Ford Motor Company v. United States 8212 113

• Decision Date: 29 March 1972
• Docket Number: No. 70,70
• Citation: 92 S.Ct. 1142,31 L.Ed.2d 492,405 U.S. 562
• Parties: FORD MOTOR COMPANY, Appellant, v. UNITED STATES et al. —113
• Court: U.S. Supreme Court

31 L.Ed.2d 492

92 S.Ct. 1142

405 U.S. 562

FORD MOTOR COMPANY, Appellant,

v UNITED STATES et al.

No. 70—113.

Argued Nov. 18, 1971.

Decided March 29, 1972.

Syllabus^*

In this divestiture action under § 7 of the Celler-Kefauver Anti-merger Act, the Government challenged the acquisition by appellant, Ford, the second largest automobile manufacturer, of certain assets of Electric Autolite Co. (Autolite), an independent manufacturer of spark plugs and other automotive parts. The acquisition included the Autolite trade name, Autolite's only domestic spark plug plant, and extensive rights to its nationwide distribution organization for spark plugs and batteries. The brand used in the spark plug replacement market (aftermarket) has historically been the same as the original equipment (OE) brand. Autolite and other independents had furnished manufacturers with OE plugs at or below cost, seeking to recoup their losses by profitable aftermarket sales. Ford, which previously had bought all its spark plugs from independents and was the largest purchaser from that source, made the Autolite acquisition in 1961 for the purpose of participating in the aftermarket. At about that time General Motors (GM) had about 30% of the domestic spark plug market. Autolite had 15%, and Champion, the only other major independent, had 50% (which declined to 40% in 1964, and 33% in 1966). The District Court found that the industry's oligopolistic structure encouraged maintenance of the OE tie and that spark plug manufacturers, to the extent that they are not owned by auto makers, will compete more vigorously for private brand sales in the aftermarket. The court held that the acquisition of Autolite violated § 7 since its effect 'may be substantially to lessen competition' in automotive spark plugs because: (1) 'as both a prime candidate to manufacture and the major customer of the dominant member of the oligopoly,' Ford's pre-acquisition position was a moderating influence on the independent companies, and (2) the acquisition significantly foreclosed to independent spark plug manufacturers access to the purchaser of a substantial share of the total industry output. After hearings, the court ordered the divestiture of the Autolite plant and trade name because of the industry's oligopolistic structure, which encouraged maintenance of the OE tie. The court stressed that it was in the self-interest of the OE spark plug manufacturers to discourage private-brand sales but noted that changes in marketing methods indicated a substantial growth in the private-brand sector of the spark plug market, which, if allowed to develop without unlawful restraint, may account for 17% of the total aftermarket by 1980. Additionally, the court enjoined Ford for 10 years from manufacturing spark plugs; ordered it for five years to buy one-half its annual requirements from the divested plant under the 'Autolite' name, during which time it was prohibited from using its own name on spark plugs; and for 10 years ordered it to continue its policy of selling to its dealers at prices no less than its prevailing minimum suggested jobbers' selling price. In contesting divestiture, Ford argued that under its ownership Autolite became a more effective competitor against Champion and GM than it had been as an independent and that other benefits resulted from the acquisition. Held:

1. The District Court correctly held that the effect of Ford's acquisition of the Autolite spark plug assets and trade name may be substantially to lessen competition in the spark plug business and thus to violate § 7 of the Celler-Kefauver Antimerger Act; and that the alleged beneficial effects of the merger did not save it from illegality under that provision, United States v. Philadelphia National Bank, 374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915. Pp. 569—571.

2. The relief ordered by the District Court was proper. Pp. 571—578.

(a) Divestiture is necessary to restore the pre-acquisition market structure, in which Ford was the leading purchaser from independent sources, and in which a substantial segment of the market was open to competitive selling. After the divestiture, with Ford again as a purchaser of spark plugs, competitive pressures for its business will be generated and the anti-competitive consequences of its entry as a manufacturer will be eliminated. Pp. 573—575.

(b) The ancillary injunctive provisions are necessary to give the divested plant an opportunity to re-establish its competitive position and to nurture the competitive forces at work in the market-place. Pp. 575—578.

286 F.Supp. 407, 315 F.Supp. 372, affirmed.

Whitney North Seymour, New York City, for appellant.

Daniel M. Friedman, Washington, D.C., for appellees.

Mr. Justice DOUGLAS delivered the opinion of the Court.

