisconsin, Illinois and Michigan and they have simply not shown any evidence on such an area of effective competition as to what the facts are, as to what the percentages are, as to whether within that area of effective competition that goes way beyond Wisconsin, there is any indication of lessening of competition or not.
Abe Fortas: But your problem is that your counsel run up against the fact that Pabst and Blatz put together, represented about one-third of the sales in Wisconsin, didn't they?
John T. Chadwell: 24%.
Abe Fortas: How much was -- how was it broken down?
John T. Chadwell: As between the two?
Abe Fortas: Yes.
John T. Chadwell: I don't have those figures for this session. 13% and 11%, 13% for Pabst and 11% -- but Your Honor, I --
Abe Fortas: 13% --
John T. Chadwell: Excuse me.
Abe Fortas: I beg your pardon. To some extent --
John T. Chadwell: I didn't mean to interrupt, I'm sorry.
Abe Fortas: To some extent anyway, the definition of the market is always tail chasing inquiry, isn't it? That is to say, you -- what you're trying to do is to define the area of effective competition. And to define the area of effective competition, you try to find it. And that's one of these very difficult conceptual problems that antitrust lawyers and judges have to wrestle with.
John T. Chadwell: I think it is as the Government says in their brief. It's a very difficult question, a very difficult problem and convincing -- in convincing the Court that Wisconsin by itself is a relevant market area --
Abe Fortas: Or in the contrary --
John T. Chadwell: -- problem.
Abe Fortas: Both sides. Both sides by then.
John T. Chadwell: Well, I don't think it's difficult on the evidence in this case, Your Honor where the -- nothing was introduced to explain the statistics where the Court made this finding of fact on the basis of what I have said partially on the basis of what I have said as to the great flood of beer that moves in and out of Wisconsin and moves in and out of Middle West that purchasers in Wisconsin can and in fact do turn to out-of-state brewers to such an extent that they import 25% of their beer in spite of the fact that 80% of their production --
Abe Fortas: I don't want to argue with you but suppose that the only beer, that of the beer sold in Wisconsin only Pabst and Blatz brewed the beer -- their beer there and Pabst and Blatz accounted for 24% of the sales in Wisconsin, all the rest of Wisconsin's consumption came from out-of-state. Is it inconceivable that that would satisfy the statutory requirement that the effect on competition be measured in a section of the country? Now, if the Government -- Government's case, where a case that related to production facilities that will say, the merger of production facilities and this might be what I've now suggested might be a faulty definition of the market. But if the Government's case relates in whole or in part to the distribution -- to the effect -- competitive effect of the merger on sales of beer then what I've suggested to you might not be irrelevant to the definition of the market.
John T. Chadwell: Your Honor, they must and do consider here the effect on sales of beer. But I say that the sales of beer cannot or the competitive effect on the sales of beer cannot be measured under the decisions of this Court in accepting an area of effective competition within this definition which I have stated, with which Your Honors are well familiar and I won't repeat. Now then, I say that you don't show that by merely showing where these two firms compete or where they happen to have what the Government regards as favorable market share statistics. Now --
Tom C. Clark: Can you state the relative market in Nashville.
John T. Chadwell: It's stipulated Your Honor that there's Nashville. That is stipulated.
Tom C. Clark: What findings (Inaudible)
John T. Chadwell: They have had breweries in --
Tom C. Clark: At the time of the merger --
John T. Chadwell: At the time of the merger they have breweries in Wisconsin and in Milwaukee and in Peoria, Illinois which is as Your Honor knows goes to Chicago. Then they had a brewery in California and they had a brewery in Newark, New Jersey. Now --
Tom C. Clark: (Voice Overlap)
John T. Chadwell: I beg your pardon.
Tom C. Clark: Pabst and Blatz both have in New Jersey.
