The opinion of the court was delivered by: DAWSON
This is an action for a permanent injunction brought by the plaintiff under Section 15 of the Clayton Act, 15 U.S.C. § 25, in which it was alleged, among other things, that on May 22, 1957 defendant Lever Brothers Company (hereinafter either Lever Brothers or Lever) and defendant Monsanto Chemical Company (hereinafter Monsanto) entered into an agreement, and two agreements supplemental thereto, by which, in substance, Monsanto transferred to Lever Brothers trademarks, copyrights and patents relating to a detergent named 'all' and Monsanto's inventory of 'all' and the packaging therefor; and in which the plaintiff seeks a decree directing the defendant Lever Brothers to divest itself of the trademarks, patents and other assets and rights acquired by Lever under such arrangement, as well as its inventory of the 'all' products.
Section 7 of the Clayton Act, as amended (15 U.S.C. § 18) provides in part that
'* * * 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.'
To determine whether this section has been violated the Court must determine (1) if any assets of a corporation subject to the jurisdiction of the Federal Trade Commission have been acquired by another corporation also engaged in commerce; (2) what is the line of commerce; (3) what is the section of the country, and (4) whether the effect of such acquisition may be substantially to lessen competition or tend to create a monopoly.
The contract, as has been stated, was entered into on May 22, 1957. This action was filed on July 8, 1958. Pre-trial proceedings resulted in a number of stipulations which expedited the trial through the elimination of issues which otherwise would have consumed many days of trial. The trial took place between January 7, 1963 and January 21, 1963. The trial record totaled 1,258 pages, 20 witnesses were called and 186 exhibits were introduced. Briefs and reply briefs have been filed by the parties and the case is now ready for decision. The following are the issues to be decided:
(1) Was There an Acquisition of an Asset?
The contract of the defendants, dated May 22, 1957, provided for the following: (1) the trademark for the detergent 'all' was transferred from the defendant Monsanto to the defendant Lever; (2) the patents relating to 'all' were assigned to Lever; (3) Monsanto retained the right to sell the ingredients contained in 'all' or the finished product under any other trademark; (4) Lever purchased Monsanto's inventories of the 'all' finished product and packaging materials for a consideration of $ 3,025,000; (5) Lever agreed that for five years it would purchase the 'all' finished product from Monsanto or, in the event it desired to manufacture 'all' itself, Lever agreed to purchase the ingredients from Monsanto if the latter's prices were equal to or lower than those of alternative suppliers, and (6) Lever agreed to purchase additional chemical products from Monsanto for the ensuing five years at a yearly average of $ 16 million.
The defendant Lever Brothers urges that the acquisition here was not the acquisition of an asset. It appears clear, however, that a trademark may be a very valuable asset of a company; patents may be valuable assets of a company; certainly the finished products of 'all' were assets. The Court must necessarily conclude that the contract involved the acquisition of assets by Lever Brothers from Monsanto. There is also no dispute that defendant Monsanto is engaged in interstate commerce and is subject to the jurisdiction of the Federal Trade Commission, and that Lever Brothers is engaged in commerce and is subject to the Federal Trade Commission.
(2) What is the Relevant Line of Commerce?
Since Section 7 of the Clayton Act relates to the effect of an acquisition 'in any line of commerce' it becomes necessary to determine in all of these cases what is the relevant line of commerce.
The Supreme Court in Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S. Ct. 1502, 1523, 8 L. Ed. 2d 510 (1962) laid down the test to be employed in determining the relevant line of commerce. It said in part:
'The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product iself and substitutes for it. However, within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. * * *'
To constitute a proper line of commerce for the purpose of the statute, the line must include the substitutes for the immediate line which are readily interchangeable in use and for which there is a cross-elasticity of demand.
The Government, in this case, contends that the relevant line of commerce is 'heavy duty detergents.' Detergents are cleaning agents. A heavy duty detergent is that used primarily to clean the family wash. It is true, indeed, that heavy duty detergents may be a proper line of commerce. However, this in itself is a subdivision of a larger line which might be defined as 'cleaning agents.' There is certainly a cross-elasticity of demand between soaps, soap powders and detergents. Within this large category, however, there are what the Supreme Court has described as 'submarkets.' Certain cleaning products are particularly useful for one purpose and certain others for another. The variations in price, use and advertising appeal determine to a substantial extent what product will be used for what purpose.
A very distinct 'submarket' exists in this field. It is low sudsing heavy duty detergents. Low sudsing detergents are used primarily in automatic washing machines and particularly front loading washing machines for reasons which will be described later in this opinion. Whether this submarket is the one which is applicable for a determination of the relevant market for antitrust purposes depends upon a number of factors. As the Supreme Court said in Brown Shoe Co. v. United States, supra, 370 U.S. at page 325, 82 S. Ct. at page 1524:
'* * * The boundaries of such a submarket may be determined by examining such practical indicia as 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. * * *'
An examination of the facts discloses that low sudsing detergents were developed as specialty products designed to meet a particular need. The advent of the automatic washing machine created a need for a detergent which would provide a low volume of suds. The product was found after experimentation and research.
Chemically there are differences between high and low sudsing detergents. High sudsing detergents contain anionic salts that dissociate in water to form a charge and a high volume of suds when agitated. Low sudsing detergents are non-ionic and do not dissociate in water. The result is a lower volume of suds.
The differences in chemical formulation require different raw materials, production techniques and expertise. Manufacturing costs are higher for low sudsing detergents and this is reflected in higher retail prices. It is difficult accurately to assess the increase in cost to the consumer because rival manufacturers do not package their brands in boxes of comparable weight and do not agree as to the quantity of detergent to be used per wash. Generally the difference in cost is approximately 5 percent or about two cents per average wash.
Both high and low sudsing detergents are sold by retail grocery stores and supermarket chain stores. They are placed in the same section of the store, although the low sudsing detergents are often segregated from the high sudsing detergents within the section reserved for cleaning products.
There has necessarily been direct competition between the low sudsing detergents and the high sudsing detergents which they sought to replace. Differences in price, differences in packaging, and the inertia incident to the use of a well known product have all played a part in determining what product would be used by the particular consumer. While there is a certain cross-elasticity of demand, nevertheless the facts show that low sudsing detergents which are sold at a higher price than ordinary heavy duty detergents are sold for a particular use, i.e., for washing the family wash in automatic washing machines. Thus approximately 90 percent of low sudsing detergents sold are used in cleaning the family wash and 88 percent of that total is employed in automatic washing machines.
The Court concludes that heavy duty detergents may indeed be a relevant line of commerce but an equally relevant submarket exists in low sudsing detergents.
(3) What is the Section of the Country?
The parties agreed that the section of the country involved in this case is the entire United States.
(4) Whether the Acquisition of Such Assets May Substantially Lessen Competition
This is the primary issue in this case. To determine this issue requires a consideration of the legal meaning of the term 'substantially to lessen competition' and also a consideration of the facts, to see ...