418 U.S. 602 (1974), 73-38, United States v. Marine Bancorporation, Inc.
|Docket Nº:||No. 73-38|
|Citation:||418 U.S. 602, 94 S.Ct. 2856, 41 L.Ed.2d 978|
|Party Name:||United States v. Marine Bancorporation, Inc.|
|Case Date:||June 26, 1974|
|Court:||United States Supreme Court|
Argued April 23, 1974
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WASHINGTON
The United States brought this civil antitrust action under § 7 of the Clayton Act to challenge a proposed merger between two commercial banks, which would substitute the acquiring bank for the acquired bank in Spokane, Wash., and would permit the former for the first time to participate directly in the Spokane market. The acquiring bank, appellee National Bank of Commerce (NBC), is a large, nationally chartered bank based in Seattle, Wash., and a wholly owned subsidiary of appellee Marine Bancorporation, Inc., and, in terms of assets, deposits, and loans, is the second largest banking organization with headquarters in Washington, operating [94 S.Ct. 2860] 107 branches in the State, including 59 in the Seattle metropolitan area and 31 in lesser developed eastern sections of the State, but none of which is in the Spokane metropolitan area. The acquired or target bank, appellee Washington Trust Bank (WTB), is a medium-size, state-chartered bank located in Spokane, with seven branches, six in the city and one in a suburb, and is the eighth largest bank with headquarters in Washington and the ninth largest in the State, controlling 17.4% of the 46 commercial banking offices and holding 18.6% or the third largest percentage of the total deposits in the Spokane metropolitan area. (The two banks with the largest percentages in the area hold 42.1% and 31.6%, respectively, of total deposits.) The Government bases its case exclusively on the potential competition doctrine, seeking to establish that the merger "may . . . substantially . . . lessen competition" within the meaning of § 7: (i) by eliminating the prospect that NBC, absent acquisition of the market share represented by WTB, would enter Spokane de novo or through acquisition of a smaller bank, and thus would assist in deconcentrating that market over the long run; (ii) by ending present procompetitive effects allegedly produced in Spokane by NBC's perceived presence on the fringe of the Spokane market; and (iii) by terminating the alleged probability
that WTB as an independent entity would develop by internal expansion or mergers with other medium-size banks into a regional or ultimately state-wide actual competitor of NBC and other large banks. The District Court held against the Government on all aspects, and dismissed the complaint.
1. As "a necessary predicate" to deciding whether the proposed merger contravenes the Clayton Act, the District Court properly found that the relevant product market was the "business of commercial banking" and that the relevant geographic market was the Spokane metropolitan area. The entire State is not, despite the Government's contrary contention, an appropriate "section of the country" within the meaning of § 7, since, for the purpose of this case, the appropriate "section of the country" and the "relevant geographic market" are the same, being the area in which the acquired firm is an actual, direct competitor, and since, moreover, the Government has not shown that the effect of the merger on a state-wide basis "may be substantially to lessen competition" within the meaning of § 7. Pp. 618-623.
2. While geographic market extension mergers by commercial banks must pass muster under the potential competition doctrine, the application of the doctrine to commercial banking must take into account the extensive and unique federal and state regulatory restraints on entry into that line of commerce, including controls over the number of bank charters to be granted, prior bank regulatory agency approval of the opening of branches, and state law restrictions, such as those in Washington, on de novo geographic expansion through branching and multibank holding companies. Pp. 626-630.
3. The Government's evidence of concentration ratios in the Spokane commercial banking market established a prima facie case that that market was sufficiently concentrated to invoke the potential competition doctrine, and appellees did not demonstrate that such ratios inaccurately depicted the economic characteristics of the Spokane market. Pp. 630-632.
