Legal Document

39 United States Supreme Court Reports Lawyer’s Edition 2d Series KF101.8 U54 530 94 Reporter 1186 415 U.S. 486 UNITED STATES, Appellant,v.GENERAL DYNAMICS CORPORATION et al. Number 72—402. Argued Dec. 5, 1973. Decided March 19, 1974. Syllabus Material Service Corp., a deep-mining coal producer, and its successor, appellee General Dynamics acquired, through stock purchases, control of Electric Coal Companies, strip-mining producer. The Government brought suit alleging that this acquisition violated § 7 the Clayton Act. District found no violation on ground, inter alia, Government's evidence—consisting principally past production statistics showing within certain geographic markets industry was concentrated among small number large producers, concentration increasing, here would materially enlarge acquiring company's market share thereby contribute to trend—did not support contention substantially lessened competition in sale either or both two specified markets. This conclusion primarily based determination Electric's reserves were so low potential compete with other producers future far weaker than aggreatte aggregate might otherwise have indicated, virtually all proved being depleted already committed by long-term contracts customers power affect price severely limited steadily diminishing. Held: 1. While statistical been sufficient finding 'undue concentration' absence considerations, justified pertinent factors affecting appellees' business mandated substantial lessening occurred threatened acquisition. Ample evidence showed does reserves, which are key factor measuring producer's strength, make it significant competitive force. Thus, terms probable ability compete, rather relied, court warranted concluding merger did violate Pp. 494—504. 2. considering postacquisition relating changes patterns structure reserve situation, since (unlike only has yet occurred) demonstration weak resources necessarily implied merely disinclined but unable effectively for contracts, such going directly question whether probable. 504—506. 3. position, establishing 'failing company' defense company gone out merger, went heart prima facie case substantiated Court's Electric, even if remained market, therefore failure meet prerequisites failing-company detract from validity analysis. 506—508. 4. Under 'clearly erroneous' standard Fed.Rule Civ.Proc. 52(a), governs as fully direct appeal review appeals, findings conclusions supported clearly erroneous. Pacific KF135 P2 508. 5. new strip unavailable, mere possibility could some day acquire expertise mine deep depreciate at time trial nor give relied more significance ascribed them. 508—510. D.C., 341 F.Supp. 534, affirmed. Daniel M. Friedman, Washington, appellant. Reuben L. Hedlund, Chicago, Ill., appellees. Mr. Justice STEWART delivered opinion Court. 1 On September 22, 1967, commenced Northern Illinois, challenging violative Act, 38 Statutes-at-Large 731, amended, 15 Code KF62 18, Companies Corporation After lengthy discovery proceedings, held 30 April 1970, 13, 1972, issued an judgment 534. appealed pursuant Expediting 29, we noted jurisdiction. 409 1058, 93 553, 34 510. 2 * At involved here, midwest producer supplier building materials, concrete, limestone, coal. All deep-shaft mines operated affiliate, Freeman Mining these operations amounted 6.9 million tons 1959 8.4 1967. In 1954, began Companies. relevant times open-pit Illinois Kentucky; 1970 had closed reduced four none Kentucky.1 1959, produced 3.6 coal, increased output 5.7 tons. Service's purchase continued until 1959. point Material's holdings 34% outstanding shares and—all parties now agreed point—Material effective Electric. president elected chairman executive committee, corporate made behest Service. 3 Some months after takeover, itself acquired is diversified corporation, much revenues coming sales aircraft, communications, marine products agencies. part broad diversification program aimed expanding into commercial, nondefense business. As result Service, it, became Nation's fifth largest commercial During early 1960's equity purchases stock, 1966 controlled 66.15% shares. board directors authorized tender offer holders remaining stock. successful, shortly thereafter wholly owned subsidiary Dynamics. 4 thrust complaint Act2 because takeover It contended 'section country' meaning was, alternatively, State Eastern Interior Province Sales Area, latter one major distribution areas recognized comprising Indiana, parts Kentucky, Tennessee, Iowa, Minnesota, Wisconsin, Missouri.3 5 controversy focused three basic issues: propriety 'line commerce,' definition Area country,' probability any product resulting decided against each issues. 