United States v. Continental Can Company/Dissent Harlan

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. 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. 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, 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, 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. And it does not seriously suggest even now that such a line of commerce exists. 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. 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. (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). 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, 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. 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.