United States v. Du Pont De Nemours and Company

Decision Date03 June 1957
Docket NumberNo. 3,3
PartiesUNITED STATES of America, Appellant, v. E. I. DU PONT DE NEMOURS AND COMPANY et al
CourtU.S. Supreme Court

Mr. John F. Davis, Washington, D.C., for the appellant.

Mr. Hugh B. Cox, Washington, D.C., for the appellee E. I. du Pont de Nemours and Co.

Mr. Robert L. Stern, Chicago, Ill., for the appellee General Motors Corporation.

Mr. Justice BRENNAN delivered the opinion of the Court.

This is a direct appeal under § 2 of the Expediting Act1 from a judgment of the District Court for the Northern District of Illinois,2 dismissing the Government's action brought in 1949 under § 15 of the Clayton Act.3 The complaint alleged a violation of § 7 of the Act4 resulting from the purchase by E. I. du Pont de Nemours and Company in 19171919 of a 23% stock interest in General Motors Corporation. This appeal is from the dismissal of the action as to du Pont, General Motors and the corporate holders of large amounts of du Pont stock, Christiana Securities Corporation and Delaware Realty & Investment Company.5

The primary issue is whether du Pont's commanding position as General Motors' supplier of automotive finishes and fabrics was achieved on competitive merit alone, or because its acquisition of the General Motors' stock, and the consequent close intercompany relationship, led to the insulation of most of the General Motors' market from free competition, with the resultant likelihood, at the time of suit, of the creation of a monopoly of a line of commerce.

The first paragraph of § 7, pertinent here, provides:

'That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of another corporation engaged also in commerce, where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce.'6

Section 7 is designed to arrest in its incipiency not only the substantial lessening of competition from the acquisition by one corporation of the whole or any part of the stock of a competing corporation, but also to arrest in their incipiency restraints or monopolies in a relevant market which, as a reasonable probability, appear at the time of suit likely to result from the acquisition by one corporation of all or any part of the stock of any other corporation. The section is violated whether or not actual restraints or monopolies, or the substantial lessening of competition, have occurred or are intended. Acquisitions solely for investment are excepted, but only if, and so long as, the stock is not used by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition.

We are met at the threshold with the argument that § 7, before its amendment in 1950, applied only to an acquisition of the stock of a competing corporation, and not to an acquisition by a supplier corporation of the stock of a customer corporation—in other words, that the statute applied only to horizontal and not to vertical acquisitions. This is the first case presenting the question in this Court. International Shoe Co. v. Federal Trade Comm., 280 U.S. 291, 50 S.Ct. 89, 74 L.Ed. 431, and Thatcher Mfg. Co. v. Federal Trade Comm., 272 U.S. 554, 47 S.Ct. 175, 71 L.Ed. 405, involved corporate acquisitions of stock of competitors.

During the 35 years before this action was brought, the Government did not invoke § 7 against vertical acquisitions. The Federal Trade Commission has said that the section did not apply to vertical acquisitions. See F.T.C., Report on Corporate Mergers and Acquisitions, 168 (1955), H.R.Doc.No. 169, 84th Cong., 1st Sess. Also, the House Committee considering the 1950 revision of § 7 stated that '* * * it has been thought by some that this legislation (the 1914 Act) applies only to the so-called horizontal mergers. * * *' H.R.Rep. No. 1191, 81st Cong., 1st Sess. 11. The House Report adds, however, that the 1950 amendment was purposed '* * * to make it clear that the bill applies to all types of mergers and acquisitions, vertical and conglomerate as well as horizontal * * *.' (Emphasis added.)

This Court has the duty to reconcile administrative interpretations with the broad antitrust policies laid down by Congress. Cf. Automatic Canteen Co. of America v. Federal Trade Comm., 346 U.S. 61, 74, 73 S.Ct. 1017, 1024, 97 L.Ed. 1454. The failure of the Commission to act is not a binding administrative interpretation that Congress did not intend vertical acquisitions to come within the purview of the Act. Accord, Baltimore & Ohio R. Co. v. Jackson, 353 U.S. 325, 331, 77 S.Ct. 842.

