In 1960, Pennsalt Chemicals Corporation and Olin Mathieson
Company signed a joint venture agreement, each acquiring 50% of the
newly formed Penn-Olin Chemical Company, which began producing
sodium chlorate in 1961 in Kentucky. The Government seeks to
dissolve the joint venture as violating § 7 of the Clayton Act and
§1 of the Sherman Act. The parties agree that the line of commerce
is sodium chlorate and that the relevant market is the southeastern
part of the United States. The District Court determined that the
test under the Clayton Act is whether, as a matter of probability,
both companies would have entered the market as individual
competitors if Penn-Olin had not been formed. The court found it
impossible to conclude that both companies would have so entered,
and, finding that neither statute had been violated, dismissed the
1. Section 7 of the Clayton Act applies to a joint venture,
wherein two companies form a third to engage in a new enterprise.
Pp. 378 U. S.
(a) The test of § 7 is the effect of the acquisition. The
formation of a joint venture and the acquisition of its stock would
substantially lessen competition between the owners if both are
engaged in commerce. This is true whether the competition between
the joint venturers is actual or potential, or whether the new
company is formed for a wholly new enterprise, because the new
company is established to engage in commerce and to further the
business of its parents, who are already in commerce. P.
378 U. S.
(b) The economic effects of an acquisition are determined at the
time of suit, United States v. E. I. du Pont de Nemours &
Co., 353 U. S. 586
353 U. S. 607
and Penn-Olin was clearly engaged in commerce then. P. 378 U. S.
2. To carry out the national policy of preserving and promoting
a free competitive economy, the same overall considerations apply
to joint ventures as to mergers, although different criteria may
Page 378 U. S. 159
and actual restraint need not be proved, only reasonable
likelihood of a substantial lessening of competition. Pp.
378 U. S.
3. The test of whether a joint venture might substantially
lessen competition within the meaning of § 7 is not only whether
both parent companies would probably have entered the market, or
whether one would probably have entered alone, but also whether the
joint venture eliminated the potential competition of the company
that might have stayed at the edge of the market, threatening to
enter. Pp. 378 U. S.
(a) The joint venture may well have eliminated any prospective
competition between Pennsalt and Olin, just as a merger eliminates
actual competition. P. 378 U. S.
(b) The presence of a potential competitor having the capability
of entering an oligopolistic market may be a substantial incentive
to competition. P. 378 U. S.
4. A finding should have been made by the trial court as to the
reasonable probability that either Pennsalt or Olin would have
built a plant while the other remained a significant potential
competitor. Pp. 378 U. S.
5. In determining the probability of substantial lessening of
competition, the trial court might take into account the following
criteria: the number and power of the competitors in the market;
the background of their growth; the power of the joint venturers;
the relationship of their lines of commerce; the competition
existing between them and the power of each in dealing with the
other's competitors; the setting in which the joint venture was
formed; the reasons and necessities for its existence; the joint
venture's line of commerce and the relationship thereof to its
parents; the adaptability of its line of commerce to noncompetitive
practices; the potential power of the joint venture in the market;
an appraisal of competition in the market if one of the parents
entered alone, instead of through the joint venture; in that event,
the effect of the other parent's potential competition; and such
other factors as might indicate potential risk to competition in
the market. Pp. 378 U. S.
, judgment vacated and case remanded.
Page 378 U. S. 160
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 Act [Footnote 1
] and § 1 of the Sherman Act. [Footnote 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,
Page 378 U. S. 161
violated neither of these sections, and found it unnecessary to
reach the first question. 217 F.
. 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. 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 hold 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
Page 378 U. S. 162
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 addition, the 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 calcium 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
Olin is a large diversified corporation, the result of a merger
of Olin Industries, Inc., and Mathieson Chemical
Page 378 U. S. 163
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
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.
