The opinion of the court was delivered by: BRENNAN
This is a civil antitrust action brought by the United States against the Aluminum Company of America, hereinafter referred to as 'Alcoa' and the Rome Cable Corporation, hereinafter referred to as 'Rome' to annul the acquisition by Alcoa of the stock and assets of Rome.
The complaint in this action was filed April 1, 1960 and charges that the acquisition, above referred to, is in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The complaint seeks the usual relief in this type of case -- to wit: an order of divestiture and injunction against further acquisitions and such other and further relief, as may be just and proper. Defendants' answers, while admitting certain allegations of the complaint, deny that the transaction involved is in violation of the statute. No question is raised as to the jurisdiction of this court.
On March 31, 1959, pursuant to a prior agreement, Alcoa acquired all of the assets of Rome by an exchange of stock of the two corporations. Title to the assets of Rome was taken in a newly formed corporation also known as the Rome Cable Corporation. The new company is a wholly owned subsidiary of Alcoa and, since the acquisition, has been operated as a division thereof. The crux of the litigation arises from plaintiff's contention that the effect of such acquisition may be substantially to lessen competition or tend to create a monopoly in certain lines of commerce consisting principally of wire and cable products -- all in violation of Section 7 of the Clayton Act.
Brief reference is made at this point to the defendants and the general nature of their business activities in order to afford an insight into the more detailed discussions to follow.
Alcoa is a fully integrated aluminum producer. In the manufacturing process, it refines aluminum bearing ore into primary aluminum and converts same into intermediate and various aluminum end products. It manufactures such products in several states and sells and ships same in various forms throughout the United States and in foreign countries.
Rome was incorporated in 1936. It was and is primarily engaged in the manufacture of wire and cable products in which copper was and is the predominant metal used in its operations. In 1952 Rome installed equipment for the manufacture of aluminum rod from aluminum ingot purchased from primary producers. It began producing such rod for its own use in 1953. Thereafter it began to manufacture and sell certain types of aluminum wire and cable in addition to its broad line of copper products.
Before proceeding to discuss Alcoa's and Rome's position in the markets in which they are active participants, it would seem logical to refer briefly to the legal principles involved. An understanding of the language and purpose of the statute is essential as an approach is made to the decision which must necessarily involve the recognition of the prohibitions imposed and the application of same to the facts disclosed.
The basis of this action rests upon the provisions of Section 7 of the Clayton Act, 15 U.S.C. § 18, the relevant part of which is quoted below.
'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.'
The language of the above statute, taken alone, poses problems both in its construction and application. The courts have proceeded upon a case-to-case basis to construe and apply the statute to the facts of a particular litigation. It seems fair to state that the law involved is still in a state of development and that no formula, possessing rigidity, may be applied. This is necessarily so since the statute deals with reasonable probability in the constantly changing economy in which we live.
The recent decision of the Supreme Court in Brown Shoe Co. v. U.S., 370 U.S. 294, 82 S. Ct. 1502, 8 L. Ed. 2d 510 is, as stated therein, the first case coming before that court wherein an analysis of the scope and purposes of the statute, as it now exists, was necessary to the issue raised. It would seem to follow that reference to the holdings in that decision would be more profitable than to discuss how far the previous landmark decisions under the Sherman Act are applicable or to reconcile or distinguish decisions of circuit and district courts which had decided Section 7 cases prior to the Brown Shoe decision. The most often quoted decisions, referred to above, are either cited or are found in the notes in the Brown Shoe opinion and their application may be gathered from the text thereof.
The legislative history of the statute is discussed in the above Brown Shoe Co. decision and does not require repetition here. Such discussion appears to confirm some previously stated purposes of the statute and sets at rest certain controversies relative to the meaning and application thereof. This court's understanding thereof is summarized below and the quotations therein are, unless otherwise indicated, taken therefrom.
Congress considered that '* * * a rising tide of economic concentration in the American economy' was an evil to be curbed. Effective competition and the protection of small businesses were results to be accomplished. The statute was intended to supply a deficiency in the existing statute and to apply to all types of mergers. Its purpose was to curb monopolistic acts at their beginnings or incipiency rather than await their fruition and the standards for judging their legality are broader than, but may include, those applied in Sherman Act violations. All mergers however are not to be condemned. Condemnation is limited to those having 'demonstrable anticompetitive effects' although such demonstration is satisfied by a probability. Certainty is not required. Proof of probability is sufficient provided the menace to competition is clear-cut as distinguished from a temporary condition or an 'ephemeral possibility'. No particular tests are provided in the statute to measure either the product or geographic market. Neither are qualitative or quantitative tests controlling in measuring the effect of a merger. Both measurements must be made in the light of all the relevant factors which may vary in accordance with the facts of the particular acquisition under consideration.
In addition to the above summary of the discussion of the legislative history as gathered from the opinion in the Brown Shoe case, the decision therein, in its holdings seems to otherwise clarify the vagueness of the language of the statute and afford something of a guide to the trial courts in their application to the facts of the litigation before them.