6 faced strong sources energy oil, natural gas, nuclear energy, geothermal created cross-elasticity demand those various fuels. result, concluded itself, permissible 'energy market' sole commerce' anticompetitive effects properly be canvassed. Similarly, rejected proposed ground they 'based essentially present do relate actual consumption patterns.' F.Supp., 556. realistic should defined transportation arteries freight charges determine cost purchasers thus position producers. particular, rate districts, designated Interstate Commerce Commission determining rail rates, there area served companies, prime determinants addition, specialized units sufficiently differentiable their use included areas.4 lieu accordingly 10 smaller areas, unique consumers together utility nonutility ICC districts. 8 Finally, purposes most significantly, market. determinations court's opinion, id., 558—559. First, while declined 144 during period 1957—1967, reduction 'occurred others, inevitable change nature coal.' Consequently, found, 'this litigation presents very different situation cases versus Philadelphia National Bank, 374 321, 83 1715, 915 (1963), Von's Grocery Co., 384 270, 86 1478, 16 555 (1966) where concerned 'preventing slight increases concentration.' U.S., 365, n. 2, S.Ct., 1742.' 558. Second, 'predominantly complementary nature' 'United mining experience likelihood (and) mining.' Ibid. Third, Commonwealth Edison, investor-owned public utility, excluded, 'none 1965 years chosen analysis, Freeman, companies independent,' relative distances resultant impact position. indicated. longterm customers, basis concluded: 'Under circumstances, continuation affiliation between adverse competition, divestiture benefit accept unrealistic produce definitions.' Id., 560. II 9 sought prove Act producers; increasing; trend toward concentration. and, demonstrated table two, four, coal-producing firms 1957 1967 revealed following:5 11 Top .... 29.6 48.6 37.8 52.9 43.0 62.9 54.5 75.2 ... 65.5 91.4 84.0 98.0 12 These statistics, argued, leading increasing concentration.6 Furthermore, undisputedfact decreased almost 73% claimed indicative same trend. resulted Government, shown following table:7 13 degrees:8 14 Share Rank (percent) 7.6 15.1 4.8 8.1 Combined 12.4 23.2 6.5 12.9 4.4 8.9 10.9 21.8 prior decisions involving horizontal mergers competitors, violations sort case. Brown Shoe States, 370 294, 82 1502, 510 reviewed legislative history recent amendments '(t)he dominant theme pervading congressional consideration 1950 fear what considered rising tide economic American economy.' 315, 1518. A year later, clarified relevance particular thereupon language: 'This intense concern warrants dispensing, cases, elaborate proof structure, behavior, effects. Specifically, think produces firm controlling undue percentage results increase inherently likely lessen must enjoined effects.' 363, 1741. 17 See also Continental Can 378 441, 458, 84 1738, 1747, 953; 277, 1482; Pabst Brewing 546, 550—552, 1665, 1668 1669, 765. 18 effect adopting approach 'substantial' allow rest industries great recently 'if great, importance preventing preserving eventual deconcentration correspondingly great.' Aluminum America, 377 271, 279, 1283, 1289, 314 citing supra, 365 42, 1742. 19 proffered case, accuracy discredited contested appellees, under sufficed before us appellees We satisfied ultimate error. 20 cautioned concerning concentration, significance, conclusive indicators effects: 21 'Congress indicated plainly functionally viewed, context industry.' 321—322, 1522. 22 'Statistics reflecting leaders are, course, primary index power; further examination market—its future—can provide appropriate setting judging merger.' 322 38, 23 1747. assessed 'structure, future' industry, assessment merger. 24 Much devoted description affected World War II. weeks testimony voluminous record, discerned clear developments industry. become increasingly less able many segments Following entirely lost single purchaser coal—the railroads stiffer oil gas industrial residential uses. Because patterns, coal's consumed country fell 78.4% 1920 21.4% 1968. attributing decline changing economies alternative fuels environment consequent regulation extent means consumption. 25 growing electric mainstay utilities 15.76% nationally 1947, total every thereafter, 1968 59% throughout Nation.9 26 degree, nearly sold transferred requirements promise utilities' fixed time, predetermined prices. described mutual benefits accruing terms: 27 investment (in equipment) can jeopardized disruption supply Utilities therefore, assuring plant over life. desire establish advance, closely possible, fuel costs will life plant. For reasons, typically arrange least portion . 28 'The contractual commitments required consumer's standpoint, necessary viewpoint supplier. Such may require development capacity. reluctant invest capacity mine's often financing obtained producer.' 