Page 378 U. S. 164
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 venture
Page 378 U. S. 165
agreement on February 11, 1960, and the Penn-Olin plant
operations at Calvert City, Kentucky, began in 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
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 chlorate plant in the southeast. Three
different proposals from within its own organization were rejected
prior to 1957, apparently because the rate of return was so
unattractive that "the expense of refining these figures further
would be unwarranted." When Hooker announced in December, 1956,
that it was going to increase the capacity of its Columbus plant,
the interest of Pennsalt management was reactivated. It appointed a
"task force" to evaluate the company's future in the eastern
market; it retained
Page 378 U. S. 166
management consultants to study that market, and its chief
engineer prepared cost estimates. However, in December, 1957, the
management decided that the estimated rate of return was
unattractive, and considered it "unlikely" that Pennsalt would go
it alone. It was suggested that Olin would be a "logical partner"
in a joint venture, and might, in the interim, be interested in
distributing in the East 2,000 tons of the Portland sodium chlorate
production. The sales agreement with Olin, heretofore mentioned,
was eventually made. In the final draft, the parties agreed that
"neither . . . should move in the chlorate or perchlorate field
without keeping the other party informed . . . ," and that one
would "bring to the attention of the other any unusual aspects of
this business which might make it desirable to proceed further with
production plans." Pennsalt claims that it finally decided, prior
to this agreement, that it should not build a plant itself, and
that this decision was never reconsidered or changed. But the
District Court found to the contrary.
During this same period -- beginning slightly earlier -- Olin
began investigating the possibility of entering the sodium chlorate
industry. It had never produced sodium chlorate commercially,
although its predecessor had done so years before. However, the
electrolytic process used in making sodium chlorate is intimately
related to other operations of Olin, and required the same general
knowledge. Olin also possessed extensive experience in the
technical aspects of bleaching pulp and paper, and was intimate
with the pulp and paper mills of the southeast. In April, 1958,
Olin's chemical division wrote and circulated to the management a
"Whither Report" which stated in part:
"We have an unparalleled opportunity to move sodium chlorate
into the paper industry as the result
Page 378 U. S. 167
of our work on the installation of chlorine dioxide generators.
We have a captive consumption for sodium chlorate."
And Olin's engineering supervisor concluded that entry into
sodium chlorate production was "an attractive venture," since it
"represents a logical expansion of the product line of the
Industrial Chemicals Division . . ." with respect to
"one of the major markets, pulp and paper bleaching, [with
which] we have a favorable marketing position, particularly in the
The staff, however, did not agree with the engineering
supervisor or the "Whither Report," and concluded "that they didn't
feel that this particular project showed any merit worthy of
serious consideration by the corporation at that time." They were
dubious of the cost estimates, and felt the need to temper their
scientists' enthusiasm for new products with the uncertainties of
plant construction and operation. But, as the trial court found,
the testimony indicated that Olin's decision to enter the joint
venture was made without determining that Olin could not or would
not be an independent competitor. That question, "never reached the
point of final decision."
This led the District Court to find that the president of
"[t]he possibility of individual entry into the southeastern
market had not been completely rejected by either Pennsalt or Olin
before they decided upon the joint venture."
5. SECTION 7 OF THE CLAYTON ACT APPLIES
TO "JOINT VENTURES."
Appellees argue that § 7 applies only where the acquired company
is "engaged" in commerce, and that it would not apply to a newly
formed corporation, such as Penn-Olin. The test, they say, is
whether the enterprise
Page 378 U. S. 168
to be acquired is engaged in commerce -- not whether a
corporation formed as the instrumentality for the acquisition is
itself engaged in commerce at the moment of its formation. We
believe that this logic fails in the light of the wording of the
section and its legislative background. The test of the section is
the effect of the acquisition. Certainly the formation of a joint
venture and purchase by the organizers of its stock would
substantially lessen competition -- indeed, foreclose it -- as
between them, both being engaged in commerce. This would be true
whether they were in actual or potential competition with each
other, and even though the new corporation was formed to create a
wholly new enterprise. Realistically, the parents would not compete
with their progeny. Moreover, in this case, the progeny was
organized to further the business of its parents, already in
commerce, and the fact that it was organized specifically to engage
in commerce should bring it within the coverage of § 7. In
addition, long prior to trial, Penn-Olin was actually engaged in
commerce. To hold that it was not
"would be illogical and disrespectful of the plain congressional
purpose in amending § 7 . . . [for] it would create a large
loophole in a statute designed to close a loophole."
