The Stanley Works v. Federal Trade Commission

WORKS, Petitioner, The STANLEY COMMISSION, TRADE

FEDERAL Respondent. 11, Docket

No. 71-1742. Appeals, Court of States Second Circuit. Sept. 20,

Argued

Decided Oct.

499 may C., merger, Washington, properly Douglas, D. end that we John W. probable assess the effects of the petitioner. for competition. Washington, C., Berman, D. L. Alvin respondent. for Companies The KAUFMAN, and SMITH Before corporation is a Connecticut Judges. MANSFIELD, Circuit engaged manufacture and sale power tools, products, hand and KAUFMAN, Circuit IRVING R. prin- strapping, with steel steel its and Judge: Britain, cipal place of New in business ques- presents important appeal This large, multi-plant, Connecticut. It is a central issue antitrust law. The tions history multi-product concern with August acquisition 1966 is whether the 1965, year prior expanding In sales. Corporation Amerock The Stanley’s merger, domestic sales Clayton Act1 of the violated Works § $29,- $123,000,000,an increase Trade and 5 of the Federal § figures. 000,000 For over its 1963 sales Act.2 The Trade Commission Federal earnings 1963-1965, period net held ordered that it did and divestiture.3 $6,~ $4,200,000 to after taxes rose asking petition filed Court this 600,000, more than an advance of 57%. the Commission’s and set aside review the- in relevant In 1965 sales 45(c). For the order. See U.S.C. § oper- product It $814,000. market4 were below, given the ef- reasons believe we facilities, in- production ated numerous substantially merger may fect California, cluding plants Con- in located competition in the na- to lessen actual necticut, Florida, North Jersey, New Ac- tional cabinet hardware market. Carolina, Ohio, Tennessee, Vermont cordingly, affirm decision of we Illinois. direct that its order Commission and incorporated in Amerock was enforced. place principal of business maintains I. Rockford, time of theAt in Illinois. engaged merger, always, question resolution As illegality of certain requires to de- sale us the manufacture and antitrust primarily in analyze products use companies involved, hardware kitchens, for scribe line geographic in addition to broad general window, they appliance, explore furniture and compete, do- products. Its affected the household structure of the case, amended, complaint issued 1. 15 U.S.C. 18. Section 7 § 1968, charged April 30, provides: against Stanley on engaged corporation and Federal 7§ a violation of “No commerce Act, acquire, directly indirectly, 5. Commis § Trade Commission shall or transgressed any part sion found that whole or of the stock other or Although corporation capital §of a violation both statutes. sub- see necessarily jurisdiction ject § a violation not of the Federal Sperry acquire Trade Commission Federal Commission shall Trade Hutchinson, any part or of an- whole assets (1972), it is the case corporation engaged also in com- other every a viola any 7 is''also merce, violation of § line of where commerce we hold Stan tion of 5. country, Since § ef- section of the illegal ley-Ameroek merger § under be substan- fect such illegal need we § therefore tially competition, tend or lessen special give 5 § consideration monopoly.” to create a analysis. 45(a) (1). pro 2 That section 15 U.S.C. vides : rendered decision was 3. The Commission’s “Unfair methods of May 17, 1971. deceptive commerce, acts and unfair or prod- relevant commerce, our discussion practices For are declared p. uct see unlawful.” designs. simple years mil- lines and mestic sales in lion, totaled $23.8 following II, mil- World the American and increased 1965 to War $29.4 began post-war lion, home affluence, to reflect economic advance more 23%. earnings consumer demand more 1965 net after taxes Amerock’s million, highly gain de- a ornamented cabinet hardware were of over $2.8 signs industry increased, earnings figures. and the under- over Ame- its 1963 change. product in went a dramatic Manufacturers the relevant rock’s 1965 sales $18,000,000. in residential cabinet turned market were excess hardware die-casting and, process, zinc a re- as a n Industry sult, The products in line trans- this were stylized, highly formed into fashion-ori- Clayton Since Act Section 7 items, ented were offered in mergers companies between “in forbids variety designs wide complement and finishes any line of commerce in section contemporary the motifs of country,” when the re- Virtually cabinet work. all residential lessening competi- sult in substantial pulls knobs and are now made the die- prod- tion, determination of the relevant casting method. This manufac- enables uct is markets of critical geographic produce styles turers to designs the intricate significance. See, g., e. Brown Shoe Co. demanded consumers resi- 294, United dential cabinet hardware. Here pro- Architectural cabinet isolating hardware is the task of the relevant mar- duced for in use institutional and com- us, simpler kets has been made for since schools, buildings, mercial such as recre- stipulated and the Commission buildings. ational and office The general centers that within the in- hardware marketing dustry, watchword of architectural prod- sales of cabinet hardware cabinet hardware is embodied appro- in ucts the Nation constitute the phrase, function;” prod- “form follows priate product geographic markets. in ucts this line must agreed be more durable parties purposes The for also that than residential in or- case, cabinet hardware prod- there are relevant der to withstand the heavier wear geographic uct or submarkets. Ex- The they subject are in an grounded institutional aminer and Commission setting. result, or commercial As a ar- findings stipula- their on of fact these rarely chitectural cabinet hardware is tions; findings conclusive, their are if made die-cast is method but supported substantial evidence. 15 stamped bronze, out of brass, aluminum 45(c). U.S.C. § or steel. These metals more durable are parties agreed The that cabinet than zinc die-cast material and also more pulls, knobs, hinges, hardware includes expensive. latches, products, catches and similar cluding shelving drawer slides and hard- Market Shares ware, principally used in kitchen cabi- The cabinet in nets. hardware market com- Cabinet hardware the United sales prises year merg- prior two lines, related cab- States residential architectural, er, 000,000. $76,000,000 $80,- inet hardware or insti- tutional, cabinet record hardware.5 Residential The discloses that leading cabinet ranked as tenth used houses and apartments. producer products time, At one of cabinet hardware residential $814,000, representing primarily hardware was made with sales stampings extrusions, Amerock, metal market share ac- and was 1%. essentially nature, quired company, functional ranked first as the sell- point designed 5. We stress neither of these lines con- of the market separate analytic, pur- descriptive, stitutes for to serve purposes case, ignored poses. of this an element dissenting opinion. Our division

ROI Clayton products triggered application er of cabinet merger. position The exceeded Its sales States. ground appeal that either for its company controlled $18,000,000, and the adequately made out violation of market.6 22-24% in this ease. Act upheld Trial Ex- argument importance be- of central hard- aminer’s cause under enunciated SEC the rule industry As the ware was concentrated. Chenery Corp., 318U.S. margin indicates, four table in the (1943), find 87 L.Ed. we must leading accounted firms urged appeal the considerations ranging from total sales 49% 51% of the Commission’sorder are of the market.7 based, if the tion was we are to sustain order. II. Chenery orderly “the instructs that functioning initially process re- of review must fo Our attention quires grounds upon that the dispute cus on a threshold clearly agency administrative acted be parties. Stanley’s contention that It adequately disclosed and sustained.” findings the rationale and critical Chenery, supra, 318 U.S. at 63 S.Ct. Commission’s decision indicate that the It 462. clear us that the Com- Stanley-Ameroek merger was declared pronged mission’s decision was dual illegal ground solely on the mer merger Stanley-Ameroek that in- ger potential competition in eliminated potential on validated competition both actual and the cabinet hardware The Com market. view, grounds. inAnd our opposes mission this characterization “clearly competition the actual case was its decision and insists that elimination meaning disclosed” within of Chen- potential ery.8 competition both actual and centage agreed shares, respective cabinet hardware 6. The totals Stanley’s by stipulation. per- sales, and Amerock’s 7. Cabinet ware Sales in U. S. Hard- Assets Total 25,133,914 $18,218,474 ..... 1. Amerock Corp................... 37,992,215 $11,499,445 ..... ........... Company 2. National Lock 3,338,412 Ajax 6,798,000 ...... Corp.............. Hardware 3. $ Mfg. 7,968,450 Vogt 6,013,304 Co........... 4. & .....$ Knape Mfg. 1,710,989 3/056,673 ...... Jaybee Corp................ 5. $ 2,369,165 Corp...... Pulley 6. Grant & Hardware 1,500,000 1,500,000 ...... Co., Inc........... 7. David Allison $ 2,483,424 1,408,600 ..... Inc............ Industries, 8. Tassell $ 524,452 Mfg. 1,344,464 ...... Corp....... Hyer Hardware $ 9. 125,926,000 814,000 ..... Hardware Division ........ Stanley $ entry market, barriers raised position Stanley’s the Commis- The already theory concentrated potential competition in an sion’s Stanley was not find did adequate Commission entrant,” see FTC likely “most illegality in this case. Commission Gamble, reasonably Stanley prob- & Procter held (1967); into the residential able entrant Gas, Natural El Paso Stanley market, United States cf. 1044, 12 658-659, development had entered internal addition, In acquired L.Ed.2d it not Amerock. Com- point evidence not did view, Commission eliminated mission’s “dis indicating exercised potential entrant, removed did nor on the ciplining effect” “disciplining effect” it exercised argot ground” develop is the an actual a “new

