The opinion of the court was delivered by: FRANKEL
This is an action under Section 7 of the Clayton Act and Sections 1 and 2 of the Sherman Act to enjoin an attempt by defendant Condec Corporation to acquire a controlling stock interest in plaintiff, The Lunkenheimer Company. (There is also a damage claim and there are other defendants, but it is not necessary for present purposes to consider these additional factors.) Simultaneously with the filing of the action, by order to show cause dated April 24, 1967, and returnable May 1, 1967, the plaintiff brought on the motion for a preliminary injunction which is now before the court for decision.
As I shall mention more fully later on, the situation is such that by May 9, 1967, the positions of the parties will have been irreparably altered, whichever way this motion is decided. Accordingly, the motion has been heard and considered with all inconvenient speed. Counsel presented over the weekend of May 2 and 3, 1967, an imposing pile of affidavits. The court heard argument on May 1. While it appeared probable that plaintiff would fail on the papers alone, that seemed an unsatisfactory basis on which to dispose of a matter like this. The parties were directed to adduce live evidence on the one or two issues most seriously disputed. The available time made it possible to supply such evidence in only a day and one-half of hearings, ending at mid-day yesterday, May 4.
Then we faced the fact that the normal right of appeal would probably be unavailable as a practical matter because May 9 is so imminent and because that date is likely to be decisive, as both parties agreed. In an effort to mitigate this problem to the extent possible, and after some vacillation by the court, it was concluded that we should not take time for further briefs and the preparation of a formal written opinion. And so we have convened here today for the issuance of this oral statement of the court's findings, conclusions and ruling on the motion.
In light of the circumstances, and at the risk of making everything that comes after this anticlimatic, I start by announcing the court's ruling. For reasons I will outline hereafter, I have concluded that the application for a preliminary injunction must be denied, and I will enter an order denying it.
To set the scene very briefly, the plaintiff is in the business of manufacturing and selling valves. The Hammond Valve Corporation, a wholly owned subsidiary of defendant Condec, also manufactures and sells valves. This is the essential basis, very generally stated, on which plaintiff claims that acquisition of its shares by Condec will violate Section 7 of the Clayton Act - because, as plaintiff argues in the pertinent words of the statute, "the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."
In its initial brief, plaintiff asserted that it had "a reasonable probability of success" after trial, and that this familiar standard justified and required the granting of a preliminary restraint. By May 1, the day of oral argument, plaintiff had retreated to a claim that it had succeeded in raising "serious" or "substantial" questions, and urged that this was enough in a case of this kind to warrant a preliminary injunction. For this view, plaintiff relies heavily on the decision in Hamilton Watch Company v. Benrus Watch Company, 206 F.2d 738 (2d Cir. 1953), and other cases which do, indeed, hold that the presentation of substantial issues may be sufficient, considering all the circumstances of a particular case, to justify a preliminary restraint maintaining the status quo until such issues can be tried out and resolved with orderly deliberation. As I have said, however, in the circumstances of this case - where plaintiff's showing on the merits is not an impressive one, and where the effect of a preliminary injunction would be substantially to give plaintiff an ultimate victory - cases like the ones plaintiff cites fail to sustain its position.
Now, to turn to the facts in somewhat greater detail, as they must be gleaned from the hasty and preliminary presentation the parties have been able to make, and to the issues on which the parties are in dispute.
The plaintiff had total sales in 1966 of some $23,000,000. That total is comprised of sales of a broad variety of bronze, iron and steel valves sold nationally through some 400 distributors. The valves plaintiff manufactures may be described generally for our purposes as "industrial." They are rated at 125 lbs. or more "working steam pressure" (W.S.P.). They are used in a variety of industrial installations - the petroleum industry, chemical, textiles and many others - and in the construction of large structures such as office buildings, hospitals, schools and the like. Of plaintiff's total sales, $9,375,000 represent valves made of bronze. The remainder of plaintiff's sales, with minor exceptions, are of iron and steel valves.
Hammond had total sales in 1966 of $10,600,000. Of this total, $8,400,000 represented sales of non-pressure rated or low-pressure rated valves, i.e., valves designed and rated for pressures below 125 lbs. Such valves are used almost entirely in one- or two-family residential construction, or, less frequently, in small apartment buildings. They have sometimes been referred to in our hearing as "plumbing and heating" valves, and I shall use that loose term to refer to them here. The plaintiff does not make such plumbing and heating valves, and it is clear that there is no real competition between plaintiff and Hammond with respect to this major portion of Hammond's business. About 3 years ago, however, Hammond embarked on the production of industrial valves. It has brought out a line much smaller than plaintiff's, but it appears to be growing rapidly in this area. Its sales of industrial valves in 1966 totalled $2,300,000. Some of this total represents iron valves, but the record, unless I have overlooked something, does not show how much. I shall assume in plaintiff's favor that all of the $2,300,000 of Hammond's industrial valve sales is comprised of sales of bronze products.
This brings us to the central subject on which the parties have presented conflicting evidence and argument. The plaintiff contends that the relevant market or (in the language of the Clayton Act, Section 7) "line of commerce" - a matter which must be determined as a basic threshold proposition in such a case - should be defined as the "general bronze valve market." This broad definition would cover, evidently, both the so-called "industrials" and the "plumbing and heating" valves to which I have referred. Alternatively, plaintiff urges that the relevant market be taken as covering industrial valves made of bronze, as distinguished from industrial valves made of other metals like iron and steel.
The defendants argue, on the other hand, that the general terrain of all bronze valves cannot rationally be deemed a "market" in any apposite sense. The field of plumbing and heating valves, in defendants' submission, is patently distinct and separate. Furthermore, defendants say it is absurd, unrealistic and legally unacceptable to carve from the field of industrial valves those made of bronze and deem them to comprise a separate "market."
In addition to the foregoing issues as to market definition, the parties, the papers, and the live testimony are in sharp disagreement as to the relevant amounts of national sales, whichever way the market is defined. Not surprisingly, the total figures proposed by plaintiff are much smaller than those defendants present, so that the asserted market shares of the plaintiff and Hammond are substantially larger in plaintiff's view than they are in defendants'.
These issues as to market definition and total sales might not be dispositive of this motion no matter how they were resolved. But I will consider them before turning to the other aspects of the case that seem ...