RSR Corp. v. F. T. C.

• Decision Date: 30 July 1979
• Docket Number: No. 77-1413,77-1413
• Citation: 602 F.2d 1317
• Parties: 1979-1 Trade Cases 62,450, 1979-2 Trade Cases 62,774 RSR CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1317

602 F.2d 1317

1979-1 Trade Cases 62,450, 1979-2 Trade Cases 62,774

RSR CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 77-1413.

United States Court of Appeals Ninth Circuit.

July 30, 1979.

Rehearing Denied July 30, 1979.

Carleton A. Harkrader (argued), of Wald, Harkrader & Ross, Washington, D.C., for petitioner.

Jane P. Schlaifer (argued), of Federal Trade Commission, Washington, D.C., for respondent.

Petition for Review of a Final Order of the Federal Trade Commission.

Before KILKENNY and CHOY, Circuit Judges, and PREGERSON ^*, District Judge.

PREGERSON, District Judge:

INTRODUCTION

RSR Corporation (RSR) appeals from a Federal Trade Commission (FTC) order requiring divestiture of three lead smelting plants acquired through a 1972 merger with Quemetco, Inc. (Quemetco). The FTC adopted, with some modifications, the findings of the administrative law judge (ALJ) that the merger violated Section 7 of the Clayton Act, 15 U.S.C. § 18. RSR asserts that the following FTC findings were not supported by substantial evidence and were made through the application of erroneous standards of law:

(1) Secondary lead is the relevant product market;

(2) The entire United States is the relevant geographic market;

(3) RSR's acquisition of Quemetco may substantially lessen competition in the United States secondary lead market;

(4) Divestiture by RSR of all pre-merger assets except the Seattle plant is the proper remedy.

We affirm.

FACTS

Before the RSR/Quemetco merger, RSR operated two lead smelting plants, one in Dallas and the other in Newark. These plants produced secondary lead, which is lead that is recycled from scrap automobile batteries and tetraethyl slag, as distinguished from primary lead, which is lead that is processed from raw lead ore. RSR's principal product was "hard" lead, which is lead containing other metals, such as antimony or cadmium. RSR also produced some "soft" lead, which is relatively pure. In 1972 RSR, the country's second largest producer of secondary lead, produced 12.16% of the secondary lead in the United States.

Before the merger Quemetco, a wholly-owned subsidiary of St. Joe Minerals Corporation, operated lead smelting plants in Seattle, Indianapolis, and City of Industry, California. A fourth plant, in Walkill, New York, was nearing completion at the time of the merger. In 1972 Quemetco produced 7.02% of the secondary lead in the United States and ranked fifth among the nation's secondary lead producers.

After the merger in late 1972, the newly-constituted RSR remained the second-largest secondary lead producer, but had a new combined production total of 19.18% Pro forma of total secondary lead production in the United States. Within a few months, the merged company had five operating plants: Seattle, Dallas, Indianapolis, City of Industry, and Walkill. RSR's Newark plant was not replaced when its lease terminated in early 1973, even though RSR had planned before the merger to construct a new plant there.

The FTC charged in April 1974 that the RSR/Quemetco merger violated Section 7 of the Clayton Act because the merger would substantially lessen competition in the secondary lead market. After holding hearings, the ALJ decided that Section 7 had been violated in the secondary lead market, which he found to be a proper submarket within the overall lead market. Since the ALJ found that market overlap between RSR and Quemetco was limited to the Midwest, he recommended that RSR divest itself of the Indianapolis plant.

Both sides appealed to the full FTC, which adopted the ALJ's decision with some modifications. The FTC agreed that the secondary lead market was the proper submarket, that secondary lead was the relevant product market, that the United States as a whole was the appropriate geographic market, and that the RSR/Quemetco merger could substantially lessen competition in the national secondary lead market. The FTC found, however, that before the merger the two companies had competed in markets in addition to the Midwest market, and that this competition took place in regions accounting for the major share of domestic lead consumption. The FTC therefore ordered RSR to divest itself of all pre-merger Quemetco assets except the Seattle plant, leaving RSR with two plants, in Dallas and Seattle, and Quemetco with three plants, in Walkill, Indianapolis, and the City of Industry. The FTC reasoned that the two newly-reconstituted firms could then compete in the West and Midwest markets immediately, and in the Northeast market as soon as RSR replaced its former Newark plant.

