United States v. Bethlehem Steel Corporation

• Decision Date: 20 November 1958
• Citation: 168 F. Supp. 576
• Parties: UNITED STATES of America, Plaintiff, v. BETHLEHEM STEEL CORPORATION and The Youngstown Sheet and Tube Company, Defendants.
• Court: U.S. District Court — Southern District of New York

168 F. Supp. 576

UNITED STATES of America, Plaintiff, v. BETHLEHEM STEEL CORPORATION and The Youngstown Sheet and Tube Company, Defendants.

United States District Court S. D. New York.

November 20, 1958.

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Victor R. Hansen, Asst. Atty. Gen., Robert A. Bicks, First Asst. Atty. Gen., Allen A. Dobey (trial counsel), Donald F. Melchior (trial counsel), George D. Reycraft, Jr., John T. Duffner, Attys., Dept. of Justice, Washington, D. C., for the United States.

Cravath, Swaine & Moore, New York City, Bruce Bromley (trial counsel), John H. Morse (trial counsel), W. John Nauss, Jr., Robert D. Duke, New York City, of counsel, for defendant, Bethlehem Steel Corp.

Simpson, Thacher & Bartlett, New York City, Whitney North Seymour (trial counsel), Richard Jones, New York City, Baker, Hostetler & Patterson, Howard F. Burns, Raymond T. Jackson (trial counsel), Cleveland, Ohio, of counsel, for defendant, The Youngstown Sheet and Tube Co.

WEINFELD, District Judge.

The Government seeks to enjoin a proposed merger between the defendants, Bethlehem Steel Corporation and The Youngstown Sheet and Tube Company, on the ground that it would violate section 7 of the Clayton Act, as amended.¹

Under the proposed merger Bethlehem is to acquire all the assets and properties of Youngstown pursuant to an agreement between them entered into on December 11, 1956. Prior to the execution of the agreement the defendants applied to the Department of Justice for clearance² and submitted in support of their request detailed data pertaining to themselves, to other companies in the iron and steel industry, and to the industry in general. The Department of Justice was of the opinion that the contemplated merger came within the ban of section 7 and refused clearance. When the defendants nonetheless executed the merger agreement the Government commenced this suit to block its consummation.

The Government, relying in large measure upon the data submitted by the defendants in support of their clearance application, supplemented by facts culled from governmental and steel industry reports, moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The defendants in opposing the motion contended that the data relied upon by the Government did not give the complete factual picture necessary for a determination of the competitive consequences of the proposed merger. While most of the basic facts relevant to a decision of the ultimate issues were not in dispute, the Court was of the view that additional evidence, not in the summary judgment record, would, in view of the complex issues centering about a vast industry vital to the nation's economic welfare, be helpful in deciding the case. Accordingly, the Court, without disposing of the motion in classical summary judgment terms, decided that as a matter of sound judicial administration the case should proceed to trial in order to obtain a more comprehensive record.³

On its summary judgment motion the Government confined its attack to the horizontal aspects of the proposed merger. Upon the trial the Government expanded its attack and urged as an additional ground the vertical aspects of the merger.

At the trial the parties stipulated that the affidavits and exhibits submitted in support of and in opposition to the Government's motion for summary judgment be deemed part of the trial record, subject to the right of cross-examination. A number of the affiants were cross-examined at length. Other witnesses were called by the parties and testimony was given on both the horizontal and vertical aspects. The parties, at the Court's suggestion, further stipulated many additional basic facts with respect, among other matters, to capacity, production, and shipments for the iron and steel industry as a whole and for Bethlehem and Youngstown separately.

Since a good deal of the evidence was of a technical nature requiring some understanding of the process of producing steel and steel products and the operations of steel plants, the Court with the consent of counsel and in their company, observed in operation two of the plants of one of the defendants.

The record before the Court reveals that generally there is no dispute as to the basic facts. The essential differences between the parties are as to the inferences and conclusions to be drawn from those facts and the interpretation of section 7 of the Clayton Act.