United States v. Philadelphia National Bank,
374 U. S. 321
374 U. S. 343
(1963). In any event, Penn-Olin was engaged in commerce at the time
of suit and the economic effects of an acquisition are to be
measured at that point, rather than at the time of acquisition.
United States v. E. I. du Pont de Nemours & Co.,
353 U. S. 586
353 U. S. 607
(1957). The technicality could, therefore, be averted by merely
refiling an amended complaint at the time of trial. This would be a
6. THE APPLICATION OF THE MERGER DOCTRINE
This is the first case reaching this Court and on which we have
written that directly involves the validity under § 7 of the joint
participation of two corporations in the
Page 378 U. S. 169
creation of a third as a new domestic producing organization.
] We are, therefore,
plowing new ground. It is true, however, that some aspects of the
problem might be found in United States v. Terminal R.
Assn., 224 U. S. 383
(1912), and Associated Press v. United States,
326 U. S. 1
where joint ventures with great market power were subjected to
control even prior to the amendment to § 7.
It is said that joint ventures were utilized in ancient times,
according to Taubman, who traces them to Babylonian "commenda" and
Roman "societas." Taubman, The Joint Venture and Tax
Classification, 27-81 (1957). Their economic significance has grown
tremendously in the last score of years, having been spurred on by
the need for speed and size in fashioning a war machine during the
early forties. Postwar use of joint subsidiaries and joint projects
led to the spawning of thousands of such ventures in an effort to
perform the commercial tasks confronting an expanding economy.
The joint venture, like the "merger" and the "conglomeration,"
often creates anticompetitive dangers. It is the chosen competitive
instrument of two or more corporations previously acting
independently and usually competitively with one another. The
result is "a triumvirate of associated corporations." [Footnote 4
] If the parent companies are
in competition, or might compete absent the joint venture, it may
be assumed that neither will compete with the progeny in its line
of commerce. Inevitably, the operations of the joint venture will
be frozen to those lines of commerce which will not bring it into
competition with the parents, and the latter, by the same token,
will be foreclosed from the joint venture's market.
Page 378 U. S. 170
This is not to say that the joint venture is controlled by the
same criteria as the merger or conglomeration. The merger
eliminates one of the participating corporations from the market,
while a joint venture creates a new competitive force therein.
See United States v. Philadelphia National Bank, supra; Brown
Shoe Co. v. United States, 370 U. S. 294
(1962); United States v. Aluminum Co. of America,
377 U. S. 271
(1964). The rule of United States v. El Paso Natural Gas
Co., 376 U. S. 651
(1964), where a corporation sought to protect its market by
acquiring a potential competitor, would, of course, apply to a
joint venture where the same intent was present in the organization
of the new corporation.
Overall, the same considerations apply to joint ventures as to
mergers, for in each instance we are but expounding a national
policy enunciated by the Congress to preserve and promote a free
competitive economy. In furtherance of that policy, now entering
upon its 75th year, this Court has formulated appropriate criteria,
first under the Sherman Act and now, also, under the Clayton Act
and other antitrust legislation. The Celler-Kefauver Amendment to §
7, with which we now deal, was the answer of the Congress to a
loophole found to exist in the original enactment. See Brown
Shoe Co. v. United States, supra,
and United States v.
Philadelphia National Bank, supra.
However, in an earlier
case, this Court, while considering the effect of a stock
acquisition under the original § 7, declared in United States
v. E. I. du Pont de Nemours & Co., supra,
at 353 U. S.
"We hold that any acquisition by one corporation of all or any
part of the stock of another corporation, competitor or not, is
within the reach of the section whenever the reasonable likelihood
appears that the acquisition will result in a restraint of
commerce. . . ."
