Yamaha Motor Co., Ltd. v. F. T. C.

• Decision Date: 29 July 1981
• Docket Number: 80-1913,Nos. 80-1760,s. 80-1760
• Citation: Yamaha Motor Co., Ltd. v. F. T. C., 657 F.2d 971 (8th Cir. 1981)
• Parties: 1981-2 Trade Cases 64,202 YAMAHA MOTOR CO., LTD., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent. BRUNSWICK CORP. and Mariner Corp., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 971

657 F.2d 971

1981-2 Trade Cases 64,202

YAMAHA MOTOR CO., LTD., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

BRUNSWICK CORP. and Mariner Corp., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

Nos. 80-1760, 80-1913.

United States Court of Appeals Eighth Circuit.

Submitted May 18, 1981.

Decided July 29, 1981.

As Modified on Denial of Rehearing and Rehearing En Banc in

No. 80-1913 Sept.

11, 1981.

John R. Ferguson, Janine H. Coward, Peabody, Rivlin, Lambert & Meyers, Washington, D. C., Henry Y. Ota, Shigeru Watanabe, Mori & Ota, Los Angeles, Cal., Thomas C. Walsh, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., for petitioner Yamaha Motor Co., Ltd.

James H. Sneed, Gen. Counsel, Howard E. Shapiro, Deputy Gen. Counsel, W. Dennis Cross, Asst. Gen. Counsel, David M. Fitzgerald (argued), Leslie Rice Melman, Jack Schwartz, Attys., F. T. C., Washington, D. C., for respondent.

Patrick W. O'Brien (argued), Kenneth J. Jurek, Chicago, Ill., John C. Shepherd, St. Louis, Mo., for petitioners Brunswick Corp. and Mariner Corp.; Mayer, Brown & Platt, Chicago, Ill., Shepherd, Sandberg & Phoenix, St. Louis, Mo., William L. Niemann, James H. Wehrenberg, Skokie, Ill., of counsel.

Before LAY, Chief Judge, ARNOLD, Circuit Judge, and BECKER, ^* Senior District Judge.

ARNOLD, Circuit Judge.

These petitions for review challenge an order of the Federal Trade Commission holding that a joint-venture agreement entered into by petitioners for the manufacture and sale of outboard motors is unlawful under Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The parties to the agreement were Yamaha Motor Company, Ltd., petitioner in No. 80-1760, and Brunswick Corporation and its subsidiary Mariner Corporation, petitioners in No. 80-1913. The principal question presented is whether the Federal Trade Commission had the support of substantial evidence on the record as a whole when it concluded, in the words of Section 7, that the effect of the joint venture "may be substantially to lessen competition." We think the answer to this question is yes, and we therefore affirm the order of the Commission, with some modifications of the remedy it imposed.

I. THE FACTS

The parties. Brunswick is a diversified manufacturer whose products include recreational items. Brunswick began making outboard motors in 1961, when it acquired what is now called its Mercury Marine Division (Mercury). Brunswick is the second largest seller of outboard motors in the United States. Between 1971 and 1973 its share of the outboard motor market fluctuated between 19.8% and 22.6% by unit volume and between 24.2% and 26% by dollar volume. Brunswick also sells its Mercury outboards in Canada, Australia, Europe, and Japan.

Before entering the joint venture, Brunswick, through Mercury, was considering development of a second line of outboards in an effort to increase its market share. Mariner was to become this second line, which Brunswick hoped would expand the dealer network carrying both the Mercury and Mariner brands.

Yamaha is a Japanese corporation incorporated by Nippon Gakki Company, Ltd. In 1972, it made outboard motors, motorcycles, snowmobiles, and boats. Since 1961, Yamaha has sold snowmobiles, motorcycles, and spare parts to Yamaha International Corporation, a wholly owned subsidiary of Nippon Gakki, which distributes to the United States. In 1972, 40% of Yamaha's total sales were from exports to this country, and 70% of its total production was for export to some country other than Japan. Yamaha manufactures outboard motors through Sanshin Kogyo Company, Ltd., also a Japanese corporation. Since 1969, when Yamaha acquired 60% of Sanshin's stock, Sanshin has produced Yamaha brand outboard motors, and they are sold in most outboard motor markets throughout the world.

The Joint Venture Agreement. On November 21, 1972, Brunswick and Yamaha entered into a joint venture under which Brunswick, through Mariner, acquired 38% of the stock of Sanshin. Yamaha's share in Sanshin also became 38%, with the balance of the stock held by others not involved here. Sanshin was to produce outboard motors and sell its entire production to Yamaha. Some of the motors were to be sold by Yamaha under its own brand name, while the rest, physically identical, were to be resold by Yamaha to Mariner, to be marketed by it under the Mariner brand name.

