US v. Ivaco, Inc.

• Decision Date: 08 February 1989
• Docket Number: No. G89-40032 CA.,G89-40032 CA.
• Citation: 704 F. Supp. 1409
• Parties: UNITED STATES of America, Plaintiff, v. IVACO, INC., Canron, Inc., and Jackson Jordan, Inc., Defendants.
• Court: U.S. District Court — Western District of Michigan

704 F. Supp. 1409

UNITED STATES of America, Plaintiff, v. IVACO, INC., Canron, Inc., and Jackson Jordan, Inc., Defendants.

No. G89-40032 CA.

United States District Court, W.D. Michigan, S.D.

February 8, 1989.

COPYRIGHT MATERIAL OMITTED

U.S. Dept. of Justice, Antitrust Div. by Willie L. Hudgins, Jr., John Docherty, Robin Millen and John F. Greaney, Washington, D.C., for plaintiff.

Winston & Strawn by Edward L. Foote, John W. Stack, R. Mark McCareins, Chicago, Ill., Fried, Frank, Harris, Shriver & Jacobson by Eric H. Queen, New York City, for defendants.

OPINION

ENSLEN, District Judge.

In this action under Section 7 of the Clayton Act, 15 U.S.C. § 18, the United States seeks to enjoin a proposed joint venture between Jackson Jordan, Inc. and Ivaco, Inc., through its subsidiary Canron Industries, two manufacturers of automatic tampers. The government filed its verified complaint, seeking a temporary restraining order and preliminary injunction, on January 12, 1989. The Court entered a temporary restraining order on January 13, 1989. Hearings on the government's motion for a preliminary injunction began on January 17, 1989 and continued until January 24, 1989. The parties submitted post-hearing briefs on January 30, 1989 and February 3, 1989. The following constitutes the Court's findings of fact and conclusions of law on the government's motion, pursuant to Federal Rule of Civil Procedure 52(a). For the reasons stated below, I find that the government has established a substantial likelihood of success on the merits of its Section 7 claim and that a preliminary injunction is necessary to protect the public interest. The government's motion is, therefore, granted.

Background

Jackson Jordan, Inc. ("Jackson Jordan") is an Illinois corporation with its headquarters in Schaumburg, Illinois. Jackson Jordan produces an automatic tamper known as the 6700 at its plant in Ludington, Michigan. The 6700 is capable of tamping both switches and mainline track, and can tamp mainline track at a rate of 1,500 feet per hour. Plaintiff's Exhibit ("PX") 19; Transcript of Hearing on Motion for Preliminary Injunction ("Tr.") at 490.

Ivaco, Inc. is a Canadian corporation, headquartered in Montreal, Quebec, Canron, Inc. ("Canron") is a Canadian corporation headquartered in Toronto, Ontario. PX. 18. Ivaco owns 79 percent of Canron. Canron Industries is a wholly-owned United States subsidiary of Canron, Inc. Tr. at 348-49; 351. Tamper Corporation ("Tamper") is a wholly-owned subsidiary of Canron Industries. Tr. at 351. Tamper manufactures automatic tampers at its facility in Columbia, South Carolina. Its automatic tampers are known as the Mark III and C Series, and are capable of tamping mainline track at a rate of 1,500 feet per hour. PX 19; Tr. at 363.

On December 29, 1987, Jackson Jordan and Canron agreed to enter into a joint venture which would combine the automatic tamper business of Jackson Jordan and Tamper, along with the firms' other railway maintenance of way businesses. The joint venture would be owned equally by Jackson Jordan and Canron. Jackson Jordan and Canron would agree not to compete with the joint venture in the maintenance of way industry. PX 19; Tr. at 392-94. An owners' committee, consisting of representatives from Jackson Jordan and Canron, would manage the joint venture. Tr. at 393. Mr. Donahue, the president of Jackson Jordan, would be the president of the joint venture. Tr. at 489.

A tamper is a machine designed to place ballast underneath a railroad track tie in order to level and shift the tie, correcting for deviations in the track caused by train travel. Tr. at 18-19; 175. Tampers may be either manual or automatic. Tr. at 26; 175. Manual tampers, as the name suggests, require an operator to stop and start the machine's function. Manual tampers are capable of tamping only about 200 to 600 feet of track per hour, are less expensive than automatic tampers, and are primarily used for yard tamping, tamping switches that have already been raised by hand, and spot tamping. Tr. at 26-37. Automatic tampers correct deviations in railroad track by lifting the track to a predetermined height, shifting it into the proper alignment and placing ballast underneath the tie to maintain the desired position. Tr. at 18-24; 364. Automatic tampers are used for tamping switches which have not previously been raised by hand, and for tamping long sections of mainline track. Tr. at 35-40. Most automatic tampers are capable of tamping approximately 1500 feet of track per hour, while others are capable of tamping between 2000 and 4000 feet per hour. Tr. at 35-40; 81.

