Document: 380 U.S. 592 85 S.Ct. 1220. 14 L.Ed.2d 95 FEDERAL TRADE COMMISSION, Petitioner,v.CONSOLIDATED FOODS CORPORATION. No. 422. Argued March 10 and 11, 1965. Decided April 28, Archibald Cox, Sol. Gen., for petitioner. Daniel Walker, Chicago, Ill., respondent. Mr. Justice DOUGLAS delivered the opinion of Court. 1 The question presented involves an important construction application § 7 Clayton Act,1 38 Stat. 731, as amended, 15 U.S.C. 18. Consolidated Foods Corp.—which owns food processing plants a network wholesale retail stores—acquired Gentry, Inc., in 1951. Gentry manufactures principally dehydrated onion garlic. Federal Trade Commission held that acquisition violated because it gave respondent advantage mixed threat lure reciprocal buying its competition business 'the power to foreclose from substantial share markets garlic.' It concluded, other words, effect 'may be substantially lessen competition' within meaning 7, ordered divestiture relief. —- F.T.C. —-, —-. Court Appeals, relying mainly on years post-acquisition experience, had failed show probability would competition. 329 F.2d 623. case is here certiorari. 379 912, 259, 13 183. 2 We hold at outset 'reciprocity' made possible by such one congeries anticompetitive practices which antitrust laws are aimed. practice results 'an irrelevant alien factor,' F.T.C., p. intruding into choice among competing products, creating least 'a priority equal prices.' International Salt Co. v. United States, 332 392, 396—397, 68 12, 15, 92 L.Ed. 20; Northern Pac. R. 356 1, 3, 6, 78 514, 517, 545. Reciprocal trading may ensue not bludgeoning or coercion but more subtle arrangements. A threatened withdrawal orders if products affiliate cease being bought, well conditioning future purchases receipt anti-competitive practice.2 Section Act concerned 'with probabilities, certainties.' Brown Shoe 370 294, 323, 82 1502, 8 510; States Philadelphia Nat. Bank, 374 321, 362, 83 1715, 1740, 915. Reciprocity result violates lessening shown. turn then that, principal, aspect present case. 3 purchaser processors who purchase garlic use preparing packaging their food. noted engaged manufacture garlic, 1950, immediately prior Consolidated, about 32% total sales industry and, together with principal competitor, Basic Vegetable Products, accounted almost 90% sales. remaining 10% was divided between two firms. By 1958 output both doubled. Gentry's rising 35% combined 90%.3 4 After (though later disclaiming adherence any policy reciprocity) did undertake assist selling. An official wrote follows distributing divisions: 5 'Oftentimes, great know when you calling prospect, whether prospect supplier someone your own organization. Everyone believes reciprocity providing all things equal. 6 'Attached list prospects our products. like have indicate purchasing supplies them. If so, relatively large, small insignificant. * 'Will please refer proper party special suggestions, how could helpful properly presenting those listed, will appreciated.' Food sold stated they give reasons meet price quality competitors' Typical letter Armour Co.: 9 'I can assure desire people reciprocate cooperate way we line good practices, I am sure obstacles overcome, quotations receive favorable consideration. value relationship very highly disappointed been unable lately fine cooperation Pantry Shelf Meats.' Some suppliers responded orders. first generous reduced them abandoned practice. impossible recreate precise anatomy market arrangements following acquisition, though offers factual brief seeking prove either major factor history. found, however, 'merely connection without action latter's part, unfair over competitors enabling make otherwise might made.' And concluded: 11 'With firms accounting better than 85% product lines eleven successive years, maximum concentration short monopoly has already achieved. desirable prevent trend toward oligopoly fortiori remove, so far possible, creation genuinely competitive conditions oligopolistic industry. Respondent's power, obtained through just obstacle. 