United States v. Aluminum Company of America, 204

• Decision Date: 01 June 1964
• Docket Number: No. 204,204
• Citation: 84 S.Ct. 1283,377 U.S. 271,12 L.Ed.2d 314
• Parties: UNITED STATES, Appellant, v. ALUMINUM COMPANY OF AMERICA et al
• Court: U.S. Supreme Court

377 U.S. 271

84 S.Ct. 1283

12 L.Ed.2d 314

UNITED STATES, Appellant,

v ALUMINUM COMPANY OF AMERICA et al.

No. 204.

Argued April 23, 1964.

Decided June 1, 1964.

Rehearing Denied June 22, 1964.

See 84 S.Ct. 1903.

[Syllabus from pages 271-272 intentionally omitted]

Sol. Gen. Archibald Cox, for appellant.

Herbert Bergson, Washington, D.C., for appellees.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The question is whether the 1959 acquisition by the Aluminum Company of America (Alcoa) of the stock and assets of the Rome Cable Corporation (Rome) 'may be substantially to lessen competition, or to tend to create a monopoly' in the production and sale of various wire and cable products and accessories within the meaning of § 7 of the Clayton Act.¹ The United States, claiming that § 7 had been violated, instituted this civil suit and prayed for divestiture. The District Court, after a trial, held that there was no violation and dismissed the complaint. D.C., 214 F.Supp. 501. The case is here on appeal, 15 U.S.C. § 29; and we noted probable jurisdiction. 375 U.S. 808, 84 S.Ct. 57, 11 L.Ed.2d 46.

I.

The initial question concerns the identification of the 'line of commerce,' as the term is used in § 7.

Aluminum wire and cable (aluminum conductor) is a composite of bare aluminum wire and cable (bare aluminum conductor) and insulated or covered wire and cable (insulated aluminum conductor). These products are designed almost exclusively for use by electric utilities in carrying electric power from generating plants to consumers throughout the country. Copper conductor wire and cable (copper conductor) is the only other product utilized commercially for the same general purpose. Rome produced both copper conductor and aluminum conductor. In 1958—the year prior to the merger—it produced 0.3% of total industry production of bare alu- minum conductor, 4.7% of insulated aluminum conductor, and 1.3% of the broader aluminum conductor line.

Alcoa produced no copper conductor. In 1958 it produced 32.5% of the bare aluminum conductor, 11.6% of insulated aluminum conductor, and 27.8% of aluminum conductor.

These products, as noted, are most often used by operating electrical utilities. Transmission and distribution lines² are usually strung above ground, except in heavily congested areas, such as city centers, where they are run underground. Overhe d, where the lines are bare or not heavily insulated, aluminum has virtually displaced copper, except in seacoast areas, as shown by the following table:

Percent of Aluminum Conductor in Gross Additions to Overhead Utility Lines.

1950 1955 1959

Transmission Lines (All Bare Conductor) 74.4% 91.0% 94.4%

Distribution Lines:

Bare Conductor...... 35.5 . 64.4 . 79.0

Insulated Conductor. 6.5 . 51.6 . 77.2

Total, Transmission and Distribution Lines 25.0 60.9 80.1

Underground, where the conductor must be heavily insulated, copper is virtually the only conductor used. In sum, while aluminum conductor dominates the overhead field, copper remains virtually unrivaled in all other conductor applications.

The parties agree, and the District Court found, that bare aluminum conductor is a separate line of commerce. The District Court, however, denied that status to the broader aluminum conductor line because it found that insulated aluminum conductor is not an appropriate line of commerce separate and distinct from its copper counterpart. The court said the broad product group cannot result in a line of commerce, since a line of commerce cannot be composed of two aprts, one of which independently qualifies as a line of commerce and one of which does not.

Admittedly, there is competition between insulated aluminum conductor and its copper counterpart, as the District Court found. Thus in 1959 insulated copper conductor comprised 22.8% of the gross additions to insulated overhead distribution lines. This is enough to justify grouping aluminum and copper conductors together in a single product market. Yet we conclude, contrary to the District Court, that that degree of competitiveness does not preclude their division for purposes of § 7 into separate submarkets, just as the existence of broad product markets in Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510, did not preclude lesser submarkets.³

Insulated aluminum conductor is so intrinsically inferior to insulated copper conductor that in most applications it has little consumer acceptance. But in the field of overhead distribution it enjoys decisive advantages—its share of total annual installations increasing from 6.5% in 1950 to 77.2% in 1959. In the field of overhead distribution the competition of copper is rapidly decreasing. As the record shows, utilizing a high-cost metal, fabricators of insulated copper conductor are powerless to eliminate the price disadvantage under which they labor and thus can do little to make their product competitive, unless they enter the aluminum field. The price of most insulated aluminum conductors is indeed only 50% to 65% of the price of their copper counterparts; and the comparative installed costs are also generally less. As the District Court found, aluminum and copper conductor prices do not respond to one another.

