United States v. International Telephone & Tel. Corp.

• Decision Date: 31 December 1970
• Docket Number: Civ. A. No. 13319.
• Citation: 324 F. Supp. 19
• Court: U.S. District Court — District of Connecticut
• Parties: UNITED STATES of America, Plaintiff, v. INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION, Defendant.

324 F. Supp. 19

UNITED STATES of America, Plaintiff, v. INTERNATIONAL TELEPHONE AND TELEGRAPH CORPORATION, Defendant.

Civ. A. No. 13319.

United States District Court, D. Connecticut.

December 31, 1970.

COPYRIGHT MATERIAL OMITTED

Joseph H. Widmar, Howard B. Myers, Richard M. Clinton, Harold J. Bressler and Donald J. Frickel, Attys., Dept. of Justice, Washington, D. C., Stewart H. Jones, U. S. Atty., New Haven, Conn., for plaintiff.

Henry P. Sailer, Charles E. Buffon, Gerald P. Norton and Robert N. Sayler, of Covington & Burling, Washington, D. C., and Scott E. Bohon, New York City, for defendant.

                            ITT—GRINNELL MERGER
                                   INDEX
                                                                 Page
                QUESTION PRESENTED  ...........................   22
                JURISDICTION  .................................   22
                PRIOR PROCEEDINGS .............................   22
                PARTIES TO THE ACTION .........................   23
                  I.  CLAIM THAT GRINNELL IS THE DOMINANT
                       COMPETITOR IN CERTAIN LINES
                       OF COMMERCE AND IN CERTAIN SECTIONS
                       OF THE COUNTRY .........................   24
                     (A) LINES OF COMMERCE  ...................   24
                         (1) Automatic Sprinkler Devices ......   24
                         (2) Automatic Sprinkler Systems ......   24
                         (3) Power Piping .....................   24
                         (4) Pipe Hangers .....................   25
                     (B) SECTIONS OF THE COUNTRY ..............   25
                         (1) Entire United States: For All Lines
                               of Commerce ....................   25
                

                         (2) Regional Areas: For Installation of
                               Automatic Sprinkler Systems ....   25
                             (a) New England ..................   25
                             (b) State of Utah ................   25
                             (c) Pacific Northwest (government's
                                   claim) .....................   25
                             (d) Inland Empire (government's
                                   claim) .....................   26
                      (C) DOMINANCE OF GRINNELL ...............   26
                          (1) Power Piping Market .............   26
                          (2) Pipe Hangers Market .............   27
                          (3) Automatic Sprinkler Devices Market  27
                          (4) Automatic Sprinkler Systems Market  27
                       SUMMARY UNDER THIS SECTION ..............  29
                II. CLAIM THAT MERGER WILL CONFER MARKETING
                     AND PROMOTIONAL COMPETITIVE
                     ADVANTAGES UPON GRINNELL ..................  29
                    REGARDING AUTOMATIC SPRINKLER DEVICES
                     AND AUTOMATIC SPRINKLER
                     SYSTEMS MARKETS
                    (A) PACKAGE OR SYSTEM SELLING ..............  30
                    (B) AFFILIATION WITH HARTFORD ..............  33
                    (C) ACCESS TO ITT'S FINANCIAL RESOURCES
                          AND ADVERTISING ......................  37
                    (D) FOREIGN EXPANSION ......................  38
                    (E) VERTICAL FORECLOSURE ...................  39
                    (F) CENTRAL STATIONS .......................  40
                    (G) RECIPROCAL DEALING .....................  41
                    SUMMARY UNDER THIS SECTION .................  47
                III. CLAIM REGARDING POWER PIPING ..............  48
                 IV. CLAIM REGARDING PIPE HANGERS ..............  50
                  V. CREDIBILITY OF WITNESSES ..................  51
                 VI. CLAIM OF ECONOMIC CONCENTRATION ...........  51
                CONCLUSIONS ....................................  55
                

MEMORANDUM OF DECISION AFTER TRIAL ON THE MERITS

TIMBERS, Chief Judge:

QUESTION PRESENTED

In this action brought by the United States (government), pursuant to Section 15 of the Clayton Act, 15 U.S.C. § 25 (1964), for declaratory and injunctive relief to enjoin the acquisition by International Telephone and Telegraph Corporation (ITT) of the stock of Grinnell Corporation (Grinnell) as an alleged violation of Section 7 of the Clayton Act, 15 U.S.C. § 18 (1964), the essential question for determination by the Court after trial on the merits is whether, upon the entire record, the government has sustained its burden of establishing that "in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition."¹

For the reasons stated below, the Court holds that the government has not sustained its burden upon the essential issue set forth above. Defendant accordingly is entitled to judgment dismissing the complaint.

JURISDICTION

The Court has jurisdiction over the subject matter and the parties pursuant to Section 15 of the Clayton Act, 15 U.S. C. § 25 (1964), and 28 U.S.C. § 1337 (1964).

Venue is properly laid in this District pursuant to 15 U.S.C. § 22 (1964); and in any event there has been no objection to venue. Rule 12(h)(1), Fed.R. Civ.P.