4. In view of the legal barriers to entry, notably state law prohibitions against de novo branching, branching from a branch office, and multibank holding companies, the Government failed to sustain its burden of proof that the challenged merger violates § 7 by eliminating the likelihood that, but for the merger, NBC would enter Spokane de novo by means of sponsorship acquisition or through a foothold acquisition of a small state bank in the Spokane
area, since it was not shown that either of the proposed alternative methods of entry was feasible or offered a substantial likelihood of ultimately producing deconcentration of the Spokane market or other significant procompetitive effects. Pp. 632-639
5. The Government's failure to establish that NBC has alternative methods of entry offering a reasonable likelihood of producing significant procompetitive effects is determinative of its contention that, without regard to the possibility of future deconcentration of the Spokane market, the challenged merger is illegal because it eliminates NBC as a perceived potential entrant. Assuming that commercial bankers in Spokane are aware of the regulatory barriers that render NBC an unlikely or insignificant potential entrant except by merger with WTB, it is improbable, in light of such barriers, that NBC exerts any meaningful procompetitive influence over Spokane banks by "standing in the wings." Pp. 639-640.
6. The record amply supports the District Court's finding that the Government "failed to establish . . . that there is any reasonable probability that WTB will expand into other banking markets," since at no time in its 70-year history has WTB established branches outside the Spokane area, acquired another bank, or received a merger offer other than the one at issue here. Pp. 640-641.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and REHNQUIST, JJ., joined. WHITE, J., filed a dissenting opinion, in which BRENNAN and MARSHALL, JJ., joined, post, p. 642. DOUGLAS, J., took no part in the decision of this case.
POWELL, J., lead opinion
MR. JUSTICE POWELL delivered the opinion of the Court.
The United States brought this civil antitrust action under § 7 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C. 18, to challenge a proposed merger between two commercial banks. The acquiring bank is a large, nationally chartered bank based in Seattle, Washington, and the acquired bank is a medium-size, state-chartered bank located at the opposite end of the State in Spokane. The banks are not direct competitors to any significant degree in Spokane or any other part of the State. They have no banking office in each other's home cities. The merger agreement would substitute the acquiring bank for the acquired bank in Spokane, and would permit the former for the first time to operate as a direct participant in the Spokane market.
The proposed merger would have no effect on the number of banks in Spokane. The United States bases its case exclusively on the potential competition doctrine under 7 of the Clayton Act. It contends that, if the merger is prohibited, the acquiring bank would find an alternative and more competitive means for entering the Spokane area, and that the acquired bank would ultimately develop by internal expansion or mergers with smaller banks into an actual competitor of the acquiring bank and other large banks in sections of the State outside Spokane. The Government further submits that the merger would terminate the alleged procompetitive influence that the acquiring bank presently exerts over Spokane banks due to the potential for it entry into that market.
After a full trial, the District Court held against the Government on all aspects of the case. We affirm that court's judgment. We hold that, in applying the potential
competition doctrine to commercial banking, courts must take into account the extensive federal and state regulation of banks, particularly the legal restraints on entry unique to this line of commerce. The legal barriers to entry in the instant case, notably state law prohibitions against de novo branching, against branching from a branch office, and against multibank holding companies, compel us to conclude that the challenged merger is not in violation of § 7.
The acquiring bank, National Bank of Commerce (NBC), is a national banking association with its principal office in Seattle, Washington. Located in the northwest corner of the State, Seattle is the largest city in Washington. NBC is a wholly owned subsidiary of a registered bank holding company, Marine Bancorporation, Inc. (Marine), and in terms of assets, deposits, and loans is the second largest banking organization with headquarters in the State of Washington. At the end of 1971, NBC had total assets of $1.8 billion, total deposits of $1.6 billion, and total loans of $881.3 million.1 It operates 107 branch banking offices within the State, 59 of which are located in the Seattle metropolitan area and 31 of which are in lesser developed sections of eastern Washington. In order of population, the four major
metropolitan areas in Washington are Seattle, Tacoma, Spokane, and Everett. NBC has no branch offices in the latter three areas.
The target bank, Washington Trust Bank (WTB), founded in 1902, is a state bank with headquarters in Spokane. Spokane is located in the extreme eastern part of the State, approximately 280 road miles from Seattle. It is...
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