469 F.2d 498 (2nd Cir. 1972), 11, Stanley Works v. F. T. C.

Docket Nº:11, 71-1742.
Citation:469 F.2d 498
Party Name:The STANLEY WORKS, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
Case Date:October 17, 1972
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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469 F.2d 498 (2nd Cir. 1972)

The STANLEY WORKS, Petitioner,



No. 11, 71-1742.

United States Court of Appeals, Second Circuit.

October 17, 1972

Argued Sept. 20, 1972.

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John W. Douglas, Washington, D. C., for petitioner.

Alvin L. Berman, Washington, D. C., for respondent.

Before KAUFMAN, SMITH and MANSFIELD, Circuit Judges.

IRVING R. KAUFMAN, Circuit Judge:

This appeal presents important questions of antitrust law. The central issue is whether the August 1966 acquisition of Amerock Corporation by The Stanley Works violated § 7 of the Clayton Act 1 and § 5 of the Federal Trade Commission Act. 2 The Federal Trade Commission held that it did and ordered divestiture. 3 Stanley filed a petition asking this Court to review and set aside the Commission's order. See 15 U.S.C. § 45(c). For the reasons given below, we believe the effect of the merger may be substantially to lessen actual competition in the national cabinet hardware market. Accordingly, we affirm the decision of the Commission and direct that its order be enforced.


As always, resolution of a question of antitrust illegality requires us to describe the companies involved, analyze the product and geographic market in which they compete, and explore the structure of the industry affected by the merger, to the end that we may properly assess the probable effects of the merger on competition.

The Companies

Stanley is a Connecticut corporation engaged in the manufacture and sale of hand and power tools, hardware products, steel and steel strapping, with its principal place of business in New Britain, Connecticut. It is a large, multi-plant, multi-product concern with a history of expanding sales. In 1965, a year prior to the merger, Stanley's domestic sales were $123,000,000, an increase of $29,000,000 over its 1963 sales figures. For the period 1963-1965, its net earnings after taxes rose from $4,200,000 to $6,600,000, an advance of more than 57%. In 1965 Stanley's sales in the relevant product market 4 were $814,000. It operated numerous production facilities, including plants located in California, Connecticut, Florida, New Jersey, North Carolina, Ohio, Tennessee, Vermont and Illinois.

Amerock was incorporated in 1928 and maintains its principal place of business in Rockford, Illinois. At the time of this merger, Amerock was engaged in the manufacture and sale of certain hardware products for use primarily in kitchens, in addition to a broad line of window, appliance, furniture and general household hardware products. Its domestic

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sales in 1963 totaled $23.8 million, and increased by 1965 to $29.4 million, an advance of more than 23%. Amerock's 1965 net earnings after taxes were $2.8 million, a gain of over 47% over its 1963 earnings figures. Amerock's 1965 sales in the relevant product market were in excess of $18,000,000.

The Industry

Since Section 7 of the Clayton Act forbids mergers between companies "in any line of commerce in any section of the country," when the merger may result in substantial lessening of competition, determination of the relevant product and geographic markets is of critical significance. See, e. g., Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). Here the task of isolating the relevant markets has been made simpler for us, since Stanley and the Commission stipulated that within the general hardware industry, sales of cabinet hardware products in the Nation constitute the appropriate product and geographic markets. The parties agreed also that for purposes of this case, there are no relevant product or geographic submarkets. The Examiner and the Commission grounded their findings of fact on these stipulations; their findings are conclusive, if supported by substantial evidence. 15 U.S.C. § 45(c).

The parties are agreed that cabinet hardware includes pulls, knobs, hinges, latches, catches and similar products, including drawer slides and shelving hardware, used principally in kitchen cabinets. The cabinet hardware market comprises two related lines, residential cabinet hardware and architectural, or institutional, cabinet hardware. 5 Residential cabinet hardware is used in houses and apartments. At one time, residential cabinet hardware was made primarily of metal stampings and extrusions, and was essentially functional in nature, with simple lines and designs. In the years following World War II, as the American home began to reflect post-war economic affluence, consumer demand for more highly ornamented cabinet hardware designs increased, and the industry underwent a dramatic change. Manufacturers of residential cabinet hardware turned to a zinc die-casting process, and, as a result, products in this line were transformed into highly stylized, fashion-oriented items, which were offered in a wide variety of designs and finishes to complement the motifs of contemporary cabinet work. Virtually all residential knobs and pulls are now made by the diecasting method. This enables manufacturers to produce the intricate styles and designs demanded by consumers of residential cabinet hardware.