PRIOR PROCEEDINGS

On October 21, 1969, after an evidentiary hearing, the Court filed a Memorandum of Decision² denying the government's motion for a preliminary injunction to enjoin the proposed acquisition of Grinnell by ITT, but directing that a hold separate order be entered to preserve the status quo pending trial and decision on the merits. An order implementing the preliminary injunction decision was entered October 30, 1969.³

It is undisputed that, following ITT's acquisition of all of Grinnell's stock on October 31, 1969, ITT has maintained Grinnell as a separate and viable company in accordance with the Court's order of October 30, 1969.

After a number of pre-trial conferences and following extensive discovery proceedings by both sides, an 18 day trial on the merits began at Bridgeport on September 15, 1970 and concluded on October 30, 1970. The record before the Court consists of the pleadings; some 498 documentary exhibits; extracts from 59 depositions; and the testimony of 53 witnesses who appeared at the trial.

Immediately upon the conclusion of the evidence, the Court heard oral arguments. Counsel thereupon agreed upon a schedule for serving and filing proposed findings of fact and conclusions of law, together with post-trial briefs, the last of which were filed on December 14. As with the earlier preliminary injunction proceedings, the Court has been greatly assisted by the oral arguments, briefs and other post-trial papers from extraordinarily able counsel on both sides.

PARTIES TO THE ACTION

There are now two parties to the instant action: the government as plaintiff, and ITT as defendant. The action against Grinnell as a defendant was dismissed on September 9, 1970, pursuant to a stipulation between counsel, all of the stock of Grinnell having been acquired by ITT.

For purposes of the instant opinion, the description of the government as a party and of Grinnell as a former party, set forth in the earlier opinion, 306 F. Supp. at 770-71, is applicable here.

Likewise, the earlier description of ITT, 306 F.Supp. at 770-71, is sufficient for present purposes, except that the continued growth of ITT, as measured by such indicia as number of employees, sales, assets and acquisitions, should be up-dated as follows: it employs approximately 353,000 persons;⁴ during 1969, it had consolidated sales and revenues of slightly less than $5,500,000,000, consolidated net income of $234,000,000 and consolidated assets of approximately $5,200,000,000, at the end of that year;⁵ it is the ninth largest industrial corporation in the United States according to Fortune Magazine;⁶ approximately 40%-45% of its consolidated sales and revenues and income are from operations outside the United States and Canada;⁷ during the period 1955 through 1969, its total consolidated sales and revenues increased from $448,000,000 to almost $5,500,000,000;⁸ during the decade 1960-1969, it acquired 85 domestic corporations;⁹ and at the end of 1969, it had in excess of 200 subsidiaries worldwide engaged in a wide variety of enterprises.¹⁰

Perhaps the most significant change with respect to the status of ITT since the Court's earlier opinion is that what there were described as the proposed merger agreements, 306 F.Supp. at 772-73, have now been consummated: the ITT-Grinnell merger on October 31, 1969,¹¹ the ITT-Hartford merger on May 26, 1970.¹²

I CLAIM THAT GRINNELL IS THE DOMINANT COMPETITOR IN CERTAIN LINES OF COMMERCE AND IN CERTAIN SECTIONS OF THE COUNTRY

The law is well settled that when a company which is the dominant competitor in a relatively oligopolistic market is acquired by a much larger company, such acquisition violates Section 7 of the Clayton Act if the acquired company gains marketing and promotional competitive advantages from the merger which will further entrench its position of dominance by raising barriers to entry to the relevant markets and by discouraging smaller competitors from aggressively competing. The effect of such a merger will be substantially to lessen competition. FTC v. Procter & Gamble Co., 386 U.S. 568 (1967); General Foods Corp. v. FTC, 386 F.2d 936 (3 Cir. 1967), cert. denied, 391 U.S. 919 (1968); United States v. Ingersoll-Rand Co., 320 F.2d 509 (3 Cir. 1963); accord, Allis-Chalmers Mfg. Co. v. White Consolidated Industries, Inc., 414 F.2d 506 (3 Cir. 1969), cert. denied, 396 U.S. 1009 (1970); United States v. Wilson Sporting Goods Co., 288 F.Supp. 543 (N.D.Ill.1968). And see this Court's analysis of the controlling law in its earlier preliminary injunction opinion in the instant case. 306 F.Supp. at 775-76.

The Court turns directly, therefore, to the question whether the evidence establishes that Grinnell is the dominant competitor in the relevant product and geographic markets, i. e. "in any line of commerce in any section of the country."

(A) LINES OF COMMERCE

For the purpose of determining whether Grinnell is the dominant competitor in the lines of commerce here involved, the Court finds that the following are the relevant product markets or lines of commerce:¹³

(1) Automatic Sprinkler Devices

Automatic sprinkler devices are among the component parts necessary to construct automatic sprinkler systems for fire prevention. They include sprinklers, alarms and related equipment. They represent a small percentage of the value of an installed sprinkler system.¹⁴

(2) Automatic Sprinkler Systems

Automatic sprinkler systems...