United States v. Chemical Company

• Citation: 378 U.S. 158,12 L.Ed.2d 775,84 S.Ct. 1710
• Decision Date: 22 June 1964
• Docket Number: No. 503,PENN-OLIN,503
• Parties: UNITED STATES, Appellant, v. CHEMICAL COMPANY et al
• Court: United States Supreme Court

378 U.S. 158

84 S.Ct. 1710

12 L.Ed.2d 775

UNITED STATES, Appellant,

v PENN-OLIN CHEMICAL COMPANY et al.

No. 503.

Argued April 30, 1964.

Decided June 22, 1964.

[Syllabus from pages 158-159 intentionally omitted]

Sol. Gen. Archibald Cox for appellant.

H. Francis DeLone, Philadelphia, Pa., and Albert R. Connelly, New York City, for appellees.

Mr. Justice CLARK delivered the opinion of the Court.

Pennsalt Chemicals Corporation and Olin Mathieson Chemical Corporation jointly formed Penn-Olin Chemical Company to produce and sell sodium chlorate in the southeastern United States. The Government seeks to dissolve this joint venture as violative of both § 7 of the Clayton Act¹ and § 1 of the Sherman Act.² This direct appeal, 32 Stat. 823, 15 U.S.C. § 29, from the United States District Court for the District of Delaware, raises two questions. First, whether § 7 of the Clayton Act is applicable where two corporations form a third to engage in a new enterprise; and, second, if this question is answered in the affirmative, whether there is a violation of § 1 or § 7 under the facts of this case. The trial court found that the joint venture, on this record violated neither of these sections and found it unnecessary to reach the first question. 217 F.Supp. 110. In view of the importance of each of these questions in the administration of the antitrust laws, we noted probable jurisdiction. 375 U.S. 938, 84 S.Ct. 350, 11 L.Ed.2d 270. We have concluded that a joint venture as organized here would be subject to the regulation of § 7 of the Clayton Act and, reaching the merits, we hol that while on the present record there is no violation of § 1 of the Sherman Act, the District Court erred in dismissing the complaint as to § 7 of the Clayton Act. Accordingly, the judgment is vacated and remanded for further consideration.

1. LINE OF COMMERCE, RELEVANT MARKET, ETC.

At the outset it is well to note that some of the troublesome questions ordinarily found in antitrust cases have been eliminated by the parties. First, the line of commerce is a chemical known as sodium chlorate. It is produced commercially by electrolysis of an acidified solution of sodium chloride. All sodium chlorate of like purity is usable interchangeably and is used primarily in the pulp and paper industry to bleach the pulp, making for a brighter and higher quality paper. This is done by using the sodium chlorate as a principal raw material to generate chlorine dioxide, a gaseous material which bleaches cellulose fibers to a maximum whiteness with minimum loss of strength. The pulp and paper industry consumes about 64% of total production of sodium chlorate. The chemical is also employed in the production of herbicides, agricultural chemicals and in certain derivatives, such an ammonium perchlorate. Next, the relevant market is not disputed. It is the southeastern part of the United States. Nor is the fact that Olin has never engaged in the commercial production of sodium chlorate contested. It has purchased and does purchase amounts of the chemical for internal consumption and has acted as sales agent for Pennsalt in the southeastern territory under contracts dated in December 1957 and February 1958. Olin also owns a patented process for bleaching pulp with chlorine dioxide. This process requires sodium chlorate and has been widely used by paper manufacturers under royalty-free licenses.

In additionThe record shows that while Olin and Pennsalt are in competition in the production and sale of nonchlorate chemicals, only one was selected as a 'guinea pig' in the District Court to determine if the alleged violations extended to those chemicals. This was calcium hypochlorite, used in the production of pulp and paper. The trial court found that the joint venture was limited to sodium chlorate and that the joint venture plant which was built at Calvert City was constructed to produce sodium chlorate only. In the jurisdictional statement the Government indicated that it might argue that the joint venture also had an illegal impact on the calicum hypochlorite line of commerce, but this was not raised in the brief or at argument on the merits.

2. THE COMPANIES INVOLVED.

Pennsalt is engaged solely in the production and sale of chemicals and chemical products throughout the United States. Its assets are around a hundred million dollars and its sales are about the same amount. Its sodium chlorate production is located at Portland, Oregon, with a capacity of some 15,000 tons as of 1959. It occupied 57.8% of the market west of the Rocky Mountains. It has marketed sodium chlorate in the southeastern United States to some extent since 1957. Its shipments into that territory in 1960 were 4,186 tons of which Olin sold 3,202 tons on its sales agency ontract.