John T. Chadwell: No, sir. Blatz had only one brewery and that was in Milwaukee. And from that brewery, they ship to 40 states throughout United States. Now, one argument that is made by the Government in this case is that there are four barriers they say. There are four barriers to purchasing -- to selling by out-of-state breweries in Wisconsin, four. And they list them and they say on the basis of barriers, you cannot extend the relevant market area beyond Wisconsin. Now, the first barrier which they say to them shows that Wisconsin is by itself a relevant market area. The first brewery -- or the barrier they say is transportation cost. Now, the Government ignores the trial court's finding that there is no record evidence that competition is affected by the location of a brewery or that the place of production in any manner affects sales. The trial judge in his opinion and I refer to Record 436 of the -- where this opinion or statement is made. The judge recognize that in some industries, production locale affect sales, for example, where transportation cost are so high as to limit sales to an area near the place of production. But no evidence in this case establishes the location of any brewery effects or limits the area in which the seller operates or to which the buyer can turn for supplies. The Government makes this assertion without any records of court whatsoever as the trial judge found that there was no record to support for any such contention. And as a matter of fact --
Byron R. White: But was there any evidence in the record if the Government had just introduced what the freight rates were from Wisconsin to California?
John T. Chadwell: They didn't do it.
Byron R. White: I know but would that be --
John T. Chadwell: I don't think that would have been sufficient.
Byron R. White: What if they had? Would that have been evident?
John T. Chadwell: Well, it would have been evidence but I don't think it would have been sufficient because they would have to show the relation of those rates to price whether it have -- whether they did in fact constitute any barrier to shipment from Wisconsin and other areas. Now, the best proof that they don't constitute any barrier is the fact that these interstate shipments into Wisconsin and out of Wisconsin are made. The fact is, as I said, that 80% of the beer brewed in Wisconsin is shipped out of state and it is owned by the evidence. The Government put in the evidence on this subject only as to Pabst and Blatz. It's shown in the evidence as I see that Blatz shipped all over United States. Now, the fact that they're able to do it and out-of-state sellers are able to ship in to the United States, certainly demonstrates that transportation cost are not significant and a no barrier to the purchasing in Wisconsin of out-of-state brewed beer. And yet -- and the Government says that the record contains no evidence of such cost. Now then, if the Government's contention without any support in the record at all that transportation cost constitute a barrier if there are anything to it, Wisconsin brewers would lose four-fifths of their business. Now, evidence on transportation cost is available. They have witnesses subpoenaed who knew about transportation cost and the relation of transportation cost to prices --
Byron R. White: What would you say if the evidence shows that farther away you got from the brewery than the Blatz beer was sold?
John T. Chadwell: The evidence here, Your Honor, does not show that. It doesn't show any spinning out which I think was the phrase --
Byron R. White: How about the case of Blatz?
John T. Chadwell: I beg your pardon.
Byron R. White: How about the case of Blatz? Where did they sell most of --
John T. Chadwell: It showed --
Byron R. White: -- their beer?
John T. Chadwell: It shows that their sales are somewhat less in some areas than in Wisconsin but also they are higher, their sales are greater in some remote states than in close-by states and the same thing with respect to Pabst. They -- Pabst sold very large percentages of the production of states in the southeast part of the United States as the record show which were brewed in Wisconsin.
Byron R. White: But do you think -- did Blatz sell more beer within 300 miles of their brewery than outside of 300 miles or not?
John T. Chadwell: Well, I -- I would suppose they sell more. Sure they sold more. But --
Byron R. White: Well, what's the significance of that? Was that just a neutral finding?
John T. Chadwell: I don't think -- I don't think it has any significance because the contention is not made here. The contention is not made here that that is a relevant market area. They're looking at Wisconsin. That's what the trial judge had to decide.
Byron R. White: Well, I understand that.
John T. Chadwell: Yes, sir.
Byron R. White: But you're making a intention that there's no evidence in the record whatsoever that location has anything to do with --
John T. Chadwell: That's what the trial judge found and there isn't any.
Byron R. White: I know that's what he found --
John T. Chadwell: Yes, sir.
Byron R. White: -- on the ground but the question of whether there's any --
John T. Chadwell: It's really erroneous. Yes, sir.
Byron R. White: Yes. I suppose that Blatz -- if there were evidence that Blatz sold less and less beer the farther away it got from its brewery, it might indicate that location have something to do with it.
John T. Chadwell: Well, I suppose it might indicate that there were some facts -- there were some factors that have something to with it, but could -- if we said that that makes this finding clearly erroneous in the face of this -- this proof of shipments all over the country, could it be said that their transportation cost are a barrier to out-of-state selling when the three of the eight largest sellers in Wisconsin ship in throughout the state?
Byron R. White: Did Pabst sell any beer from Wisconsin to California?