Separation of insulated aluminum conductor from insulated copper conductor and placing it in another submarket is, therefore, proper. It is not inseparable from its copper equ valent though the class of customers is the same. The choice between copper and aluminum for overhead distribution does not usually turn on the quality of the respective products, for each does the job equally well. The vital factors are economic considerations. It is said, however, that we should put price aside and Brown Shoe, supra, is cited as authority. There the contention of the industry was that the District Court has delineated too broadly the relevant submarkets—men's shoes, women's shoes, and children's shoes—and should have subdivided them further. It was argued for example, that men's shoes selling below $8.99 were in a different product market from those selling above $9. We declined to make price, particularly such small price differentials, the determinative factor in that market. A purchaser of shoes buys with an eye to his budget, to style, and to quality as well as to price. But here, where insulated aluminum conductor pricewise stands so distinctly apart, to ignore price in determining the relevant line of commerce is to ignore the single, most important, practical factor in the business.

The combination of bare and insulated aluminum conductor products into one market or line of commerce seems to us proper.⁴ Both types are used for the purpose of conducting electricity and are sold to the same customers, electrical utilities. While the copper conductor does compete with aluminum conductor, each has developed distinctive end uses aluminum as an overhead conductor and copper for underground and indoor wiring, applications in which aluminum's brittleness and larger size render it impractical. And, as we have seen, the price differential further sets them apart.

Thus, contrary to the District Court, we conclude (1) that aluminum conductor and copper conductor are separable for the purpose of analyzing the competitive effect of the merger and (2) that aluminum conductor (bare and insulated) is therefore a submarket and for purposes of § 7 a 'line of commerce.'

II.

Taking aluminum conductor as an appropriate 'line of commerce' we conclude that the merger violated § 7.

Alcoa is a leader in markets in which economic power is highly concentrated. Prior to the end of World War II it was the sole producer of primary aluminum and the sole fabricator of aluminum conductor. It was held in 1945 to have monopolized the aluminum industry in violation of § 2 of the Sherman Act. See United States v. Aluminum Co., 2 Cir., 148 F.2d 416. Relief was deferred while the United States disposed of its wartime aluminum fa- cilities under a congressional mandate to establish domestic competition in the aluminum industry.⁵ As a result of that policy and further federal financing and assistance, five additional companies entered the primary aluminum field so that by 1960 the primary producers showed the following capacity:

Aluminum Ingot Capacity Existing or Under Construction at the End of 1960.

(SHORT TONS)

Company Capacity % of U. S.

Aluminum Company of America. 1,025,250 38.6

Reynolds Metals Company. 701,000. 26.4

Kaiser Aluminum & Chemical Corp. 609,500 23.0

Ormet, Inc......... 180,000. 6.8

Harvey Aluminum..... 75,000. 2.8

Anaconda Aluminum Company. 65,000. 2.4

United States total. 2,655,750. 100.0

In 1958—the year prior to the merger—Alcoa was the leading producer of aluminum conductor, with 27.8% of the market; in bare aluminum conductor, it also led the industry, with 32.5%. Alcoa plus Kaiser controlled 50% of the aluminum conductor market and, with its three leading competitors, more than 76%. Only nine concerns (including Rome with 1.3%) accounted for 95.7% of the output of aluminum conductor. In the narrower market of insulated aluminum conductor, Alcoa was third with 11.6% and Rome with eighth with 4.7%. Five companies controlled 65.4% and four smaller ones, including Rome, added another 22.8%.

In other words, the line of commerce showed highly concentrated markets, dominated by a few companies but served also by a small, though diminishing, ⁶ group of independents. Such decentralization as has occurred resulted from the establishment of a few new companies through federal intervention, not from normal, competitive decentralizing forces.

The proposition on which the present case turns was stated in United States v. Philadelphia National Bank, 374 U.S. 321, 365, n. 42, 83 S.Ct. 1715, 1742, 10 L.Ed.2d 915, as follows:

'It is no answer that, among the three presently largest firms (First Pennsylvania, PNB, and Girard), there will be no increase...