Marathon Oil Co. v. Mobil Corp.

• Decision Date: 01 November 1981
• Docket Number: No. C81-2193.,C81-2193.
• Citation: 530 F. Supp. 315
• Parties: MARATHON OIL COMPANY, Plaintiff, v. MOBIL CORPORATION, etc., et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

530 F. Supp. 315

MARATHON OIL COMPANY, Plaintiff, v. MOBIL CORPORATION, etc., et al., Defendants.

No. C81-2193.

United States District Court, N. D. Ohio, E. D.

November 1, 1981.

Patrick F. McCartan, Richard W. Pogue, Carl L. Steinhouse, John L. Strauch, Cleveland, Ohio, Donald I. Baker, William E. Swope, Washington, D. C., Robert J. Hoerner, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Michael W. Mitchell, Rodney O. Thorson, Stuart L. Shapiro, John M. Nannes, Skadden, Arps, Slate, Meagher & Flom, New York City and Washington, D. C., for plaintiff.

Charles F. Clarke, James P. Murphy, Eben G. Crawford, John E. Lynch, Squire, Sanders & Dempsey, Cleveland, Ohio, Sanford M. Litvack, Donovan, Leisure, Newton & Irvine, New York City, Howrey & Simon, Washington, D. C., for Mobil Corp. and Mobil Oil Corp.

Richard Cusick, John D. Leech, Calfee, Halter & Griswold, Cleveland, Ohio, John L. Warden, Sullivan & Cromwell, New York City, for Merrill Lynch, Pierce, Fenner & Smith, Inc.

MEMORANDUM OF OPINION AND ORDER

MANOS, District Judge.

On November 1, 1981 plaintiff, Marathon Oil Company, (hereinafter Marathon), filed the above-captioned case under Section 16 of the Clayton Act, 15 U.S.C. § 26, to enjoin the proposed acquisition of Marathon by the defendant, Mobil Corporation, (hereinafter Mobil), on the ground that a merger of the two companies would violate Section 7 of the Clayton Act, 15 U.S.C. § 18.¹ The case is currently before this court on Marathon's motion for a preliminary injunction. On the motion the parties primarily rely on affidavits, on statistical data and on facts developed at an evidentiary hearing.

Marathon is an Ohio corporation with its principal place of business in Findlay, Ohio. Mobil is a Delaware corporation with its principal place of business in New York, New York. The defendant, Mobil Oil Corporation, (hereinafter referred to collectively as Mobil), is a New York corporation with its principal place of business is New York, New York. Both Marathon and Mobil are large integrated petroleum companies and are among the seventeen major integrated petroleum companies in the United States.

Mobil has total assets of 32.7 billion dollars. In 1980 it had total revenues of 63.7 billion dollars and net income of 3.27 billion dollars² making it the second largest industrial company in the United States ranked by sales. Mobil has domestic crude oil reserves of 759 million barrels and domestic natural gas reserves of 5,754 billion cubic feet. It operates six (6) refineries in this country with a combined capacity of 859,700 barrels per day and ranks seventh among domestic refiners. In 1980 Mobil sold 6.55 billion gallons of motor gasoline which accounted for 6.3 percent of total domestic sales and ranked fourth among domestic sellers. Mobil owns the largest number of crude oil gathering pipelines in the United States and ranks second in the United States in total domestic crude oil pipeline mileage. In 1980 Mobil ranked fourteenth in the United States in the amount of refined petroleum products delivered over wholly owned domestic product pipelines. Mobil owns and operates over one hundred (100) petroleum terminals in the United States.

Marathon has total assets of 5 billion dollars. In 1980 it had total revenues of 8.75 billion dollars and net income of 379 million dollars making it the thirty-ninth largest industrial company in the United States. Marathon has domestic crude reserves of 644 million barrels and domestic natural gas reserves of 1.644 billion cubic feet. It operates four (4) refineries in this country with a combined capacity of 588,000 barrels per day and ranks ninth among domestic refiners. In 1980 Marathon sold 3.83 billion gallons of motor gasoline which accounted for 3.7 percent of total domestic sales and ranked twelfth among domestic sellers. Marathon wholly owns approximately 2600 miles of crude oil pipelines and 1400 miles of refined products pipelines in the United States. It possesses a joint ownership interest in an additional 2000 miles of crude oil pipelines and 1700 miles of refined products pipelines. In 1980 Marathon ranked fifth in the United States in the amount of refined petroleum products delivered over wholly owned domestic product pipelines. Marathon owns and operates forty-nine (49) petroleum terminals in the United States.