doWe holding, as the dissent case. the Commission’s mistakenly suggests, but actual find the portion Moreover, that Commis- clearly competition ease underscored opinion sion’s which discussed the com- Examiner, proceedings before petitive acqui- effects rendering opinion and also in sition articulated the Commission’s over- complaint Commission’s charged decision. language all view of the that indi- case a result of the that as beyond cates doubt mix of actual and compe- potential “substantial actual and potential underlying competition theories been, be, eliminated.” tition has Commission’s decision. It was perception actual clear that an pre- view “case litigated theory be- been mingling sents ... of the ef- evident from fore Trial Examiner is cognizable traditionally fects which are under the appeal its brief categories discrete actual the actual the merits of

which discussed potential competition.” After re- length.9 competition case at some viewing Stanley’s role in the cabinet judi- integrity preserve both To the Commission char- agency procedures we cial review and of acterized as both “an actual and persuaded only potential must that competitor stipulated competition the- “Viewing had notice of the actual ory, market.” light,” the in case specifically that the Commission concluded, the Commission “and adopted competition general the actual case as within the confines of estab- Any analytical decision. doubts relating reason its lished to framework however, convincingly score, potential that dispelled competition, actual and we are by reading of the a careful present convinced from record that repeatedly opinion, which Commission’s concluding the examiner correct in merger of the on actual relates the effect competition. and Amerock significant anticompetitive had quences conse- ” proscribed by . Section 7 . adopted outset The Commission at addition, that “the Examiner’s opinion the Commission’s Amerock (footnote clearly led that 12), establishes already in con- creased concentration competition elimination of actual was a ground as centrated cabinet hardware market deci- which Commission’s eliminating lead- Noting well ing Amerock as the as sion rested. that examiner producer independent of cabinet had concluded that the hardware cabinet ” Unmistakably . . concentrated, hardware . market was the Commis- Stanley’s acquisition only Thus, examples, it how illustrate to note at few raising Stanley argued page bar- contribute 23 of its brief that entry aspects in riers residential so-called ‘horizontal’ “[t]he industry. case, e., Inasmuch as we i. the amount of actual com Stanley-Amerock merger petition that clude eliminated cabinet hardware illegal by merger, minimis, because it eliminated substan- de and the competition thereby finding.” tial actual in not At Examiner erred so competition Stanley argued pages brief, lessen 25-26 of whole, incorrectly we need not decide the merits that the examiner had assess potential competition competition of the ease. “the amount of actual ed Thus, part opinion, merger.” in this we our And fi fact eliminated Stanley’s argument nally Stanley consider that ac- that view of asserted “[i]n theory tual not “ade- all summarized above considerations quately III, pages brief], In Part disclosed”. shall is clear we [at 23-30 question ground aspect treat whether that of this case is horizontal “adequately quite in sustained” substantial different from the situations leading evidence. cases horizontal volved action to be tested the basis studies10 which bolstered sion cited two rest, purports finding. basis opinion the which sets forth clarity set forth with such must be a number scholars view shared Chenery SEC v. “any be understandable.” acquisition involv- horizontal that ing 194, 196, (Chenery II), Corp. more than a firm with (1947). L.Ed. 1995 S.Ct. share wás market [Amerock’s relevant illegal,” believe We be deemed should 22-24%] respect the actual refers authorities sources, pages, case that test. satisfies at the cited Both view.11 clearly cases address themselves to III. competi- mergers actual eliminated Having merits, tion. must we reached the decide whether the effect Finally, convincingly, the and most “may competi- substantially to lessen importance emphasized tion” the cabinet scrutinizing mergers closely in mar- questions Mindful of the admonition concentrated, rely- already kets that are always “suscepti- are not antitrust law Philadelphia Na- on United States ready precise answer”, Unit- ble of a Bank, tional Bank, Philadelphia ed States question in supra,, 374 U.S. at merger between was whether a case starting point, touch- we our take as Philadelphia National Bank and Girard analysis, dominant stone of that “[t]he Exchange Bank, the Corn second Trust congressional pervading considera- theme largest banks third commercial [to § 7] tion of the 1950 amendments metropolitan Philadelphia area, vio- to be of what was considered fear lessening competition lated 7§ rising concentration economic a tide of banking The commercial business. economy.” Brown Shoe American grounded did, it its Court held and that 315, States, 294, 370 Co. v. United U.S. com- decision on the elimination of actual 1518, 1502, 510 L.Ed.2d 82 8 S.Ct. clearly petition. under- The Commission key- recognize (1962). a And “that we stood and rationale considered to what stone in the erection of barrier Congress Stanley-Ame- case, applied it to the and rising of eco- saw tide merger. rock provi- concentration, was 7’s] nomic [§ light above, re- we mergers arresting authority for sion of reviewing duty court if in our miss lessening the trend to at a time when considering mer- we abstained a line of commerce was theory and its of the actual Congress incipiency. saw still in its Commission, the ease to remanded process in American of concentration urges do. The record con- us to sought force; dynamic aas it business ample this Court evidence enable tains Commission assure Federal Trade merits, abundantly is assess the power this to brake and the courts relied on the that the Commission clear gathered force at before it outset among competition theories, oth- actual ers, 317-318, at Id. at 82 S.Ct. momentum.” Chenery reaching its conclusion. judicial predicate of an review does agency settings pre Unlike the factual the correctness that Shoe, supra, United agency finding, require in Brown to sented nor does 270, crystallize Grocery, 384 U.S. into a v. Von’s States basis (1960), 1478, 16 L.Ed.2d 555 single, All is re- 86 S.Ct. rarefied reason. “ Brewing Co., 384 United States v. Pabst quired f the administrative [i] 133; supra, Kaysen Turner, at Kaysen Turner, & D. K. D. Antitrust Pol 10. K. & Mergers Legal Analysis Stigler, Anti icy Preventive : An Economic 176, trust, (1959), Bain, 182 114 U.Pa.L.Rev. Or Industrial 72 and J. (2d 1968). ganization ed. 14-41 504 546, 1665, great.” correspondingly U.S. 86 S.Ct. 16 L.Ed.2d 765 tion is United (1966), analysis Philadedphia where an of the relevant States v. Bank, only 321, 365, 42, structure revealed trend n. concentration,

toward 915]; Commission L.Ed.2d [10 United States clearly America, found here relevant mar- v. Aluminum Co. of U.S. [377 already ket was concentrated. S.Ct. 12 L.Ed.2d 314 however, (1964)]. argues, failure to find United States v. Continental Can, supra, 461-462, trend toward concentration takes this at U.S. Brown, case the line of Von’s out at S.Ct. 1749.12 Pabst, decisions which horizontal held We have indicated the four mergers competitors between actual leading firms in the cabinet hardware in valid. But United States Continental dustry dominated of the market. 49-51% Can, 12 L.Ed. The Examiner and the (1964), 2d 953 teaches that where a mar- thought figures these reflected market already ket concentrated agree concentration. We in suspect. between market leaders is dustry sufficiently to in concentrated court said: proscriptive voke the sanction of the “history [W]here there has been a Act circumstances tendency toward concentration this case.13 industry” tendencies toward further tance of tration es their concentration possibility concentration and incipiency.” ^[1502] preventing already great, of eventual deeoncentra- “are 1535. Where “concen- U.S., even Brown at be curbed slight so Shoe preserving increas- impor- Co. v. ports ling sis, eight “tight example, the cabinet hardware market 20% firms or less oligopoly” relevant with the Kaysen or more.15 Under their view.14 To mention literature as an and Turner describe a largest supply firms control- strongly 50% in which only analy- falls sup- one dissenting ignores 12. Our brother count for less than of the market. admonition, power Department and would confine the Under such conditions the agencies ordinarily challenge mergers antitrust enforcement to cases will when where parties a “trend” toward concentration the account for and of 1% 25% industry proven. Stanley in the been has In the market. controlled 1% doing so, disregards teaching market; he the of 22- hardware Continental Can that actual concentra- It should be market evident that 24%. shares sufficiently tion is a far more insidious base in case close merger. Department guidelines which to build a This would to cause greater pay symptom Stanley’s accepting seem to to heed the us to before hesitate than the disease. view. Although teachings 14. can- the scholars Stanley 13. insists that such a market is foolhardy, dispositive, it not be would be They not “concentrated.” cite De Justice complicated this, in an area as partment Merger Guidelines, see 1 Trade wholly disregard they the lessons Reg. Rep. Law which indicate K study. in learned a lifetime of highly that a is market concentrated when largest Kaysen Turner, supra, shares of the four firms account & at or more of the market. But as authors define economic markets in terms 75% proves true, reading often on to the end A “domi- four levels concentration. ap “partial monopoly” of a sentence can be It instructive. firm” mar- nant pears Department single large firm Justice will in which ket one a ordinarily challenge mergers “highly supplies in a the market and 60% acquired significant por- supplies concentrated market” where the seller a other acquiring “Tight oligopoly” firm account for tion of the demand. 1% respectively, of the market 1 Trade next See is the level concentration. 15% Reg. Rep. Organization Bain, Law at ¶ 4510 Industrial 6884. But the also Department (2d (Market 1968). also four characterizes some mar ed. which highly high-moderate kets as “less concentrated” —mar firms control concentration.) reflects leading kets which the four firms ac-