John T. Chadwell: Pabst ship any beer out there?
Byron R. White: Is there any evidence like that --
John T. Chadwell: There's no evidence on that. Washington and Oregon --
Byron R. White: But not California.
John T. Chadwell: Not California.
Byron R. White: Because you have a brewery there.
John T. Chadwell: I don't know, if that's it, I suppose it is.
Tom C. Clark: Why do you have brewery there?
John T. Chadwell: I beg your pardon?
Tom C. Clark: Why do you have it there?
John T. Chadwell: Well, I presume it's for convenience, there's no question about that. The question I'm arguing, if Your Honor please, is the barrier. Is it a barrier to sales in Wisconsin from out of the state and it is not? There's no proof on it at all.
Tom C. Clark: What can you do with the certificates on Blatz in California after they turn down their brewery there?
John T. Chadwell: Their sales increased in California. They also increased in a great many other states. There are I think five states or six states in -- that we've referred to in our brief where Blatz sales increased very drastically and they have had no brewery either before or after the increase.
Tom C. Clark: California doubled though.
John T. Chadwell: California went up. There's no indication of why. Suppose it did go up some. The fact that they also went up in other states where there was no -- where there was no brewery would indicate that that is not the only -- was not the only factor particularly when they put in the weapons on the subject.
Tom C. Clark: Do you have Pabst brewery on the East Coast?
John T. Chadwell: Yes, sir.
Tom C. Clark: -- and on the West Coast.
John T. Chadwell: Yes, sir. They are the largest in (Voice Overlap).
Tom C. Clark: Was there any significance in that?
John T. Chadwell: Yes, I would suppose there's significance in that.
Tom C. Clark: There must be some relationship between location and sale.
John T. Chadwell: Well, not necessarily to make it impossible or unlikely that sellers out of the state could not sell in the state. They do it --
Tom C. Clark: They can sell possibly at a higher cost.
John T. Chadwell: Oh, but when a company can get up to second place in the state when and this is a fact that I have not mentioned. There are 54 breweries selling in Wisconsin and Mr. Zimmerman said, iut of those 54, 24 are out-of-state breweries, 24 and 30 are in-state breweries. That's underlined in the record and the Court had that before him when he made this finding of course. And nothing to explain why, how could've been done.
Tom C. Clark: (Inaudible)
John T. Chadwell: Well, 25% of the consumption in the state is from out of the state. That is in the record and unquestioned Your Honor, yes. And that, in spite of the fact that they have this great excess, it meant that these out-of-state brewers could come in there, build up a consumer preference for a brand or consumer acceptance of brand and sell it to the extent of 25% of the entire consumption of beer in Wisconsin. Now, I'm talking about something, Mr. Justice Clark that is undenied and unexplained in the record. After all, the Government had the burden of proof here. They -- if they have desired to do so, they could have put some of these witnesses on the stand that could've testified on the subject, they didn't choose to do it. They're relying entirely upon the statistical evidence unexplained. Now, can it be said where there is this widespread shipment, where there is -- where there are these statistics of 25% being sold from out-of-state in Wisconsin that the Court is clearly erroneous in holding that there is no relation between location -- locale of production and sales when Blatz sold all over the United States? I --
Hugo L. Black: What you said was, wasn't it that there's no evidence in the record.
John T. Chadwell: No evidence in the record that the Government. Yes sir.
Hugo L. Black: Suppose the Government with the two of the largest strawberry producers in Florida was merging contrary to the antitrust law, do you think the Court could deny the Government relief simply by saying there's no evidence in this record that Florida strawberries are not sold out in State of Washington?
John T. Chadwell: No. I have don't know. They have -- what they have --
Hugo L. Black: Why would they have to prove something then?
John T. Chadwell: Your Honor, they have alleged --
Hugo L. Black: Something that's true in the market.
John T. Chadwell: Of course, of course.
Hugo L. Black: But now, you -- are you challenging the idea that it's a good market or a company, local of such things that the local people want to eat? Why isn't that pretty good evidence?
John T. Chadwell: It may have -- it maybe a good marketer -- desirable market. Of course it may be and perhaps some --
Hugo L. Black: Well, of course it is because the (Inaudible) was there.
