378 U.S. 441 (1964), 367, United States v. Continental Can Co.

Docket Nº:No. 367
Citation:378 U.S. 441, 84 S.Ct. 1738, 12 L.Ed.2d 953
Party Name:United States v. Continental Can Co.
Case Date:June 22, 1964
Court:United States Supreme Court
 
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Page 441

378 U.S. 441 (1964)

84 S.Ct. 1738, 12 L.Ed.2d 953

United States

v.

Continental Can Co.

No. 367

United States Supreme Court

June 22, 1964

Argued April 28, 1964

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

The Government seeks an order requiring the divestiture, as a violation of § 7 of the Clayton Act, by Continental Can Company (CCC), the second largest producer of metal containers, of the assets acquired in 1956 of Hazel-Atlas Glass Company (HAG), the third largest producer of glass containers. CCC, which had a history of acquiring other companies, produced no glass containers in 1955, but shipped 33% of all metal containers sold in this country. HAG, which produced no metal containers, shipped 9.6% of the glass containers that year. The geographic market was held by the District Court to be the entire country. The Government had urged ten product markets, including the can industry, the glass container industry, and various lines of commerce defined by the end use of the containers. The District Court found three product markets, metal containers, glass containers, and metal and glass beer containers. Although finding inter-industry competition between metal, glass and plastic containers, the District Court held them to be separate lines of commerce. Holding that the Government had failed to prove reasonable probability of lessening competition in any line of commerce, the District Court dismissed the complaint at the end of the Government's case.

Held:

1. Inter-industry competition between glass and metal containers may provide the basis for defining a relevant product market. Pp. 447-458.

(a) The competition protected by § 7 is not limited to that between identical products. P. 452.

(b) Cross-elasticity of demand and interchangeability of use are used to recognize competition where it exists, not to obscure it. Brown Shoe Co. v. United States, 370 U.S. at 326. P. 453.

(c) There has been insistent, continuous, effective and substantial end-use competition between metal and glass containers; and though interchangeability of use may not be so complete and cross-elasticity of demand not so immediate as in the case of some intra-industry mergers, the long-run results bring the competition between them within § 7. Pp. 453-455.

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(d) There is a large area of effective competition between metal and glass containers, which implies one or more other lines of commerce encompassing both industries. Pp. 456-457.

(e) If an area of effective competition cuts across industry lines, the relevant line of commerce must do likewise. P. 457.

(f) Based on the present record, the inter-industry competition between glass and metal containers warrants treating the combined glass and metal container industries and all end uses for which they compete as a relevant product market. P. 457.

(g) Complete inter-industry competitive overlap is not required before § 7 is applicable, and some noncompetitive segments in a proposed market area do not prevent its identification as a line of commerce. P. 457.

(h) That there may be a broader product market, including other competing containers, does not prevent the existence of a submarket of cans and glass containers. Pp. 457-458.

2. On the basis of the evidence so far presented, the merger between CCC and HAG violates § 7 because it will have a probable anticompetitive effect within the relevant line of commerce. Pp. 458-466.

(a) In determining whether a merger will have probable anticompetitive effect, it must be looked at functionally in the context of the market involved, its structure, history, and future. P. 458.

(b) Where a merger is of such magnitude as to be inherently suspect, detailed market analysis and proof of likely lessening of competition are not required in view of § 7's purpose of preventing undue concentration. P. 458.

(c) The product market of the combined metal and glass container industries was dominated by six companies, of which CCC ranked second and HAG sixth. P. 461.

(d) The 25% of the product market held by the merged firms approaches the percentage found presumptively bad in United States v. Philadelphia National Bank, 374 U.S. 321, and nearly the same as that involved in United States v. Aluminum Co. of America, 377 U.S. 271, and the addition to CCC's share is larger here than in Aluminum Co. P. 461.

(e) Where there has been a trend toward concentration in an industry, any further concentration should be stopped. P. 461.

(f) Where an industry is already highly concentrated, it is important to prevent even slight increases therein. Pp. 461-462.

