The opinion of the court was delivered by: LEVET
This case involves what the plaintiff labels a 'price war' in the baby food products market in the State of California.
On September 4, 1957, the defendant, Beech-Nut Life Savers, Inc. (hereinafter referred to as 'Beech-Nut') reduced its prices on baby food in California to a level lower than its prices east of the Mississippi River. Price reductions followed by the other two large baby food competitors in California, Gerber Products Company (hereinafter referred to as 'Gerber') and the plaintiff, H. J. Heinz Company (hereinafter referred to as 'Heinz').
On December 23, 1957, Gerber filed suit in this court alleging that Beech-Nut's price reductions in California constituted an illegal territorial price discrimination. Beech-Nut counterclaimed, alleging various antitrust violations on the part of Gerber. On January 8, 1958, Gerber moved for a preliminary injunction, asking in effect that the defendant be required to restore its prices to the level of prices charged east of the Mississippi. The motion for preliminary injunction was denied by Judge Edward Weinfeld on April 23, 1958 (Gerber Products Co. v. Beech-Nut Life Savers, Inc., D.C., 160 F.Supp. 916) and the suit was subsequently dismissed by consent of the parties. The present suit was instituted by Heinz in January 1958 and was consolidated with the Gerber suit before the latter was dismissed.
A pre-trial order was signed and filed on November 19, 1959. By the terms of this order a consolidated trial of Count I of plaintiff's complaint and of the defendant's counterclaims was to begin on February 1, 1960. However, on December 14, 1959 the defendant filed a motion for summary judgment dismissing the claim alleged in Count I of the complaint pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. This is the decision on that motion.
On or about December 22, 1959, the plaintiff filed a motion for summary denial of defendant's motion for summary judgment pursuant to Rules 11, 12(f) and 56 of the Federal Rules of Civil Procedure. Argument on this motion was heard on December 30, 1959. Decision was reserved pending a hearing on the merits of the motion for summary judgment. This hearing on the merits of the motion was held on January 15, 1960.
For the purposes of this motion the relevant pleadings may be summarized as follows:
Count I of the complaint alleges that defendant Beech-Nut violated Section 2 of the Clayton Act, 15 U.S.C.A. § 13, by discriminating in price, discounts and allowances between its various customers in the sale of baby food. This allegation is based upon the claim that defendant charged lower prices and gave more favorable discounts and allowances to its customers in California than it offered to its customers east of the Mississippi River.
Plaintiff Heinz also sells baby food in the California market and alleges that by reason of defendant's reductions in prices in that market it was forced to reduce its own prices, thereby sustaining a loss in revenue.
Defendant admits that its prices in California were lower than its prices east of the Mississippi River. It also admits that plaintiff reduced its prices on baby food in California to the same level as that to which defendant had reduced its prices. The allegations of consequential liability are denied.
The facts as alleged by the defendant in its motion for summary judgment with the accompanying affidavit and by counsel for both parties in the argument on the motion held on January 15, 1960 appear to differ in no substantial degree. The conclusions drawn from these facts form the area of contest. These facts are as follows:
I. Relative Economic Strength Of The Competitors
1. Plaintiff Heinz is a substantial company of long standing in the food business. It manufactures and sells a large number and variety of food products. During the 1959 fiscal year its net sales exceeded $ 300 million, producing a net income after taxes in excess of $ 11 million. Its total assets exceed $ 235 million and its earned surplus is just under $ 69 million. (Affidavit of Edward J. Jordan, President of Beech-Nut Life Savers, Inc., sworn to on December 11, 1959. P3)
2. Heinz entered the baby food market in 1932 and has been an important national supplier in the baby food business for many years. Baby food are preparations of meat, vegetables, fruits and other foods specifically designed for infants.
