296 F.2d 800 (9th Cir. 1961), 15904, Crown Zellerbach Corp. v. F. T. C.

Docket Nº:15904.
Citation:296 F.2d 800
Party Name:CROWN ZELLERBACH CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
Case Date:June 05, 1961
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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296 F.2d 800 (9th Cir. 1961)

CROWN ZELLERBACH CORPORATION, Petitioner,

v.

FEDERAL TRADE COMMISSION, Respondent.

No. 15904.

United States Court of Appeals, Ninth Circuit.

June 5, 1961

Rehearing Denied Dec. 22, 1961.

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Arthur H. Dean, Howard T. Milman, Marvin Schwartz and Jerome Gotkin, New York City, and Philip S., Ehrich, San Francisco, Cal. (Sullivan & Cromwell, New York City, of counsel), for petitioner.

Earl W. Kintner, Gen. Counsel, James E. Corkey, Asst. Gen. Counsel, James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Washington, D.C. (Alan B. Hobbes, Asst. Atty., Counsel, and Frederick H. Mayer, Atty., Federal Trade Commission, Washington, D.C., on oral argument), and Gerald Harwood, Atty., Federal Trade Commission, Washington D.C., for respondent.

Before POPE, MAGRUDER and MERRILL, Circuit Judges.

POPE, Circuit Judge.

In June 1953, the petitioner Crown Zellerbach Corporation acquired the stock and assets of St. Helens Pulp and Paper Company. On February 15, 1954, the Federal Trade Commission filed a complaint against the petitioner charging that such acquisition of St. Helens by Crown Zellerbach was violation of § 7 of the Clayton Act, (15 U.S.C.A. § 18) as amended and approved December 29, 1950, 1 in that 'the effect of the aforesaid acquisition by respondent (Crown Zellerbach) of control of St. Helens may be substantially to lessen competition or to tend to create a monopoly in the lines of commerce, as 'commerce' is defined in the Clayton Act, in which respondent and St. Helens were engaged in the Western States and more particularly in the Pacific Coast States of the United States, and in each of them.'

After answer was filed admitting the acquisition but denying that such acquisition violated § 7 of the Act, hearings were held before an Examiner from January 10, 1955 to November 20, 1956. The Examiner found that the allegations of the complaint had been sustained. Upon appeal the Commission made findings of its own modifying certain of the findings of the Examiner, but adopting the Examiner's conclusions that the acquisition 'had the effect of substantially lessening competition and tending to create a monopoly in the relevant line of commerce in violation of Section 7 of the Clayton Act, as amended.' A final order of divestment was issued December 26, 1957, and this petition for review followed.

Both Crown Zellerbach Corporation, here called Crown, and St. Helens Pulp and Paper Company, here called St. Helens, were corporations engaged in the manufacture of pulp and paper and the sale of paper and paper products through much of the West. 2 At the time of the acquisition of St. Helens, Crown was the

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largest pulp and paper company in that area and one of the largest in the nation. It carried on a fully integrated operation from timber lands and logging operations through the production and distribution of paper and paper products. It had timber holdings consisting of approximately 500,000 acres owned in fee in Washington and Oregon and cutting rights on approximately 20,000 acres, managing its timber lands on a sustained yield basis. Zellerbach Paper Company, a wholly owned subsidiary, was a large seller of paper products, the larger portion of which were bought from Crown. 3

In 1953 Crown produced pulp and paper at its mills in Oregon and Washington. These were located at Camas, Washington; West Lynn, Oregon; Port Angeles, Washington; Lebanon, Oregon; and Port Townsend, Washington. During the time this case was under consideration before the Commission, it was preparing for production at another mill at Antioch, California. It owned 99 percent of Crown Zellerbach Canada, Limited, a fully integrated pulp and paper mill in Canada, and also had large timber holdings in Canada. It had facilities for converting portions of its paper production into paper products at some of the mills above listed, and also at some of the Texas; North Portland, Oregon; and San Leandro and Los Angeles, California. While the case was pending before the Commission it acquired through another merger mills at Bogalusa, Louisiana; Baltimore, Ohio, and Dresden, Ohio.