12 'This conclusion buttressed peculiar nature In place, record shows leading innovator leader field. recently technical strides narrowing, although probably closing, gap There also evidence third firm, Puccinelli Packing Co., only much smaller—commanding each market—but considered many buyers offer inferior service.' hand, conclusive weight. pointed out while increased some 7%, decreased 12%. F.2d, 626. relied apparently unsuccessful attempts buying. Ibid. Appeals concluded 'Probability best gauged what past taught.' Id., 627. error considering this See E. I. Du Pont De Nemours & 353 586, 597, 77 872, 879, 1057, et seq., 602 seq. But think too weight it. Cf. Continental Can 378 441, 463, 84 1738, 1750, 953. No group acquiring company opportunities entitled 'free trial' period. To distort scheme 7. 'mere possibility' prohibited restraint enough. (United supra, 598, 880.) Probability proscribed evil required, noted. were given allowed override acquisitions go forward willy-nilly, parties biding time until fully bloom. is, course, true conduct amount violation even there no establish limine. pp. 597—598, 879—880. force still transpired. That must necessarily case, once companies united knows fate acquired merger. Moreover, tends confirm, rather cast doubt upon, probable found merger have. Basic's superior Gentry's—as president freely repeatedly admitted. Yet rapidly expanding market, able increase 7% losses 12% decrease. Thus surely safe ground reaching conclusion: 16 'If creates protected others cannot penetrate despite superiority price, quality, service, lessened expand share. reason reject respondent's argument decline proves ineffectiveness reciprocity. do fallen farther, influence This loss fails refute likelihood Consolidated's shown willingness exploit full, immunize segment normal service competition.' —-.4 17 ignored Commission's findings inferiority product; indeed point supplanted onions superior: 18 'Consolidated's division during improved equipment eliminate problem arising presence wood splinters achieved higher competitors, respect *.' (Emphasis supplied.) contrary unquestionably based evidence, excerpt testimony particularly indicates: 19 'Q. You mentioned fact, Dr. Prater, reputation second quality. Was factors involved splinter problem? 20 'A. Yes, dehydration years. exploited extensively, solved improvements production techniques use, methods, using, instead trays, trays aluminum plastic glass fibers. met partially improvement installation continuous conveyor dehydrators.' 21 say matter small, situations de minimis. where, here, commands finding Commission, whose expertise Congress trusts, should honored, support 22 view plainly substantial. tried again sometimes worked. structure peculiar, closing gap. Moreover 'that determined source supply suppliers.' When buying—or inducement it—is added, observed: 23 'Buyers likely lean but, second, protective channel, belief further Consolidated. Not does thus obtain Puccinelli, two-firm strengthened solidified new entry discouraged.' 24 conclude sustain order denied enforcement. judgment accordingly reversed. 25 Reversed. 26 HARLAN (concurring judgment). 27 Had complaint grounded Act, seems manifest me record. ambulatory sanctioned concur judgment. 28 upon premises concurring my Brother STEWART, post, page, reservation. extent anything his taken drawing indicated reliance, subscribe approach. review administrative agency concerned, theory acted, affirmance agency's rest reassessment us. Securities Exchange Comm'n Chenery Corp., 194, 196, 67 1575, 91 1995; National Labor Relations Board Metropolitan Life Ins. U.S., 438, 443—444, 1061, 1064—1065. However, since sides agree 'conglomerate' mergers purview supportable, barely confines relied. 29 510, forecloses contention 'market affected' enough bring play. pitched proposition used full whatever seven instances successful efforts pressure buy Gentry. fact these few represented measure ability induce insufficient carry day order, vote affirm. While undiscriminating Court's statistics, instances—for example, Phillips Company, J. Gielow Sons, Illinois Meat Morgan Company episodes—for justifiably find leverage muster; therefore, reasonably relevant market. 30 On basis reached 31 STEWART 32 invalidating espoused novel facts scope Act. Its resolution issue debated disputed.1 disagreed appraisal conclusions concerning implications Other cases awaiting clarification Court.2 decide applicability provide guidance courts grapple potentialities cases. reached, persuaded file separate statement views regarding issues involved. 