Under the agreement Sanshin's governing board had eleven directors, six selected by Yamaha and five selected by Brunswick. Certain corporate transactions, such as expansion of product lines or budget approval, required the approval of seven of the directors. In addition, there was a four-person "operating committee," on which Brunswick and Yamaha were equally represented. The agreement was to last an initial term of ten years, with automatic three-year extensions to follow, but either party had the right to terminate it at the end of any term, by giving three years' written notice.

A collateral or ancillary agreement gave Brunswick the exclusive right to sell Sanshin-produced outboards in the United States, Canada, Mexico (with some exceptions), Australia, and New Zealand. Yamaha obtained the exclusive right to the sale of Sanshin outboards in Japan. In the rest of the world's markets, Sanshin-produced Yamaha and Mariner engines could be sold in competition with one another. There were several other collateral agreements, which (1) barred Yamaha from manufacturing directly or indirectly the same or similar engines made by Sanshin or from purchasing any other outboard motors from other suppliers for resale, (2) limited competition between Brunswick and Yamaha in those remaining markets where both were permitted to sell Sanshin-produced motors, and (3) prohibited Brunswick from manufacturing any products competitive with those then produced by Yamaha, except snowmobiles.

The Market. The United States outboard motor industry is often divided into low-horsepower and high-horsepower segments, both of which are dominated by a few firms. The four largest firms in 1973 were Outboard Marine Corporation (OMC), which produces the Johnson and Evinrude brands, Brunswick, Chrysler, and Eska. These four firms accounted for 94.9% of the United States market in terms of units sold, with the top two firms, OMC and Brunswick, controlling 72.9%. Market-share totals by dollar volume indicate even greater concentration. The top four firms accounted for 98.6%, with the same top two firms accounting for 85%.

The outboard motor industry, though productive of rapid growth in sales and high profits, has not attracted new entrants. On the contrary, it has experienced a decline in the number of firms. Of the eight competitors active in 1965, three had departed by 1969.

II. PROCEEDINGS BELOW

This case was formally instituted on April 15, 1975, when a complaint was filed challenging the legality of the joint-venture agreement under Sections 7 and 5, and alleging that certain of the collateral agreements were unlawful as "unfair methods of competition" under Section 5. After a lengthy hearing before an administrative law judge, the ALJ issued an initial decision recommending that the complaint be dismissed. ¹ He found that "Yamaha was a likely potential unilateral entrant into the United States high horsepower outboard market, and in fact was the most likely potential entrant; and Yamaha exerted, prior to the joint venture, a substantial procompetitive effect on the behavior of those in the market from its position on the edge of the market." A-154. The ALJ nonetheless concluded that the net effect of the joint venture was to increase competition, not lessen it: "the main objective fact in this case ... is that the joint venture added to the relevant market a new procompetitive force the Mariner line of outboard motors." A-159. The ALJ also found that Yamaha, as of 1972, when the joint venture was entered into, "was not considering entering on its own in the near future and had no concrete plan to do so." A-120.

On appeal, the Commission reversed. On November 9, 1979, it held that Yamaha was, in 1972, both an actual and a potential competitor of Brunswick. ² The FTC did not find the elimination of Yamaha as an independent actual and potential competitor outweighed by any procompetitive effects of the joint venture. In particular, it rejected the ALJ's characterization of Mariner as a new or additional force increasing competition in the sale of outboard motors in the United States. The Commission also held unlawful three collateral agreements associated with the formation of the joint venture: (1) The agreement precluding Yamaha from marketing the joint-venture output in North America, and precluding Brunswick from doing so in Japan, but leaving Brunswick free to continue selling its Mercury brand all over the world; (2) the agreement that Brunswick would not invite Yamaha dealers in the so-called "non-exclusive markets," principally Europe and South America, to join the Mariner network; ³ and (3) the Technical Assistance Agreement for exchange of certain technical information, providing that Mercury would not manufacture any product competitive with those then being made by Yamaha, with the exception of snowmobiles. The Commission remanded the matter to the ALJ with directions to make additional findings and formulate a recommended remedial order.

The ALJ promptly complied with this direction, and the Commission in due course issued an order in substance adopting his recommendations as to appropriate relief. The FTC's final order, entered on August 14, 1980, directed that the joint-venture agreement be rescinded. ⁴ It ordered Brunswick and Mariner, within 90 days from the date the order became final, to sell the Sanshin stock back to Yamaha at a price based on "the value of the net tangible assets per share, computed and adjusted to the last day of the six-month term...