The grand design of the original § 7, as to stock acquisitions,
as well as the Celler-Kefauver Amendment, as to the acquisition of
Page 378 U. S. 171
to arrest incipient threats to competition which the Sherman Act
did not ordinarily reach. It follows that actual restraints need
not be proved. The requirements of the amendment are satisfied when
a "tendency" toward monopoly or the "reasonable likelihood" of a
substantial lessening of competition in the relevant market is
shown. Congress made it plain that the validity of such
arrangements was to be gauged on a broader scale by using the words
"may be substantially to lessen competition" which "indicate that
its concern was with probabilities, not certainties." Brown
Shoe Co. v. United States, supra,
at 370 U. S. 323
And, as we said with reference to another merger, in United
States v. Philadelphia National Bank, supra,
at 374 U. S.
"Clearly, this is not the kind of quest on which is susceptible
of a ready and precise answer in most cases. It requires not merely
an appraisal of the immediate impact of the merger upon
competition, but a predication of its impact upon competitive
conditions in the future; this is what is meant when it is said
that the amended § 7 was intended to arrest anticompetitive
tendencies in their 'incipiency.' See Brown Shoe Co.,
at 370 U. S. 317
, 370 U. S.
. Such a prediction is sound only if it is based upon
a firm understanding of the structure of the relevant market; yet
the relevant economic data are both complex and elusive."
And, in the most recent merger case before the Court, United
States v. Aluminum Co. of America, supra,
the appellee had
acquired a small competitor, Rome Cable Corporation. The Court
noted that the acquisition gave appellee only 1.3% additional
control of the aluminum conductor market. "But, in this setting,"
the Court said,
"that seems to us reasonably likely to produce a substantial
lessening of competition within the meaning
Page 378 U. S. 172
of § 7. . . . It would seem that the situation in the aluminum
industry may be oligopolistic. As that condition develops, the
greater is the likelihood that parallel policies of mutual
advantage, not competition, will emerge. That tendency may well be
thwarted by the presence of small but significant competitors."
At 377 U. S.
7. THE CRITERIA GOVERNING § 7 CASES
We apply the light of these considerations in the merger cases
to the problem confronting us here. The District Court found
"Pennsalt and Olin each possessed the resources and general
capability needed to build its own plant in the southeast and to
compete with Hooker and [American Potash] in that market. Each
could have done so if it had wished."
, 129. [Footnote
] In addition, the District Court found that, contrary to the
position of the management of Olin and Pennsalt, "the forecasts of
each company indicated that a plant could be operated with profit."
The District Court held, however, that these considerations had
no controlling significance, except "as a factor in determining
whether as a matter of probability
Page 378 U. S. 173
companies would have entered the market as
individual competitors if Penn-Olin had not been formed. Only in
this event would potential competition between the two companies
have been foreclosed by the joint venture." Id. at 130. In this
regard, the court found it
"impossible to conclude that, as a matter of reasonable
Pennsalt and Olin would have built
plants in the southeast if Penn-Olin had not been created."
The court made no decision concerning the
probability that one would have built "while the other continued to
ponder." It found that this "hypothesized situation affords no
basis for concluding that Penn-Olin had the effect of substantially
lessening competition." Ibid.
That would depend, the court
"upon the competitive impact which Penn-Olin will have as
against that which might have resulted if Pennsalt or Olin had been
an individual market entrant."
The court found that this impact could not be
determined from the record in this case. "Solely as a matter of
theory," it said,
". . . no reason exists to suppose that Penn-Olin will be a less
effective competitor than Pennsalt or Olin would have been. The
contrary conclusion is the more reasonable."
We believe that the court erred in this regard. Certainly the
sole test would not be the probability that both companies would
have entered the market. Nor would the consideration be limited to
the probability that one entered alone. There still remained for
consideration the fact that Penn-Olin eliminated the potential
competition of the corporation that might have remained at the edge
of the market, continually threatening to enter. Just as a merger
eliminates actual competition, this joint venture may well
foreclose any prospect of competition between Olin and Pennsalt in
the relevant sodium chlorate market. The difference, of course, is
that the merger's foreclosure is present, while the joint
Page 378 U. S. 174
is prospective. Nevertheless,
"[p]otential competition . . . as a substitute for . . . [actual
competition] may restrain producers from overcharging those to whom
they sell or underpaying those from whom they buy. . . . Potential
competition, insofar as the threat survives [as it would have here
in the absence of Penn-Olin], may compensate in part for the
imperfection characteristic of actual competition in the great
majority of competitive markets."
