Calnetics Corporation v. Volkswagen of America, Inc.

• Decision Date: 19 January 1973
• Docket Number: No. 70-2185-R.,70-2185-R.
• Citation: 353 F. Supp. 1219
• Court: U.S. District Court — Central District of California
• Parties: CALNETICS CORPORATION, Plaintiff, v. VOLKSWAGEN OF AMERICA, INC., et al., Defendants.

353 F. Supp. 1219

CALNETICS CORPORATION, Plaintiff, v. VOLKSWAGEN OF AMERICA, INC., et al., Defendants.

No. 70-2185-R.

United States District Court, C. D. California.

January 19, 1973.

Blecher & Collins, Maxwell M. Blecher, Harold R. Collins, Jr., Gary W. Hoecker, Los Angeles, Cal., Gottlieb & Schwartz, Bernard Weisberg, Melvin E. Pearl, Chicago, Ill., for plaintiff.

Harry B. Swerdlow, Allan Albala, Swerdlow, Glikbarg & Shimer, Beverly Hills, Cal., for Volkswagen of America.

Sandler & Rosen, Raymond C. Sandler, Nelson Rosen, Los Angeles, Cal., for Volkswagen Pacific.

SUPPLEMENTAL MEMORANDUM OPINION AND ORDER

REAL, District Judge.

The acquisition by Volkswagen of America, Inc. (hereinafter referred to as VWoA) of the air conditioning business of Delanair¹ on September 26, 1969 was found by the Court to be in violation of the antitrust laws of the United States, Sections 4, 7 and 16 of the Clayton Act 15 U.S.C. §§ 15, 18, 26. That decision filed June 30, 1972, Calnetics v. Volkswagen of America, Inc., D.C., 348 F.Supp. 606, left for consideration the scope of the equitable relief to be granted to restore the competitive marketplace in air conditioners for Volkswagen automobiles.

The parties have been given the opportunity to present evidence and to fully argue to the Court the appropriate relief to be granted to overcome the anti-competitive effects of the acquisition.

VWoA has continued to oppose divestiture upon the ground that it —in the guise of VPC—is building the best available air conditioner for Volkswagen automobiles.² As compelling as that approach may seem, if the market we were considering was the automobile sales of VWoA, it simply misses the mark completely in the consideration that relief from an antitrust violation must be effective in the restoration of the competition affected by the merger or acquisition. United States v. du Pont & Co., 366 U.S. 316, 81 S.Ct. 1243, 6 L. Ed.2d 318 (1961); Ford Motor Company v. United States, 405 U.S. 562, 92 S. Ct. 1142, 31 L.Ed.2d 492 (1972). That competition is air conditioners for Volkswagen automobiles. Calnetics v. Volkswagen of America, Inc., supra, 348 F. Supp. at 617-618. Competition in air conditioners must be restored, maintaining the divested company as a viable competitor in the marketplace without the aid of the protective practices of a parent who is its sole customer.

To attempt to restore competition as it existed prior to the acquisition it is ordered that no later than six (6) months after the judgment herein shall become final,³ VWoA shall divest itself of all interest in the assets and facilities of VPC for the production and distribution of air conditioners, parts and components thereof. Divestiture shall be accomplished in such manner that VPC and its production facilities shall remain as a going, viable and operating entity producing and distributing automobile air conditioners for Volkswagen automobiles. The divested assets shall include, but not be limited to, all the air conditioners, parts and components production and assembly facilities which were acquired by VWoA from Delanair Engineering Co., Inc. on September 26, 1969, together with all improvements, betterments, replacements and additions made thereto since such acquisition to the date of divestiture.

To guarantee the viability of the divested company, VWoA is required to use its best efforts to maintain the assets of VPC subject to divestiture as a going and viable concern engaging in the production and distribution of automobile air conditioners at the standards of operating efficiency and performance prevailing at June 30, 1972.

