Court Opinion

ID: 9423013
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:05:31.312575+00
Date Added: 2024-06-11T17:22:40.961468
License: Public Domain

Mr. Justice Stewart,
concurring in the judgment.
The Federal Trade Commission, in invalidating a merger between Consolidated Foods and Gentry, Inc., has espoused a novel theory to bring the facts of this case within the scope of § 7 of the Clayton Act. Its resolution of the issue has been much debated and much disputed.1 *603The Court of Appeals has disagreed with the Commission’s appraisal of the facts in this case and with its conclusions concerning the § 7 implications of reciprocity. Other cases are being held awaiting clarification from this Court.2 We must decide the applicability of the Act to the facts of this case, but we should also provide guidance to the Commission and to the courts which will have to grapple in the future with the potentialities of reciprocal buying in § 7 cases. While I agree with the result that the Court has reached, I am persuaded to file this separate statement of my views regarding the issues involved.
Clearly the opportunity for reciprocity is not alone enough to invalidate a merger under § 7. The Clayton Act was not passed to outlaw diversification. Yet large scale diversity of industrial interests almost always presents the possibility of some reciprocal relationships. Often the purpose of diversification is to acquire companies whose present management can benefit from the technical skills and sales acumen of the acquiring corporation. Without more, § 7 of the Clayton Act does not prohibit mergers whose sole effect is to introduce into an arena of “soft” competition the experience and skills of a more aggressive organization.
It obviously requires more than this kind of bare potential for reciprocal buying to bring a merger within the ban of § 7. Before a merger may be properly outlawed under § 7 on the basis solely of reciprocal buying potentials, the law requires a more closely textured economic analysis. The Court summarizes the “substantial” evidence before the Commission as follows:
“Reciprocity was tried over and again and it sometimes worked. The industry structure was peculiar, Basic being the leader with Gentry closing the gap. *604Moreover there is evidence, as the Commission found, ‘that many buyers have determined that their source of supply may best be protected by a policy of buying from two suppliers.’ When reciprocal buying — or the inducement of it — is added, the Commission observed: ‘. . . the two-firm oligopoly structure of the industry is strengthened and solidified and new entry by others is discouraged.’ ”
I cannot agree that these elements, singly or together, are sufficient to make unlawful the merger negotiated by Consolidated and Gentry. Certainly the mere effort at reciprocity cannot be the basis for finding the probability of a significant alteration in the market structure. Section 7 does not punish intent. No matter how bent on reciprocity Consolidated might have been, if its activities would not have the requisite probable impact on competition, it cannot be held to have violated this law. And, I think, it is not enough to say that the merger is illegal merely because the reciprocity attempts “sometimes worked.” If the opportunity for reciprocity itself is not a violation of the Act when the merger occurs, then some standard must be established for determining how effective reciprocity must be before the merger is subject to invalidation. Nor do I think that illegality of this merger can be rested upon the fact that “[t]he industry structure was peculiar, Basic being the leader with Gentry closing the gap.” There is evidence that in the years following 1951, when the merger took place, increased emphasis was placed on solving technical problems which had prevented some processors from relying on dehydrated, rather than raw, onions. The 1950’s were a time of flux for the industry. Basic was sometimes the innovator of technological change leading to increased sales; sometimes Gentry had the upper hand. It is possible that this shift to more intensive competition was connected with the merger. Faced with a new competitive situation, Basic may have *605determined to solve quality control problems which had long been dormant. Indeed, the evidence seems to show that, after the acquisition, the industry reflected the salutary qualities normally associated with free competition. Overall, both Basic and Gentry were furnishing a better product at the end of this period than at the beginning. It is true that the industry had oligopolistic features, but there is no evidence to indicate that barriers to entry were particularly severe.3 And Gentry, while it was “closing the gap” with regard to dehydrated onions, was falling even farther behind Basic in the sales of dehydrated garlic. Finally, I can attach no significance to the fact that processors, seeking a second source of supply, normally relied on Gentry rather than Puccinelli. That fact can rest on so many alternative hypotheses that it is persuasive as to none.4
The touchstone of § 7 is the probability that competition will be lessened. But before a court takes the drastic step of ordering divestiture, the evidence must be clear that such a probability exists. The Act does not require that there be a certainty of anticompetitive effect. But that does not mean that the courts or the Commission can rely on slipshod information confusingly presented and ambiguous in its implications. The law does not require proof that competition certainly will be lessened by the merger. But the record should be clear and convincing that the requisite probability is present.