5Q5 parameters a in the reversal downward tribute to within the economic well profits. prices trend in describe a concentrated which general industry, the In persuasive in our all Most Stanley’s most business was which unanimity view, reached however, the leading transacted, only it was not the Commis examiner and the trial long- firm, price A as well. leader holding this market concentrated. sion range report, Hardware Division expertise In view of the mid-1965, prepared in “As the stated: assessing impact prac of business largest industry, firm Hard- forces, be market we economic tices on continue ware Division must show type of judgment as to what lieve its pric- important leadership in area pur for antitrust concentrated market ing warrant, policy. we conditions As weight.16 poses entitled to substantial the initiative continue must take evidence, Upon of all review being corresponding the first risks the Commission concluded prices industry to raise within higher attempt keep at lev- leading them such very reasons presented policy undoubtedly els.” This acquire Ameroek are threat future vital- charge support reasons same which recently ity of industry, will have case that price experienced decreases. significant anticompetitive effects. precisely Stanley acquired Ameroek light disclosures, of these company it was dominant because justifiably appre market . and because . Stanley-Amerock mer hensive that believed that increasing ger, by concentration already further Amerock’s entrench might “tipping top of have a any position, while other dominant industry, effect” designed achieve course turning concentrated market manifest goals in the cabinet hardware signs price limited expansion by Stanley —internal or ac- tending rigid, to lifeless into quisition company aof smaller greater eco ward even concentration only up competi- stir —would delicate enervation. A market as nomic tion. ly this, such that balanced as ranking There evidence in the was substantial first and tenth Among anti-competi record to that view. threatens substantial firms evidence we find a Hardware consequences, is “concentrated” tive report, prepared incipiency Division task force measure. Section 7’s 10, 1964, part study possi- June merely of a standard, “requires impact ble new ventures for the Divi- appraisal Hardware immediate sion, predic which concluded: upon competition, impact upon con tion of its entry strong Stanley is that it felt preven future”,17 provides in ditions parts into of the hardware cabinet therapy as remedial tive as well product development market via could salutary surely industry; medi ailing industry- expected be to accentuate diag until not be withheld cines need prices profits. A wide declines in “terminal.” reads nosis entry strong properly Stanley oriented argues foreclo could, into the market via of a market designed de minimis sure of a hand, on the other too, believe, Stanley’s the Commis- partial should we own on so reliance Jus- Department Merger guidelines, tice sion’s views. dis- 13, supra, cussed at note reflects this Philadelphia same view. concedes United States 362, Department’s Bank, supra, S.Ct. expressed at 374 U.S. Justice view in its guidelines given special weight; should at 1741. tion, wholly surmise, application the com- matter of in and that bars § overlap may permit petitive and which not ourselves to between we engage. Having agreed facts, minimis. de a set of this case was Court, dissenting adopted parties, must be has this Our brother this by them; pick view, not free his on an bound we are but has based conclusion recognize altogether analysis of we market at will. While erroneous choose parsing stipulated de minimis fore- After 7 can tolerate shares. product market, proceeds closure, res- he to treat Brown Shoe Co. v. U.S., hardware and institu- idential cabinet agree distinct lines as tional we cannot thereby ignoring commerce, clear this suffi- eliminated agreement parties ciently purge no ille- between insubstantial geographic product gality exist submarkets Act. under industry. He cabinet hardware Although the market involved shares announces, virtually cathedra, then ex precisely market here match do not degree competitive overlap that existing either shares case cited us Stanley and Amerock between rarely Stanley or the Commission— to a of the market. amounted mere .35% two believe that antitrust alike—we cases percent- The dissent concludes that the age underlying Su- at least two rationale mer- the market affected preme Court decisions indicates account, ger and, on that is de minimis a minimis share is not de 1% Stanley’s acquisition Amerock sur- market. Most the cabinet hardware critical vives even most antitrust persuasive v. Pabst United States scrutiny. light stipulation, In we Brewing Co., 546, 86 regard analysis the dissent’s method of (1966), mer- in which a L.Ed.2d 765 dangerous puzzling. It for it also ger engaged companies two dissuading may have the effect of both manufacture, sale and distribution litigants agreeing upon from facts beer invalid under because was held § 7 deterring agencies acting those in three mar- eliminated agreed stipulations fact. No amount kets, including national market.18 legerdemain justifies dis- statistical ranked tenth the national Pabst regarding binding stipulation leading among firms, with 3.02% case, controls rele- which the Blatz, market; acquired com- product vant defined as the en- market is eighteenth with pany, ranked 1.47%. tire and Stan- though product The relevant agreed ley’s market share to as consti- tending concentration, toward tuting parties of total sales. The nearly as the solidified facts, conceded those Examiner acted year prior to the case: one facts, those and the Commission merger, companies con- Pabst-Blatz based decision on There those facts. market; trolled 45.06% strategic litigation have been trade- companies ten controlled 52.6% stip- adoption that led to the offs taking into account market. Even after ulation; concentration, compe- but we shall Nor never know. toward trend guess posture in Pabst tition in the can we what this case comparison appears cab- would have assumed there robust been stipulation. four in which facts inet hardware What constellation of might approximately emerged, stipula- of for control firms but 50% Wisconsin, area, geographic 18. in the three-state in The relevant markets country Wisconsin, to entire was sufficient Pabst were mar- Tri-State consisting Wisconsin, Michigan and all ket violation of 7 each § of show a 552, U.S., Illinois, at and the these three areas.” 384 Nation. The Court of S.Ct., prob- held that “the at 1669. evidence as to the 86 competition able effect of the