St. Helens was also a fully integrated pulp and paper mill having a capacity of 180 tons of paper a day. It had 117,000 acres of high quality timber land and important cutting rights. It mill was located at St. Helens, Oregon.

In making its inquiry as to whether the merger here accomplished fell within the prohibition of § 7, the Commission was confronted initially with the task of determining what was the relevant market, both as respects products and as concerns geographical area. This was a necessary step precedent to determining whether within that market there was a probability that the effect of the acquisition of St. Helens by Crown would be substantially to lessen competition or to tend to create a monopoly. The Commission held that 'the coarse paper line relating generally to coarse wrapping papers, bag and sack papers and convertible papers is a sufficiently distinct product line to be a 'line of commerce' within the meaning of Section 7.' With respect to geographical market, it held that 'the Eleven western States, 4 as found by the hearing examiner, is an appropriate section.'

In order to review those determinations we must first inquire, after an examination of the record, as to the products with respect to which Crown and St. Helens competed, and the location and area of that competition. The question is just where these parties met in the paper and paper product market.

In general, grades of paper fall within three separate categories: namely, coarse, fine and newsprint. St. Helens was a coarse paper producer. Crown produced and sold a very complete line of paper and paper products, many of which were not produced or sold by St. Helens. Included in this line were newsprint, groundwood paper, machine-coated printing and converting paper, and fine paper. On the other hand, both Crown and St. Helens produced and sold, in competition with each other certain varieties of coarse papers including wrapping paper, shipping sack paper, bag paper, envelope paper, gumming paper, waxing paper, and other converting paper.

Generally speaking, in the trade and in the classifications of paper listed by the Bureau of Census, all coarse papers known to the trade are listed in various groups. What these are are disclosed in

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the petitioner's brief under Table VI which shows the production in the United States in the year 1953 of all trade coarse paper. That table is as follows:

"Table VI 1953 Trade Coarse Paper Production in the United States by Census Classifications and Principal Grades Thereof (Tons of 2,000 Pounds) United States TOTAL TRADE COARSE PAPER ............................... 17,749,333 Census coarse paper .................................... 3,392,000 Wrapping paper ..................................... 634,409 Shipping sack paper ................................ 749,443 Bag paper .......................................... 895,949 Envelope paper ..................................... 119,746 Gumming paper ...................................... 94,541 Waxing paper ....................................... 223,177 Other converting paper ............................. 516,413 Other .............................................. 158,322 Census special industrial paper ........................ 554,396 Tabulating card stock .............................. 118,653 File folder stock .................................. 25,718 Log stock .......................................... 104,507 Vulcanizing fibre stock ............................ 28,668 Resin impregnated stock ............................ 38,862 Other .............................................. 237,988 Census sanitary tissue stock ........................... 1,277,694 Toweling stock ..................................... 296,952 Toilet tissue stock (regular and facial tissue types) ........................................... 607,114 Napkin stock (regular and facial tissue types) ..... 149,283 Facial tissue stock (other than napkin and toilet stock e. g. handkerchiefs) ....................... 180,284 Other .............................................. 44,061 Census tissue paper, except sanitary and thin .......... 230,959 Wrapping tissue .................................... 51,877 Waxing tissue stock ................................ 103,647 Fruit and vegetable wraps .......................... 22,282 Other .............................................. 53,153 Census container board ................................. 6,616,889 Liners ............................................. 4,412,745 Corrugating material ............................... 1,906,116 Other .............................................. 298,028 Census bending board ................................... 3,566,683 Folding boxboard stock ............................. 2,429,143 Special food board ................................. 967,899 Other .............................................. 169,641 Census nonbending board ................................ 950,293 Setup boxboard, unpasted ........................... 763,341 Other .............................................. 186,952 Census special paperboard stock ........................ 1,085,204 Tube stock ......................................... 229,260 Liner for gypsum and plaster board ................. 459,572 Other .............................................. 396,372 Census cardboard ....................................... 75,215"

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It will be noted that the first listed categories of coarse paper are grouped under the heading...

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