STANDARD OF REVIEW

The standard of review that this court must apply to the FTC's findings of fact is set out in Section 5(c) of the F.T.C. Act, 15 U.S.C. § 45(c): " The findings of the Commission as to the facts, if supported by substantial evidence, shall be conclusive." This statutory language has been judicially interpreted to confine the exercise of appellate review of agency fact finding to a determination whether the agency's findings are supported by substantial evidence. Ash Grove Cement Co. v. F.T.C., 577 F.2d 1368, 1378 (9th Cir. 1978). Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consolo v. Federal Maritime Commission, 383 U.S. 607, 620, 86 S.Ct. 1018, 1026, 16 L.Ed.2d 131 (1966). As the Fifth Circuit aptly summarized:

Findings of fact cannot and will not be set aside if the evidence in the record reasonably supports the administrative conclusion, even though suggested alternative conclusions may be equally or even more reasonable and persuasive. The findings must stand unless they were wrong, and they cannot be wrong that is, reversibly wrong if substantial evidence supports them.

Colonial Stores Inc. v. F.T.C., 450 F.2d 733, 739-40 (5th Cir. 1971). See also Carter Products, Inc. v. F.T.C., 268 F.2d 461, 496-97 (9th Cir.), Cert. denied, 361 U.S. 884, 80 S.Ct. 155, 4 L.Ed.2d 120 (1959).

DISCUSSION

PRODUCT MARKET

The parties first disagree over whether the overall lead market (including both primary and secondary lead) or the secondary lead market alone is the relevant product market for testing the RSR/Quemetco merger under Section 7. RSR contends that substantial competition exists between primary and secondary producers in the production of soft lead; thus, the overall lead market must be considered. The FTC, relying on distinctions between the primary and secondary lead markets, argues that the secondary lead market alone is the relevant product market.

The factors used to determine the relevant product market in an antitrust case were set out by the Supreme Court in Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). The Court stated that the outer boundaries of a product market can be determined by the "reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it." Id. at 325, 82 S.Ct. at 1523. The Court observed that well-defined submarkets may also exist which, in themselves, can constitute product markets for antitrust purposes, and suggested that determining the boundaries of such a submarket could be done "by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and In International Telephone & Telegraph Corp. v. General Telephone & Electronics Corp., 518 F.2d 913, 932 (9th Cir. 1975), this court recognized that the Brown Shoe indicia are to be used as practical aids rather than as conclusive evidence on the submarket issue. We commented: "Whether or not a court is justified in carving out a submarket depends ultimately on whether the factors which distinguish one purported submarket from another are 'economically significant' in terms of the alleged anticompetitive effect." Id.

specialized vendors." Id. The Court then explained that, since Section 7 prohibits any merger that may substantially lessen competition in Any line of commerce, the effects of a merger must be examined in each economically-significant submarket to determine if there is a reasonable possibility that the merger will substantially lessen competition in that submarket. If the merger could do so, it violates Section 7. Id. Finally, the Court held that these indicia apply to a horizontal merger, the type of merger involved in the instant case. Id. at 336, 82 S.Ct. 1502.

In determining that the secondary lead market is a proper submarket to be used as the relevant product market, the ALJ and the FTC relied heavily on the Brown Shoe indicia. In doing so they found that the distinctions between the overall lead market and the secondary lead market are economically significant.

We have considered each of the Brown Shoe indicia separately and find that substantial evidence supports the FTC's determination that the secondary lead market is the relevant product market for testing the RSR/Quemetco merger. We have briefly summarized some of this evidence below.

Industry or public recognition of the submarket as a separate economic entity : Evidence was presented to show that the lead industry distinguishes between primary and secondary lead in terms of the products and their producers. RSR contends that this recognition signifies only that the industry is aware of the different raw material source for each type of lead. Nevertheless, evidence indicated that consumers and lead producers, as well as national production reports, distinguish between the two types of lead.

Product's peculiar characteristics : Secondary lead is derived from recycling other lead products, not from smelting raw lead ore. As a result, secondary lead as a rule contains impurities (primarily metals) not found in primary lead. Secondary lead,...