467 F.2d 67 (10th Cir. 1972), 71-1371, Kennecott Copper Corp. v. F. T. C.

Docket Nº:71-1371.
Citation:467 F.2d 67
Party Name:KENNECOTT COPPER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
Case Date:September 15, 1972
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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467 F.2d 67 (10th Cir. 1972)

KENNECOTT COPPER CORPORATION, Petitioner,

v.

FEDERAL TRADE COMMISSION, Respondent.

No. 71-1371.

United States Court of Appeals, Tenth Circuit.

September 15, 1972

Rehearing Denied Oct. 13, 1972.

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[Copyrighted Material Omitted]

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Roy H. Steyer, of Sullivan & Cromwell, New York City (Arthur H. Dean, John L. Warden and Barrington D. Parker, Jr., of Sullivan & Cromwell, New York City, William Simon, John Bodner, Jr. and Francis A. O'Brien, of Howrey, Simon, Baker & Murchison, Washington, D. C., Winston S. Howard, and Hugh A. Burns, of Dawson, Nagel, Sherman & Howard, Denver, Colo., on brief) for petitioner.

Montgomery K. Hyun, Atty., Federal Trade Commission (Ronald M. Dietrich, Gen. Counsel, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, and Frederick H. Mayer, Atty., Federal Trade Commission, on brief) for respondent.

Before HILL, BARRETT and DOYLE, Circuit Judges.

WILLIAM E. DOYLE, Circuit Judge.

I.

INTRODUCTION

The matter before us is the petition of Kennecott Copper Corporation seeking review of a divestiture order issued by the Federal Trade Commission. Kennecott, a New York corporation, is engaged in the production of copper and industries related to this. It is a producer, smelter, refiner and fabricator of copper and other metal products. It acquired Peabody Coal Company, an Illinois corporation, which is one of the two leading coal producers and distributors in the United States. A tentative agreement for this acquisition was signed July 1, 1966, and the final agreement providing for the acquisition was signed on March 17, 1967. On or about March 29, 1968, the transaction was closed, Kennecott paying 285 million dollars in cash and assuming 36.5 million dollars in liabilities and subject to the reservation of a production payment from Peabody's coal properties which was sold by Peabody for about 300 million dollars in cash.

On August 5, 1968, the Federal Trade Commission issued its complaint alleging a violation of § 7 of the Clayton Act as amended, 15 U.S.C. § 18. 1 Trial was thereafter had before a hearing examiner in New York, San Francisco and Salt Lake City on 48 hearing days extending from January to June 1969. Numerous witnesses testified, the record consisting of more than 6,000 pages of testimony together with some 450 documentary exhibits. In addition to the expert witnesses, there was testimony from coal company executives, utility company officials and economists. Following this trial the hearing examiner, in March 1970, issued lengthy findings and conclusions and determined that the complaint should be dismissed.

The pivotal question in the case was whether prior to the merger Kennecott was a recognized potential entrant into the coal producing business and whether the elimination of Kennecott by its purchase of Peabody may have substantially lessened competition or tended to create a monopoly. The examiner found that the evidence failed to establish that there was a likelihood that Kennecott would enter into the coal business from an internal expansion or by expansion from a limited base, but that Kennecott was a potential entrant by acquisition. He further found, however, that even if

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Kennecott were regarded as a recognized potential entrant, the questioned acquisition would not have the effect which the complaint alleged, since the coal industry was found by him not to have been highly concentrated but rather to have been competitively structured. The examiner further found that there were numerous other potential entrants into the sale of coal, all of whom had special capabilities, and thus the elimination of a single potential competitor would not be significant. The examiner also based his conclusion on the fact that even though the production market was limited to coal, there was some degree of cross-elasticity of demand for coal and other fuels, and this factor was determined to contribute to his conclusion that the elimination of a single potential competitor was lacking in significance.