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(g) The argument that CCC's and HAG's products were not in direct competition at the time of the merger, and that therefore the merger could have no effect on competition, ignores the fact that the removal of HAG as an independent factor in the glass container industry and in the combined metal and glass container market foreclosed its potential competition with CCC, neglects the further fact that CCC, already a dominant firm in an oligopolistic market, has increased its power and effectiveness, and fails to consider the triggering effect that a merger of such large companies has on the rest of the industry, which seeks to follow the pattern, with anticompetitive results. Pp. 462-465.

217 F.Supp. 761, reversed and remanded.

WHITE, J., lead opinion

MR. JUSTICE WHITE delivered the opinion of the Court.

In 1956, Continental Can Company, the Nation's second largest producer of metal containers, acquired all of the assets, business and good will of Hazel-Atlas Glass Company, the Nation's third largest producer of glass containers, in exchange for 999,140 shares of Continental's common stock and the assumption by Continental of all the liabilities of Hazel-Atlas. The Government brought this action seeking a judgment that the acquisition violated § 7 of the Clayton Act1 and requesting an

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appropriate divestiture order. Trying the case without a jury, the District Court found that the Government had failed to prove reasonable probability of anticompetitive effect in any line of commerce, and accordingly dismissed the complaint at the close of the Government's case. United States v. Continental Can Co., 217 F.Supp. 761 (D.C.S.D.N.Y.). We noted probable jurisdiction to consider the specialized problems incident to the application of § 7 to inter-industry mergers and acquisitions.2 375 U.S. 893. We reverse the decision of the District Court.

I

The industries with which this case is principally concerned are, as found by the trial court, the metal can industry, the glass container industry, and the plastic container industry, each producing one basic type of container made of metal, glass, and plastic, respectively.

Continental Can is a New York corporation organized in 1913 to acquire all the assets of three metal container

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manufacturers. Since 1913, Continental has acquired 21 domestic metal container companies, as well as numerous others engaged in the packaging business, including producers of flexible packaging; a manufacturer of polyethylene bottles and similar plastic containers; 14 producers of paper containers and paperboard; four companies making closures [84 S.Ct. 1741] for glass containers; and one -- Hazel-Atlas -- producing glass containers. In 1955, the year prior to the present merger, Continental, with assets of $382 million, was the second largest company in the metal container field, shipping approximately 33% of all such containers sold in the United States. It and the largest producer, American Can Company, accounted for approximately 71% of all metal container shipments. National Can Company, the third largest, shipped approximately 5%, with the remaining 24% of the market being divided among 75 to 90 other firms.3

During 1956, Continental acquired not only the Hazel-Atlas Company, but also Robert Gair Company, Inc. -- a leading manufacturer of paper and paperboard products -- and White Cap Company -- a leading producer of vacuum-type metal closures for glass food containers -- so that Continental's assets rose from $382 million in 1955

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to more than $633 million in 1956, and its net sales and operating revenues during that time increased from $666 million to more than $1 billion.

Hazel-Atlas was a West Virginia corporation which, in 1955, had net sales in excess of $79 million and assets of more than $37 million. Prior to the absorption of Hazel-Atlas into Continental, the pattern of dominance among a few firms in the glass container industry was similar to that which prevailed in the metal container field. Hazel-Atlas, with approximately 9.6% of the glass container shipments in 1955, was third. Owens-Illinois Glass Company had 34.2% and Anchor-Hocking Glass Company 11.6%, with the remaining 44.6% being divided among at least 39 other firms.4

After an initial attempt to prevent the merger under a 1950 consent decree failed, the terms of the decree being

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held inapplicable to the proposed acquisition, the Government moved for a preliminary [84 S.Ct. 1742] injunction against its consummation and sought a temporary restraining order pending the determination of its motion. The temporary restraining order was denied, and, on the same day, the merger was accomplished. The Government then withdrew its motion for a preliminary injunction and continued the action as one for divestiture.

At the conclusion of the Government's case, Continental moved for dismissal of the complaint. After the District Court had granted the motion under Rule 41(b) of the Federal Rules of Civil Procedure, but...

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