To determine that probability, the courts and the Commission should rely on the best information available, *606whether it is an examination of the market structure before the merger has taken place, or facts concerning the changes in the market after the merger has been consummated. For that reason, I differ with the Court in its assessment of the weight to be accorded post-acquisition evidence. That evidence is the best evidence available to determine whether the merger will distort market forces in the dehydrated onion and garlic industry. The Court of Appeals, in my view, was not wrong because it “gave too much weight” to the post-acquisition evidence. It erred because of the gloss it placed on the statistics and testimony adduced before the hearing examiner and the Commission.
The Court discounts the value of post-acquisition evidence on the ground that the companies are not entitled to a “free trial” period after the merger. That characterization, however, misstates the case. No one gives the company a “free trial” by assessing, in light of what actually happened, what could only be hypotheses at the time the merger occurred. Without post-acquisition evidence, the trier is faced with a blank slate and untested speculation. The merger in this case was achieved in 1951, yet the Commission did not issue a cease-and-desist order until six years later. We may be sure that the Commission relied on post-acquisition factors in issuing its order; there is no reason why we should rely on those factors less in assessing the propriety of the Commission’s action. Indeed, if anyone had a “free trial” period to check the anticompetitive potential of the merger, it was not the respondent but the Commission.
The record in this case is sorely incomplete, and a reviewing court is given little guidance in determining why this merger should be voided, if reciprocity-creating mergers are not per se invalid. Yet our responsibility to the Commission — to respect its findings where there is evidence to support them — requires close scrutiny of the *607record before its conclusions are upset. I think the record contains just enough to support invalidation of the merger, but because of evidence not referred to in the Court’s opinion.
The food processing industry is composed basically of two classes of manufacturers. One class, which includes such processors as Armour and Swift, has built significant brand names commanding consumer acceptance of their products. For such companies, exposure at the retail market is assured. Consolidated Foods, as the wholesaler, is sufficiently dependent on such processors that its economic power over this class is minimal. It cannot readily strong-arm Armour into purchasing dehydrated onions from Gentry at the pain of losing Consolidated’s favor. A second class incorporates the smaller processors in the industry. Many of these sell their product to Consolidated in bulk, for packaging under house labels of Consolidated divisions. Many of the products which these processors package under their own labels are not so widely known; they rely on the wholesaler to persuade supermarkets to try them on their counters. These processors are susceptible to the subtle pressures of reciprocity.
My reading of the record persuades me that most of the processors in this second class shifted their buying from Basic to Gentry, though the extent of that shift varied from company to company. It is true that testimony from the purchasing agents of many of these companies attributed the shift to other causes. However, the pattern of movement in this class, when contrasted to the lack of a pattern among the major processors, seems to me sufficient to support the Commission’s conclusion that these shifts were in response to the influence of reciprocity, whether express or “tacitly accommodative.” The pattern is relevant because the independent processors are substantial purchasers in the dehydrated onion and *608garlic market. Furthermore, this pattern confirms what was assumed by the Commission: that Consolidated has the power to influence the purchases by a substantial segment of its suppliers. Some of the independent processors have failed, and others have merged with large processors leading to greater concentration in the food processing industry. The Commission could, therefore, have fairly concluded that the inhibitory effects of reciprocity in this situation marked this merger with illegality.
For these reasons I concur in the judgment of the Court.

 See Hausman, Reciprocal Dealing and the Antitrust Laws, 77 Harv. L. Rev. 873; Krash, The Legality of Reciprocity under Section 7 of the Clayton Act, 9 Antitrust Bull. 93 (1964); Ammer, Realistic Reciprocity, 40 Harv. Bus. Rev. No. 1, 116 (1962).

 See, e. g., United States v. General Dynamics Corp. (D. C. S. D. N. Y.); United States v. General Motors Corp. (D. C. N. D. Ill.); Trabon Engineering Corp. v. Eaton Mfg. Co. (D. C. N. D. Ohio).

 Indeed, by the time of the Commission’s decision an additional firm, Gilroy Foods, Inc., had entered this market.

 For example, customers of Gentry often chose Basic for their alternative supplier, probably because of doubt that Puccinelli could satisfy their needs if the occasion arose. There is no reason to assume that customers of Basic chose Gentry as a backstop for motives any more nefarious.