United States v. Continental Can Company/Dissent Harlan

by John Marshall Harlan II

Mr. Justice HARLAN, whom Mr. Justice STEWART joins, dissenting.

Measured by any antitrust yardsticks with which I am familiar, the Court's conclusions are, to say the least, remarkable. Before the merger which is the subject of this case, Continental Can manufactured metal containers and Hazel-Atlas manufactured glass containers. ^[1] The District Court found, with ample support in the record, that the Government had wholly failed to prove that the merger of these two companies would adversely affect competition in the metal container industry, in the glass container industry, or between the metal container industry and the glass container industry. Yet this Court manages to strike down the merger under § 7 of the Clayton Act, because, in the Court's view, it is anticompetitive. ^[2] With all respect, the Court's conclusion is based on erroneous analysis, which makes an abrupt and unwise departure from established anti-trust law.

I agree fully with the Court that 'we must recognize meaningful competition where it is found,' ante, p. 449, and that 'inter-industry' competition, such as that involved in this case, no less than 'intra-industry' competition is protected by § 7 from anticompetitive mergers. As this Court has, in effect, recognized in past cases, the concept of an 'industry,' or 'line of commerce,' is not susceptible of reduction to a precise formula. See Brown Shoe Co., Inc. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1523, 8 L.Ed.2d 510; United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 394 396, 76 S.Ct. 994, 1008, 100 L.Ed. 1264; Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 611, 73 S.Ct. 872, 881, 97 L.Ed. 1277. It would, therefore, be artificial and inconsistent with the broad protective purpose of § 7, see Brown Shoe, supra, 370 U.S. at 311-323, 82 S.Ct. at 1516-1522, 8 L.Ed.2d 510, to attempt to differentiate between permitted and prohibited mergers merely by asking whether a probable reduction in competition, if it is found, will be within a single 'industry' or between two or more 'industries.'

Recognition that the purpose of § 7 is not to be thwarted by limiting its protection to intramural competition within strictly defined 'industries,' does not mean, however, that the concept of a 'line of commerce' is no longer serviceable. More precisely, it does not, as the majority seems to think, entail the conclusion that wherever 'meaningful competition' exists, a 'line of commerce' is to be found. The Court declares the initial question of this case to be 'whether the admitted competition between metal and glass containers for uses other than packaging beer was of the type and quality deserving of § 7 protection and therefore the basis for defining a relevant product market.' Ante, p. 449. (Emphasis added.) And the Court's answer is similarly phrased: '* * * (W)e hold that the interindustry competition between glass and metal containers is sufficient to warrant treating as a relevant product market the combined glass and metal container industries and all end uses for which they compete.' Ante, p. 457. (Emphasis added.) Quite obviously, such a conclusion simply reads the 'line of commerce' element out of § 7, and destroys its usefulness as an aid to analysis.

The distortions to which this approach leads are evidenced by the Court's application of it in this case. Having found that there is 'interindustry competition between glass and metal containers' the Court concludes that 'the combined glass and metal container industries' is the relevant line of commerce or 'product market' in which anticompetitive effects must be measured. Ante, p. 457. Applying that premise, the Court then notes Continental's 'dominant position' in the metal can industry, ante, p. 458, and finds that Continental has a 'major position' in the 'relevant product market-the combined metal and glass container industries,' ante, p. 459. (Emphasis added.) Hazel-Atlas, being the third largest producer of glass containers, is found to rank sixth in the relevant product market-again, the combined metal and glass container industries. Ante, p. 460. This 'evidence,' coupled with the market shares of Continental and Hazel-Atlas in the combined product market, ^[3] leads the Court to conclude that the merger violates § 7.

'The resulting percentage of the combined firms,' the Court says, 'approaches that held presumptively bad in United States v. Philadelphia National Bank, 374 U.S. 321, 83 S.Ct. 1715 (10 L.Ed.2d 915).' Ante, p. 461. The Philadelphia Bank case, which involved the merger of two banks plainly engaged in the same line of commerce, ^[4] is, however, entirely distinct from the present situation, which involves two separate industries. The bizarre result of the Court's approach is that market percentages of a nonexistent market enable the Court to dispense with 'elaborate proof of market structure, market behavior and probable anticompetitive effects,' ante, p. 458. As I shall show, the Court has 'dispensed with' proof which, given heed, shows how completely fanciful its market-share analysis is.