Olin is a large diversified corporation, the result of a merger of Olin Industries, Inc., and Mathieson Chemical Corporation in 1954. One of its seven divisions operates plants in 15 States and produces a wide range of chemicals and chemical products accounting for about 30% of Olin's revenues. Olin's sales in 1960 grossed some $690,000,000 and its total assets were $860,000,000.

Penn-Olin was organized in 1960 as a joint venture of Olin and Pennsalt. Each owns 50% of its stock and the officers and directors are divided equally between the parents. It plant at Calvert City, Kentucky, was built by equal contribution of the two parents and cost $6,500,000. It has a capacity to produce 26,500 tons of sodium chlorate annually and began operations in 1961. Pennsalt operates the plant and Olin handles the sales. Penn-Olin deals in no other chemicals.

3. BACKGROUND AND STATISTICS OF THE INDUSTRY.

Prior to 1961 the sodium chlorate industry in the United States was made up of three producing companies. The largest producer, Hooker Chemical Corporation, entered the industry in 1956 when it acquired Oldbury Electro Chemical Company, which had been producing sodium chlorate for over half a century. Hooker now has two plants, one in the relevant marketing area at Columbus, Mississippi, which originally had a capacity of 16,000 tons but which was doubled in 1962. The other plant is at Niagara Falls, New York, with a capacity of 18,000 tons. Hooker has assets of almost $200,000,000. American Potash & Chemical Corporation entered the industry in 1955 by the acquisition of Western Electro Chemical Company. American Potash also has two plants, one located at Henderson, Nevada, with a 27,000-ton capacity and the other at Aberdeen, Mississippi (built in 1957), the capacity of which was 15,000 tons. Its assets are almost $100,000,000. The trial court found that these two corporations 'had a virtual monopoly' in the relevant southeast market, holding over 90% of the market.

A third company in the industry was Pennsalt which had a 15,392-ton plant at Portland, Oregon. It entered seriously into the relevant marketing area through a sales arrangement with Olin dated December 1957 and finalized in 1958, which was aimed at testing the availability of the southeastern market. Olin as an exclusive seller was to undertake the sale of 2,000 tons of sodium chlorate per year to pulp and paper mills in the southeast (except for Buckeye Cellulose Co., at Foley, Florida, which Pennsalt reserved to serve directly). In 1960, 4,186 tons of sodium chlorate were marketed in the relevant market with the aid of this agreement. This accounted for 8.9% of the sales in that market.

During the previous decade no new firms had entered the sodium chlorate industry, and little effort had been made by existing companies to expand their facilities prior to 1957. In 1953 Olin had made available to Pennsalt its Mathieson patented process for bleaching pulp with chlorine dioxide and the latter had installed it 100% in all of the western paper mills. This process uses sodium chlorate. At about the same time the process was likewise made available, royalty free, to the entire pulp and paper industry. By 1960 most of the chlorine dioxide generated by paper manufacturers was being produced under the Olin controlled process. This created an expanding demand for sodium chlorate and by 1960 the heaviest concentration of purchasers was located in the relevant southeastern territory. By 1957 Hooker began increasing the capacity of its Columbus plant and by 1960 it had been almost doubled. American Potash sensed the need of a plant in Mississippi to compete with Hooker and began its Aberdeen plant in 1957. It was completed to a 15,000-ton capacity in 1959, and this capacity was expanded 50% by 1961.

The sales arrangement between Pennsalt and Olin, previously mentioned, was superseded by the joint ven- ture agreement on February 11, 1960, and the Penn-Olin plant operations at Calvert City, Kentucky, began i 1961. In the same year Pittsburgh Plate Glass Company announced that it would build a plant at Lake Charles, Louisiana, with a capacity of 15,000 tons. Pittsburgh Plate Glass had operated a sodium chlorate plant in Canada.

As a result of these expansions and new entries into the southeastern market, the projected production of sodium chlorate there more than doubled. By 1962 Hooker had 32,000 tons; American Potash, 22,500 tons; Penn-Olin, 26,500 tons; and Pittsburgh Glass, 15,000 tons—a total of 96,000 tons as contrasted to 41,150 in 1959. Penn-Olin's share of the expanded relevant market was about 27.6%. Outside the relevant southeastern market Pacific Engineering and Production Company announced in July 1961 that it would construct a 5,000-ton sodium chlorate plant at Henderson, Nevada, in a joint venture with American Cyanamid Company. Pacific would put up the 'know-how' and American Cyanamid the loan of the necessary money with 50% stock options.

4. THE SETTING FROM WHICH THE JOINT VENTURE EMERGED

As early as 1951 Pennsalt had considered building a plant at Calvert City and starting in 1955 it initiated several cost and market studies for a sodium...