Competition, or at least the "competitive climate" the antitrust laws of the United States were enacted to protect, cannot survive in the near vacuum created by the acquisition which is the subject of this action. To provide what protection this Court can to the maintenance of a competitive market and to stabilize competition, VWoA and its wholly owned distributors, together with their respective successors and assigns, are, for a period of ten (10) years from the date of divestiture of the VPC assets, enjoined from manufacturing or assembling automobile air conditioners in the United States or any of its territories.

Plaintiff has proposed as part of the relief to be granted herein the further injunction of the importation into the United States of Volkswagen, Porsche or Audi automobiles having air conditioners installed thereon. VWoA has, nearly five months after plaintiff's proposal, raised for the first time the possibility that any restriction upon the importation of Volkswagen automobiles with air conditioners installed therein would be a violation of treaty obligations with the Federal Republic of Germany, particularly Article 16, Section 1 of the German/American Treaty of October 29, 1954, as well as Art. III, Para. 1 and Article I of the General Agreement on Tariffs and Trade (hereinafter referred to as GATT).⁴

Article XVI, Para. 1 of the German/American Treaty signed October 29, 1954 provides:

"1. Products of either Party shall be accorded, within the territories of the other Party, national treatment and most-favored-nation treatment in all matters affecting internal taxation, sale, distribution, storage and use."

Article I, Para. 1 of GATT provides:

"1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties."

Article III of GATT provides in its pertinent part:

"1. The products of the territory of any contracting party imported into the territory of any other contracting party shall be exempt from internal taxes and other internal charges of any kind in excess of those applied directly or indirectly to like products of national origin. . . .

2. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect to all laws, regulations and requirement affecting their internal sale, offering for sale, purchase, transportation, distribution, or use.

* * *"

The treaty obligations of the United States are given constitutional recognition in Article VI, Clause 2 of the United States Constitution. It provides:

"This Constitution, and the Laws of the United States which shall be made in pursuance thereof, and all Treaties made, or which shall be made, under the authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary not withstanding."

Treaties are thus given Supremacy over the Constitution or laws of any State, but the grant of Article VI is only in parity with the Constitution and Congressional enactments made in the exercise of the legislative power granted in Article I. As such the proscriptions of the Clayton Act, Section 7 15 U.S.C. § 18 are entitled to construction in pari materia to any limitations of the treaties now urged upon the Court by defendants.

No where in the treaties cited to the Court is there any suggestion that either foreign or domestic business entities may engage in practices which are violative of the antitrust laws of the United States. To accept the position of VWoA that in an effort to stabilize the competition in automobile air conditioners for Volkswagen products the Court is prohibited by the cited treaties does not accord with the clear language of these treaties. They deal almost exclusively with discriminatory practices concerning the domestic and foreign products of the signatory nations. The Clayton Act, Section 7 15 U.S.C. § 18 does not—in itself—or as applied by the Court here—discriminate against the products of Germany in favor of United States producers or manufacturers. This judgment is intended to deal with and is aimed at the maintenance of a free, open and competitive market in automobile air conditioners for Volkswagen automobiles. There can be no escape for defendant VWoA in the claim that it is insulated from its violation by any United States treaty with Germany.⁵

Evidence has been presented by VWoA concerning the installation of air conditioning in Volkswagen products at the factory. It is clear that the concern for factory installed air conditioning is of recent vintage prompted largely by this litigation. To permit VWoA to now circumvent the effects of its wrongful conduct by changing only "the name of the game" is neither permissible nor desirable. Consequently for a period of seven (7) years from the date of divestiture of the VPC assets, VWoA and its wholly owned distributors, together with their respective successors and assigns are enjoined from importing into the United States for sale Volkswagen automobiles having air conditioners installed thereon.

Important as it may be, viability of the divested company is only one aspect of a Clayton Act, Section 7 divestiture. The primary purpose of the antitrust laws of the United States is not the survival or demise of a single company but rather the restoration and maintenance of a free competitive environment in which all companies—that can meet the competitive challenge—may have the opportunity to survive. The tool of a judgment—at a single moment in history—is totally...