507 1715, concen- L.Ed.2d 915.” United States v. market. of this market 10 In view supra, America, Aluminum Co. of of cabinet 377 tration the sale assume, Judge 280, products, as at 84 at But cannot U.S. S.Ct. 1289. we greater of less in the that a difference concentration market does, Mansfield greater per paral- “the cent —the dif- the likelihood that than one-half of one policies advantage, lel of and Stan- mutual not com- ference between Blatz’s 1.47% petition, emerge. ley’s tendency decisive will market shares —is of That 1% may significance question presence of con- for such well be thwarted of a significant trolling competitors.” mar- importance whether small as 1% is, not, Alcoa, specially de minimis. Ibid.19 ket control the Court compa- noted that no than a more dozen in the also rank nies could account for as much as of 1% its 1 conclusion contributes % industry production Rome, and therefore is not insubstantial. of share ranking ninth with of the 1.3% Supreme noted in United Court The Stanley, competitor.20 was a substantial America, 377 v. Aluminum of States Co. Rome, significant like com- is a small but 271, 1283, 314 S.Ct. 84 U.S. petitor in a few market with sellers. underlying (1964), central case, only Based on the record 7, philosophy amended, § companies, ten of which competition principle will most “that tenth, accounted for or more of the 1% sellers, many none ‘when vital there are say, cabinet hardware market. We cannot significant any has therefore, that under the circumstances Philadephia here, Stanley’s Na- United States v. involved share share.’ 1% insubstantial.21 363, Bank, 83 374 U.S. at tional empted 1%, is, competition, acquisi- than less that Alcoa’s Corporation 19. The found Court servatively speaking, quite insubstantial. was rea- tion of Rome Cable assuming figure, even sonably likely A accurate more in a result substantial pre-emption highly, the extent the maximum lessening requirements anticipated total indus- aluminum conductor concentrated U.S., 333, at companies would be try controlled .77%.” where 5 76% Doug- S.Ct., 631. Justices Black at was the Alcoa relevant conductor, las dissented. leading producer aluminum brother,” ig- ‘‘Stanley dissenting and our market; Rome of the with 27.8% significance of the fact nore the ninth with 1.3%. validity Tampa of a Electric involved 20. Aluminum Co. of Amer- United States 3, not § 7.§ contract under supra, ica, at 84 S.Ct. analysis parameters are not 7 cases § 1283. are cau- as in 3 cases. Courts § the same up- greater care before exercise tioned to holding Tampa 21. Electric Co. v. relies on inasmuch § a under Co., 365 U.S. Nashville Coal suspect by merger “integration is more (1961) 5 L.Ed.2d 580 contract, integration by because de is a its assertion permanence greater Unit- former.” Tampa was minimis of the market. Bank, Philadelphia National ed States Clayton Act, brought 3§ S.Ct., U.S., at supra, types of exclusive forbids certain Tampa Furthermore, the Court dealing where the effect of such contracts necessary distinguish thought Stand- substantially to lessen a contract Magrane-Hous- Company v. ard Fashion monopoly a or tend to create Company, ton any § U.S.C. line commerce. prior (1922), 3 case § 66 L.Ed. 653 Tampa had entered in- and Nashville two-year exclu- invalidated which had requirements contract under which Standard, agency contract sive agreed Tampa’s supply coal Nashville pat- distributor twenty years. a manufacturer period requirements dry Margane, terns, retail a Boston Ap- and the District Court Court The peals FasMons, goods Standard store. invalid under held the contract said, a market with involved Court Supreme reversed. and the Court “ evi- was no there seller and proportionate dominant . . the said: Court Tampa concentration dence product relevant coal of the total volume instant pre- Because challenged contract toas though Finally, observing note we a We cannot that conclude without concentrated, may dissenting incorrectly that forces our brother operate opinion announcing maintain some level of our as reads rule so a preserve possi per illegality mergers. thus se for horizontal bility regrettable nothing That This is of eventual deconcentration. for we decide why independence today remotely is the continued hints at such conclu- relatively companies teaching sion. small market The law is clear in its to the health and is crucial shares so already that in concentrated vitality threatening of a market to be sellers, with few in which the four lead- only oligopolistic.22 come Not was Stan ing companies approximately dominate ley competitor an active merger market, involving 50% acquired the time it market at leading controlling firm, 22-24% record Ameroek but indicates that market, Stanley, firm with a like Stanley been a more active would have seriously would threaten substantial anti- merg future, competitor in absent merger consequences. This forth, For reasons set it all the er.23 cannot survive in face elimination of com clear to us that the history. Act Accordingly, and its we af- petition merger resulting from the firm minimis, the Commission’s order and direct de within substantial and not meaning prohibitions. 7’s enforcement.24 § validity question try case calls into Hardware to do was to Division legality profits not § maximize in their sales and their product spend- existing because of the § contract under rather than lines ing looking concentrated structure their time and efforts for ” growth we find re- . . . areas . . new . Tampa misplaced. Stanley Blectric liance on And he asserted had decided that Stanley us, has also cited to without “to efforts in the concentrate area [its] discussion, eases, strength, namely, several district court where had some ar- [it] ” which, says, it de involved minimis fore- chitectural . . cabinet hardware . carefully accept closures. We have considered Whether we the Commission’s inapposite. Stanley’s view, these cases and find them once understood parties agreed that that the cabinet fact, 22. In some scholars are of the view hardware market whole is the rele- any acquisition involving that horizontal case, vant a firm with more than of the rele 20% plans Stanley clear that had to become vant market —Amerock’s share 22- competitor significant an even more in prima illegal. See 24%—should facie the market. Therefore maintenance of its ICaysen Turner, supra, K. D.& at 133. independence in the concentrated Stigler, Mergers and Preventive Anti competitor, great even as a was trust, 104 U.Pa.L.Rev. importance open possibility holding 23. The found that it was rea- of future deconcentration. sonably probable Stanley would have increasingly case, become more active view of our we pass segment residential cabinet hardware have no occasion to on the merits by way theory” the relevant market “toe-hold of internal expansion expansion il- been which would declared this effected have by merger. Stanley Stanley disputes legal for the reason even if this find- says top permitted expand Stanley level the market man- agement rejected option purchased acquisition, of internal via it should expansion industry, residential cabinet one of firms hardware. the lesser Instead, however, Stanley urges concedes that in and not the market leader. January, 1965, approximately theory” nine was not months “toehold raised prior litigated complaint, to initial contacts between never Ameroek, hearing, it was decided that nor the Examiner. considered expand production therefore, judgment It contends theory” architectural cabinet hardware. Donald based on the would be “toehold Davis, then Executive Vice-President and violative of Fifth cess, Due Pro- Amendment Stanley, testimony now President and Section 5 of Administrative Examiner, agree Act, before the Trial stated: “I Procedure 554. We 5 Ü.S.C. thing theory” was convinced that the best for the the “toehold was not liti-

5Q9 Judge (dissent- MANSFIELD, of minimis of “foreclosure a de Circuit ; ing) ‘substantially will tend market ”, competition’ Brown Shoe lessen Co. v. respectfully the reason I dissent for States, United my majority, which that adopts view the 1502, 8 510 L.Ed.2d Since ground (the im- horizontal newa major- establishes, record further as Amerock-Stanley merger pact of merger ity implicitly recognizes, that the upholding competition) actual ground adopted upset cannot on the (which was Commission’s by Commission, e., elimination of i. po- squarely of bottomed elimination potential competition, I would reverse automatically competition), tential has the Commission's decision. quantitative applied oversimplified an recognizing majority I further de- “rule of thumb” instead of believe ig- It for the economic the market. cision is reason that realities of unfortunate ground adopting that the actual new for affirmance nores fact a companies indulged post overlap it hoc two has rationaliza- agency action, less tion of a of course % (1) Supreme complete demned incom- a Court been absence as there has any functioning integ- patible trend concentration with the and toward by rity industry, any parallel judicial Chenery (2) action review. v. SEC leading (3) appre- Corp., producers, 196-197, 332 U.S. power 1575, 1760, (1947); Bur- ciable enhancement in the L.Ed. 1995 compared lington Lines, merged enterprise Inc. as Truck 168-169, components. with that of two Hearing (1962). The 239, L.Ed.2d therefore, decision, court’s finding Examiner limited himself holding that a horizontal amounts ato merger might competition lessen per one where se unlawful even hardware market because cabinet infinitesimally party but an controls Stanley poten- as a the elimination of and there percentage small competitior.1 Upon his deci- tial review complete indicat- of indicia the Commission is a absence sion was summarized being potential competi- ing anti-competitive impact. possible as based on this ground.2 lengthy discussion tion After principle repeal The effect is lessen- Examiner, result in a substantial gated and that before competition authority the said cabinet was without FTC, Corp. of the elimi- hardware market because Bendix consider it. Cf. reasonably Stanley prob- 1971). (6th nation of Because F.2d Cir. capable significant able, potentially however, theory,” the “toehold seller illegality, manufacturer domestic and since basis of alternative seg- adequately hardware the residential es case the actual particular- invalidity ment of the said tablished the ly evidence, residential in the decorative Act substantial tlie mar- preju said sales area worked error Stanley. ket.” dice to Stanley Finally, the Com- contends Hearing described The Commission prejudged the case the facts of mission as follows: Decision Initial right petitioner thereby denying Examiner’s to a “Thus, re- examiner found charge given hearing. have We fair acquisition spondent’s les- but find attention deserves serious (1) absent because sened merit. to be without probably mar- Hearing entered the cabinet concluded: Examiner own; (2) elimination Am- ket on its “The competitor potential independent leading domestic erock the increasing barriers effect and seller manufacturer potential (3) Stanley, entry; as a high level of concentration creased 510 competitive the Amerock not effects of market share increase brought

acquisition Stanley-Amerock the Commission concluded: about merger by posits itself the anti- which “Accordingly, fact we concludethat the merger.” aspect Al- of this entry by acquisition eliminated of its though the Commission referred to Stan- possibility that Stan- the substantial ley ley’s competition actual as a fact to be significant itself would become considered, the real basis its decision competitor potential was its of foreclosure of market, in com- of the increase with all competition. pres- vitality petitive implied.” (Appendix ence have Competition Actual 128). recognizing Apparently the weakness assuming Even that the Commission’s po- upon elimination of the case based permits our consideration of the majority competition now tential impact merger, horizontal im- competi- actual turns to elimination disputed market facts demonstrate that ground This tion as a merger’s affirmance. effect on actual basis, of horizontal substitution entirely too violate diminutive to Commission, constitutes voked Clayton majority 7 of the Act. The princi- departure from well established cludes that since the cabinet hardware ples of review. industry concentrated, with four firms controlling It its dis- true that the course of 49-51% ranking firm, the first cussion the degree alluded to ranking (23%), Amerock firm, and the tenth concentration in the cabinet though bordering Stanley (1%), citing some authorities minimis, may “tipping on de acquisitions, which refer horizontal industry, might effect” in the tend stating “Stanley’s competition. to lessen degree of this did could or contribute upon conclusion it relies an isolated competition prohibited the statute.” report by marketing person- subordinate However, apparent pass- it is that these employed by prepared nel Stanley, on merely references were intended 10,1964, Supreme June Court invokes entirely buttress a decision focused outlawing mergers giants Hearing decisions potential competition. If the industry beer, aluminum, fields Examiner or the Commission had consid- containers, banking, shoes and where ered the unlawful because of higher there either a market con- overlap