Architectural cabinet hardware is produced for use in institutional and commercial buildings, such as schools, recreational centers and office buildings. The marketing watchword of architectural cabinet hardware is embodied in the phrase, "form follows function;" products in this line must be more durable than residential cabinet hardware in order to withstand the heavier wear to which they are subject in an institutional or commercial setting. As a result, architectural cabinet hardware is rarely made by the die-cast method but is stamped out of bronze, brass, aluminum or steel. These metals are more durable than zinc die-cast material and also more expensive.

Market Shares

Cabinet hardware sales in the United States in 1965, a year prior to the merger, were between $76,000,000 and $80,000,000. The record discloses that in 1965, Stanley ranked as the tenth leading producer of cabinet hardware products with sales of $814,000, representing a market share of 1%. Amerock, the acquired company, ranked first as the seller

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of cabinet hardware products in the United States. Its 1965 sales exceeded $18,000,000, and the company controlled 22-24% of the market. 6

The Commission upheld the Trial Examiner's finding that the cabinet hardware industry was concentrated. As the table in the margin indicates, the four leading firms in the industry accounted for total sales ranging from 49% to 51% of the market. 7


Our attention initially must focus on a threshold dispute between the parties. It is Stanley's contention that the rationale and critical findings of the Commission's decision indicate that the Stanley-Amerock merger was declared illegal solely on the ground that the merger eliminated potential competition in the cabinet hardware market. The Commission opposes this characterization of its decision and insists that elimination of both actual and potential competition triggered application of Clayton § 7 to the merger. The Commission's position on appeal is that either ground for its decision adequately made out a violation of the Clayton Act in this case. The argument is of central importance because under the rule enunciated in SEC v. Chenery Corp., 318 U.S. 80, 92, 63 S.Ct. 454, 87 L.Ed. 626 (1943), we must find that the considerations urged on appeal in support of the Commission's order are tion was based, if we are to sustain the order.

Chenery instructs that "the orderly functioning of the process of review requires that the grounds upon which the administrative agency acted be clearly disclosed and adequately sustained." Chenery, supra, 318 U.S. at 94, 63 S.Ct. at 462. It is clear to us that the Commission's decision was dual pronged and that the Stanley-Amerock merger was invalidated on both actual and potential competition grounds. And in our view, the actual competition case was "clearly disclosed" within the meaning of Chenery. 8

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We do not develop a "new ground" for the Commission's holding, as the dissent mistakenly suggests, but find the actual competition case clearly underscored in the proceedings before the Examiner, and also in the opinion rendering the Commission's decision. The complaint charged that as a result of the merger "substantial actual and potential competition has been, or may be, eliminated." Stanley's clear perception that an actual competition theory had been litigated before the Trial Examiner is evident from its brief on appeal to the Commission which discussed the merits of the actual competition case at some length. 9

To preserve the integrity both of judicial review and of agency procedures we must be persuaded not only that Stanley had notice of the actual competition theory, but that the Commission specifically adopted the actual competition case as a reason for its decision. Any doubts on that score, however, are convincingly dispelled by a careful reading of the Commission's opinion, which repeatedly relates the effect of the merger on actual competition.

The Commission adopted at the outset the Examiner's finding that "the merger between Stanley and Amerock led to increased concentration in the already concentrated cabinet hardware market as well as eliminating Amerock as the leading independent producer of cabinet hardware . . . ." Unmistakably this is the argot of an actual competition case.

Moreover, that portion of the Commission's opinion which discussed the competitive effects of the Amerock acquisition articulated the Commission's overall view of the case in language that indicates beyond doubt the mix of actual...

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