In fairness to the District Court it should be said that it did not err in failing to consider the 'line of commerce' on which this Court now relies. For the Government did not even suggest that such a line of commerce existed until it got to this Court. ^[5] And it does not seriously suggest even now that such a line of commerce exists. ^[6] The truth is that 'glass and metal containers' form a distinct line of commerce only in the mind of this Court.

The District Court found, and this Court accepts the finding, that this case 'deals with three separate and distinct industries manufacturing separate and distinct types of products': metal, glass, and plastic containers. 217 F.Supp., at 780.

'Concededly there was substantial and vigorous inter-industry competition between these three industries and between various of the products which they manufactured. Metal can, glass container and plastic container manufacturers were each seeking to enlarge their sales to the thousands of packers of hundreds of varieties of food, chemical, toiletry and industrial products, ranging from ripe olives to fruit juices to tuna fish to smoked tongue; from maple syrup to pet food to coffee; from embalming fluid to floor wax to nail polish to aspirin to veterinary supplies, to take examples at random.

'Each industry and each of the manufacturers within it was seeking to improve their products so that they would appeal to new customers or hold old ones. Hazel-Atlas and Continental were part of this overall industrial pattern, each in a recognized separate industry producing distinct products but engaged in inter-industry competition for the favor of various end users of their products.' 217 F.Supp., at 780-781.

Only this Court will not be 'concerned,' ante, p. 457, that without support in reason or fact, it dips into this network of competition and establishes metal and glass containers as a separate 'line of commerce,' leaving entirely out of account all other kinds of containers: 'plastic, paper, foil and any other materials competing for the same business,' ibid. ^[7] Brown Shoe, supra, on which the Court relies for this travesty of economics, ante, p. 458, spoke of 'well-defined submarkets' within a broader market, and said that '(t) he boundaries of such a submarket' were to be determined by 'practical indicia,' 370 U.S., at 325, 82 S.Ct., at 1524, 8 L.Ed.2d 510. ^[8] (Emphasis added.) Since the Court here provides its own definition of a market, unrelated to any market reality whatsoever, Brown Shoe must in this case be regarded as a bootstrap.

The Court is quite wrong when it says that the District Court 'employed an unduly narrow construction of the 'competition' protected by § 7' and that it held that 'the competition protected by § 7 (is limited) to competition between identical products,' ante, p. 452. Quite to the contrary, the District Court expressly stated that 'Section 7 is applicable to conglomerate mergers where the facts warrant,' 217 F.Supp., at 783 (footnote omitted). ^[9] The difference between the District Court and this Court lies rather in the District Court's next sentence: 'But there must be evidence that the facts warrant such application.' Ibid.

If attention is paid to the conclusions of the court below, it is obvious that this Court's analysis has led it to substitute a meaningless figure-the merged companies' share of a nonexistent 'market'-for the sound, careful factual findings of the District Court.

(1) With respect to the merger's effect on competition within the metal container industry, that '(p)rior to its acquisition Hazel-Atlas did not manufacture or sell metal cans * * *.' 217 F.Supp., at 770.

(2) With respect to the merger's effect on competition within the glass container industry, that 'Continental did not, directly or through subsidiaries, manufacture or sell glass containers * * *.' Ibid.

(3) With respect to the merger's effect on the metal container industry's efforts to compete with the glass container industry,

'The Government fared no better on its claim that as a result of the merger Continental was likely to lose the incentive to push can sales at the expense of glass. The Government introduced no evidence showing either that there had been or was likely to be any slackening of effort to push can sales. On the contrary, as has been pointed out, the object of the merger was diversification, and Continental was actively promoting intra-company competition between its various product lines. Since by far the largest proportion of Continental's business was in metal cans, it scarcely seemed likely that cans would suffer at the expense of glass.