The Government's basic charge is that the proposed merger will substantially lessen competition in the iron and steel industry as a whole and in a variety of important products on a nationwide basis as well as in many areas of the country.

The defendants, while conceding they are in competition with one another in certain areas of the country with respect to certain products, deny that such competition is substantial—indeed, they urge that it is de minimis. Their essential position is not only a denial that the merger may substantially lessen competition, but on the contrary that it would have a beneficial competitive effect; that the expansion of steel capacity contemplated under the merger plan would stimulate competition both in the area of expansion and in other areas, and would enable Bethlehem to challenge the dominant position of United States Steel Corporation in the steel industry.

At the outset it is well to emphasize that the case does not involve any claim of violation or threatened violation of any provision of the Sherman Act. We are not dealing with issues of restraint of trade, monopolization or attempt to monopolize. The Government's attack on the proposed merger is grounded solely on section 7 of the Clayton Act, as amended in 1950, which provides in pertinent part:

"No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."⁴

We turn to the legislative history of the Clayton Act, to the circumstances which gave rise to its passage and to the 1950 amendment of section 7.

It is stating a fact of history to say that Congress felt that the Sherman Act passed in 1890⁵ had proved quite ineffective in halting the growth of "trusts" and monopolies. Huge consolidations and mergers continued to be effected through the purchase of stock and "trusts" continued to flourish. The evils of corporate mergers and combines with their increasing concentration of power commanded the concerned attention of the nation. The "rule of reason" enunciated by the Supreme Court in 1911 in Standard Oil Co. v. United States,⁶ regarded by many as having weakened the Sherman Act, gave impetus to efforts to secure more effective means of preserving our free enterprise system. Political agitation for curbing the growing power of "trusts" and the concentration of economic power followed the Supreme Court ruling. In the national campaign of 1912 all major political parties denounced the monopolistic trends and their platforms carried planks for remedial legislation. The leadership in the efforts to strengthen the antitrust laws was assumed by Woodrow Wilson, who thereafter in a series of messages to Congress urged further legislative action.⁷ The Congress acted in 1914 by passing the Clayton Act.⁸ Its essential purpose was preventative—to check anticompetitive acts in their incipiency before they reached the dimensions of Sherman Act violations. In short, Congress contemplated a standard much less rigorous than that which had become required under the Sherman Act. As stated in the Senate Report on the bill:

"Broadly stated, the bill, in its treatment of unlawful restraints and monopolies, seeks to prohibit and make unlawful certain trade practices which, as a rule, singly and in themselves, are not covered by the Sherman Act, or other existing anti-trust acts, and thus, by making these practices illegal to arrest the creation of trusts, conspiracies, and monopolies in their incipiency and before consummation."⁹

This has been expressly recognized by the Supreme Court.¹⁰

Despite the clear purpose of the original section 7 of the Clayton Act, its objectives were not fully realized. This frustration was generally attributed to a number of factors. First, the statute applied only to acquisitions of stock and did not apply to acquisitions of assets, and even as to stock acquisitions it was interpreted so as not to apply where the stock was used to acquire assets.¹¹ Second, it was generally assumed that original section 7 did not apply to vertical mergers.¹² The inadequacies of the section, whatever the reasons, were further highlighted by pronounced post war merger activity which resulted in the elimination by large corporations of independent companies in industries which had traditionally been considered small business fields. Congress showed increasing concern with the sharp rise in economic concentration and with the prospect of even greater concentration in the light of the continuing merger trend.¹³ Further, the Columbia Steel case¹⁴ brought home the limitations of the Sherman Act in merger cases. It was against this background that Congress amended section 7.

The 1950 amendment to section 7 expanded its sweep so as: (1) to prohibit the acquisition of assets as well as stock; (2) to broaden the area in which competition may be adversely affected by eliminating the test of whether the effect of the acquisition may be substantially to lessen competition between the acquiring and the acquired corporation; (3) to eliminate the prior test of whether the acquisition might restrain commerce "in any * * * community" and...