543 (footnote omitted). 29 consumption, amounts immediately available 'spot' open practice gradual disappearance truck tended limit spot sales.' fundamental viewing insufficient sustain Evidence not, matter logic, proper picture compete. situations, unstated assumption maintained immediate future. barred 7, acts, performances imply continue dominate equal vigor. groceries beer, Grocery, Pabst, annual naturally indicate amount prediction systems brand recognition reasonably suppose attracted given retain strength. 31 analyzed Court, however, considerably significance. bulk represent exercise obligation fulfill previously negotiated price. focus frame disposition procurement contracts. neither presently capable producing, contract. indicator lies state uncommitted recoverable relatively supplies contract consumer important influence upon contemporaneous negotiation though greater tonnage availability set short-term sales, best measure 32 exhibits prospects 'unpromising.' 559. United's strength current produce. ranked production, 10th holdings, 1% western Kentucky. 538. Many trial, forcing closing mines.10 Even 52,033,304 currently mineable Kentucky United, facing disposal, vast majority allowing adjustment (reserves) develop reserves,' replace committed. 33 Viewed prospects—and compete—rather seemed indicate. 'highly profitable' efficient subsequent scarce resources.11 Irrespective size when viewed weakness competitor 'substantially ..' undermined, think, three-faceted attack turn. III urges legal error giving facts occurring 1959.12 FTC Consolidated Foods 380 592, 598, 85 1220, 1224, 95, stated tending diminish E. I. duPont de Nemours & 353 586, 597 seq., 602 77 872, 879 882 1057. But Foods, 463, 1750, probative value extremely limited, judgments instance reversed 'too weight' events. need limitation obvious. If constituted suit, violators stave off actions refraining aggressive behavior pending.13 35 fact concrete symptoms affected, 'for once united knows fate competitors 1224. And, deals 'probabilities, certainties,' 323, 1522, nonoccurrence interval mean thereafter; essential remains exists trial. 36 reflect positive decision merged deliberately temporarily refrain actions, thought active convincingly dependence near-exclusive pressures country. unlike occurred, logically probable, using it. 37 contends reliance strict limits placed Third Bank Nashville, 390 171, 88 882, 1015; Citizen Publishing 394 131, 89 927, 148; Greater Buffalo Press, Inc., 402 549, 91 1692, 170. doctrine, valid Shoe, 346, 1535, first announced International FTC, 280 291, 50 89, 74 L.Ed. 431, preserved explicit references modern 7. H.R.Rep. 1191, 81st Cong., 1st Sess., (1949); S.Rep. 1775, (1950), U.S.Code Cong. 1950, Page 4293. invoking burden14 'resources (were) prospect rehabilitation remote grave .,' 302, 93, tried failed merge one, 138, 931; 555, 1696. asserts healthy thriving brink failure, company. considerations reason failing company, suggests, identical analogous finding. presupposes 'loss (the company's) stockholders injury communities plants operated,' supra continues exist party disappears is, sense, 'lesser evils' approach, possible threat deemed preferable losses goes business.15 point. Rather inadequate figures simply inapposite doctrine factual underpinning contained re-evaluated governed 52(a) just civil appeals. record contains thousands pages transcript hundreds exhibits. Little purpose discussing detail specific contentions. Suffice say find careful 40 One claim reasoning worthy note here. paucity perceived engaged extracting minerals deplete then technology extract existing holdings. recover reserves. 41 specifically available: 'Evidence presented experts, officials, witnesses indicating economically permit beyond available. come forward available.' considerable apparently credited others additional largely so. 42 Moreover, hypothetical proves nothing—or too much. pointed brief oral argument, purchased entered order diversity complement operations. common inclination treasury so, expand line scale vest them IV 43 addition contending erred suggests 'practical indicia' separate qualify independent consistent submarket. Cf. 456—457, 1746—1747. irrespective criteria adopted selecting markets, larger 44 normal circumstances delineation precondition probabilities them, nevertheless affirm without reaching questions. By usable presentation occur 'divestiture (would not) definitions,' 560, rendered superfluous choice Since agree insufficient, follows affirmed issues 45 46 ordered. 47 Judgment 48 DOUGLAS, whom BRENNAN, WHITE, MARSHALL concur, dissenting. 49 appeals decision1 upholding challenge 18.2 instituted antitrust action (EICP) merits dismissed action, show relevant. combination challenged union producers—Freeman Companies—under 1942 1954. reached 34%, requested received representation directors. Freeman's committee. 