F. T. C. v. Atlantic Richfield Co.

• Decision Date: 12 January 1977
• Docket Number: No. 76-2250,76-2250
• Citation: 549 F.2d 289
• Parties: , 1977-1 Trade Cases 61,241 FEDERAL TRADE COMMISSION, Appellant, v. ATLANTIC RICHFIELD COMPANY and the Anaconda Company, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 289

549 F.2d 289

44 A.L.R.Fed. 395, 1977-1 Trade Cases 61,241

FEDERAL TRADE COMMISSION, Appellant, v. ATLANTIC RICHFIELD COMPANY and the Anaconda Company, Appellees.

No. 76-2250.

United States Court of Appeals Fourth Circuit.

Argued Dec. 9, 1976.

Decided Jan. 12, 1977.

William M. Sexton, Atty., F. T. C., Washington, D. C. (Robert J. Lewis, Gen. Counsel, Gerald P. Norton, Deputy Gen. Counsel, Jerold D. Cummins, Acting Asst. Gen. Counsel, Harold E. Kirtz, Richard L. Rosen, Roger J. Leifer, Richard F. Silvestri, John M. Sipple, Jr., Terrence C. Brown, Attys., F. T. C., Washington, D. C., on brief), for appellant.

Jerome G. Shapiro, New York City (Amalya L. Kearse, James F. Parver, Norman C. Kleinberg, Hughes, Hubbard & Reed, New York City, Boothe, Prichard &amp Dudley, Alexandria, Va., and Francis X. McCormack, Gen. Counsel, Atlantic Richfield Co., Brooklyn, N. Y., on brief), for appellee Atlantic Richfield Co.

Zachary Shimer (Melvin D. Goodman, Jerome C. Katz, Chadbourne, Parke, Whiteside & Wolff, New York City, Boothe, Prichard & Dudley, Alexandria, Va., and Richard B. Steinmetz, Jr., Gen. Counsel, Anaconda Co., Butte, Mont., on brief), for appellee, The Anaconda Co.

D. Robert Lohn, Counsel to the Governor and Sp. Asst. Atty. Gen. for the State of Mont., Helena, Mont., on brief as amicus curiae.

Before WINTER, CRAVEN and BUTZNER, Circuit Judges.

WINTER, Circuit Judge:

Federal Trade Commission (FTC) appeals from the district court's denial of a preliminary injunction in an action instituted pursuant to § 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b) (Supp. IV 1974), to prevent consummation of a merger between Atlantic Richfield Company (Arco) and The Anaconda Company (Anaconda) during the pendency of administrative antitrust proceedings which are being conducted before FTC. Because we are persuaded that the district court correctly determined that a substantial likelihood has not been shown that FTC will prevail on the merits of the underlying antitrust proceeding, we affirm.

I.

Arco, the fifteenth largest publicly-held corporation in terms of sales and revenues, and the thirteenth largest in terms of assets, is principally engaged in the production and sale of petroleum, petroleum products and natural gas. Arco has also engaged in exploration for uranium and, through a joint venture, the production and sale of uranium oxide. It has, however, divested itself of this aspect of its operations, to which fuller reference will be made later. Arco has never been engaged in the copper business.

Anaconda is principally engaged in the mining and processing of copper and aluminum and the manufacture of copper, copper alloy and aluminum products. It is also engaged in exploration for uranium and the production of uranium oxide. It is a fully integrated copper company. It ranks 188th in terms of sales and revenues and seventy-first in assets, notwithstanding that in recent years many of its foreign assets have been appropriated by a foreign government with less than full compensation. Anaconda ranks third in the market for copper ore and concentrates and fourth in the market for refined copper, respectively. The two leaders in the market for copper ore and concentrates control approximately thirty percent of the market, and the three leaders in the market for refined copper control approximately sixty percent of the market. Anaconda has a market share of 8.27 percent in the market for copper ore and concentrates and 9.78 percent in the market for refined copper.

In March, 1976, Arco made a successful cash tender offer to shareholders of Anaconda as a result of which it acquired twenty-seven percent of Anaconda's common stock. In July, 1976, Arco and Anaconda agreed to merge, Anaconda to become a wholly-owned subsidiary of Arco. Anaconda's shareholders have approved the merger.

FTC commenced administrative proceedings challenging the merger on the ground that it would violate § 7 of the Clayton Act, 15 U.S.C. § 18 (1970), or § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (1970) as amended (Supp. IV 1974), ¹ because of its anticompetitive effect in the markets for copper ore and concentrates, the production and sale of refined copper and the production and sale of uranium oxide. It then sued in the district court under § 13(b) of the Federal Trade Commission Act to restrain consummation of the merger which, by agreement of the parties, must occur by March, 1977, if at all. After a full hearing, the district court, in an opinion from the bench, denied relief. It made numerous findings, the pertinent ones of which will be separately addressed.