Currently only three firms manufacture and market automatic tampers in the United States: Jackson Jordan, Tamper, and Plasser American. Tr. at 68-69; 453; 480; 490-93; 680. There are no imports of automatic tampers into the United States. Tr. at 68; 241; 417; 506-07. Plasser American ("Plasser") is a division of Plasser & Theurer, an Austrian corporation. Tr. at 13. Plasser manufactures tampers at its plant in Chesapeake, Virginia. Id. Plasser offers a number of different automatic tampers, including the PUM and PSPT, products which are close substitutes for the 6700 and Mark III, and the continuous action tamper ("CAT"). PX 1, 2, 3; Tr. at 23. The PSPT is capable of tamping both switches and mainline track at speeds equivalent to those of the 6700 and Mark III. At present, the CAT is capable only of tamping mainline track. Tr. at 31. Plasser's 16-tool CAT is capable of tamping track at a rate of about 2,000 feet per hour, while its 32-tool CAT is capable of tamping track at a rate of about 4,000 feet per hour. Tr. at 29-30. Plasser also manufactures products known as dynamic stabilizers and ballast regulators, which operate to settle railroad track after it has been tamped, reducing or eliminating the need for so-called "slow orders."¹ Tr. at 440; 470-71. No other manufacturer in the United States offers a continuous action tamper, dynamic stabilizer or ballast regulator. Tr. at 441; 471.

Approximately 50 automatic tampers are sold each year in North America, generating sales revenues of between ten and eleven million dollars. Tr. at 497; 607-08. The major customers for automatic tampers are Class 1 railroads, transit systems and large industries. Tr. at 18; 176; 598. Sales of tampers are usually accomplished by bid solicitations from the customers to the various tamper manufacturers. These solicitations generally specify the type of tamper requested, and manufacturers answer by bidding products capable of meeting the customers' specifications. Most bids are sealed. Tr. at 34-37. Jackson Jordan, Tamper, and Plasser often bid their respective tampers in response to the same bid solicitations. PX 6; Tr. at 40-41; 48-49; 450; 524; 535-39. Customers generally do not disclose price information regarding competitors' products to other manufacturers. Tr. at 44.

The major customers are interested in buying technologically advanced maintenance equipment, because such equipment reduces the amount of time needed to maintain railroad track and increases the amount of time the track may be used for revenue generating purposes. Tr. at 437-39; 467-68. Plasser's CAT represents a technological innovation in the tamper industry because its continuous action features allow it to tamp mainline track more quickly than more conventional tampers. Id. Despite its technological advances, CAT sales declined from 10 or 11 machines in 1985 to 2 machines in 1988. Tr. at 60-64. Plasser estimates that it will sell only two units in 1989.² Id. Some major tamper customers have indicated that they will confine their future tamper purchases to the CAT. Tr. at 597-98. Other customers anticipate purchasing conventional tampers in addition to CATs over the next several years. Tr. at 455-56; 477-78. The market for automatic tampers, and for railway maintenance of way equipment in general, appears to be shrinking. Tr. at 475-76; 496-99; 637-39; 826-27.

The government's statistical evidence shows that in 1985, Tamper had a market share of 45.6% in the market for automatic tampers. Jackson Jordan's market share was 38.4% and Plasser's was 16% in the same year. In 1986, Tamper controlled 45.7% of the market, Jackson Jordan had a market share of 19.0% and Plasser had increased its market share to 35.3%. In 1987, Tamper again led the market with 45.0% of the sales, while Jackson Jordan increased its share to 25.1% and Plasser fell somewhat to 29.9% of the sales. PX 14. Assuming these figures accurately predict the defendant's future market shares, the joint venture would create a firm controlling 70% of the automatic tamper market. Two firms would control 100% of the market.

Motion to Strike

In their post-hearing brief, the defendants renew their motion to strike the testimony of plaintiff's expert economist, Dr. Russell Pittman, on the ground that his opinion about the economic effects of the proposed joint venture is without sufficient foundation. Specifically, the defendants argue that Dr. Pittman cannot form a reliable opinion on the relevant product market and probable price effects of the proposed transaction because he lacks sufficient information on the prices charged for the products at issue.

I denied that motion during the hearing, and I will deny it again now. Dr. Pittman testified that he based his opinion on documents submitted by the defendants to the Department of Justice and, to a lesser extent, upon information supplied by relevant consumers and a representative of Plasser, Ralph Miller. Tr. at 174-75. While Dr. Pittman testified that he lacked detailed information concerning the current prices of tampers in the American market, he also testified that it was possible to form an opinion regarding the competitive effects of a merger or joint venture without using detailed price information. Tr. at 333-34. See also Tr. at 667-69 (possible to define product market without...