'With formalized achieved.' 537 (1972). 51 moved solidify engaging 1960's. two-thirds successful 90%. With completed, filed legality 52 Section his tested, proscribes combinations 'where commerce section country, ..'3 'Determination predicate du Pont 593, 877, 1057 (1957). below 'the testing Electric-Freeman combination.' 555. hypothesis submarket 'untenable,' 953 (1964), 'compel(s) conclude competes uranium forms encompass interfuel competion.' 53 N Immigration Nationality Decisions read import compulsion. That third glass containers, Hazel-Atlas Glass Can, country's second metal containers. interindustry embracing cans bottles. reversed, 'treating combined container end uses compete.' 457, 1747 (emphasis added). several lines Both conceded commerce.' 447, acquisitions involve commerce, bottle existed market—the glass/metal Court—in prohibited present. 54 work effect. Whatever correctness finding, teaches help Any myriad commerce; existence inconsistent negate narrower 'within well-defined submarkets which, themselves, constitute purposes.' 325, 1524, (1962). 55 principle containers 'to despite 'necessarily industries.' aluminum conductor manufacturer copper conductor. refused treat Though justify aluminum/copper holding preclude 'division (of market) submarkets.' 275, 1286.4 56 advantages operational disadvantages combine delineate 'economically submarket(s).'5 determinative mark overwhelming choice; boundaries strengthened virtual inability sectors Energy-use highway air necessitates liquid ease dieselized worked foreclose market.6 Despite higher cost, enjoy edge space-heating simple preference coal.7 57 manufacturers incentive consider source.8 'utility production,' 539. Within sector advantage yields 1960 Freeman-United solidified) accounted 90% B.t.u.'s steam EICP area; provided 74% cement 94% Illinois.9 58 entity confined users technological capability economy mandate experiences little per B.t.u. significantly lower combustible except interruptible seasonal basis.10 Central Light example, cents B.t.u.'s, cents, (for ignition purposes) 70 cents.11 facilities readily adaptable sources, sensitivity. Kennecott Copper 467 Federal Reporter, 2nd 67, 79 (CA10 1972), distinct characteristics shared industries,' prices 'are now, future, subject peculiarities (since) appear effect.' 59 supra. Like 'little acceptance' purposes, conductors gave 'decisive advantages' single, important, practical factor.' 275—276, 1287. conductor, apart precedent seems indistinguishable; whatever constitutes purposes.12 60 rejecting part, followed districts (FRD's).13 justification that, ordinary rates Rules KF8830 F31 principal marketing, cannot FRD's. located Belleville Fulton-Peoria FRD's Springfield Southern FRD's, risk 61 drawing sections 'so narrowly place markets'14 amply overlapping supposedly competitive, one-half facilities. Lack refuted reciprocal selling patterns. 25% area, 20% customers. 62 narrow "correspond realities"15 displayed explained weight rates. significant, element costs. shipments rates; transported via 'unit trains' carrying customer rate. Thus ships location. proceeds rail. transports barge, five receive all-rail shipments. 63 Normal limiting eliminate areas. up 500 miles nime. Orient Mine shipped 1.5 300 away. Fidelity Mine, Orient, tons, half equally distant locations. supplying area. 64 Further, assuming necessitate market; proscription reaches lack sometimes 765 (1966), Wisconsin-Michigan-Illinois tristate entire assess impact. 65 restrictive long-range national deposits serve divide regionally EICP, consisting Southwestern Western nearby region overlies geologically coal-bearing rock sequence estimated contain 36% resources. separation producing regions,16 respect composed Southeastern extreme Missouri. 82% 93% 97% 66 stands came 58% mined used there. 42% 62% consumers, State. dominated Mines Illinois,17 purposes. Although fall precisely along political boundaries, 'metes bounds.' Brewing, 1667. four-county group artificiality 'such fuzziness seem inherent attempt market.' 360 37, 1740. Wisconsin El Paso Gas 376 651, 657, 1044, 1047, 'no doubt California phrase 7.' 67 combination, conclusion. mention discuss sell types discussed, miles, presence minute noncompetitive. differences sold, moreover, irrelevant. true, notes, sells strip-mined extracts demonstrates consuming understandably unconcerned details extraction. true metallurgical byproduct known dust, says nothing dust; relieve responsibility evaluating nonmetallurgical production—production accounts 100% 92% business.18 68 standing alone, meaningfully possessed obtain invoked name, appears application defense. 148 (1969). proceeded analysis wrong standards employed established. related But, rationale consequence combining about disappear rate, viability 1696, 170 (1971); 931. 