33 Clearly opportunity alone invalidate under passed outlaw diversification. large scale diversity industrial interests always presents possibility relationships. Often purpose diversification acquire management benefit skills acumen corporation. Without more, prohibit sole introduce arena 'soft' experience aggressive 34 obviously requires kind bare potential ban Before outlawed solely potentials, law closely textured economic analysis. summarizes 'substantial' before follows: 35 'Reciprocity 36 '* discouraged." 37 elements, singly together, sufficient unlawful negotiated Certainly mere effort significant alteration structure. punish intent. bent been, activities requisite impact competition, law. And, think, illegal merely 'sometimes worked.' itself occurs, standard established determining effective subject invalidation. Nor illegality rested '(t)he gap.' 1951, took emphasis placed solving problems prevented dehydrated, raw, onions. 1950's flux technological change sales; upper hand. shift intensive connected Faced situation, solve control long dormant. Indeed, after reflected salutary qualities normally associated free Overall, furnishing end period beginning. features, barriers severe.3 'closing gap' regard onions, falling farther behind Finally, attach significance processors, supply, Puccinelli. alternative hypotheses persuasive none.4 touchstone lessened. court takes drastic step ordering divestiture, clear exists. require certainty effect. mean rely slipshod information confusingly ambiguous implications. proof certainly convincing present. 39 determine probability, available, examination changes consummated. For reason, differ assessment accorded evidence. available forces view, wrong 'gave weight' erred gloss statistics adduced hearing examiner Commission. 40 discounts characterization, misstates gives assessing, light actually happened, occurred. trier faced blank slate untested speculation. yet cease-and-desist six later. issuing order; why less assessing propriety action. anyone check merger, 41 sorely incomplete, reviewing little voided, reciprocity-creating per se invalid. responsibility Commission—to where them—requires close scrutiny upset. contains invalidation referred opinion. 42 composed basically classes manufacturers. One class, includes Swift, built brand names commanding consumer acceptance companies, exposure assured. Foods, wholesaler, sufficiently dependent class minimal. readily strong-arm pain losing favor. incorporates smaller Many sell bulk, house labels divisions. package widely known; wholesaler persuade supermarkets try counters. These susceptible pressures 43 My reading persuades most shifted varied company. agents attributed causes. pattern movement contrasted lack shifts response reciprocity, express 'tacitly accommodative.' independent purchasers Furthermore, confirms assumed Commission: suppliers. failed, merged greater could, fairly inhibitory effects situation marked illegality. 44 reads pertinent part 'No corporation commerce shall acquire, directly indirectly, whole stock capital jurisdiction assets another commerce, section country, tend create monopoly.' Edwards, Conglomerate Bigness Source Power, Bur. Eco. Research, Business Concentration Price Policy (1955), 331, 342: 'Where powerful concerns encounter seller buyer, exchange favors, enterprises strengthens other. 'The common form arrangement arise formal contract informal understanding scarcely distinguishable cultivating customer. essence other, conditioned expectation purchases. goods bought typically dissimilar kind, usual sources terms which, aside purchases, advantageous. Where established, prevents selling company, affords size strength derived assured place other.' see Stocking Mueller, Size Firms, J.Bus.U.Chi. 73, 75—77 (1957); Ammer, Realistic Reciprocity, Harv.Bus.Rev.No. 116 (1962); Hausman, Dealing Antitrust Laws, Harv.L.Rev. 873 (1964). discussion conglomerate (the type case) Report, Merger Movement (A Summary 1948), 59 As Appeals: 'Immediately Consolidated-Gentry 60% 28% 1958, figures 57% 35%, respectively. sales, 36% 1950 50% shares 51% 39% same years.' 625. last three sentences footnote sentence. 873; Krash, Legality Bull. 93 (1964); Harv.Bus.Rev. (1962). See, e.g., General Dynamics Corp. (D.C.S.D.N.Y.); Motors (D.C.N.D.Ill.); Trabon Engineering Eaton Mfg. (D.C.N.D.Ohio). decision additional Gilroy entered customers often chose supplier, satisfy needs occasion arose. assume backstop motives nefarious.

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