'Moreover, subsequent to the merger Continental actively engaged in a vigorous research and promotion program in both its metal and glass container lines. In the light of the record and of the competitive realities, the notion that it was likely to cease being an innovator in either line is patently absurd.' 217 F.Supp., at 790 (footnote omitted). (Emphasis added.)

(4) With respect to the merger's effect on the glass container industry's efforts to compete with the metal container industry,

'In addition the Government advanced the converse of the proposition which it urged with respect to the metal can line that as a result of the merger Continental was likely to lose the incentive to push glass container sales at the expense of cans. In view of what has been said concerning the purpose of Continental's diversification program and the course it pursued after the merger, it is no more likely that Continental would slacken its efforts to promote glass than that it would slacken its efforts to promote cans. Indeed, if it had planned to do so there would have been little, if any, point to acquiring Hazel-Atlas, a major glass container producer.' 217 F.Supp., at 793.

It is clear from the foregoing that the District Court fully considered the possibility that a merger of leading producers in two industries between which there was competition would dampen the interindustry rivalry. The basis of the decision below was not, therefore, an erroneous belief that § 7 did not reach such competition but a careful study of the Government's proof, which led to the conclusion that 'in the light of the record and of the competitive realities, the motion that * * * (the merged company) was likely to cease being an innovator in either line is patently absurd.'

Surely this failure of the Court's mock-statistical analysis to reflect the facts as found on the record demonstrates what the Government concedes, ^[11] and what one would in any event have thought to be obvious: When a merger is attacked on the ground that competition between two distinct industries, or lines of commerce, will be effected, the shortcut 'market share' approach developed in the Philadelphia Bank case, see 374 U.S., at 362-365, 83 S.Ct., at 1740-1742, 10 L.Ed.2d 915; ante, p. 458, has no place. In such a case, the legality of the merger must surely depend, as it did below, on an inquiry into competitive effects in the actual lines of commerce which are involved. In this case, the result depends-or should depend-on the impact of the merger in the two lines of commerce here involved: the metal container industry and the glass container industry. ^[12] As the findings of the District Court which are quoted above make plain, reference to these two actual lines of commerce does not preclude protection of inter-industry competition. Indeed, by placing the merged company in the setting of other companies in each of the respective lines of commerce which are also engaged in inter-industry competition, this approach is far more likely than the Court's to give § 7 full, but not artificial, scope.

The Court's spurious market-share analysis should not obscure the fact that the Court is, in effect, laying down a 'per se' rule that mergers between two large companies in related industries are presumptively unlawful under § 7. Had the Court based this new rule on a conclusion that such mergers are inherently likely to dampen inter-industry competition or that so few mergers of this kind would fail to have that effect that a 'per se' rule is justified, I could at least understand the thought process which lay behind its decision. It would, of course, be inappropriate to prescribe per se rules in the first case to present a problem, cf. White Motor Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738, let alone a case in which the facts suggest that a per se rule is unsound. And to lay down a rule on either of the bases suggested would require a much more careful look at the nature of competition between industries than the Court's casual glance in that direction.

In any event, the Court does not take this tack. It chooses instead to invent a line of commerce the existence of which no one, not even the Government, has imagined; for which businessmen and economists will look in vain; a line of commerce which sprang into existence only when the merger took place and will cease to exist when the merger is undone. I have no idea where § 7 goes from here, nor will businessmen or the antitrust bar. Hitherto, it has been thought that the validity of a merger was to be tested by examining its effect in identifiable, 'well-defined' (Brown Shoe, supra, 370 U.S., at 325, 82 S.Ct., at 1523) markets. Hereafter, however, slight (or even nonexistent) the competitive impact of a merger on any actual market, businessmen must rest uneasy lest the Court create some 'market,' in which the merger presumptively dampens competition, out of bits and pieces of real ones. No one could say that such a fear is unfounded, since the Court's creative powers in this respect are declared to be as extensive as the competitive relationships between industries. This is said to be recognizing 'meaningful competition where it is found to exist.' It is in fact imagining effects on competition where none has been shown.

I would affirm the judgment of the District Court.