Wilcox, Competition and Monopoly in American Industry, TNEC
Monograph No. 21 (1940) 7-8. Potential competition cannot be put to
a subjective test. It is not "susceptible of a ready and precise
answer." As we found in United States v. El Paso Natural Gas
at 376 U. S. 660
"effect on competition . . . is determined by the nature or
extent of that market and by the nearness of the absorbed company
to it, that company's eagerness to enter that market, its
resourcefulness, and so on."
The position of a company
"as a competitive factor . . . was not disproved by the fact
that it had never sold . . . there. . . . [I]t is irrelevant in a
market . . . where incremental needs are booming."
The existence of an aggressive, well equipped and well financed
corporation engaged in the same or related lines of commerce
waiting anxiously to enter an oligopolistic market would be a
substantial incentive to competition which cannot be
underestimated. Witness the expansion undertaken by Hooker and
American Potash as soon as they heard of the interest of Olin
Mathieson and of Pennsalt in southeast territory. This same
situation might well have come about had either Olin or Pennsalt
entered the relevant market alone and the other remained aloof
8. THE PROBLEM OF PROOF
Here the evidence shows beyond question that the industry was
rapidly expanding; the relevant southeast market was requiring
about one-half of the national
Page 378 U. S. 175
production of sodium chlorate; few corporations had the
inclination, resources and know-how to enter this market; both
parent corporations of Penn-Olin had great resources; each had long
been identified with the industry, one owning valuable patent
rights while the other had engaged in sodium chlorate production
for years; each had other chemicals the production of which
required the use of sodium chlorate; right up to the creation of
Penn-Olin, each had evidenced a long-sustained and strong interest
in entering the relevant market area; each enjoyed good reputation
and business connections with the major consumers of sodium
chlorate in the relevant market, i.e.,
the pulp and paper
mills; and, finally, each had the know-how and the capacity to
enter that market and could have done so individually at a
reasonable profit. Moreover, each company had compelling reasons
for entering the southeast market. Pennsalt needed to expand its
sales to the southeast, which it could not do economically without
a plant in that area. Olin was motivated by
"the fact that [it was] already buying and using a fair quantity
[of sodium chlorate] for the production of sodium chlorite, and
that [it was] promoting the Mathieson process of the generation of
chlorine dioxide which uses sodium chlorate."
Unless we are going to require subjective evidence, this array
of probability certainly reaches the prima facie
we have indicated, to require more would be to read the statutory
requirement of reasonable probability into a requirement of
certainty. This we will not do.
However, despite these strong circumstances, we are not disposed
to disturb the court's finding that there was not a reasonable
probability that both Pennsalt and Olin would have built a plant in
the relevant market area. But we have concluded that a finding
should have been made as to the reasonable probability that either
one of the corporations would have entered the market by
Page 378 U. S. 176
a plant, while the other would have remained a significant
potential competitor. The trial court said that this question "need
not be decided." It is not clear whether this conclusion was based
on the erroneous assumption that the Government could not show a
lessening of competition even if such a situation existed, or upon
the theory (which the court found erroneous in its final opinion)
that the Government need not show the impact of such an event on
competition in the relevant market as compared with the entry of
Penn-Olin. The court may also have concluded that there was no
evidence in the record on which to base such a finding. In any
event, we prefer that the trial court pass upon this question, and
we venture no opinion thereon. Since the trial court might have
been concerned over whether there was evidence on this point,
] we reiterate that
it is impossible to demonstrate the precise competitive effects of
the elimination of either Pennsalt or Olin as a potential
competitor. As the Report of the Attorney General's National
Committee to Study the Antitrust Laws (1955) put it:
"The basic characteristic of effective competition in the
economic sense is that no one seller, and no group of sellers
acting in concert, has the power to choose its level of profits by
giving less and charging more. Where there is workable competition,
rival sellers, whether existing competitors or new or potential
entrants into the field, would keep this power in check by offering
or threatening to offer effective inducements. . . ."