II.

Section 13(b) of the Federal Trade Commission Act, the statutory basis for this litigation, ² requires a judicial consideration of two factors in determining whether to grant a preliminary injunction while the administrative determination of whether the antitrust laws have been or would be violated is being made: "the equities" and "the Commission's likelihood of ultimate success." See FTC v. Food Town Stores, Inc., 539 F.2d 1339 (4 Cir. 1976) (Winter, J., sitting as a single circuit judge). The district court found overall that FTC had not shown a reasonable likelihood that it would prevail in establishing that the merger would violate the antitrust laws. We think this conclusion essentially correct. We are led to this result from our analysis of FTC's grounds of attack and the evidence of record.

In the administrative proceedings, FTC alleged that the effects of the proposed merger may be substantially to lessen (a) potential competition between Arco and producers of copper in the market for copper ore and concentrates and in the production and sale of refined copper, (b) actual competition between Arco and Anaconda in the production and sale of uranium oxide, and (c) potential competition between Arco and producers of uranium oxide. ³ We will consider separately the copper and uranium oxide claims.

III.

With regard to copper ore concentrates and refined copper, it is undisputed that Arco is not now engaged in such activities and hence is not an actual competitor in the copper markets. FTC's theory that the merger will substantially lessen competition is therefore predicated upon the claim that the evidence shows that but for the merger, Arco could reasonably be expected to engage in such activities and to become an entrant into these markets and areas of competition. Specifically, FTC contends that it has established that, if the merger is not allowed to be consummated, there is nonetheless a "reasonable probability" that Arco would enter the copper markets by original entry, by joint venture, by acquisition of an ore body, or by toehold acquisition. ⁴ Presumably, FTC would not claim that entry by joint venture or by toehold acquisition would violate the antitrust laws; ⁵ obviously original entry, or modified original entry by acquisition of a known ore body rather than exploration to discover an ore body, would not violate the antitrust laws.

At the outset, it must be recognized that the doctrine of actual potential entry as a basis for finding a violation of the antitrust laws is an evolving doctrine and not one with regard to which a body of controlling authority has yet been developed. ⁶ The question of whether elimination of competition by an actual potential entrant by reason of an acquisition, without more, may violate § 7 was reserved in United States v. Falstaff Brewing Corp.,410 U.S. 526, 537, 93 S.Ct. 1096, 35 L.Ed.2d 475 (1973), and United States v. Marine Bancorporation, 418 U.S. 602, 625-26 & n. 28, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974). The Supreme Court seems to have sanctioned the theory of actual potential entry in the context of a joint venture in United States v. Penn-Olin Chemical Co., 378 U.S. 158, 84 S.Ct. 1710, 12 L.Ed.2d 775 (1964), but it did not address the question where only actual potential entry was claimed. There are a number of lower court decisions to the effect that the elimination of a probable future entrant is the type of "effect" which "may be substantially to lessen competition" within the meaning of § 7. ⁷ One of the best discussions of the doctrine, endorsing it, is found in Turner, Conglomerate Mergers and Section 7 of the Clayton Act, 78 Harv.L.Rev. 1313, 1362-86 (1965). Turner notes that the doctrine is not uniformly embraced by text writers who reason that § 7 should not be applied to a merger which neither lessens actual competition nor harms future competition by raising barriers to entry, but simply prevents an increase in competition that would otherwise take place. See Rahl, Applicability of the Clayton Act to Potential Competition, 12 A.B.A. Antitrust Section 128, 143 (1958). See also Robinson, Recent Developments: 1974, 75 Colum.L.Rev. 243 (1975); J. Markham, Conglomerate Enterprise and Public Policy 176-78 (1973); Posner, Antitrust Policy and the Supreme Court: An Analysis of the Restricted Distribution Horizontal Merger and Potential Competition Decisions, 75 Colum. 282, 323-24 (1975) (criticizing in various ways the theory).

The novelty of the doctrine and the absence of definitive authority sanctioning it and defining its parameters could well serve as a basis for denial of a preliminary injunction under § 13(b), since it is difficult, if not impossible, to determine FTC's chances of ultimate success when the law is so uncertain and the parameters of the doctrine obscure. But we prefer to rest our decision on another basis, namely, that the district court correctly concluded that a showing of ultimate success under the legal standards which have evolved has not been made. Stated in terms of the proper scope of appellate review of the district court's denial of a preliminary injunction, we cannot say that the district court was so patently in error that its denial of the injunction should be disturbed. See Caldwell v. HUD, 522 F.2d 4 (4 Cir. 1975); Conservation Council of...