Mobil markets motor gasoline on a nationwide basis primarily through Mobil brand outlets. Marathon, on the other hand, markets motor gasoline in a twenty-one (21) state area. Approximately, 15 percent of Marathon's total gasoline sales are made to independent branded jobbers, branded distributors and branded dealers in the states of Illinois, Indiana, Kentucky, Michigan, Ohio and Wisconsin. This gasoline is eventually resold at retail under the Marathon brand. The remaining 85 percent of Marathon's gasoline sales are made by its Wholesale Marketing Division at a terminal rack price or tankwagon price. All such sales are unbranded and are made in the following estimated quantities to the following three (3) categories of customers: (1) 10 percent of Marathon's gasoline sales are made to seven (7) companies in which Marathon owns a minimum 50 percent equity interest; (2) 25 percent of Marathon's total gasoline sales are made to the Emro Marketing Company, a wholly owned subsidiary of Marathon which resells at retail under the Gastown, Speedway, Bonded and Consolidated brands; and (3) 50 percent of Marathon's total gasoline sales are made to over 1100 independent businesses which resell either at wholesale or retail prices. Approximately 60 percent of all gasoline sold by Marathon is eventually resold at retail prices that are generally several cents per gallon below that sold in Mobil branded outlets. Mobil admits that its proposed acquisition of Marathon would make Mobil the largest marketer of motor gasoline in the United States with almost 10 percent of the national market.

Marathon alleges in its complaint that, in violation of Section 7 of the Clayton Act, the effect of the proposed acquisition may be to substantially lessen competition in the: exploration and production of crude oil; refining of crude oil; transportation of crude oil and refined petroleum products; and marketing of refined petroleum products, including motor gasoline, in certain regional,³ state⁴ and local⁵ markets. The complaint further alleges that the effect of the proposed acquisition may be to substantially lessen competition because Marathon would be eliminated as a major supplier of gasoline to independent marketers. In response to Marathon's allegations, Mobil asserts that the relevant geographic market is nationwide and that, when so viewed, the effect of the proposed acquisition will not be to substantially lessen competition since the increase in concentration in the petroleum industry resulting from the acquisition would be de minimus. Mobil also argues that it would continue the supply of gasoline to independent marketers because of the tremendous refining capacity that it would have upon the acquisition of Marathon. Therefore, the proposed acquisition would not have an adverse effect on competition.

The United States Supreme Court has established the basic standards to be applied by the courts in suits brought under Section 7 of the Clayton Act in a series of cases beginning with Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962), and following with such cases as United States v. Philadelphia National Bank, 374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963); United States v. El Paso Natural Gas Co., 376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964); United States v. Aluminum Co. of America, 377 U.S. 271, 84 S.Ct. 1283, 12 L.Ed.2d 314 (1964); United States v. Penn-Olin Chemical Co., 378 U.S. 158, 84 S.Ct. 1710, 12 L.Ed.2d 775 (1964); United States v. Continental Can Co., 378 U.S. 441, 84 S.Ct. 1738, 12 L.Ed.2d 953 (1964); United States v. Von's Grocery Co., 384 U.S. 270, 86 S.Ct. 1478, 16 L.Ed.2d 555 (1966); United States v. Pabst Brewing Co., 384 U.S. 546, 86 S.Ct. 1665, 16 L.Ed.2d 765 (1966); and United States v. General Dynamics Corp., 415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974).

In construing the legislative history of Section 7 of the Clayton Act as amended, the United States Supreme Court in Brown Shoe, reasoned that:

The dominant theme pervading congressional consideration of the 1950 amendments was a fear of what was considered to be a rising tide of economic concentration in the American economy....

370 U.S. at 315, 82 S.Ct. 1502. Clearly, the greater the degree of concentration in a particular industry, "the greater is the likelihood that parallel policies of mutual advantage, not competition, will emerge." United States v. Aluminum Co. of America, 377 U.S. 271, 280, 84 S.Ct. 1283, 1289, 12 L.Ed.2d 314 (1964). See also: United States v. Philadelphia National Bank, 374 U.S. 321, 363, 83 S.Ct. 1715, 1741, 1742, 10 L.Ed.2d 915 (1963); United States v. Phillips Petroleum Co., 367 F.Supp. 1226, 1231 (C.D.Calif.1973), aff'd., 418 U.S. 906, 94 S.Ct. 3199, 41 L.Ed.2d 1154 (1974). "It is the basic premise of Section 7 that competition will be most vital when there are many sellers; none of which has any significant market share." United States v. Aluminum Co. of America, supra, 377 U.S. at 280, 84 S.Ct. at 1289. Thus, although a vast amount of scholarly literature has been published regarding Section 7 of the Clayton Act, its interpretation is not difficult. Section 7 merely proscribes mergers which lessen competition in any line of commerce in any section of the country. As established in Brown Shoe, the section does not prohibit all mergers. What Congress intended in enacting Section 7 was to arrest restraints of trade and/or monopolistic tendencies "in their incipiency and well before they have attained such effects as would justify a Sherman Act proceeding."⁶ See: United States v. Atlantic Richfield...