Reynolds Metals Company v. FTC

• Citation: 309 F.2d 223
• Decision Date: 27 September 1962
• Docket Number: No. 15646.,15646.
• Parties: REYNOLDS METALS COMPANY, a corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

309 F.2d 223 (1962)

REYNOLDS METALS COMPANY, a corporation, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 15646.

United States Court of Appeals District of Columbia Circuit.

Argued March 12, 1962.

Decided September 27, 1962.

Mr. Kahl K. Spriggs, Washington, D. C., with whom Messrs. Woodson P. Houghton, Washington, D. C., and Gustav B. Margraf, Richmond, Va., were on the brief, for petitioner. Mr. John F. Myers, Washington, D. C., also entered an appearance for petitioner.

Mr. Frederick H. Mayer, Atty., Federal Trade Commission, with whom Messrs. James McI. Henderson, General Counsel, and William F. Upshaw, Atty., Federal Trade Commission, were on the brief, for respondent. Mr. Alan B. Hobbes, Asst. Gen. Counsel at the time the record was filed, and Mr. Francis C. Mayer, Atty., Federal Trade Commission, also entered appearances for respondent.

Before WILBUR K. MILLER, Chief Judge, and DANAHER and BURGER, Circuit Judges.

BURGER, Circuit Judge.

Reynolds Metals Company (Reynolds) seeks to review and set aside a final order of the Federal Trade Commission in a proceeding instituted by the Commission in which Reynolds was charged with a violation of Section 7 of the Clayton Act, 38 Stat. 731 (1914), as amended, 64 Stat. 1125 (1950), 15 U.S.C.A. § 18. The Commission's precise determination was that Reynolds' 1956 acquisition of the stock and assets of Arrow Brands, Incorporated (Arrow), a company then engaged in converting aluminum foil and selling it nationally to wholesale florist supply houses, violated Sec. 7. The challenged acquisition, in the Commission's language, "may have the effect of substantially lessening competition or tending to create a monopoly in the production and sale of decorative aluminum foil to the florist trade." Divestiture of certain stock and assets of Arrow Brands and of a building built and owned by Reynolds for Arrow's use was also ordered. Reynolds' motion to reopen the case for additional evidence, for rehearing and to modify the divestiture order was denied by the Commission in March 1960.

It is urged on appeal that the Commission erred in its conclusion that the "production and sale of decorative aluminum foil to the florist trade" is the "relevant line of commerce" within the meaning of Sec. 7 of the Clayton Act; secondly, that the Commission erred in concluding that Reynolds' acquisition of Arrow violated Sec. 7; third, that the Commission's divestiture order should have been modified; and last, that the Commission should have reopened the cause for additional evidence.

Aluminum foil is the term employed to describe an alloyed form of sheet "wrapping" aluminum which has been passed repeatedly through thinning rollers functioning to reduce the sheets to thicknesses below .006 of an inch. At this gauge and thinner the foil is "dead" soft, 0 temper, oil free, yet approximately 99.5% pure aluminum, and may be used for many different purposes. The basic commodity is widely sold in grocery stores, supermarkets and variety stores and used for an almost infinite number of household purposes. The foil may be molded, crimped and formed easily, and may be colored, lacquered, embossed, printed or laminated. This case is concerned chiefly with foil decorated in certain of these ways for use by the nation's approximately 700 wholesale florist outlets and 25,000 retail florists.

Reynolds is the largest producer of aluminum foil in the world.¹ In 1957 its production capacity of 117 million pounds per year formed 40.5% of the total foil production capacity of all ten foil producers in the United States. The record indicates that the large foil producers such as Reynolds find it both impracticable and unprofitable to accept small orders from small buyers of foil to be used for specific and limited end purposes such as the decoration of flower pots or foodstuffs. Consequently, Reynolds and other major raw foil producers sell in quantity to intermediaries known in the trade as converters, who have come into existence precisely to meet the needs of these small foil markets, which individually do not require a sufficiently large amount of raw foil to purchase it in the minimum quantities sold by the manufacturers. These converters purchase large quantities of foil from the producers in so-called "jumbo" rolls, and after breaking these down and processing them with decorative or other features sought by the end users, sell in limited quantities to the several smaller markets.

