United States v. Marine Bancorporation, Inc. - 418 U.S. 602 (1974)
U.S. Supreme Court
United States v. Marine Bancorporation, Inc., 418 U.S. 602 (1974)
United States v. Marine Bancorporation, Inc.
Argued April 23, 1974
Decided June 26, 1974
418 U.S. 602
The United States brought this civil antitrust action under § 7 of the Clayton Act to challenge a proposed merger between two commercial banks, which would substitute the acquiring bank for the acquired bank in Spokane, Wash., and would permit the former for the first time to participate directly in the Spokane market. The acquiring bank, appellee National Bank of Commerce (NBC), is a large, nationally chartered bank based in Seattle, Wash., and a wholly owned subsidiary of appellee Marine Bancorporation, Inc., and, in terms of assets, deposits, and loans, is the second largest banking organization with headquarters in Washington, operating 107 branches in the State, including 59 in the Seattle metropolitan area and 31 in lesser developed eastern sections of the State, but none of which is in the Spokane metropolitan area. The acquired or target bank, appellee Washington Trust Bank (WTB), is a medium-size, state-chartered bank located in Spokane, with seven branches, six in the city and one in a suburb, and is the eighth largest bank with headquarters in Washington and the ninth largest in the State, controlling 17.4% of the 46 commercial banking offices and holding 18.6% or the third largest percentage of the total deposits in the Spokane metropolitan area. (The two banks with the largest percentages in the area hold 42.1% and 31.6%, respectively, of total deposits.) The Government bases its case exclusively on the potential competition doctrine, seeking to establish that the merger "may . . . substantially . . . lessen competition" within the meaning of § 7: (i) by eliminating the prospect that NBC, absent acquisition of the market share represented by WTB, would enter Spokane de novo or through acquisition of a smaller bank, and thus would assist in deconcentrating that market over the long run; (ii) by ending present procompetitive effects allegedly produced in Spokane by NBC's perceived presence on the fringe of the Spokane market; and (iii) by terminating the alleged probability
that WTB as an independent entity would develop by internal expansion or mergers with other medium-size banks into a regional or ultimately state-wide actual competitor of NBC and other large banks. The District Court held against the Government on all aspects, and dismissed the complaint.
1. As "a necessary predicate" to deciding whether the proposed merger contravenes the Clayton Act, the District Court properly found that the relevant product market was the "business of commercial banking" and that the relevant geographic market was the Spokane metropolitan area. The entire State is not, despite the Government's contrary contention, an appropriate "section of the country" within the meaning of § 7, since, for the purpose of this case, the appropriate "section of the country" and the "relevant geographic market" are the same, being the area in which the acquired firm is an actual, direct competitor, and since, moreover, the Government has not shown that the effect of the merger on a state-wide basis "may be substantially to lessen competition" within the meaning of § 7. Pp. 418 U. S. 618-623.
2. While geographic market extension mergers by commercial banks must pass muster under the potential competition doctrine, the application of the doctrine to commercial banking must take into account the extensive and unique federal and state regulatory restraints on entry into that line of commerce, including controls over the number of bank charters to be granted, prior bank regulatory agency approval of the opening of branches, and state law restrictions, such as those in Washington, on de novo geographic expansion through branching and multibank holding companies. Pp. 418 U. S. 626-630.
3. The Government's evidence of concentration ratios in the Spokane commercial banking market established a prima facie case that that market was sufficiently concentrated to invoke the potential competition doctrine, and appellees did not demonstrate that such ratios inaccurately depicted the economic characteristics of the Spokane market. Pp. 630-632.
4. In view of the legal barriers to entry, notably state law prohibitions against de novo branching, branching from a branch office, and multibank holding companies, the Government failed to sustain its burden of proof that the challenged merger violates § 7 by eliminating the likelihood that, but for the merger, NBC would enter Spokane de novo by means of sponsorship acquisition or through a foothold acquisition of a small state bank in the Spokane
area, since it was not shown that either of the proposed alternative methods of entry was feasible or offered a substantial likelihood of ultimately producing deconcentration of the Spokane market or other significant procompetitive effects. Pp. 418 U. S. 632-639
5. The Government's failure to establish that NBC has alternative methods of entry offering a reasonable likelihood of producing significant procompetitive effects is determinative of its contention that, without regard to the possibility of future deconcentration of the Spokane market, the challenged merger is illegal because it eliminates NBC as a perceived potential entrant. Assuming that commercial bankers in Spokane are aware of the regulatory barriers that render NBC an unlikely or insignificant potential entrant except by merger with WTB, it is improbable, in light of such barriers, that NBC exerts any meaningful procompetitive influence over Spokane banks by "standing in the wings." Pp. 418 U. S. 639-640.
6. The record amply supports the District Court's finding that the Government "failed to establish . . . that there is any reasonable probability that WTB will expand into other banking markets," since at no time in its 70-year history has WTB established branches outside the Spokane area, acquired another bank, or received a merger offer other than the one at issue here. Pp. 418 U. S. 640-641.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and REHNQUIST, JJ., joined. WHITE, J., filed a dissenting opinion, in which BRENNAN and MARSHALL, JJ., joined, post, p. 418 U. S. 642. DOUGLAS, J., took no part in the decision of this case.