The first paragraph of § 7, written in the disjunctive, plainly is framed to reach not only the corporate acquisi- tion of stock of a competing corporation, where the effect may be substantially to lessen competition between them, but also the corporate acquisition of stock of any corporation, competitor or not, where the effect may be either (1) to restrain commerce in any section or community, or (2) tend to create a monopoly of any line of commerce. The amended complaint does not allege that the effect of du Pont's acquisition may be to restrain commerce in any section or community but alleges that the effect was '* * * to tend to create a monopoly in particular lines of commerce * * *.'

Section 7 contains a second paragraph dealing with a holding company's acquisition of stock in two or more corporations.7 Much of the legislative history of the section deals with the alleged holding company evil.8 This history does not aid in interpretation because our concern here is with the first paragraph of the section. There is, however, pertinent legislative history which does aid and support our construction.

Senator Chilton, one of the Senate Managers of the bill, explained that the House conferees insisted that to prohibit just the acquisitions where the effect was 'substantially' to lessen competition would not accomplish the designed aim of the statute, because 'a corporation might acquire the stock of another corporation and there would be no lessening of competition, but the tendency might be to create monopoly or to restrain trade or commerce.' 'Therefore,' said Senator Chilton, 'there was added * * * the following: 'Or to restrain such commerce in any section or community or tend to create a monopoly of any line of commerce."9 This construction of the section, as embracing three separate and distinct effects of a stock acquisition, has also been recognized by a number of federal courts.10

We hold that any acquisition by one corporation of all or any part of the stock of another corporation, competitor or not, is within the reach of the section whenever the reasonable likelihood appears that the acquisition will result in a restraint of commerce or in the creation of a monopoly of any line of commerce. Thus, although du Pont and General Motors are not competitors, a violation of the section has occurred if, as a result of the acquisition, there was at the time of suit a reasonable likelihood of a monopoly of any line of commerce. Judge Maris correctly stated in Transamerica Corp. v. Board of Governors, 3 Cir., 206 F.2d 163, 169:

'A monopoly involves the power to * * * exclude competition when the monopolist desires to do so. Obviously, under Section 7 it was not necessary * * * to find that * * * (the defendant) has actually achieved monopoly power but merely that the stock acquisitions under attack have brought it measurably closer to that end. For it is the purpose of the Clayton Act to nip monopoly in the bud. Since by definition monopoly involves the power to eliminate competition a lessening of competition is clearly relevant in the determination of the existence of a tendency to monopolize. Accordingly in order to determine the existence of a tendency to monopoly in * * * any * * * line of business the area or areas of existing effective competition in which monopoly power might be exercised must first be determined * * *.'

Appellees argue that there exists no basis for a finding of a probable restraint or monopoly within the meaning of § 7 because the total General Motors market for finishes and fabrics constituted only a negligible percentage of the total market for these materials for all uses, including automotive uses. It is stated in the General Motors brief that in 1947 du Pont's finish sales to General Motors constituted 3.5% of all sales of finishes to industrial users, and that its fabrics sales to General Motors comprised 1.6% of the total market for the type of fabric used by the automobile industry.

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.'11 Substantiality can be determined only in terms of the market affected. The record shows that automotive finishes and fabrics have sufficient peculiar characteristics and uses to constitute them products sufficiently distinct from all other finishes and fabrics12 to make them a 'line of commerce' within the meaning of the Clayton Act. Cf. Van Camp & Sons Co. v. American Can Co., 278 U.S. 245, 49 S.Ct. 112, 13 L.Ed. 311.13 Thus, the bounds of the relevant market for the purposes of this case are not coextensive with the total market for finishes and fabrics, but are coextensive with the automobile industry, the relevant market for automotive finishes and fabrics.14

The market affected must be substantial. Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346, 357, 42 S.Ct. 360, 362, 66 L.Ed. 653. Moreover, in order to establish a...

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