At 320. There being no proof of specific intent to use Penn-Olin
as a vehicle to eliminate competition, nor evidence of collateral
restrictive agreements between the joint venturers, we put those
situations to one side. We note generally the following criteria
which the trial court might
Page 378 U. S. 177
take into account in assessing the probability of a substantial
lessening of competition: the number and power of the competitors
in the relevant market; the background of their growth; the power
of the joint venturers; the relationship of their lines of
commerce; the competition existing between them and the power of
each in dealing with the competitors of the other; the setting in
which the joint venture was created; the reasons and necessities
for its existence; the joint venture's line of commerce and the
relationship thereof to that of its parents; the adaptability of
its line of commerce to noncompetitive practices; the potential
power of the joint venture in the relevant market; an appraisal of
what the competition in the relevant market would have been if one
of the joint venturers had entered it alone, instead of through
Penn-Olin; the effect, in the event of this occurrence, of the
other joint venturer's potential competition; and such other
factors as might indicate potential risk to competition in the
relevant market. In weighing these factors, the court should
remember that the mandate of the Congress is in terms of the
probability of a lessening of substantial competition, not in terms
of tangible present restraint.
The judgment is therefore vacated, and the case is remanded for
further proceedings in conformity with this opinion.
Vacated and remanded.
MR. JUSTICE WHITE dissents.
Section 7 of the Clayton Act, 38 Stat. 731, as amended, 15
U.S.C. § 18, provides in part:
"No corporation engaged in commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share
capital and no corporation subject to the jurisdiction of the
Federal Trade Commission shall acquire the whole or any part of the
assets of another corporation engaged also in commerce, where in
any line of commerce in any section of the country, the effect of
such acquisition may be substantially to lessen competition, or to
tend to create a monopoly."
Section 1 of the Sherman Act, 26 Stat. 209, as amended, 15
U.S.C. § 1, provides in part:
"Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is declared to be illegal. . .
For a discussion of the problem, see
Turner, Antitrust Policy, 136-141 (1959).
Note, Applicability of § 7 to a Joint Venture, 11
U.S.C.L.A.L.Rev. 393, 396.
The court explained further:
"At the time when the joint venture was agreed upon, Pennsalt
and Olin each had an extensive background in sodium chlorate.
Pennsalt had years of experience in manufacturing and selling it.
Although Olin had never been a commercial manufacturer, it
possessed a substantially developed manufacturing technique of its
own, and also had available to it a process developed by
Vickers-Krebs, with whom it had been negotiating to construct a
plant. Olin had contacts among the southeastern pulp and paper
mills which Pennsalt lacked, but Pennsalt's own estimates indicate
that, in a reasonable time, it would develop adequate business to
support a plant if it decided to build. A suitable location for a
plant was available to each company -- Calvert City, Kentucky for
Pennsalt, and the TVA area around Chattanooga, Tennessee for Olin.
The financing required would not have been a problem for either
In this regard, the court should, of course, open the record for
further testimony if the parties so desire.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK agrees,
Agreements among competitors [Footnote 2/1
] to divide markets are per se
violations of the Sherman Act. [Footnote 2/2
] The most detailed,
Page 378 U. S. 178
grandiose scheme of that kind is disclosed in Addyston Pipe
& Steel Co. v. United States, 175 U.
, where industrialists, acting like commissars in
modern communist countries, determined what tonnage should be
produced by each company and what territory was "free" and what was
"bonus." The Court said:
"Total suppression of the trade in the commodity is not
necessary in order to render the combination one in restraint of
trade. It is the effect of the combination in limiting and
restricting the right of each of the members to transact business
in the ordinary way, as well as its effect upon the volume or
extent of the dealing in the commodity, that is regarded."
at 175 U. S.