The Federal Trade Commission issued its decision reversing the examiner on May 13, 1971. The Commission concluded that Kennecott was indeed a substantial potential entrant and that the removal of Kennecott from this position on the threshold of the industry removed a potential competitor and had the effect of substantially lessening competition. The Commission determined that although the coal business was not at the time of the filing of its opinion in May 1971 a concentrated market, that it was nevertheless trending in that direction and that this tendency would continue in the future. It concluded that it was obligated to deal not only with present threats to competition but also with future threats in their incipient stages rather than to await the concentrated condition. The Commission cited another basis and that was Kennecott's deep pocket operating on a market which, though a loose oligopoly, is growing more concentrated. The Commission saw a likelihood of diminishing competition resulting from the merger of the great economic resources of Kennecott and Peabody.

In urging that the order of the Commission be reversed, Kennecott argues, first, that the Commission erred in holding that the relevant market was the entire United States and in refusing to consider competition which coal had with the other fuels, including nuclear energy, oil and gas. Secondly, that the Commission erred in holding that Kennecott was the most likely entrant into the coal business and in holding that the coal industry, although now a loose oligopoly, is trending toward a highly concentrated market and in failing to hold that the coal market is competitively structured and likely to remain so. It is further contended that the Commission erred in failing to address the issue whether the elimination of Kennecott as one of many potential entrants into a competitive industry had the effect of substantially lessening competition.

Further contentions are that the Commission violated standards of administrative adjudication in setting aside the hearing examiner's findings and in not making adequate findings of its own and in adopting the so-called deep-pocket theory, it being Kennecott's contention that this was not presented before the Commission. Complaint is also made that the hearing was not fair in that the Commission issued certain statements to Congress contemporaneously with the carrying out of the proceedings, which statements were said to be inconsistent with the Commission's findings and conclusions. It is also contended that one of the commissioners should have been disqualified because of her alleged prejudgment of the case.

II.

THE PRODUCT MARKET

The Commission found that the relevant line of commerce consisted of bituminous, sub-bituminous and lignite coal and in that respect endorsed the view expressed by the examiner. However, the Commission rejected the examiner's finding that:

Factually, legally, and pragmatically, it is reasonable, therefore, to consider coal as the product market and at the same time to take into account the competition that other fuels offer to coal.

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The Commission said:

Coal, in our view, is clearly a relevant product market for antitrust purposes, separate and distinct from other fuels, by virtue of the fact that coal has unique characteristics which are commercially significant and a technology obviously different from such power sources as gas or nuclear energy.

The examiner did not rule that coal does not constitute a product market in and of itself. He merely noted the market interplay between coal and other fuels. The examiner's determination that nuclear energy and natural gas competition should be considered was largely based on the competition which is shown to exist in the generation of electrical energy by utility companies, and unquestionably in this area of economic activity coal is in direct competition with other fuels, and so it seems reasonable to consider as did the examiner the competition that exists between coal and other fuels, at least in the mentioned context.

III.

THE RELEVANT GEOGRAPHIC MARKET

The Commission correctly found that the nation as a whole constitutes a relevant geographic market, based as it is on the Commission's analysis that the large coal companies compete with each other throughout the United States, plus the fact that Kennecott fully intended to become a nationwide competitor. The Commission cited United States v. Pabst Brewing Co., 384 U.S. 546, 86 S.Ct. 1665, 16 L.Ed.2d 765 (1966) in support of this finding and conclusion and, particularly, the Supreme Court's approval of general testimony in proof of the geographic market.

As we view it, the Commission's finding was not contrary to the record in this case, for although coal reserves are not found in all the states of the union, such reserves are found in virtually every section of the country, and more and more the market is acquiring a national character.

IV.

KENNECOTT COPPER CORPORATION

Kennecott was shown to have been formed in 1915 and has been engaged in the mining of copper and associated metals since. It is the largest copper producer in the United States accounting for approximately 33 percent of the 1,372,000 tons shown to have been produced in 1966. It also produces molybdenum, silver, gold, lead and zinc. It owns and operates mines in the United States under the direction of its Western Mining Divisions. One of these is in Utah, another in Nevada, one in Arizona and one in New Mexico. A fifth mine is located in Chile, but in 1967 it was forced to sell 51 percent of its interest in this mine in Chile to the government.

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