This is a direct appeal under § 2 of the Expediting Act, 32 Stat. 823, as amended, 15 U.S.C. § 29, from a judgment of the District Court (286 F.Supp. 407, 315 F.Supp. 372), holding that Ford Motor Co. (Ford) violated § 7 of the Celler-Kefauver Antimerger Act¹ by acquiring certain assets from Electric Autolite Co. (Autolite). The assets included the Autolite trade name, Autolite's only spark plug plant in this country (located at New Fostoria, Ohio), a battery plant, and extensive rights to its nationwide distribution organization for spark plugs and batteries. The present appeal² is limited to that portion of the judgment relating to spark plugs and ordering Ford to divest the Autolite name and the spark plug plant. The ancillary injunctive provisions are also here for review.

I

Ford, the second-leading producer of automobiles, General Motors, and Chrysler together account for $90% of the automobile production in this country. Though Ford makes a substantial portion of its parts, prior to its acquisition of the assets of Autolite it did not make spark plugs or batteries but purchased those parts from independent companies.

The original equipment of new cars, insofar as spark plugs are concerned, is conveniently referred to as the OE tie. The replacement market is referred to as the aftermarket. The independents, including Autolite, furnished the auto manufacturers with OE plugs at cost or less, about six cents a plug, and they continued to sell at that price even when their costs increased threefold. The independents sought to recover their losses on OE sales by profitable sales in the aftermarket where the requirement of each vehicle during its lifetime is about five replacement plug sets. By custom and practice among mechanics, the aftermarket plug is usually the same brand as the OE plug. See generally Hansen & Smith, The Champion Case: What Is Competition?, 29 Harv.Bus.Rev. 89 (1951).

Ford was anxious to participate in this aftermarket and, after various efforts not relevant to the present case, concluded that its effective participation in the after- market required 'an established distribution system with a recognized brand name, a full line of high volume service parts, engineering experience in replacement designs, low volume production facilities and experience, and the opportunity to capitalize on an established car population.'

Ford concluded it could develop such a division of its own but decided that course would take from five to eight years and be more costly than an acquisition. To make a long story short, it acquired certain assets of Autolite in 1961.

General Motors had previously entered the spark plug manufacturing field, marking the AC brand. The two other major domestic producers were independents—Autolite and Champion. When Ford acquired Autolite, whose share of the domestic spark plug market was about 15%, only one major independent was left and that was Champion, whose share of the domestic market declined from just under 50% in 1960 to just under 40% in 1964 and to about 33% in 1966. At the time of the acquisition, General Motors' market share was about 30%. There were other small manufacturers of spark plugs but they had no important share of the market.³

The District Court held that the acquisition of Autolite violated § 7 of the Celler-Kefauver Antimerger Act because its effect 'may be substantially to lessen competition.'⁴ It gave two reasons for its decision.

First, prior to 1961 when Ford acquired Autolite it had a 'pervasive impact on the aftermarket,' 315 F.Supp., at 375, in that it was a moderating influence on Champion and on other companies derivatively. It explained that reason as follows:

'An interested firm on the outside has a twofold significance. It may someday go in and set the stage for noticeable deconcentration. While it merely stays near the edge, it is a deterrent to current competitors. United States v. Penn-Olin Chemical Co., 378 U.S. 158, 84 S.Ct. 1710, 12 L.Ed.2d 775 (1964). This was Ford uniquely, as both a prime candidate to manufacture and the major customer of the deminant member of the oligopoly. Given the chance that Autolite would have been doomed to oblivion by defendant's grass-roots entry, which also would have destroyed Ford's soothing influence over replacement prices, Ford may well have been more useful as a potential than it would have been as a real producer, regardless how it began fabrication. Had Ford taken the internal-expansion route, there would have been no illegality; not, however, because the result necessarily would have been commendable, but simply because that course has not been proscribed.' 286 F.Supp., at 441.

See also FTC v. Procter & Gamble Co., 386 U.S. 568, 87 S.Ct. 1224, 18 L.Ed.2d 303; United States v. Penn-Olin Chemical Co., 378 U.S. 158, 84 S.Ct. 1710, 12 L.Ed.2d 775.

Second, the District Court found that the acquisition marked 'the foreclosure of Ford as a purchaser of about ten per cent of total industry output.' 315 F.Supp., at 375. The District Court added:

'In short, Ford's entry into the spark plug market by means of the acquisition of the factory in Fostoria and the trade name 'Autolite'...