horizontal between Amerock and centration or a trend such con- toward Stanley, they so stated would have centration under review.3 language; only plain sentence would one so, required. They have been undoubtedly did not do approach At first blush traditional (as below) because is shown enough, particularly seems reasonable insig- overlap too miniscule law, respect since antitrust at least with finding. In- nificant to warrant such a mergers, legality char- has been “Thus, said, deed the Commission differ- acterized decisions based competitor, per- ; had an influence on the (1966) v. Aluminum Co. United States 1283, formance of mar- America, 271, the cabinet hardware 84 377 U.S. S.Ct. (1964) ; ket. 12 v. L.Ed.2d 314 United States findings, Co., 441, “On the basis of these 84 Continental Can 378 U.S. S. hearing (1964) ; examiner 1738, concluded that Brown L.Ed.2d 953 Ct. merger may effect of the be to substan- Shoe Co. 370 U.S. tially lessen in the cabinet ; (1962) 82 S.Ct. hardware market violation of Sec- Philadelphia United States tion 7 of Act and Section 5 Bank, L. of the Federal Trade Commission Act.” (1963). Ed.2d 915 Brewing Co., 3. United States v. Pabst U.S. 86 16 L.Ed.2d sharp, degree create distinct lines of commerce rather than sub- enees judges crystallized merely v. markets. It See United States actual com- lines. according 321, petitive Bank, Philadelphia National effects to economic 1715, 10 stipulated within L.Ed.2d 915 realities dealing ignore undisputed competi- However, not here rather than we are giants threatening gobble to tive facts of industrial up record. competitive fry with modest lesser Applying this standard the record is relatively participants in small in a stipulated clear this case the by dustry. relied Unlike the cases percentages, overall market while use- complete majority, the is here there purposes, ful for some do reflect the not concentra trend toward absence competitive competition, actual e., i. the Although industry is somewhat tion. the overlap, parties the between the within concentrated, the other characteristics stipulated Undisputed facts large including market, the existence respect competition with actual be- strong thriving competi number of tors, and reveal, on tween and Amerock merger the instant demonstrate that competitive over- contrary, anti-competitive possible cannot have impact lap between far less than the is them 1% it. As evi attributed to for the accepted majority by the majority, by it is dence relied on undisputed merger governed by accepted thus is Stanley task force principle that “foreclosure of a de by report neither seen referred to minimis will not the market management. approved by nor ‘substantially competi- tend lessen entry ” contrary, possibility of theOn tion,’ Brown Co. v. Shoe or internal ex either 1502, 1526, thoroughly rejected. pansion On L.Ed.2d de minimis therefore, record, find sub I fail merger impact Stanley-Amerock is adequately stantial evidence (1) mainly to due three factors: merger posed view that sustain the differing types of business conducted anti-competitive consequences actual participants, which for each the two competition. might tend lessen which (2) part compete, do most not contrary, undisputed evidence On differing channels of distribution used respect realities each, likewise sub- which do' including an over the relevant lap stantially (3) compete, the fact that merging than less any competitive carry ad- size does not parties, compels me to conclude vantages industry, where small potential com neither the actual nor petitive companies increased thrive and have merger are unlaw effects of the number. upheld. therefore be ful it should appreciate To the diminutive effect per- and market Product markets review, facts certain stipulated, centages, are or not whether industry, in addition those about the significance determining proba- majority, should described ble effect in two known. Cabinet hardware comes they where reflect actual be- Residential, kinds, (1) is which used parties. to determine tween the But (2) apartments, and both houses com- forecloses actual whether a (Institutional) Architectural petition, competi- actual one looks to the or institutional used commercial overlap (the competitive be- tive facts Residential hardware structures. given parties) within the tween the product requires highly stylized. production Its halt over- rather die-easting machinery, is used to percentages all and look Archi- ornamentation. fashion intricate process not, This does further. hardware, other tectural cabinet change parties’ majority suggests, design. hand, primarily functional durability are stipulation or sturdiness the overall Since stamped generally is dis- out Residential cabinet hardware paramount, through Wholesalers, Line tributed Full of metal. Accounts, Specialty Wholesalers hardware is Residential The latter two Residential OEM’s. significant part vastly more of all used to distribute residential accounting % industry, hard- cabinet hardware. Architectural approximately of the $76- 90-95% hand, ware, on the is distributed other $72 market —or about million total $80 through Specialty Wholesalers, Archi- market con- million. architectural and Contract Hardware tectural OEM’s ap- 5-10%, remaining stitutes the is aimed at Distributors. Each channel proximately million. $8 particular buyers. of ultimate kinds of cabinet Distribution competition. little There is inter-channel through six channels: moves Thus, the method of distribution Wholesalers, (1) which Full Line important represents crucial and predominately carry cabinet residential gauge by competitive which measure to retail hardware hardware for sale impact. and, department to a lesser stores largest in- Ameroek firm in ; and contractors extent to localbuilders dustry approximately with 23% (2) Wholesalers, Specialty which immediately year market preceding or specialize either architectural merger. sales Its sell hardware and residential cabinet approxi- $18,218,474, totalled with all but stores, lumberyards, hardware retail mately $200,000 derived the resi- from companies shops, cabinet and to small Stanley’s contrast, dential market. In cabinets, sell finished which build and in- sales the cabinet hardware including hardware; attached only dustry $814,000 totalled 1% Sears, (e. (3) g., Accounts National More market. hardware the cabinet Penney), Montgomery Ward, J. C. only crucial, however, fact that purchase cabinet which residential $200,000 figure, of this derived directly manufac- from the hardware market; the re- from the residential through their turer and distribute maining $614,000 archi- stemmed from outlets; own retail cabinet hardware sales. tectural (4) Original Equipment Manu- figures not accurate do these low Even Residential Cabinets facturers competitive ly Stanley’s minimal reflect (Residential OEM’s), sell finish- die-casting impact. owned ed kitchen and bathroom cabinets. machinery- qua non full scale sine for —a larger companies These and more activity residential likely to than residential be automated attempts expand its Several shops; they cabinet avoid whole- market reputation fail share of ed, giving residential directly by purchasing saler from the poor it a manufacturer; hardware residential distributors (5) Original Equipment Manu- (i. Wholesalers, e., National Full Line Architectural Cabinets Wholesalers, Accounts, Specialty facturers of analogue (Architectural OEM’s) the fact, Stanley’s OEM’s). In Residential to Residential OEM’s in archi- hardware sales They purchase tectural market. Thus, decline. within were on directly hardware manu- the cabinet boundaries facturer and in turn finished sell limits the outer which mark primarily stitutional cabinets competition” under of effective the “area review, structures; tractors for States, institutional v. United Brown Co. Shoe 8 L.Ed. (6) 370 U.S. Distribu- Contract Hardware (1962) (quoting from United tors, range 2d 510 which sell whole & De I. Pont Nemours Du States v. E. architectural institutional hardware to Co., 77 353 U.S. builders, generally on a basis. bid (1957), Thus, L.Ed.2d definitely Accounts. while there $20,000 significant competitive overlap, not. a Stan- ley force. afforded no to Amerock’s major channels of distribution. joinder To determine whether vastly important for the As less area market shares held sales, comprise only institutional anticompetitive posed an threat aggregate beyond percentage one must look wooden 5% percentage market, Stanley’s figures economic realities in live higher.4 coneededly 5However, including itself, indicia as such larger misleading. share is Exami- interchangeability of use or “reasonable nation of within relevant cross-elasticity demand between o.f channels distribution reveals itself and substitutes while sales of Amerock’s institutional product’s peculiar charac- $200,000 hardware totalled uses, unique production teristics and through $614,000 non- each sold facilities, customers, distinct distinct competing channels of distribution changes, prices, sensitivity price except $84,000.® overlap for an specialized vendors.” Shoe Co. Brown 294, 325, 82 v. United competi summary, actual total 1502, 1523, 8 L.Ed.2d 510 tion between and Amerock only overlap $284,000 amounted to an o.f criteria, Applying practical these $84,- ($200,000 sales of residential percentage of record clear that sales), approxi of or institutional overlap competitive between actual mately if we of the market. Even merger prior .35% to and Amerock disregard (discus other relevant factors Stanley’s of far less against below) sed which militate hardware market. Stan- overall cabinet ley’s being competition diminish likelihood of ed, hard- of residential sales percentage of the market affected residential $200,000 out of total ware, See, simply by the too small. approximately of sales cabinet hardware $70,000,000, g., Tampa Electric Nashville Co. e. of to amounted about 1%% Co., 320, 329-334, 81 Coal 365 U.S. de which is of the residential (under (1961) 623, 5 L.Ed.2d 580 Moreover, S.Ct. by any standard. minimis analogous language Clayton of 3§ when one into consideration takes Refining Smelting Act); American two channels parties distribution used United, F.Supp. Inc., Co. Pennzoil merger, required (D.Del.1969) (1% increase Brown to consider Shoe’s mandate signifi industry concentrated reduced “specialized “distinct customers” industry); of the nature cance because vendors,” be- the level Ban First National United States v. corporation, Inc., Of them Stan- tween further decreases. F.Supp. ley’s $200,000 derived residential juris. noted, (D.Colo.1971), $8,041 sales, dis- cabinet hardware (1972) L.Ed.2d 679 Account, single tributed via insubstantial). (even with remainder 1.2% directed to hardware through outlets, mostly traditionally Full and lumber considered Other indicia contrast, determining legality Wholesalers. Line of a %’s through Amerock’s sales allegedly residential violative Specialty Wholesalers, impact OEM’s and with too here was Act confirm that the going significance. Full Line Wholesalers antitrust minuscule be of % Stanley’s $600,000 $44,000 (compared only sales constituted with OEM’s 7%% $160,000) all institutional hardware sales Amerock’s sales; $200,00 equalled Amerock’s about institutional sales of Amerock’s only 2%%. Distributors Contract Hardware Stanley’s (compared $40,000 sales $84,000 overlap 5. The is based on the fact through $570,000). sales Architectural example, price For uniformity. the instant com- or any Nor is there pletely showing merger might lacks a factor found to be tend to trolling significance leading profits in most maximize the members cases,6 e., industry-wide oligopoly. horizontal i. the so-called trend toward concentration either before healthy competitive climate in the merger. It after the is uncontested industry may part also be attributed in re- that Amerock’s of the market to other factors. other Unlike markets through mained constant the 1965-1968 (e. Clorox, g., beer, containers, banking) period. Moreover, there is no evidence advertising plays a minor role in mergers manu- other Hence, sale of cabinet hardware. large advertising budget industry any time facturers prior might Amerock-Stanley to or since the provided by financially powerful merger. superfluous. entrant This unusual part highly characteristic is due in Competition in the cabinet hardware specialized, style-oriented nature vigorous, has in no due been cabinet hardware and the fact small measure to is a fact before it reaches the consumer it has been business which numerous small com- panies, incorporated into a cabinet which is effectively can cater usually sold to the consumer without frequently changing stylistic demands of identity reference to the brand specialized market, thrive. Thus size forming part of it. From the offers no effective advan- standpoint of the hardware manu- tages. regardless structure, The market facturer, significant buyers whether it oligopoly, “loose” as a characterized types different of distributors described “Congress’ satisfies desire relatively above, which are in num- few promote through protec- ber. In the dominant residential hard- small, locally viable, tion of owned busi- market, style ware where a com- vital Shoe, supra, nesses”, Brown at 370 U.S. petitive factor, manufacturer, the small 344, 82 S.Ct. at In the four 1534. offering designs aesthetically pleasing (4) largest comprised approxi- firms geographi- distributors within a limited mately market, nine and the 50% area, successfully compete cal can with- However, (9) largest totalled 65%. expenditure out an enormous on consumer operating within limited firms, smaller advertising required that would be to sell geographical areas, of- have continued to homogeneous product purchased direct- vigorous enjoying competition, fer often ly consuming by public, such as a lion’s of within their share the business Clorox. respective during fact, In locales. period 1963-1968, competitive significance of firms number Of further actually among the market many increased to a total the fact that successful prices of 97.7 At the same time and smaller manufacturers in the cabinet profits price remain market, possessed low. Such modest hardware several increases as have expand they occurred have been resources to if in size con- largely inflation, attributable economically and have sidered such a advantageous. move pace been at a slower lower At rate least four were sub- prices building large products. of other sidiaries or of divisions diversified There price is no leadership companies evidence of capital.8 with substantial In g., Philadelphia upon figures published E. United States v. Na 7. Based in the trade Bank, supra; tional magazine United States v. Kitchen Week. Grocery Co., Von’s (1966) ; Lock, Tassell, 16 L.Ed.2d 555 8. National Faultless United America, Bossick-Sack, example, respective- States v. Aluminum Co. of supra; ly States, Keystone Brown Shoe Co. v. United subsidiaries of Consolidated supra; Industries, Industries, United States v. Continental Can & Gulf Western Co., supra; Laughlin Industries, United States v. Pabst Brew Bliss & and Stewart- ing Co., supra. Corporation. In Warner addition Yale & competitive overlap $284,000 con- manu- addition, leaders several lessening hardware, competi- stitutes substantial of decorative furniture facture of of capable of tion violation die-casting facilities with being overkill, Act amounts unwarranted an residential used to make target Congress hardly type virtually identical with hardware field, tended to already had by reach. those made residential hardware entered the comparison other relevant circum- A edge. at its and others stood inapplicability stances confirms present by the “horizontal” deci- milieu, case of marked In such commercial by majority, in each competition, relied energetic sions robust by tainted anti- of which market was competitive surprising find that not In not found here. entry forces into attempts prior full-scale at Shoe, Brown which involved Co., where the residential largest sold, Brown the third seller Shoe cabinet hardware over all of shoes the United sales proved Indeed a failure. largest eighth by Kinney, company industry generally steady volume, dollar there had been a on the decline. long-continued trend toward majority in decisions cited markets, centration the relevant hori- of its conclusion characterized vertical merger might impact sub- zontal stantially outlets, manufacturers retail are all clear- lessen greater then sold a parent’s the new legally significant distinguishable in ly formerly, shoes than that “sub- respects. extent To the mergers integrated horizontal of these lessening competition is stantial” behemoths. Hand in hand there went gross dollar in terms of measurable equally relentless decrease the number Stanley’s $814,000 annual sales volume shoe-manufacturing plants. “Brown hardware, a com- which involved only Shoe found have been a $284,000, overlap like petitive stands participant, moving factor, but also a tiny pigmy sharp contrast these trends.” 370 U.S. at huge overlaps $750,000,000 in six cities the com- Bank, Philadelphia States share of bined children’s shoe sales 321, 331, 1715, L.Ed.2d 83 S.Ct. 10 U.S. merged companies, Brown Shoe Co. (1963); $79,000,000 in United 915 city Kinney, 40%, exceeded and in one Co., 378 U.S. States v. Continental Can their combined of women’s shoe 450, 1738, 441, 84 12 L.Ed.2d 953 S.Ct. 57%, sales exceeded at 370 U.S. 343. $84,000,000 (1964); v. in United States supra, Philadelphia Co., 270, 297, Bank, Grocery 86 National Von’s 384 U.S. merger, 1478, (1966); which was between S.Ct. 555 largest competitors in $2,200,000in Aluminum second third United States v. America, 271, market have resulted area, would Co. 1283, U.S. 84 S.Ct. 377 controlling many (1964); a 12 bank 34-36 of L.Ed.2d 314 one % largest banks millions of in which four dollars Brown Co. Shoe there 294, control also 370 U.S. 82 S.Ct. Here 77-78%. 1502, (1962); toward concentra- been a market trend tion, 8 L.Ed.2d 510 competitors Brewing Co., with the number of 384 United States Pabst merger participants 546, 1665, plummeting and the 86 16 U.S. L.Ed.2d 765 S.Ct. major repeatedly playing in that role (1966), precise a dollar volumes where reported. Taking observed that The Court are not into account trend. declined banks had number of commercial present market in the the relevant 1962, with holding to 42 108 1947 is the case entire United States a directly or either Towne, Corp., Corp., cabinet hardware lines Embart Eaton through large companies produce subsidiaries. their all own 516 having Lastly, majority’s heavy

