384 U.S. 563 (1966), 73, United States v. Grinnell Corp.

Docket Nº:No. 73
Citation:384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778
Party Name:United States v. Grinnell Corp.
Case Date:June 13, 1966
Court:United States Supreme Court
 
FREE EXCERPT

Page 563

384 U.S. 563 (1966)

86 S.Ct. 1698, 16 L.Ed.2d 778

United States

v.

Grinnell Corp.

No. 73

United States Supreme Court

June 13, 1966

Argued March 28-29, 1966

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

Syllabus

The Government brought a civil action against Grinnell Corporation and three affiliated companies, which it controlled through preponderant stock ownership, alleging violations of §§1 and 2 of the Sherman Act. Grinnell manufactures plumbing supplies and fire sprinkler systems, and its affiliates supply subscribers with fire and burglar alarm services from central stations through automatic alarm systems installed on subscribers' premises. The affiliates, which had participated in market allocation agreements, discriminatory price manipulation to forestall competition, and the acquisition of competitors, had acquired 87% of the country's insurance company accredited central station protective service market. One affiliated company, American District Telegraph Co. (ADT), itself controls 73% of the national market. The District Court treated the accredited central station service business as a single "market," and held that the geographic market is national. It found that the four companies had violated §§ 1 and 2 of the Sherman Act and entered a decree enjoining them from restraining trade or monopolizing the market, ordering the filing of price information, enjoining them from acquiring any other enterprise in that market, requiring divestiture by Grinnell of its affiliates, and enjoining them from employing the president of Grinnell. All parties challenged the decree.

Held:

1. The existence of monopoly power may be inferred from the predominant share of the market, and where Grinnell and its affiliates have 87% of the accredited central station service business, there is no doubt they have monopoly power, which they achieved in part by unlawful and exclusionary practices. Pp. 570-571, 576.

Page 564

2. The District Court was justified in treating the accredited central station service business as a single market. Pp. 571-575.

(a) There is no barrier to combining in a single market a number of different products or services where the combination reflects commercial realities. Here, there is a single basic service, the protection of property through use of a central station, that must be compared with all other forms of property protection. P. 572.

(b) Just as, under § 7 of the Clayton Act's "line of commerce," a "cluster of services" marks the appropriate market for "part" of commerce within the meaning of § 2 of the Sherman Act. Pp. 572-573.

(c) Accredited, as distinguished from nonaccredited, central station service is a relevant part of commerce, with specific requirements, recognition and approval by insurance companies, and distinct customer needs and demands. P. 575.

3. The geographic market for the accredited central station service, as the District Court found, is a national one. While the main activities of an individual central station may be local, the business of providing such service is operated on a national level, with national planning and agreements covering activities in many States. Pp. 575-576.

4. Adequate relief in a monopolization case should terminate the combination and eliminate the illegal conduct, and render impotent the monopoly power found to be in violation of the Act. Schine Theatres v. United States, 334 U.S. 110, 128-129. Pp. 577-580.

(a) The mere dissolution of the combination by Grinnell's divestiture of its affiliates will not reach the root of the evil; there must be some divestiture on the part of ADT, with 73% of the market, to be determined by the District Court. Pp. 577-578.

(b) On the record it appears that ADT's requirements of five-year contracts and retention of title to equipment installed on subscribers' premises constitute substantial barriers to competition and relief against them by the District Court is appropriate. P. 578.

(c) A provision that the companies be required to sell devices manufactured by them for use in furnishing central station service is inadequate unless purchasers are assured of replacement parts to maintain those systems. P. 579.

Page 565

(d) The District Court should reconsider its denial of the Government's request for "visitation rights," that is, requiring report, examining documents and interviewing company personnel, relief commonly granted to determine compliance ith an antitrust decree. P. 579.

(e) While the barring of Grinnell's president from emploment might have been appropriate in a case where predatory conduct was conspicuous, such is not the situation here. P. 579.

(f) On remand, the general terms of the restraining order should be recast so that the precise practices in violation of the Act are specifically enjoined. Pp. 579-580.

