The opinion of the court was delivered by: BONSAL
The United States commenced this action against defendant Airco, Inc. ("Airco") on January 20, 1972 to prevent and restrain alleged continuing violations by Airco of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2. Jurisdiction is predicated on section 4 of the Sherman Act, 15 U.S.C. § 4.
Airco, formerly known as the Air Reduction Company, Inc., is a diversified manufacturing company incorporated under the laws of New York. In 1972, the products which Airco produced and sold were within two major groups: (i) metallurgical and (ii) gases and related equipment. Products of the metallurgical group include ferroalloys, carbon, graphite, electrodes, and metal. The major products of the gases and related equipment group are industrial gases, cryogenic equipment, welding and cutting equipment, and medical gases and equipment. Of Airco's sales of approximately $518 million in 1972, products of the metallurgical group accounted for 42.6% and products of the gases and related equipment group accounted for 57.4%. In 1972 Airco ranked 255th in sales on Fortune's Directory of the 500 largest United States industrial corporations and had assets of some $607 million.
The complaint charges that since at least as early as 1959, and continuing to the date on which the complaint was filed, Airco violated section 1 of the Sherman Act "by entering into combinations involving reciprocal purchasing arrangements with respect to a substantial amount of interstate commerce whereby the defendant purchased products and services sold by various suppliers upon the understanding that those suppliers would purchase the products and services of the defendant, in unreasonable restraint of the aforesaid trade and commerce." In addition, the complaint charges that during this same period of time Airco, "through the use of its purchasing power," violated section 2 of the Sherman Act "by attempting to monopolize that part of the aforementioned interstate trade and commerce consisting of the requirements of actual and potential suppliers of the defendant for ferroalloys, industrial gases and other products sold by the defendant." The action was tried by the Court without a jury on July 11 and 12, 1974. After completion of the government's case, Airco moved pursuant to F.R. Civ. P. 41(b) for a dismissal on the ground that upon the facts and the law the government has shown no right to relief. Under F.R. Civ. P. 41(b) this Court has the power to decide the case on the merits and, unlike in a jury case, need not consider the government's evidence in a light most favorable to the government. 5 J. Moore, Federal Practice para. 41.13, at 1155 (2d ed. 1974). See also Huber v. American President Lines, 240 F.2d 778, 779 (2d Cir. 1957). However, in reaching the decision hereinafter set forth, the Court has interpreted the evidence in a light most favorable to the government.
Section 1 of the Sherman Act
The government contends that Airco violated section 1 of the Sherman Act by entering into combinations with its suppliers involving reciprocal buying. Simply defined, reciprocal buying is the practice of if you buy from me, I will buy from you, or conversely, if you don't buy from me, I won't buy from you. See United States v. General Dynamics Corp., 258 F. Supp. 36, 57 (S.D.N.Y. 1966). Whether accomplished by coercion or by more subtle arrangements, reciprocal buying has been recognized by the Supreme Court as "one of the congeries of anticompetitive practices at which the antitrust laws are aimed. The practice results in 'an irrelevant and alien factor ' . . . intruding into the choice among competing products, creating at least ' priority on the business at equal prices.'" Federal Trade Commission v. Consolidated Foods Corp., 380 U.S. 592, 594, 14 L. Ed. 2d 95, 85 S. Ct. 1220 (1965). Among the consequences of reciprocal buying is the foreclosure of markets to competitors through use of purchasing power.
Courts have most frequently confronted reciprocal buying as an anticompetitive practice in the context of conglomerate mergers challenged under section 7 of the Clayton Act, 15 U.S.C. § 18. See Federal Trade Commission v. Consolidated Foods Corp., supra ; Allis-Chalmers Manufacturing Co. v. White Consolidated Industries, Inc., 414 F.2d 506 (3d Cir. 1969), cert. denied, 396 U.S. 1009, 24 L. Ed. 2d 501, 90 S. Ct. 567 (1970); United States v. Ingersoll-Rand Co., 320 F.2d 509 (3d Cir. 1963), affirming, 218 F. Supp. 530 (W.D. Pa. 1963). The leading case on reciprocal buying as a violation of section 1 of the Sherman Act is United States v. General Dynamics Corp., supra.
