Bendix Corporation v. FTC, 20687.
Decision Date | 18 October 1971 |
Docket Number | No. 20687.,20687. |
Citation | 450 F.2d 534 |
Parties | The BENDIX CORPORATION, Petitioner, v. The FEDERAL TRADE COMMISSION, Respondent. |
Court | U.S. Court of Appeals — Sixth Circuit |
Abe Krash, Washington, D. C., for petitioner; Daniel A. Renzneck, Peter K. Bleakley, Jack L. Lipson, Jerome I. Chapman, Washington, D. C., on brief; Charles F. Donnelly, B. G. Andrews, Southfield, Mich., Arnold & Porter, Washington, D. C., of counsel.
Frederick H. Mayer, F. T. C., Washington, D. C., for respondent; Joseph Martin, Jr., Gen. Counsel, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Thomas F. Howder, Montgomery K. Hyun, Attys., F. T. C., Washington, D. C., on brief.
Before PHILLIPS, Chief Judge, and WEICK and EDWARDS, Circuit Judges.
The Federal Trade Commission held that the acquisition of Fram Corporation by the Bendix Corporation violated Section 7 of the Clayton Act, 15 U.S.C. § 18.1 Reversing the decision of its Hearing Examiner, the Commission directed divestiture of Fram. The case is before this court on the petition to review filed by Bendix.
The complaint was filed June 29, 1967, charging that Bendix had violated not only § 7 of the Clayton Act but also § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1). The § 5 charge is not before this court in the present proceeding and will not be discussed further in this opinion.
The complaint alleged violations of § 7 with respect to three lines of commerce: (1) automotive filters,2 (2) aerospace filters,3 and (3) liquid separators.4
The results of the § 7 violations were averred to be:
As the case proceeded Complaint Counsel dropped several of these theories and eventually reformulated the case. Before the Hearing Examiner he proceeded on three separate theories:
The Examiner rejected each of these theories, concluding that Complaint Counsel had failed to sustain his burden of proof. The first theory, lessening of existing competition between Bendix and Fram, was abandoned by Complaint Counsel on the appeal to the Commission.
On appeal before the Commission most of the Examiner's findings of fact and conclusions of law were accepted without change, and his treatment of the three theories was not disturbed. The Commission held:
On the basis of this toehold theory of illegality, the Commission found that there was a substantial likelihood of a lessening of competition in the automotive filter aftermarket as a result of the acquisition and that the acquisition therefore violated § 7.
In this court Bendix does not seriously question whether the toehold theory is a valid theory of illegality under § 7. It contends that to establish a violation of § 7 based on the toehold theory, Complaint Counsel must prove that the effect of the acquisition "may be substantially to lessen competition" in some line of commerce in some section of the country.
Bendix asserts that Complaint Counsel failed to prove the essential points necessary to establish a toehold violation. In addition to contesting the efficacy of the proof, Bendix raises two probing questions: (1) Is the toehold theory of illegality as applied in the instant case inconsistent with the Commission's approval of the Examiner's finding that Bendix was not a likely potential entrant by internal expansion? and (2) Did the Commission violate the Administrative Procedure Act and the Fifth Amendment due process clause in deciding the case on a theory that was never considered by the Examiner or raised by Complaint Counsel and without affording Bendix an opportunity to present proof to rebut this theory?
To dispose of the present review we find it necessary to consider only the issue under the Administrative Procedure Act. For the reasons set forth later in this opinion, we conclude from the record before this Court that the Commission violated § 5 of the Administrative Procedure Act, 5 U.S.C. § 554, when it decided the case on a theory of illegality which was never charged, raised, nor tried during the administrative hearing; never presented for consideration by the Hearing Examiner; and not raised as an issue or discussed by Complaint Counsel in the appeal to the Commission from the order of the Hearing Examiner dismissing the complaint. Bendix had no notice that it was charged under the toehold theory of illegality and was accorded no opportunity to present evidence in defense against this theory. The order of the Commission therefore must be vacated and the case remanded.
Although we do not pass upon the merits of the § 7 charge, we recite in some detail certain merit-related factors as disclosed by the record which are relevant to the determinative issue under the Administrative Procedure Act.
Filters sold in the relevant market are used for replacement of spent filters.
The relevant market is clearly distinguished in sales techniques, distribution channels, product outlets, and customers from the related market of filters for original equipment manufacturers (OEM's). The OEM market involves sales of the same types of filters to companies such as Chrysler and American Motors for use as parts on their new passenger automobiles. General Motors and Ford have divisions which supply all their needs in the OEM market.
The only proofs offered on the relevant geographic market were directed at the entire United States. For purposes of this review we do not consider any geographic submarket less than the entire United States.
The predominate force in the relevant market is General Motors. Through its automobile parts division General Motors sells under the trade name "AC" approximately one-third of the filters distributed in the relevant market. Purolator is the second largest company in the relevant market, having approximately 21 per cent of the automotive filter aftermarket business. Fram ranks third in the sale of filters in the...
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