(g) The dissolution of the combination and the proscription against acquiring firms in the acredited central station business are fully warranted. P. 580.

5. The claim of bias and prejudice against the District Judge who tried the case below is not made out. Pp. 580-583.

236 F.Supp. 244, affirmed and remanded.

Page 566

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

This case presents an important question under § 2 of the Sherman Act,1 which makes it an offense for any person to "monopolize . . . any part of the trade or commerce among the several States." This is a civil suit brought by the United States against Grinnell Corporation (Grinnell), American District Telegraph Co. (ADT), Holmes Electric Protective Co. (Holmes) and Automatic Fire Alarm Co. of Delaware (AFA). The District Court held for the Government, and entered a decree. All parties appeal,2 the United States because it deems the relief inadequate and the defendants both on the merits and on the relief and on the ground that the District Court denied them a fair trial. We noted probable jurisdiction. 381 U.S. 910.

Grinnell manufactures plumbing supplies and fire sprinkler systems. It also owns 76% of the stock of ADT, 89% of the stock of AFA, and 100% of the stock of Holmes.3 ADT provides both burglary and fire protection services; Holmes [86 S.Ct. 1702] provides burglary services alone; AFA supplies only fire protection service. Each offers a central station service under which hazard-detecting devices installed on the protected premises automatically

Page 567

transmit an electric signal to a central station.4 The central station is manned 24 hours a day. Upon receipt of a signal, the central station, where appropriate, dispatches guards to the protected premises and notifies the police or fire department direct. There are other forms of protective services. But the record shows that subscribers to accredited central station service (i.e., that approved by the insurance underwriters) receive reductions in their insurance premiums that are substantially greater than the reduction received by the users of other kinds of protection service. In 1961, accredited companies in the central station service business grossed $65,000,000. ADT, Holmes, and AFA are the three largest companies in the business in terms of revenue: ADT (with 121 central stations in 115 cities) has 73% of the business; Holmes (with 12 central stations in three large cities) has 12.5%; AFA (with three central stations in three large cities) has 2%. Thus, the three companies that Grinnell controls have over 87% of the business.

Over the years, ADT purchased the stock or assets of 27 companies engaged in the business of providing burglar or fire alarm services. Holmes acquired the stock or assets of three burglar alarm companies in New York City using a central station. Of these 30, the officials

Page 568

of seven agreed not to engage in the protective service business in the area for periods ranging from five years to permanently. After Grinnell acquired control of the other defendants, the latter continued in their attempts to acquire central station companies -- offers being made to at least eight companies between the years 1955 and 1961, including four of the five largest nondefendant companies in the business. When the present suit was filed, each of those defendants had outstanding an offer to purchase one of the four largest nondefendant companies.

In 1906, prior to the affiliation of ADT and Holmes, they made a written agreement whereby ADT transferred to Holmes its burglar alarm business in a major part of the Middle Atlantic States and agreed to refrain forever from engaging in that business in that area, while Holmes transferred to ADT its watch signal business and agreed to limit its activities to burglar alarm service and night watch service for financial institutions. While this agreement was modified several times and terminated in 1947, in 1961, Holmes still restricted its business to burglar alarm service and operated only in those areas which had been allocated to it under the 1906 agreement. Similarly, ADT continued to refrain from supplying burglar alarm service in those areas earlier allocated to Holmes.

In 1907, Grinnell entered into a series of agreements with the other defendant companies and with Automatic Fire Protection Co. to the following effect:

AFA received the exclusive right to provide central station sprinkler supervisory and waterflow alarm and automatic fire alarm service in New York City, Boston and Philadelphia, and agreed not to provide burglar alarm service [86 S.Ct. 1703] in those cities or central station service elsewhere in the United States.

Page 569

Automatic Fire Protection Co. obtained the exclusive right to provide central station sprinkler supervisory and waterflow alarm service everywhere else in the United States except for the three cities in which AFA received that exclusive right, and agreed not to engage in burglar alarm service.

ADT received...

To continue reading

FREE SIGN UP