John T. Chadwell: And perhaps in some respects, a better market perhaps. But there's -- but I claim Mr. Justice Black that that does not mean that there's -- Wisconsin is such an economic island just because breweries located in there are closer to the consumer that that makes Wisconsin such an economic island that you won't even expand it at all even though 80% of their beer is shipped out of the state and as far as coast to coast and even though 25% of their beer is shipped in the state, surely, surely, the mere fact of locale of a brewery without any proof of the importance of transportation cost. Surely, that does not constitute an area of effective competition that makes it impossible for the Court and the Court will refuse to look to other areas as well.
Hugo L. Black: Well, there can't be any doubt, is it, Wisconsin, parts of Wisconsin, parts of Illinois, and parts of these other states are relevant markets underneath the -- were coming under this Act.
John T. Chadwell: Not unless there are areas of effective competition.
Hugo L. Black: Why do you -- you keep saying they have to choose, the Government have to choose. What this is, is whether to take it as on petition and if the evidence shows it, suppose the Government made a mistake and said, “here's one county instead of another.” Does that make any difference? Is there any evidence in the record do show it?
John T. Chadwell: Well, Your Honor, they've got to show it with respect to an area as to which statistics mean something. They can't just show it with respect to a liquor store and say that because that liquor store sells a large quantity of Pabst and Blatz beer, it's an area of the country, it's a relevant market area and you determine the effect of the merger on that place.
Hugo L. Black: But Congress intended here, didn't it, to make it all over the country, any place for goods could flow, that is to be sold, a market which would be protected against mergers which they condemn?
John T. Chadwell: I don't think that they -- I don't think they intended that with all deference Mr. Justice Black. I think that they made it very clear in the wording of the statute and in the Senate report saying that this -- that section of the country means an area of effective competition which this Court have said.
Hugo L. Black: Which would substantially affect competition?
John T. Chadwell: Yes, sir.
Hugo L. Black: And which it would substantially affect (Voice Overlap).
John T. Chadwell: That's right. Now then, it can affect competition -- the market shares in an area can affect competition unless that area is one of effective competition in which the market shares could have some relationship to competition. Otherwise, they don't have that the -- the test laid down by this Court in Philadelphia Bank are exactly to that effect based upon the --
Hugo L. Black: I didn't read that as establishing test any different from the language of the statute.
John T. Chadwell: No, sir. I think that that case established that the area of effective competition is one in which the sellers operate and where the buyers can turn for supplies, can turn for supplies and there -- and they turn for supplies, as I say, applying it to Wisconsin and the three-state area, to an area much farther than that.
Abe Fortas: Mr. Chadwell, suppose Pabst and Blatz sold 95% of all the beer consumers in State of Wisconsin, would you think that that would be a relevant market for these purposes?
John T. Chadwell: If they sold 95% of their beer in the State of Wisconsin?
Abe Fortas: Yes. Suppose that's all in the record -- the record doesn't show where they produce this. They sell 95% in the State of Wisconsin and they merged from the Government's brief, Section 7 proceeding.
John T. Chadwell: Well, they would say then that the relevant market area is where they operate.
Abe Fortas: At Wisconsin --
John T. Chadwell: In Wisconsin, where they operate.
Abe Fortas: -- (Voice Overlap) Wisconsin and they don't operate there. That's -- the record is silent on that. Is that a relevant market for Section 7 purposes?
John T. Chadwell: I don't think it is, Your Honor. In view -- if you have the additional facts that we have here which they themselves put in to what these large sales -- shipments going out and the substantial shipments going in and the proof that the sellers or the buyers in Wisconsin can turn to others for supply to -- of vast area of the state --
Potter Stewart: Mr. Chadwell, I thought -- if I may interrupt.
John T. Chadwell: Yes, sir.
Potter Stewart: You stated the question differently from the way Mr. Justice Fortas put it. And the question was whether 95% of the beer in -- consumed in Wisconsin was sold by Blatz and Pabst.
John T. Chadwell: Yes, sir.
Potter Stewart: You stated it whether Blatz and Pabst sold 95% of the beer they produced in the State of Wisconsin.
John T. Chadwell: Yes.
Potter Stewart: Those are two quite different questions.
John T. Chadwell: Yes, they are. Well I've --
Earl Warren: You may answer that after lunch.