Philadelphia reliance Bank upon formerly independent Co. of United States v. Aluminum acquired nine America, Girard, party the other U.S. banks and (1964), L.Ed.2d to a merger, amounts six. substantially acceptance of wooden-like supra, top Co., In Continental Can percentage figures similar market with- firms, Can was two of which Continental making analysis out one, nearly of the $3 controlled signifi- structure the true determine metal-glass (combined billion market Although figures. cance top containers) con- firms six acquisition by Alcoa, with 27.8% history had a trolled Continental 70.1%. Rome, aluminum conductor growth acquisitions, horizontal 1.3%, appears at to be first flush having acquired firms no less superficially as here similar container markets various interrelated glance review, under at the market at since 84 S.Ct. 378 U.S. 1913. vastly there reveals how it is different Lastly, company acquired case, present from that Unlike the here. challenged merger, Hazel- under including top competitors, Alcoa, two Atlas, largest ranked sixth with 3.1% industry leader, controlled 50% vigorous- competed of the market and had the market and nine controlled firms against ly Can, Continental 95.5%, tiny foreclosing fraction all but merger. which would be eliminated competitors. important, from other More Grocery, supra, involved Von’s rapid there had been trend toward con- ranking third firms and sixth absorption centration. “The Rome example more is another of one acquisitions Alcoa was one five industry in an marked producers primary aluminum since increasing precipitous toward trend moves, . . and the . These ownership, centration thought they pose, threat were larger played firms an active role specifically identified factors continuing acquisition process. these Of fluencing acquire Alcoa’s 1959 decision to participants present firms the were two Rome. . . of this As result series having aggressive, the most each mergers, only now remain there four during years doubled in size im- the ten nonintegrated fabricators aluminum mediately preceding conductor whose shares of individual attack. production total by the Another decision referred amounted to more than 1 %.” majority, Pabst Brew- United States v. n. at 1288. Rome Since Co., aggressive competitor, had been an it fairly (1966), also cannot L.Ed.2d 765 surprising willing- judicial to find a governing present relied predatory ness curtail conduct of merger It involved the of two case. giant industry’s leader, by the almost huge against brewers, competed which any standard, attempting in to it. absorb states, each other in 40 in “an gone beyond No case has In Alcoa. view by steady marked trend toward disparity in market concentration economic concentration”. at insubstantiality and the of the com- Furthermore, 86 S.Ct. at 1668. petitive Stanley overlap steady there had been a increase the Amerock, which amounts to than less industry leaders, of size the with a cor- stipulated market, of of exten- the % 1% responding decrease in the overall num- sion of Alcoa to the instant un- facts is competitors. ber total The number warranted. competitors selling beer had declined Thus, assuming even that more five-year from period 206 to the stringent may applied rules to hori- again strong 1962. Once greater mergers, anti-competitive zontal because of the trend had to be curtailed having incipiency. probability in its of their an anti-corn- objection petitive effect, to vertical or than that it had not been allowed conglomerate mergers, case, opportunity complete un- the relevant dis- majority, covery by upon like the those relied that would material clearly undisputed “evidence cross-examination we have Neverthe- them. showing likely testimony that the is not less their was taken and Stan- anticompetitive ley right effects.” have such later refused to recall the Philadelphia purpose United States the witnesses for cross- supra, examining Bank, at at them with evidence that had through intervening been adduced dis- covery. The Examiner’s relied Competition Potential heavily upon testimony of two length. witnesses, quoted at Having he the Commis- concluded procedure When the unfairness of this sion’s not be on decision should affirmed upon appeal was raised ground e., the Commis- by majority, adopted i. sion, testimony to treat decided aspects the horizontal Commission’s witnesses as stricken substantially tend to lessen com- permit cross-examination, rather question petition, there remains the solely upon with the result that it relied whether sus- should nevertheless be documentary Undisputed evidence. facts ground by tained advanced of record demonstrate that this reliance merger might e., Commission, i. documentary im- evidence substantially lessen proper, especially the incon- in view of eliminating sig- potential as a clusiveness of its contents. competitor in manufacture nificant and sale of residential hard- linch-pin of the Commission’s Stanley might ware in ex- opinion its conclusion panded internally either “toe- merger reasonably probable that it was manu- hold” smaller resi- would have entered the facturer, and that the therefore hardware market dential increasing had the effect barriers expansion. internal This destroying Stanley’s entry, and of disci- re- entirely upon a series of bottomed plining edge effect ports prepared and studies subordinate Although marketing majority personnel opinion purports staff possi- organization, potential competition considered reach the substantially expansion denigrate bility issue, it of internal does not hesitate to Stanley’s acquisition Ameroek. position prior re- several organiza- large spects.9 As often the case I It views these concur. ' agencies including governmental grounds appears tions, further none Federal Trade Commission such as the advanced Commission in Justice, Department potential subordi- competition theory sup- Indeed, deci- ported by not invested with nates who are substantial evidence. sion-making responsibility will some- reviewing confront- the record we are that do extraordinary infirmity, make colorful statements times ed with a rather management. bordering process. not reflect the views of a denial of due house” “charnel famous Ever Commission’s case before the Hear- since v. Hartford- heavily upon letters used United States Examiner rested Co., (N.D.Ohio F.Supp. Empire testimony of officials of two of modified, 386, 65 S.Ct. competitors, by 1942), U.S. supported documents (1945), Stanley 89 L.Ed. 322 from the files of and Ameroek. Portland in Aetna Stanley’s “Treanor” letter The two testified over witnesses discipline entrant, (supra) it served and 23 of the footnotes 8 See rejects raised bar- majority opinion. and that Footnote 8 similarly entry. dis- proved Footnote 23 riers Commission’s contention theory. parages potential likely toe-hold the Commission’s the most FTC, F.2d