Arrow, prior to and since its acquisition by Reynolds in 1956, has been engaged in converting "jumbo" rolls of raw foil into such limited quantities of a specialized kind which are then sold, in decorated form, almost exclusively to the florist trade. While roughly 200 foil converters are active in the United States, only eight (approximately)² including Arrow, served the florist industry when this proceeding began.³ In 1956, these eight firms sold not more than an estimated 1,500,000 pounds⁴ of florist foil altogether, of which Arrow accounted for approximately 33%. Several of the firms competing with Arrow in converting foil for the florist industry purchased their plain or raw foil from Reynolds prior to the acquisition. Raw foil costs to an unintegrated florist foil converter, such as Arrow was, account for 70% of the total cost of production.

The remainder of the 200 converters process aluminum foil for all its many other uses, including usage as tape, candy box liners, covers for take-out foodstuffs, condensers and many others. The uses are almost endless. The government concedes that theoretically all 200 converters could supply florist foil, but observes that in fact only the eight firms comprise the domestic florist foil converting industry. The record supports this view and we must assume for this discussion that the florist trade is supplied almost exclusively by the eight firms listed. We will return to the significance of this fact in relation to whether converting foil for the florist trade is a relevant line of commerce in any section of the country within the context of Sec. 7.

Section 7 in pertinent part reads:

"No corporation engaged in commerce shall acquire * * * the whole or any part of the stock * * and no corporation subject to * * the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, 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." 64 Stat. 1125 (1950), 15 U.S.C.A. § 18.

The problem of market definition in the present case centers only on the determination of the "line of commerce," since Reynolds does not disagree with the Commission's finding that the geographical area for measuring the competitive effects of this acquisition is the entire United States.

In United States v. E. I. DuPont De Nemours & Co., 353 U.S. 586, 593, 77 S.Ct. 872, 877, 1 L.Ed.2d 1057 (1957), the Supreme Court stated that the "determination of the relevant market is a necessary predicate to a finding of a violation of the Clayton Act because the threatened monopoly must be one which will substantially lessen competition `within the area of effective competition'", citing Standard Oil of California v. United States, 337 U.S. 293, 299, 69 S.Ct. 1051, 1055, 93 L.Ed. 1371. "The problem of defining a market turns on discovering patterns of trade which are followed in practice." United States v. United Shoe Machinery, 110 F.Supp. 295, 303 (D.Mass.1953), aff'd per curiam, 347 U.S. 521, 74 S. Ct. 699, 98 L.Ed. 910 (1954). Until recently the established test for finding "patterns of trade" lay with measuring (1) the interchangeability of products from other markets with those in the market which the government was seeking to define and limit, and (2) the cross-elasticity of demand between the product itself and substitutes for it. "Determination of the competitive market for commodities depends on how different from one another are the offered commodities in character or use, how far buyers will go to substitute one commodity for another." United States v. E. I. DuPont De Nemours & Co., 351 U.S. 377, 393, 76 S.Ct. 994, 1006, 100 L.Ed. 1264 (1956).

"The `market\' which one must study to determine when a producer has monopoly power will vary with the part of commerce under consideration. The tests are constant. That market is composed of products that have reasonable interchangeability for the purposes for which they are produced — price, use and qualities considered." Id. at 404, 76 S.Ct. at 1012.

However, in the very recent case, Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962), the concepts of interchangeability of use and cross-elasticity of demand underwent certain important qualifications and development. It is now clear that mere potential interchangeability or cross-elasticity may be insufficient to mark the legally pertinent limits of a "relevant line of commerce." The "outer limits" of a general market may be thus determined, but sharply distinct submarkets can exist within these outer limits which may henceforth be the focal point of administrative and judicial inquiry under Section 7.

"The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within the broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. * * * The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product\'s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors." Brown Shoe Co. v. United

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