John T. Chadwell: Thank you, Your Honor. Before the recess, Mr. Justice Fortas had just inquire whether if I thought that the market share of Pabst and Blatz in Wisconsin were 95%, aggregated 95% sales that would make it a relevant market. I don't think it would, Mr. Justice Fortas. I don't think it would unless it was otherwise a relevant market. As a matter in fact, a very -- a very eminent economist have said that without first establishing a relevant market area, a percentage of sales have become whimsy, I think he said. Now, why is that? I think that is because a high market share of Pabst and Blatz in Wisconsin, if Wisconsin is not a relevant market area, would not mean that Pabst and Blatz could control price. For example, let us for a moment, consider that the combined Pabst-Blatz sales in Wisconsin in 1961 where less than 9% of the beer produced in Wisconsin though they had a somewhat higher percentage, 24% was indicated, of the amount sold. Now much of that production was by some of the largest breweries in the nation such as Schlitz and Miller and Heilman. Each of whom sold a great deal more out of Wisconsin than in Wisconsin, although, they made substantial sales thereto. So there was a very substantial amount of beer produced in Wisconsin, 80% of which was shipped out of the state leaving Pabst-Blatz sales only 9% of beer production. The huge amount of beer which was shipped out of the state could have been retained anytime in the state to control any effort at anticompetitive pricing. Likewise, brewers in the state or out of the state were shipping in 25% of total consumption in the state, yet, they had a large sales out of the state of course in addition if the Wisconsin price became anticompetitive if it had gotten out of line. They could have diverted a very large amount of their additional production into the state at the -- at a more attractive price if it was lower and that would have flooded the state with beer. So the very fact that those additional factors must be considered, the very fact that when they are considered, you remove any possible price restraint that Pabst or Blatz could have exercised in Wisconsin, shows that Wisconsin is not an area of effective competition by itself. You've got to consider these other areas as well and I think that the fact that they have 25% market share there is of no significance or the fact they might have had a higher market share. Because those facts that are in the evidence are rebutted, any inherently anticompetitive tendency that the shares might show. I would like to make somewhat more specific. The comment that I made a little while ago in response to the argument of the Government that there's a proof that proximity to a brewery is of significance in the sales of market from the fact that a brewery was -- that Blatz started to increase its sales in California after they started making beer in the California brewery. That is not conclusive. There is no explanation of it in this record and I point -- Mr. Justice Clark, I believe you commented on this. I point to the fact that in New Jersey, Blatz began to be produced there in 1959. It began to be produced in Pabst plant there. In 1959, their sales went down from 31,000 barrels to 24,000 barrels. And in 1960, up to 29,000 barrels below the ‘59. And then in 1961, it was again down to 24,000 barrels. In New York, the -- after the brewery was built, the barrels produced -- barrels sold in New York were 71,000 in 1959, 74,000 in 1960 and then they went down to 54,000 in 1961, which shows, I think, that the mere fact that beer began to be brewed there doesn't necessarily result in increase in sales and didn't in either New Jersey or New York. I refer the Court to the record, pages 194 to 197 in support of the statements which I have just made.
Byron R. White: Mr. Chadwell, are you --
John T. Chadwell: Yes, sir.
Byron R. White: -- are you going to address yourself to the question of the national market at all?
John T. Chadwell: Yes, sir. I would -- I will proceed to do that. Mr. Zimmerman argued that Judge Tehan was incorrect in refusing to consider that the merger occurred in an industry in which there had been a pronounced trend toward concentration in the national market. Now, the fact is he held that there had been no proof of a trend toward concentration in the national market. He said that the only evidence in the record on the subject and the only reference to which -- that which Mr. Zimmerman made was the fact that the number of brewers in United States deceased from 750 in 1934 to 162 in 1961, over that period of something less than 30 years. Now, the Government's complaint alleged that the reduction in numbers was due to “merger consolidation or natural attrition,” that was the allegation of the complaint. The Government made no effort to prove that allegation and the trial court merely said that so far as the record is concerned and not a single merger or acquisition in the beer industry preceded the acquisition of Blatz by Pabst and that the decrease in the number of breweries resulted from the play of natural economic forces, that is there was no evidence to the contrary. There is no evidence in the record at all in support of that allegation. Now --
Byron R. White: (Inaudible)
John T. Chadwell: Yes, sir. In the opinion, page -- record, page of 448 is where he starts the discussion of the trend toward concentration, 448 and he goes along with several pages discussing it at some length. Now, I want to point out to the Court in that connection, first, as Mr. Zimmerman said, the national market shares were very, very small and in fact, a total of a little over 4% -- 4.7%, I guess, after the merger of national beer sales. And those sales were -- that percentage of national sales was less than it had been for Pabst alone in 1949 and 1952. Pabst have declined substantially in the intervening period. Now, with that in mind, let us consider the -- this reduction in the number of breweries from 750 to 162 over 30 years. Now, there was no proof that any of this reduction was due to mergers and during that period, there has been a great depression. There had been two World Wars. There had been vast changes in our economy including the development of rapid transportation from coast to coast, a complete revolution in packaging, evidenced in this industry of course, by the convenience packaging of cans and bottles compared to barrels and nothing different from other industries in that respect. Certainly, over this long period of time, there can be no presumption that there is any anticompetitive significance in this decline. Could the Government had gone -- couldn't gone back to the Civil War and claim that there was some presumption that a decline from that period to 1958 resulted in some kind of a presumption, I suggest that it could not have done so. The --
Byron R. White: How about since 1960?