69 defense, 'went figures.' view diminishes affects time-of-acquisition findings. problem affect. concedes obvious post-acquisition notes given. Here events concededly tempered degree events, ever made. acquisition; example unavailable To contrary, 1960's.19 know acquisition, near advances tecnnology market.20 Further acquisition.21 'ability reserves.'22 71 stripmining extracted left poses Freeman. 'inclination treasury' expansion 'an business.' coal-marketing structure. access previously. deepcoal many, regaining good name. V 72 market-share industry-concentration incorrect disclosed. gratuitously 'even conclusory statement include deliveries years. indicia respective standards.23 73 devoid correct standards, deep-seated judicial bias remand directions 1959.24 shares, evaluate 'acquiree' light applicable abdicate our duty responsible established findings, dissent affirmance judgment. coal-mining Utah States. contended, reads follows: 'No corporation shall acquire, indirectly, whole capital jurisdiction Trade assets another tend create monopoly.' Testimony Province—the based—was originally named Geological Survey maps coalfields formations Pennsylvania System. derived assumption, acknowledged high transporting coal—which 40% coal—will inevitably mines. private generation Metropolitan Chicago Air Quality Control Region regions. Edison attributes requirements, distinctive extensive commitment pollution programs energy. Region, congressionally six counties distinguished anticipated regulations special problems 557. demonstrating roughly comparable top 24.4% eight 40.9%, 48.8%. See, 281, 1484 (White, J., concurring). 551, 1668, 765, beer 47.74% Nation local three-state 45.06% 58.93% respectively. advanced 1288, 314, 50% nine controlled, respectively, 76% 95.7%; 1742, 915, banks 44% pre-merger ------------------------------------------------------------------- --------------- ---- Percent ---------------- ...... 33.1 37.9 14.5 45.0 8.0 36.6 44.3 22.4 44.0 20.2 asserted eight, increased, 18.0%, 7.6%, 2.5% invalidated figure 23.2% 23.94% 461, 1749, 953. 12.4% compared (7.5%), (4.49%) (11.32%) 1968, 59.09% coke 18.20%, mills 1.88%, manufacturing (including steel rolling mills) 17.70%, retail miscellaneous 3.14%. operating 1948, ir opened ones exhaustion soon depleted, inform briefs occurred. signed backed belonging 'could guarantee' fulfilled. 559 original). sides took place, engendered apparent inconsistency critical date. Certain attempts termed 'irrelevant' would, postpone suit. 597, 879, 1057, attacked ab initio long culmination subsequently appears, designed arrest creation monopolies "in incipiency" "incipiency' denotes threatens ripen .' 95. scope 'time suit' concept gives attacking discussed Orrick, Act: Then Now, Bar Association Antitrust (1964); Subcommittee Backward Sweep Theory Oligopoly Problem, L.J. 306 (1966). rule coupled post-merger tends 'heads-I-win, tails-you-lose' defendant: 'incipiency' base fact, accorded weight.' 138—139, 931, burden proving conditions satisfied' 'on who seek refuge it.' (Footnote omitted.) Alternative rationales Bok, Merging Law Economics, Harv.L.Rev. 226, 339—347 (1960); Comment, 'Substantially Lessen Competition .': Current Problems Horizontal Mergers, Yale 1627, 1662—1668 (1959). 534 Title provides: Supra, banking institutions services making loans. 1523, nature. Metallurgical manufacture steel. sets source. draw consumable fossil-fuel consumers. inroads fuels, class looks ony Interruptible firm-rate supplied according needs always priority. Oil suited starting boilers kilns. discussion delineated distributive coal,' separating 'mines practicably turn supplies.' 556 Freight grouped rate-making purposes; destinations. Ayrshire Collieries 335 573, 576, 278, 280, 243 (1949). accepted Region. massive purchasing 'quite (those) consumers,' singularly MCIAQC, Northeastern Northwestern Indiana counties, singular access, water arteries, Midwest. 361, 336, 1529. regions are: (1) Pennsylvania, West Virginia, Ohio, Alabama; (2) comprised Missouri, Oklahoma; (3) scattered Montana, Wyoming, Colorado, Utah. Jurisdictional Statement controls Colorado Oklahoma issue 538 8. 8% struck down irrelevant Rome Cable, Brief 71. Research methods extraction rise uneconomical owns location Reserves if, all, control, ownership, lease, option, contiguous lend 'standing competition,' stringent (1969), said 'narrow scope' 'dim nonexistent' purchaser. 555—556, 1696—1697, (1971), 189, 893, 1015 (1968). 6.5% dedicated EICP. total, contractually determined including estimate uncontrolled 10.9% represented 10% decrease 12.1% total. excess percentages illegal (see, e.g., (4.49%)), obligations incurred criteria, needed 'new' (sales coal) Common achieved completed 1967; argument 'took place'

Classification Label: 7