The General Dynamics case arose out of a merger between General Dynamics Corporation and Liquid Carbonic Corporation, which resulted in Liquid Carbonic's becoming a division of General Dynamics. Finding that the merger created a potential for reciprocal buying which had been actively exploited to benefit the sales of the Liquid Carbonic division and that at the time of the merger both General Dynamics and Liquid Carbonic had the intent to employ reciprocity to generate sales, the Court held that the merger violated section 7 of the Clayton Act and section 1 of the Sherman Act. However, although the Court found the presence of contracts for the sale of Liquid Carbonic's products to suppliers of General Dynamics, which were predicated on reciprocal buying, it held that a violation of section 1 of the Sherman Act by reason of the actual practice of reciprocal buying had not been established because the government had failed to prove that a not insubstantial amount of commerce was affected.
In analyzing reciprocal buying as a violation of section 1 of the Sherman Act, the Court in General Dynamics drew an analogy with tying arrangements and focused on "specific contracts or combinations between the defendant's Liquid Carbonic Division and vendors of General Dynamics which were consummated as a result of" reciprocity. 258 F. Supp. at 51. The government had argued that if reciprocity was systematically interjected into the sales of the Liquid Carbonic division, and statistics and statements of the defendant indicated that the program was effective, then the Court could infer the existence of contracts in restraint of trade. The Court's answer is quoted at length:
"Such a conclusion is not warranted. The Section's reference to contracts, combinations and conspiracies, is necessarily directed at bilateral arrangements. The statistics which the government mentions have been found by the court to be credible. Nonetheless, the business secured could be the result of the mere presence of the reciprocity power. United States v. Ingersoll-Rand Co., 320 F.2d 509, 524 (3d Cir. 1963). Vendors of General Dynamics to curry favor or protect present sales to the defendant, might unilaterally decide to purchase the products of Liquid Carbonic. In such instances, no actual contacts would occur and thus no agreements would be present to serve as a predicate for a Sherman § 1 violation. This is true even though if a sufficient volume of trade was diverted in this fashion, a Clayton § 7 violation would be established.
"To prove the presence of vendor contracts on condition, particular contracts with identifiable parties must be introduced into evidence, or legitimately inferred from the conduct of such identifiable parties."
With these guidelines in mind, the Court turns to an examination of the evidence to determine whether the government has shown that Airco entered into any contracts, combinations, or conspiracies, or otherwise engaged in any course of dealing with any of its suppliers involving reciprocal buying, and whether if it did, a not insubstantial amount of interstate commerce was affected. The evidence consists of the trial testimony of five witnesses, some 250 exhibits, and selected portions of depositions taken from 15 officers and employees of Airco.
The central figure in Airco's alleged reciprocal buying practices was Herman Van Fleet, Jr., the son of one of Airco's founders. From 1958 to 1962, Van Fleet held the position of Divisional Manager of National Accounts and Trade Relations for Airco's Industrial Gases Division. During the period 1962 to 1972, Van Fleet was Manager of Commercial Relations. Airco's Commercial Relations Department was composed of Van Fleet, his assistant, Fred Downs, and a secretary.
In his capacity as Manager of Commercial Relations, Van Fleet was concerned primarily with trade relations, which involved (1) assisting Airco sales personnel seeking to present sales proposals to other companies in meeting the personnel in such companies who were responsible for making purchasing decisions, and (2) assisting sales representatives from other companies seeking to present sales proposals to Airco in meeting Airco personnel who were responsible for making purchasing decisions. In a job description which he prepared in 1967, Van Fleet described his responsibility as Manager of Commercial Relations as "providing necessary intelligence and guidance for proper coordination of divisional selling effort." (Plaintiff's Exhibit ("PX") 187.) Among his functions, as he understood them, were to:
"1. Create with companies with which we do business a favorable atmosphere which will assist the direct selling efforts of the Division Marketing organizations, and develop, maintain and improve relations with present and potential customers.
2. Maintain for use of company personnel information records about the company's business contacts in respect to:
e. Organization, facilities and connections
3. Make commercial recommendations to assist Airco Purchasing Department.
4. Arrange introductions between customers' and suppliers' personnel and the proper people in our Company to accomplish best possible relationships.
5. Develop and maintain relationship with Commercial or Trade Relations Managers of key customers and suppliers.
6. Prepare and distribute to Management reports of major purchases and sales by ...