John T. Chadwell: Well, the -- as I started to say, the rate of decline has very substantially decreased in recent years, A rate of decline both in the number of plants and also in the number of breweries.
William J. Brennan, Jr.: There's no evidence of new entrance though, are there?
John T. Chadwell: I beg your pardon sir.
William J. Brennan, Jr.: Is there any evidence of new entrance?
John T. Chadwell: No -- no, in that result that I know of --
William J. Brennan, Jr.: (Voice Overlap) significance?
John T. Chadwell: No. The -- I think the facts --
William J. Brennan, Jr.: Well, it does mean, doesn't it, that the brewery industry is getting in the pure -- pure hands --
John T. Chadwell: But it's still --
William J. Brennan, Jr.: -- without any new -- new brewers coming in.
John T. Chadwell: It's still -- they still have a -- or had in 1961, 162 breweries. That is not a concentrated industry. And in 1961, there was no one that had as much as 10%. It is not a concentrated industry. Now, I say when the rate of decline is substantially leveling off as have happened for number of years prior to 1961 --
William J. Brennan, Jr.: Is that going to be like the automobile industry?
John T. Chadwell: -- there's every reason to believe that that trend -- that that reduction in the number of breweries in that trend toward fewer and fewer breweries is gradually coming to a halt. Now then, as I -- I don't believe I have stated, we haven't agreed cutoff date for the reception of evidence at the trial of December 31, 1961. This trial did not actually take place as I've said to Mr. Justice Harlan until January 1964. But by agreement, nothing was put in after that. We had nothing for ‘63 and ‘62 wasn't covered. But as far as the record is concerned, that is exactly what has happened and the rate of decline is diminishing very greatly. Now --
Byron R. White: The top 10 firms of this industry have something over 50%, is it not?
John T. Chadwell: The top 10. You're talking now about the national figures?
Byron R. White: Yes.
John T. Chadwell: The top 10 had slightly under 50% in 1959, 49%, yes, right after 50% -- 47% to 49%. The -- it is not an industry in which there is a heavy concentration today compared to many industries where the top two or three or four have very high percentages as in Philadelphia Bank. The top 10, that percentage is not high and as a matter of fact, the top 25 have more than 1%. You can go through down there before you got a brewery with less than 1%. Now then, I want to point out that Judge Tehan didn't say that concentration is irrelevant. Judge Tehan said that the evidence is not proved in this case that there was a trend toward concentration because of the long period that I -- to which I referred to. I thank you.
Earl Warren: Mr. Zimmerman.
Edwin M. Zimmerman: I would just like to make two points. When Judge Tehan said that there was no evidence in the record of a trend toward concentration, he was using that term in his special sense, namely, a diminution in the number of companies due to mergers. The record is unrebutted in terms of the diminution in number of companies and we regard that of course as evidence of a trend toward concentration. Secondly, this is a highly concentrated industry on a national level as well as in the regional markets. The ten leading brewers on a national level accounted for 53% of all sales in 1961. The record referenced this on page 4 of the Government's brief and as I indicated earlier in Wisconsin, the top four brewers have over 50% of the market. If there are no further questions, I have nothing more to say.
Earl Warren: Very well.