3. In 1957, Heinz had approximately 15% of the national baby food market. During the same year it had approximately the same percentage of the California market. (Jordan affidavit, PP5, 7; SM 3, 4 of hearing on motion for summary judgment held on January 15, 1960. (The stenographic minutes of that hearing will be referred to hereinafter as 'SM'))
4. Defendant Beech-Nut is also engaged in the manufacture and sale of baby foods. In addition, it manufactures and sells chewing gum, 'Life Savers' candies, coffee and cough drops. All of its products, except baby foods and coffee, are distributed nationally. Its baby foods are distributed generally east of the Mississippi River, but distribution west of the Mississippi River is limited to California. Beech-Nut entered the California baby food market in 1949. (Jordan affidavit, PP4, 6)
5. For the year 1958, Beech-Nut's total net sales were just under $ 115 million, yielding a net income after taxes of approximately $ 8 million. Its total assets were approximately $ 77 million and its earned surplus in excess of $ 28 million. (Jordan affidavit, P3)
6. Beech-Nut had been engaged in the manufacture and sale of baby foods since 1932. As of 1957, Beech-Nut had approximately 20% of the total national market. (Jordan affidavit, P5)
7. Plaintiff maintains that the national sales percentages of the parties are misleading because of the fact that Heinz sells in the whole United States and has 15% of the national market, while Beech-Nut sells only in roughly 25 of the 50 states and has 20% of the market. Counsel for the plaintiff maintain that if the market share of the area east of the Mississippi River, plus California, which is the only area where the parties compete, were considered, Beech-Nut would have 30% of the business. (SM 23)
8. In the New York market, which is the largest baby food market in the world, Beech-Nut has 50% of the market. (SM 24)
9. The leading company in the national baby food market is Gerber. In 1957, Gerber had approximately 47% of the total national market. Its net sales in the fiscal year 1959 were approximately $ 127 million, yielding a net income of approximately $ 7 million. Its total assets were approximately $ 61 million and its earned surplus approximately $ 20 million. (Jordan affidavit, PP3, 5)
10. Baby food sales of Gerber are in the order of $ 100 million a year, while baby food sales of Beech-Nut are in the order of $ 45 million a year, and those of Heinz are in the order of $ 30 million a year. (SM 24, statement by counsel for the plaintiff; the year was not given)
11. The total United States sales in all products of the three companies are as follows:
Gerber $100 million
Beech-Nut $120 million
Heinz $148 million
(SM 24, statement by counsel for the plaintiff; the year was not given)
12. The total profits in the United States of the three companies are as follows:
1956 1957 1958
Gerber $6 million $7.7 million
Beech-Nut $7.9 million $8.5 million
Heinz $3.8 million $3.0 million $1.6 million
13. The profits and losses of the parties from the sale of baby foods are as follows:
1954 1955 1956 1957 1958
Beech-Nut $3 million $3 million $1.3 million $1.4 million Loss of
Loss of $303,000
The profits and losses of Beech-Nut for the years 1956, 1957 and 1958 were not given. Figures bearing on Beech-Nut's losses in California during portions of those years are as follows:
1956- Loss of $ 120,000 Last 3 months of 1957- Loss of $ 300,000 First 6 months of 1958- Loss of $ 585,000
14. Before the 'California price war' Beech-Nut's profits were about 7% of its total sales and Heinz' profits were about 2% of its sales. The reason for this disparity, according to the plaintiff, is that there is a low margin of profit in the sale of food while there is a high margin of profit in the sale of gum and 'Life Savers.' (SM 27)
15. The plaintiff contends that before the price war Beech-Nut had 'capital' of $ 25 million while Heinz had a longterm funded indebtedness resulting from an expansion program. (SM 38, 29. Counsel for the plaintiff did not further define the term 'capital' but commented: 'Beech-Nut had $ 25,000,000 of cash or the equivalent with which they could wage a price war if they wanted to.' SM 40)
II. The Status Of The California Baby Food Market
16. In 1957, the California market for baby foods was for all practical purposes divided between Heinz, Beech-Nut and Gerber. In the first three quarters of 1957, Gerber accounted for approximately 77%, Heinz, 16% and Beech-Nut 7% of the sales. (Jordan affidavit, P7)
17. Campbell Soup Company, which sells $ 400 million to $ 500 million a year in food products, with profits in the order of $ 25 million to $ 30 million a year, had gone into the baby food business in California and its baby food business was a failure there and it withdrew from the market. (SM 29)
18. Clapp's baby food had also been sold in California. Clapp baby food was manufactured and marketed by American Home Products Company which in 1950 had national sales of $ 200 million a year and profits in excess of $ 10 million a year. In 1951, Clapp withdrew from the California market because it was not profitable. In 1953, American Home Products Company withdrew entirely from the baby food business. (SM 31)
19. Libby also sells baby food in California. Libby is the second largest marketer of adult canned fruits in California and has sales in the order of $ 300 million a year. Libby has less than 2% of the California baby food business, and the only chain store which Libby had in California prior to the price war was the Purity chain which was the second biggest chain in Northern California. (SM 29)
20. Swift & Company sells baby food in California. Although Swift & Company has assets of.$ 2.5 billion, it has a minute share of the baby food market. (SM 33)
21. Although Gerber and Heinz had been in the California baby food market for many years, Beech-Nut did not enter the market until 1949. By 1955, Beech-Nut had achieved a market penetration of approximately 9% as against Gerber's 76% and Heinz' 15%. The total combined sales (in dozens) of both 'junior' and 'strained' baby foods by Beech-Nut and the market percentage for the first nine months of the years 1955, 1956 and 1957 are as follows:
The same sales and percentage figures for Heinz during that period are:
(Jordan affidavit, PP6, 7)
III. Types Of Containers Used And ...