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UNITED STATES v. HEALTHCO

January 14, 1975

United States, Plaintiff
v.
Healthco, Inc., Defendant


Wyatt, D.J.


The opinion of the court was delivered by: WYATT

WYATT, D.J.

This is the decision after trial to the Court without a jury of this civil antitrust action.

 The United States commenced the action on April 2, 1970, charging a violation of Section 7 of the Clayton Antitrust Act (15 U.S.C. § 18; the Act). At that time, the name of defendant was "Healthcare Corporation". About August 1971, the name was changed to "Healthco, Inc."; defendant will be referred to as "Healthco".

 The complaint charges that Healthco, while engaged as a dental dealer in the sale of dental products in "Metropolitan New York", acquired substantially all of the assets of four other dental dealers and that this was in violation of Section 7 of the Act. That section forbids a corporation to acquire "any part of the assets of another corporation . . . 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".

 Specifically, the complaint avers (paras. 20-24) that the effect of the following acquisitions by Healthco may be substantially to lessen competition or tend to create a monopoly in the dental products market:

 
(1) General Dental Supply Co. Inc. (General) on May 9, 1969;
 
(2) M. A. Sechter Dental Equipment and Supply Co. Inc. (Sechter) on June 20, 1969;
 
(3) Hebard-Metro Dental Company, Inc. (Hebard-Metro) on November 15, 1969; and
 
(4) Hebard Dental Supply Company, Inc. (Hebard Dental) on November 15, 1969.

 The government asks that each of these acquisitions be declared in violation of the Act and that Healthco be required to divest itself of each of them. It is concluded that because of their effect in the submarket of dental equipment, the four acquisitions were in violation of the Act.

 On April 20, 1970, plaintiff sought a preliminary injunction under Section 15 of the Act (15 U.S.C. § 25) and Fed. R. Civ. P. 65(a):

 (a) requiring that during the pendency of this action the challenged acquisitions be maintained separate and independent from Healthco and from each other;

 (b) enjoining Healthco from taking any other action during the pendency of this litigation, that would impair its ability to comply with an order of divestiture in whole or in part of its interest in such companies; and

 (c) enjoining Healthco during the pendency of this litigation from acquiring the stock or assets of any dental dealer in Metropolitan New York.

 On July 16, 1970, an order agreed to by the parties allowed the motion for a preliminary injunction to be withdrawn but granted in substance the preliminary relief sought.

 On May 3, 1971, Healthco moved for an order permitting it "to merge into itself, its subsidiary dental supply corporations in the New York Metropolitan area which are referred to in this action".

 The motion was granted by order of May 25, 1971. The mergers were to be without prejudice to the application of any final order of divestiture in this action.

 Proposed findings of fact and conclusions of law, along with post-trial briefs, have been submitted by the parties. What follow are the findings of fact and conclusions of law of this Court.

 1.

 Dental products consist of four categories of products: (1) dental equipment (equipment), (2) dental sundries (sundries), (3) artificial teeth, and (4) dental precious metals. Only the first two categories, equipment and sundries, are here involved.

 Dental products are a recognized class of products or line of commerce within the dental industry.

 Equipment consists of durable dental products used by dentists. Examples of equipment are dental chairs, dental units, X-ray machines, sterilizers, lights, cabinets, and darkroom equipment.

 Equipment is a recognized submarket of the dental products market or line of commerce.

 Sundries consist for the most part of nondurable consumable products such as materials for fillings, anesthetics, impression materials, waxes, cements, dental chemicals, nonprecious metals and dental burrs. Sundries are also considered to include some durable products, for example, small instruments of under $100 in value. There are upwards of 20,000 different items which are classified as sundries within the dental products industry.

 Dental sundries is a recognized submarket of the dental products market or line of commerce.

 2.

 Dental products are distributed and sold almost entirely by companies classified by the United States Department of Commerce as "merchant wholesalers -- dental supplies" or "merchant wholesalers -- professional equipment and supplies". These "merchant wholesalers" have been referred to by the parties as "dental dealers" and this term is used herein.