In United States v. National Lead Co., 332 U.
, [Footnote 2/3
Sherman Act violation resulted from a division of world markets for
titanium pigments, the key being allocation of territories through
patent license agreements. A similar arrangement was struck down in
Timken Roller Bearing Co. v. United States, 341 U.
, where world trade territories were allocated
among an American, a British, and a French company through
intercorporate arrangements called a "joint venture."
Nationwide Trailer Rental System, Inc., v. United States,
355 U. S. 10
156 F.Supp. 800), held violative of the
antitrust laws an agreement establishing exclusive territories for
each member of an organization set up to regulate the one-way
trailer rental industry and empowering a member to prevent any
other operator from becoming a member in his area.
In the late 1950's, the only producers of sodium chlorate in the
United States were Pennsalt, one of the appellees
Page 378 U. S. 179
in this case, Hooker Chemical Corporation, and American Potash
and Chemical Corporation. No new firms had entered the industry for
a decade. Prices seemed to be stable, and little effort had been
made to expand existing uses or to develop new ones. But, during
the 1950's, the sodium chlorate market began to grow, chiefly on
account of the adoption of chlorine dioxide bleaching in the pulp
industry. Domestic production more than quadrupled between 1950 and
1960. The growth was the most pronounced in the southeast. By 1960,
the southeast had the heaviest concentration of sodium chlorate
buyers, the largest being the pulp and paper mills, and nearly half
the national sodium chlorate productive capacity. In 1960, the
southeast market was divided among the three producers, as follows:
Hooker, 49.5%, American Potash, 41.6%, Pennsalt, 8.9%.
Pennsalt, whose only sodium chlorate plant was at Portland,
Oregon, became interested in establishing a plant in the rapidly
growing southeast sodium chlorate market. It made cost studies as
early as 1951 for such a project, and, from 1955 on, it gave the
matter almost continuous consideration. In 1957, it decided to
explore the possibility either of going it alone or doing it
jointly with Olin. Pennsalt received from its staff and experts
various studies in this regard, and continued to have negotiations
with Olin for a joint venture, and postponed its unilateral project
from time to time pending receipt of word from Olin. Its final
decision was, in fact, made when Penn-Olin was organized February
25, 1960, pursuant to a joint venture agreement between Olin and
Pennsalt dated two weeks earlier.
In the early 1950's, Olin too was investigating the
possibilities of entering the southeast industry. It took various
steps looking toward establishment of a production plant in the
southeastern United States. It received numerous reports from its
staff and its experts, and it went
Page 378 U. S. 180
so far in November, 1959, as to reach a tentative agreement with
a British construction company for the construction of a plant. Its
unilateral projects were, however, all dropped when the agreement
for the joint venture with Pennsalt was reached.
During the years when Pennsalt and Olin were considering
independent entry into the southeast market, they were also
discussing joint entry. In order to test the southeast market, the
two agreed in December of 1957 that Pennsalt would make available
to Olin, as exclusive seller, 2,000 tons of sodium chlorate per
year for two or three years, Olin agreeing to sell the chemical
only to pulp and paper companies in the southeast, except for one
company which Pennsalt reserved the right to serve directly.
Another agreement, entered into in February, 1958, provided that
neither of the two companies would "move in the chlorate or
perchlorate field without keeping the other party informed." And
each, by the agreement, bound itself
"to bring to the attention of the other any unusual aspects of
this business which might make it desirable to proceed further with
The purpose of this latter agreement, it was found, was to
assure that each party would advise the other of any plans
independently to enter the market before it would take any definite
action on its own.
So what we have, in substance, is two major companies who, on
the eve of competitive projects in the southeastern market, join
forces. In principle, the case is no different from one where
Pennsalt and Olin decide to divide the southeastern market, as was
done in Addyston Pipe
and in the other "division of
markets" cases already summarized. Through the "joint venture,"
they do indeed divide it fifty-fifty. That division, through the
device of the "joint venture," is as plain and precise as though
made in more formal agreements. As we saw in the Timken
Page 378 U. S. 181
"agreements between legally separate persons and companies to
suppress competition among themselves and others" cannot be
justified "by labeling the project a joint venture.'" 341 U.S.
at 341 U. S. 598.