The lines of commerce product market may consist of both broad and submarket lines. No rigid formula exists for their determination. The realities of competition are the ultimate test. The broad market line may be extended to cover a product where there exists 'the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it'. Seven 'practical indicia' are set forth as factors to be considered in determining the boundaries of a submarket. They are (1) industry or public recognition of the submarket as a separate economic entity, (2) the product's peculiar characteristics and uses, (3) unique production facilities, (4) distinct customers, (5) distinct prices, (6) sensitivity to price changes, and (7) specialized vendors. The existence or non-existence of each of the above indicia is not determinative of the problem in itself. All relevant facts must be considered and we are admonished 'to recognize competition where in fact competition exists'. Peculiar characteristics and uses may be one of such indicia but it is not determinative. To be of effective weight, they must be so peculiar as to render the product 'non-competitive'.
In determining the impact of the merger, the size of the share of the market foreclosed is not decisive unless it approaches monopoly proportions or is of de minimis effect. The market shares held by the merged companies are an index of market power to be applied in all aspects of the realities of competition in 'an economically significant market'. Mergers may not be condemned per se upon the basis of such shares alone; same 'will seldom be determinative'. The purpose of the merger is a most important factor as is the existence of trends toward concentration in the industry. The testimony of those engaged in industry has its weight and significance although 'It is competition, not competitors, which the Act protests'. An evaluation of the competitive realties disclosed, based upon a pragmatic factual approach, would seem to be the obligation of the trier of the facts.
The litigation involves principally the effect of the merger as tending to lessen competition in certain aluminum product lines of commerce. In the decision of Brown Shoe Co. Inc. v. U.S., supra, 370 U.S. at 321, 82 S. Ct. at 1521-1522, 8 L. Ed. 2d 510, we find the following quotation: '* * * Congress indicated plainly that a merger had to be functionally viewed, in the context of its particular industry' and 370 U.S. at page 329, 82 S. Ct. at page 1526, 8 L. Ed. 2d 510 the court refers to the examination of 'economic and historical factors' as necessary to the decision. If follows that the facts must be weighed and the law applied with some understanding of the industry as a whole and the status of both Rome and Alcoa therein.
The history of the aluminum industry in this country from its beginning to World War II is for all practical purposes a history of Alcoa itself. The economic demands of World War II account for the entry of competing primary aluminum producers, the details of which may be gathered from the lengthy court decisions which involve the position of Alcoa in the business of aluminum production and the sale of aluminum products within the United States. Such details may be gathered from the decisions -- United States v. Alcoa, D.C., 44 F.Supp. 97; United States v. Alcoa, 2 Cir., 148 F.2d 416; United States v. Alcoa, D.C., 91 F.Supp. 333 and United States v. Alcoa, D.C., 153 F.Supp, 132. It is sufficient to say that principally due to government action during the above period, Reynolds Metal Company and Kaiser Aluminum and Chemical Corporation shared with Alcoa, then and now, a place in the aluminum industry as fully integrated aluminum producers.
The above corporations are described in their activities as fully integrated in that their facilities permit the processing of the necessary materials from the mine through the intermediate stages to the finished aluminum product. Statistics appear to be first available in the above process when same reaches the primary aluminum stage, so that for all practical purposes we are not particularly concerned with the status of industry prior to the production of primary aluminum. Three additional corporations have since 1955 joined Alcoa, Kaiser and Reynolds as such producers. These corporations -- Ormet, Inc., (Olin Mathieson), Harvey Aluminum Company and Anaconda Aluminum Company, although not as fully integrated as Alcoa, Kaiser and Reynolds, are producers of primary aluminum. The above corporations are in a position to manufacture and sell aluminum billet, pig, ingot and rod which are termed intermediate products. Each of the above corporations, except Harvey, fabricates the intermediate products into numerous finished merchantable items, intended directly for consumer use. Included in such items are the wire and cable products urged as proper lines of commerce in this case. The five above companies, thus engaged in processing intermediate aluminum products, are considered as 'integrated producers' as the term is used in this litigation
An indication of the status of the above companies engaged in producing primary aluminum may be gathered from the exhibit set out below --
ALUMINUM INGOT CAPACITY EXISTING OR UNDER
CONSTRUCTION AT THE END OF 1960
Company Capacity Total
UNITED STATES TOTAL 2,655,750 100.0
Aluminum Company of America 1,025,250 38.6
Reynolds Metals Company 701,000 26.4
Kaiser Aluminum & Chemical Corp. 609,500 23.0
Ormet, Inc. 180,000 6.8
Harvey Aluminum 75,000 2.8
Anaconda Aluminum Company 65,000 2.4
The above percentage of total capacity of Alcoa differs slightly from that provided by the defendant which is set at 35%. This may be accounted for by the fact that Alcoa abandoned construction of a plant in Indiana when it was apparent that there was an oversupply of capacity. No doubt production figures are more meaningful than the above since it appears that 15% Of Alcoa's primary aluminum capacity was unused in 1960. Alcoa's percentage of United States primary aluminum for 1960 was 36% Of the total supply, having declined 9% From 1956. That Alcoa's percentage of such production has declined over a period of years is self-evident from the entry of new producers as indicated above but it would seem to be fair to say that the three principal producers supply around approximately 80% Of such production. The record is indicative of a further increase in domestic aluminum capacity and production, both from the documentary evidence and the oral testimony. This increase would come about by entry of new producers and the increase in production capacity of Alcoa's present competitors.