 Dental dealers sell dental products to dentists, dental laboratories, institutions (including hospitals and dental schools), and government agencies (collectively, sometimes called hereafter "dental customers").

 There are two principal types of dental dealers -- full line dealers and non-full line dealers.

 A full line dealer sells equipment, sundries, precious metals and artificial teeth. A full line dealer arranges for the installation and servicing of equipment sold. The full line dealer sells all the dental items needed by dentists or dental laboratories.

 Non-full line dealers are generally dealers who do not sell equipment and do not install or furnish services for equipment. These dealers concentrate on the sale of a broad line of sundries.

 Between a full line dealer and a non-full line dealer as described, there are various dealers who sell sundries, equipment, and services for equipment, but who do not sell artificial teeth and precious metals. Dealers offering equipment and services for equipment without a line of sundries are very rare in the market.

 Dealers who sell equipment offer the following services to their customers: assistance of equipment specialists to aid dentists in planning the layout of their office; equipment mechanics to install large equipment; equipment repairmen who are able to visit the dentist or the laboratory; and management advice to dentists.

 Nearly all dental dealers have salesmen who solicit sales personally from their regular customers. These salesmen make dental customers aware of new products and innovations in the dental industry.

 Dealers generally fill their orders, particularly sundries, within two to five days of their receipt from salesmen. Delivery to the customers is usually by parcel post. Short term credit is available to customers.

 Dentists, when opening an office, require the services of a dental dealer.

 The impact of dental dealers is most significant on dentists, rather than on the other dental customers.

 There are two major professional organizations of dental dealers: American Dental Trade Association (ADTA; which also has dental product manufacturers as members) and Dental Dealers of America (DDA).

 It is moderately difficult to start a dental dealer business.

 To be a full line dealer requires a minimum capital investment of $30,000 for equipment inventory and $20,000 for an adequate inventory of sundries; in addition, there must be working capital, and a physical plant.

 A trained sales force, with specialists in the marketing, installation and repair of equipment, is necessary.

 Difficulty is encountered in obtaining product lines from manufacturers.

 3.

 Mail order houses are companies which solicit sales of dental products through advertising in trade publications or their own catalogues sent to dental customers. They generally offer the same line of dental products as a non-full line dental dealer. They generally sell a full line of sundries.

 While some items of equipment are sold by mail order houses, these are generally of the smaller type and such sales are not a significant factor in the equipment market.

 Mail order houses maintain large inventories of dental products and sell at prices lower than those of dental dealers. They accept orders primarily by mail and in some cases by telephone. They do not rely on salesmen for the solicitation of orders.

 Mail order houses offer delivery services and credit terms on a basis comparable to those offered by non-full line dealers. They do not offer, however, any of the special services of a full line dealer; for example, they do not install or repair equipment.

 The impact of the mail order houses is of increasing significance in the dental products industry. This impact is largely in the submarket of sundries.

 Mail order houses purchase their products from manufacturers and to some extent from larger dental dealers, such as Healthco.

 4.

 Manufacturers of dental products are the prime suppliers of dental dealers and mail order houses.

 Manufacturers play a significant part in the competitive aspects of the dental industry by control of the number of dental dealers which can sell in a given area. This factor appears strongest in the equipment market.

 Dental dealers first entering a given geographic area have difficulty in obtaining access to manufacturers' product lines.

 House brands are products made by the manufacturer for sale under private labels of the dental dealer.

 Manufacturers make some direct sales to dental customers. These sales are not significant to dentists, but are concentrated to government, institutions and dental laboratories.

 Manufacturers generally specialize in a specific type of product rather than in a broad line of dental products for sale to dental dealers.

 Manufacturers do not install or supply services for equipment. However, installation and repair services are available from independent companies specializing in such services.

 5.

 The Metropolitan New York Area ("the Area") is made up of the following: New York City, the Counties of Westchester, Rockland, Nassau, and Suffolk in New York State, and the Counties of Bergen, Essex, Hudson, Passaic, ...


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