And we added, "Perhaps every agreement and combination to restrain
trade could be so labeled." Ibid. What may not be done by
two companies who decide to divide a market surely cannot be done
by the convenient creation of a legal umbrella -- whether joint
venture or common ownership and control (see Kiefer-Stewart Co.
v. Joseph E. Seagram & Sons, 340 U.
S. 211, 340 U. S. 215)
-- under which they achieve the same objective by moving in
An actual division of the market through the device of "joint
venture" has, I think, the effect "substantially to lessen
competition" within the meaning of § 7 of the Clayton Act.
] The District Court
found that neither Pennsalt nor Olin had completely rejected the
idea of independent entry into the southeast. But the court also
found that it is
"impossible to conclude that, as a matter of reasonable
Pennsalt and Olin would have built
plants in the southeast if Penn-Olin had not been created."
The only hypothesis acceptable to it was that either Pennsalt or
Olin -- but not both -- would have entered the southeastern market
as an independent competitor had the "joint venture" not
materialized. On that assumption, the only effect of the "joint
Page 378 U. S. 182
"to eliminate Pennsalt or Olin, as the case may be, as a
competitor." In that posture of the case, the District Court was
unwilling to conclude that the creation of Penn-Olin had the effect
of substantially lessening competition.
We do not, of course, know for certain what would have happened
if the "joint venture" had not materialized. But we do know that §
7 deals only with probabilities, not certainties. We know that the
interest of each company in the project was lively, that one if not
both of them would probably have entered that market, and that,
even if only one had entered at the beginning, the presence of the
other on the periphery would, in all likelihood, have been a potent
competitive factor. Cf. United States v. El Paso Natural Gas
Co., 376 U. S. 651
376 U. S. 661
We also know that, as between Pennsalt and Olin, the "joint
venture" foreclosed all future competition by dividing the market
fifty-fifty. That could not have been done consistently with our
decisions had the "joint venture" been created after Pennsalt and
Olin had entered the market, or after either had done so. To allow
the joint venture to obtain antitrust immunity because it was
launched at the very threshold of the entry of two potential
competitors into a territory is to let § 7 be avoided by
There is no need to remand this case for a finding
"as to the reasonable probability that either one of the
corporations would have entered the market by building a plant,
while the other would have remained a significant potential
pp. 378 U. S.
-176. This case -- now almost three years in
litigation -- has already produced a trial extending over a 23-day
period, the introduction of approximately 450 exhibits, and a
1,600-page record. We should not require the investment of
additional time, money, and effort where, as here, a case turns on
Page 378 U. S. 183
finding and the record is sufficient to enable this Court --
which is as competent in this regard as the District Court -- to
White Motor Co. v. United States, 372 U.
, was a vertical arrangement involving a
territorial restriction whose validity we concluded could be
determined only after a trial, not on motion for summary
Oppenheim, Antitrust Booms and Boomerangs, 59
Nw.U.L.Rev. 33, 35 (1964).
The findings of fact are detailed in 63 F.
Section 7 of the Clayton Act covers the acquisition by a
corporation engaged in interstate commerce of the stock or assets
of another corporation also engaged in interstate commerce. An
acquisition qualifies under § 7 if the firm that is acquired is
either conducting business in interstate commerce or intending or
preparing to do so. It seems clear from the record in this case
that Penn-Olin was, from its inception, intended by its organizers
to engage in interstate commerce; and it in fact immediately began
to arrange for or conduct such business. It was therefore "engaged"
in interstate commerce within the meaning of § 7 when Pennsalt and
Olin acquired its stock.
MR. JUSTICE HARLAN, dissenting.
I can see no purpose to be served by this remand except to give
the Government an opportunity to retrieve an antitrust case which
it has lost, and properly so. Believing that this Court should not
lend itself to such a course, I would affirm the judgment of the