Cement Institute v. the Hardware Division should concen- (7th 1946), reversed, improving existing Cir. trate on 577 683, its architec- (1948), specifically, 92 L.Ed. al- tural hardware line. More though gems report,” such darlings have been seized as “task force so-called government investigator. 10,1964, upon dated the Com- June which relies, group by Even in the contents have mission of rela- cases where made tively personnel in been unauthorized and indeed are direct- low-level staff decisions, management they suggested ly contrary Division, Hardware they approved. acquisition paraded had been of two cabinet hardware as if manufacturers, Ajax Jaybee, or That is the case be here. urged sidered, explicitly that internal prepared Out of scores of studies expansion rejected unprofitable. low-level members staff Stan- Thereupon Managers Department ley’s Division, some whom Hardware Division, still a Hardware albeit decision-making au- did not even have decision-making level, stratum below the thority that division and none within rejected entry by (acquisi- either route power whom had the to determine taking expansion), tion or internal expand its whether or not should position expansion that internal production residential cabinet hardware justi- field residential acquire competitor, or the Commission weighing the size of the invest- fied after juicy has culled a few comments such against required ment that would be suggestions acquisition of an- profit could an- losses limited knock out a other manufacturer “Would ticipated. competitor” or it “To enable obtain July dominant in the hardware market.” first time when role was the management The Commission has committed error became involved repeatedly mischaracterizing question the review of the company whether the these “management documents,” expand studies as its hard- should “management reports,” division, acquire competitor, or and “decisions ware ignor- by Stanley’s management,” that date take some other course. made On Managers ing undisputed Department the docu- Hard- fact that Davis, large, ware were, ments neither seen management Division advised D. W. President, approved by Stanley’s nor of their con- Executive Vice management clusions and that the Hard- and that made un- recommended contrary, equivocal limit to concentrat- to the ware Division itself decisions development improved pre- post-dated line of which the studies and hardware, dated for die- of Ameroek. architectural casting equipment not be needed. would weight given Even some if manage- independent In the meantime studies upon by relied subordinates Douglas consultants, Stewart, ment & Commission,a careful review identify Associates, new were retained distinguished (as reports of all such product Hardware areas which the Commission) quoted the few from the might expand. Division On December beyond question reveals that their overall report 1964, it rendered “think-tank” reject expansion thrust was internal which reinforced the conclusions of into and to con- the residential market recommending Hardware Division Stanley’s exising product line, centrate on against expansion. mainly archi- was devoted foregoing reports Furthermore, Armed with tectural when hardware. meeting finally corpo- held a recommendations Davis action was taken those determining 8, 1965, January responsible various with the rate officers Managers Division, at company’s policies, of the Hardware basic the decision policy reject which the final basic was to of subordinates views expanding expansion instead of resi- reached that who advocated into the Stanley adopt field that dential field and to the view