Notes

1  Both companies manufactured other related products which for present purposes may be disregarded. See the description of the two companies in the opinion of the District Court, 217 F.Supp. 761, 769-770.

2  Section 7 of the Clayton Act, as amended by the Act of December 29, 1950, 64 Stat. 1125, 15 U.S.C. § 18, provides in pertinent part:

'No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.'

3  The Court confesses to some difficulty in determining market shares. See ante, pp. 459-460, n. 10.

4  'We have no difficulty in determining the 'line of commerce' (relevant product or services market) * * * in which to appraise the probable competitive effects of appellees' proposed merger. We agree with the District Court that the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) denoted by the term 'commercial banking,' * * * composes a distinct line of commerce. * * * In sum, it is clear that commercial banking is a market 'sufficiently inclusive to be meaningful in terms of trade realities.' C own Zellerbach Corp. v. Federal Trade Comm'n, 296 F.2d 800, 811 (C.A.9th Cir. 1961).' 374 U.S., at 356-357, 83 S.Ct., at 1737, 10 L.Ed.2d 915.

5  In the District Court, the Government relied on 10 'lines of commerce.' In addition to 'the packaging industry,' 'the can industry,' 'the glass container industry,' and 'metal closures' (not relevant here), the Government argued that there were six 'lines of commerce' which were defined by the end product for which the containers were used, e.g., 'containers for the beer industry.' See 217 F.Supp., at 778-779.

6  Although the Government makes the suggestion, which the Court now accepts, that wherever there is competition there is a 'line of commerce,' so that 'the 'line of commerce' within which the merger's effect on competition should be appraised is the production and sale of containers used for all purposes for which metal or glass containers may be used * * *' (Brief, p. 18), it concedes the artificiality of this approach and, in so doing, itself rejects the market-share analysis adopted by the Court. The Government states that its suggested test of illegality of a merger involving inter-industry competition 'omits analysis of statistics regarding market share simply because those traditional yardsticks are generally unavailable to measure the full consequences which an interindustry merger would have on competition.' (Brief, p. 22.)

The test which the Government advocates is that it 'can satisfy its burden of showing that the merger may have the effect of substantially lessening competition by proving (a) the existence of substantial competition between two industries; (b) a high degree of concentration in either or both of the competing industries; and (c) the dominant positions of each of the merging companies in its respective industry.' (Brief, p. 22.) This approach, which has at least the virtue of facing up to its own logic, frankly disavows attention to a 'line of commerce.' The effect of the Court's approach is not markedly different from that of the Government's test, see infra, p. 476, and there is some suggestion in the last few pages of the Court's opinion that the Court appreciates this. As discussed hereafter, however, there is nothing in the Court's opinion to support adoption of the Government's 'per se' approach, and the facts developed in the District Court demonstate that, so far as one can tell from this case at least, a per se approach to the problem of inter-industry competition is wholly inappropriate.

7  If the competition between metal and glass containers is sufficient to constitute them collectively a 'line of commerce,' why does their competition with plastic containers and 'other materials competing for the same business' not require that all such containers be included in the same line of commerce? The Court apparently concedes that the competition is multilateral.

8  The 'practical indicia' specified by the Court were: 'industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.' 370 U.S., at 325, 82 S.Ct., at 1524 (footnote omitted). While many of these factors weigh against the Court's conclusion that metal and glass containers should be combined in a single line of commerce, not one of them speaks for the Court's conclusion that they should be segregated from all other kinds of containers and together form a separate line of commerce.

9  The District Court observed also that 'relevant markets are neither economic abstractions nor artificial conceptions.' 217 F.Supp., at 768. In this respect, in view of the majority's present opinion, the district judge must, I suppose, be deemed to have erred.

11  See note 6, supra.

12  The Government urged other lines of commerce below, see note 5, supra, but has abandoned all of them here except 'containers for the canning industry,' a line of commerce defined by end use and including 'all metal cans and glass containers for the end uses of 'canning' food.' 217 F.Supp., at 799. The District Court gave detailed reasons, which the record fully supports, for rejecting the Government's contention that this was a distinct line of commerce. See 217 F.Supp., at 799-802.