Only brief reference need be made to the copper industry since it is involved only to a limited extent in this controversy. Copper products are manufactured from an ore from which intermediate products are refined and the end product eventually produced for consumer use. Like aluminum, there are companies which are so integrated as to be able to refine and produce copper products from the original ore to the finished items. Such companies sell intermediate products, such as ingot, to processors or fabricators, who then process same for ultimate use in their final form. There is no contention here that the merger involved has anti-competitive impact in the copper industry as a whole or upon the integrated copper producers or fabricators. No further discussion of the copper industry appears to be necessary.
We now turn to a brief discussion of the industry as it pertains to the particular lines of commerce involved in this litigation. The lines of commerce which are principally litigated here consist of those products capable of conducting electricity and are generally referred to as wire and cable products. While it is claimed that some of such lines involve both aluminum and copper, emphasis is placed principally upon aluminum wire and cable which are the end products of processing or fabricating an intermediate aluminum product such as ingot into the completed wire and cable which may be of various sizes, electrical conductive capacity and of different weight, size and strength.
There are a large number of firms engaged in the fabrication of wire and cable copper products. There are a lesser number of such fabricators engaged in the business of fabricating aluminum products. As the word 'fabricators' is used in this litigation, it is distinguished from the integrated aluminum and copper producers who also fabricate and sell their end products. Upwards of two hundred fabricators are engaged in the manufacture of both aluminum and copper wire and cable products. There is a vigorous competition as to wire and cable between the integrated companies among themselves and between those fabricators whose process of manufacture begins with the intermediate product purchased from a primary aluminum producer. This active competition is also evident as between aluminum and copper wire manufacturers whose product may be used interchangeably. In other words, there is a lively competition between aluminum and copper products in certain areas which is accounted for by the increasing use of aluminum products and the economic factors which apply thereto. Both the aluminum and copper industries are important factors in the present day economic and business life They maintain effective and costly research departments designed to improve the efficiency of their products and to create new uses therefor. Both the copper and aluminum industry must meet competition at the intermediate manufacturing stage from foreign countries or concerns. Canada produces primary aluminum equal to about 35% Of the total United States production and supplies a significant portion thereof which is available to this country's fabricators. European producers apparently furnish a small portion of primary aluminum for the use of American fabricators. In view of the above, no shortage in primary aluminum is foreseeable.
THE STATUS OF ALCOA AND ROME IN THE INDUSTRY
Since Alcoa has not been engaged in the manufacture of copper products, its place in the industry, above described, is limited to the production, manufacture and sale of aluminum products. Its position in the aluminum industry is to some extent apparent in the above discussion.
Alcoa still maintains its position as the leading producer of primary aluminum. Its share in that market, as may be expected, has declined sharply since the entrance of competitors in that field. This decline has been reasonably consistent since the newcomers in the field reached productive capacity. In 1948, Alcoa had 52% Of United States primary aluminum production. It declined to 45% By 1956 and from 1956 to 1960, it declined to 36%. Its percentage of primary aluminum capacity has declined substantially in the same manner.
Alcoa manufactures and sells a variety of aluminum products. This litigation however involves primarily wire and cable products so that reference to its position in the market will be limited thereto. Alcoa pioneered the use of aluminum as an electrical conductor and sold substantially all of the aluminum cable used for electrical transmission in the United States prior to World War II. Since that time, Alcoa has encountered increased competition and its relative participation in the above market has declined materially. Its principal products in that field are bare aluminum cable and ACSR (aluminum covered steel reinforced). ACSR is a bare aluminum cable with a steel core primarily used by utilities in the overhead transmission of electric current. Alcoa's share in ACSR and bare aluminum cable declined from 48.4% In 1954 to 32.5% In 1958 and to 26.1% In 1961. Its second principal product is known as aluminum conductor wire and cable. Its share in that product declined from 42.8% In 1954 to 27.8% In 1958 and to 23.5% In 1961. The decline in the above market percentages is reasonably consistent between the dates above mentioned and continuing since the acquisition. Alcoa's third such product is known as aluminum wire and cable, insulated or covered. Its share in that item varied from 10% In 1954 to 11.6% In 1958 and to 7.3% In 1961. The comparatively recent increase in demand for covered or insulated aluminum conductor wire found Alcoa in an unfavorable market position. It manufactured line wire and multiplex cable with an polyethylene insulation or covering but it lacked the know-how and the facilities for the manufacture of the more complicated line of insulated aluminum wire and cable products.
In March 1952 Alcoa and Rome entered into a continuing agreement referred to as a 'tolling agreement' whereby Rome would cover or insulate bare aluminum wire with the more complicated insulated constructions. This arrangement broadened the scope of ...