5J0 existing improving newly proposed on decided in concentrate favor the merger. maximizing lines and sales profits that from those lines. Toward light Stanley’s Viewed Janu- objective responsibility hard- for cabinet ary 8, decision, 1965 it is clear that there Manager re- ware transferred to the support no substantial evidence to sponsible (architectural) for Contract Commission’s conclusion that for Products. merger Stanley proba- “reasonably was a ble” into entrant hard- the residential Despite overwhelming proof to con- ware market. The Commission’s evi- trary Commission, pro- apparently persuasive dence is far less that than ceeding assumption that on erroneous Penn-Olin, supra,, where the district Stanley was on rather burden despite court concluded on remand that counsel, on see United Commission States recommending reports entry Olin’s staff F.Supp. Co., Chemical Penn-Olin 246 government “The failed to sustain has 917, (D.Del.1965), equally aff’d an establishing by pre- its burden 502, court, 308, divided ponderance of that . the evidence (1967), concluded, 19 L.Ed.2d 545 not- there would have been a reasonable withstanding Stanley’s unequivocal re- probability that have would Olin jection expansion, or that plant structed a in the South- chlorate “[tjhere persuasive is no indication east.” Penn-Olin United States v. respondent irrevocably the record that 917, Co., F.Supp. Chemical abandoned either of alternatives these (D.Del.1965), equally an aff’d [acquisition competitor of a or internal court, 389 divided expansion into resident hardware] (1967). L.Ed.2d January 126). (Appendix of 1965.” finding, by any unsupported that This crucial Commission next asserts evidence, potential com- substantial administra- elimination of reflects which, petitor may substantially generally desirable, zeal have reduced tive while by removing disciplin- present was misdirected in it as a case. edge belated effort it with record force on the market. To proof, point a minimum re- to some such effect counsel exercise generalities merging euphemistic quirement firm at rather in the “the Range Plan, edge recog- Long must of the market Hardware Division’s accompany- nized those the market as most dated June very ing working likely papers, entrant few effect one ” Turner, during part likely five entrants. . . latter the next years increasing Conglomerate Mergers “give 7 of and Section Division Clayton Act, Harv.L.Rev. attention to the residential market.” personnel, A careful search These statements lesser cry firms no however, a far reversal or record discloses evidence recognized in the residential market taken modification the final decision likely management Stanley’s January as a entrant.10 On on against background contrary, that Stan- the record indicates It was edge October, ley’s position the resi- executives approached had effect no Executive dential is in regarding This possibility Vice President those competi- merger. potential contrast of a new dramatic Faced with “a whole game" has been in which doctrine ball re- tion cases time the first finally g., applied. El See, States considered e. its earlier decision and petitive Compare majority effect those footnote 8 competitors representing substantially opinion, and witnesses which reaches testified hardware market the cabinet same conclusion. Examiner made Stanley, potential an influence. such it did as a com- petitor edge, at the market’s com- Co., 651, 659, Corp. FTC, (3d Natural Foods Paso Gas 386 F.2d 936 (1960); 1967), 1044, 919, denied, 12 L.Ed.2d 12 84 S.Ct. Cir. cert. 391 U.S. Co., 1805, 386 U.S. & Gamble FTC v. Procter S.Ct. 20 L.Ed.2d 657 Furthermore, 18 L.Ed.2d 303 fails to Commission Thus, point indicating (1967).11 peg upon any another which that the evidence merger relies must fall. instant Commission would increase advertising. for, of, entrant’s need or cost that the conclusion What unlike Procter & is crucial that entry merger instant raised barriers Foods, Gamble and General which dealt by supported substantial not likewise with consumer items where massive three found evidence. The Commission advertising was the crucial (1) entry: barriers to cost factor, advertising the role of and sales die-casting equip- initial investment promotion significance here is minor design required ment and be which would pose and hence does not a barrier (2) (approximately $600,000); need entry. product up-to-date for a full line (3) promo- styles; the cost of sales concept merger may operate that a advertising journals. in trade tion and entry to raise barriers is based reject- Commission theAt same time the assumption price that levels and Hearing ed the Examiner’s reliance as margins profit industry would, in the but difficulty securing chan- factor merger, high sufficiently for the nels of distribution. entry overcome the cost and thus attract is not new entrants. Here is no direct circumstantial There low, profits case. Prices were $600,000 evidence the record best, modest at there is evidence $400,000 start-up costs, of which initial entry, that ease of before existed might machinery, acquire needed merger, any way inwas affected Stanley- would be increased it. merger. any Nor is there sub- evidentiary support con- support stantial for the its conclusion that the clusion that Stanley’s potential the need for dif- eliminated might ferentiation ley competition, be increased. Stan- advanced style company; not a theory, namely, oriented for the first a new time grounded history production might non-ornamental and tools. have entered the residential Finally, is no substantial evidence acquisition, there so-called “toe-hold” might acquired conclusion that the here means that it promo- smaller, would increase the need for sales control over one non- advertising. tion and The Commission dominant firms in the cabinet hardware “advertising merging conceded Amerock. instead may sumer theory suggested level be small” but relied This in the neither hearings the cost complaint in trade advertisements nor advanced publications vicinity any the Examiner. Nor was men- before —somewhere $50,000-$100,000. figures Hearing These tion of it made Examiner. cry year suggested, $80,000,000 a far per from the Indeed it was not either found to any body, be a decisive element in the the Commission or other until year landmark & a case FTC v. Procter after record in the case had Co., Gamble 386 U.S. been closed and three after the months (1967); parties L.Ed.2d 303 see also General had submitted their briefs to be, majority opinion It well as the we conclude that under there standard suggests, Gamble, that FTC v. Procter & no substantial evidence to indicate disciplining effect, exercised a (1967), requires Similarly, the ac issue is not reached. we need quiring likely significance poten- firm was “the en most other discuss the trant.” Id. at 87 S.Ct. 1224. Since tial entrants on the market. time, first economic lifeblood of nation. Then for But the Commission. Congress mergers. by has not all the idea the Commission outlawed was advanced it, (FTC despite Corp. No. Nor has recommendations FTC of in Bendix v. Dkt. distinguished Reg. 19,288 (June experts field, 8739), Rep. some the 3 Trade ¶ arbitrary by prescribed 1970), il- reversed standards for which was ground 'ogality every prohibit mer- Sixth on the that “Bendix Circuit charged ger definition, falling precise had no that it was within a notice theory . percen- . . toe-hold . . even those which the market opportunity tage may present parties no evidence mini- to one of the debe against Congress theory.” contrary, defense Bendix mis. On the rec- has (6th ognized Corp. flexibility FTC, 450 F.2d v. that antitrust is essen- 1971). mergers tial, since not harm Cir. all threaten public, to even have effect some timely given never Since promoting competition, and the issues theory op- or an notice toe-hold understanding turn on an com- portunity and to introduce to be heard plexities given any respect it, I concur evidence Judge Kaufman’s Commission assumes burden view12 the Com- basing proving any merger precluded by attacked mission ground. probable it will have on that Bendix effect of sub- decision See lessening (6th stantially Corporation competition FTC, or 450 F.2d 534 tend- 1971); Press, monopoly. create Cir. cf. Rodale Inc. has This U.S.App.D.C. 317, present FTC, failed to 407 F.2d do After a case. Hearing denying To Examiner erred countenance such right procedure deny those would be to cross-examine by by upon process the Fifth witnesses relied him the basis that mandated due Commission, of his decision, Adminis- rather Amendment and 5 of the § cross-examination, remand trative Procedure Act.13 sought his to sustain newly any In event evidentiary Apparently different basis. theory espoused post-hearing “toe-hold” recognizing grounds weakness supported by is not substantial evidence. Commission, chosen the Court has record is clear that the June grounds. affirmed on still different subordinate 1964 recommendation undisputed view as to the evidence Ajax personnel Hardware Division extremely competitive over- limited actual rejected Jaybee acquired or later be vigorous lap, Managers Department month marketplace, the absence of trend Division, of that recommended who per- and the toward concentration small President, Davis, D. W. Executive Vice centage controlled This such be made. Stanley (whether labelled .35% ap- accepted recommendation was automatically 1%), effect management. proved by company’s merger illegal, hold thus sub- such per declaring it to se viola- stance Conclusion percentages tion involved. because Vigorous is not laws the Commission’s decision antitrust enforcement Since evidence, mergers substantially supported I bar substantial lessen the would reverse. essential agency Compare majority 12. to notice of footnote 23 of the entitled “Persons timely opinion. hearing informed shall be (3) matters of fact . . provides Section 5 the APA rele- law asserted.” U.S.C. part: vant

Case Details

Case Name: The Stanley Works v. Federal Trade Commission

Court Name: Court of Appeals for the Second Circuit

Date Published: Oct 17, 1972

Citation: 469 F.2d 498

Docket Number: 11, Docket 71-1742

Court Abbreviation: 2d Cir.