The United States brought this civil antitrust suit charging
that the acquisition by Greater Buffalo Press (Buffalo) in 1955 of
all the stock of International Color Printing Co. (International)
violated § 7 of the Clayton Act, and that Buffalo, Hearst Corp.,
through its unincorporated division King Features Syndicate (King),
Newspaper Enterprise Assn., and others had conspired to restrain
the sale to newspapers of the printing of color comic supplements
in violation of § 1 of the Sherman Act. Before trial, a consent
decree was entered against Hearst. Buffalo, which does not control
ownership of features or license them, prints the color supplements
for newspapers and sells them. International prints color
supplements only for King, which controls many popular comic
features and is a licensor. International's owners wanted to sell,
rather than raise capital for modernization and expansion.
International paid dividends every year, and, in the year of sale,
its profits increased. Only King and Buffalo were considered as
prospective purchasers; no others were even approached. After
acquiring International, Buffalo controlled about 75% of the
independent color comic supplement business and, through
International, it entered into a 10-year contract with King to
supply King's printing. The District Court dismissed the complaint
after trial. As to the Clayton Act claim, it found two distinct
lines of commerce: (1) printing of color comic supplements for
newspapers not printing their own, and (2) printing of color comic
supplements for syndicates selling copyrighted features to
newspapers. That court also found the acquisition to be within the
"failing company" exception to § 7 of the Clayton Act. The United
States appeals only from dismissal of the Clayton Act claim. The
court did not reach the question of remedy.
Held:
1. The line of commerce here is the color comic supplement
printing business, which includes the printing of the supplements
and their sale, and the "area of effective competition" encompasses
the business of Buffalo, International, and King. While there may
be submarkets within this broad market, "submarkets are not a
Page 402 U. S. 550
basis for the disregard of a broader line of commerce that has
economic significance." Pp.
402 U. S.
552-554.
2. The test of § 7 of the Clayton Act, whether the effect of an
acquisition "may be substantially to lessen competition," is met
here by Buffalo's control of about 75% of the independent color
comic supplement printing business. P.
402 U. S.
555.
3. The District Court erred in finding that the acquisition was
within the "failing company" exception, as the two requirements,
(a) that International's resources were "so depleted and the
prospect of rehabilitation so remote that it faced the grave
probability of a business failure," and (b) that there was no other
prospective purchaser, were not satisfied. Pp.
402 U. S.
555-556.
4. The mere passage of time is no barrier to the divestiture of
stock illegally acquired. P.
402 U. S.
556.
5. The case is remanded to the District Court, which has the
initial responsibility of the drafting of a decree that will
provide an appropriate and effective remedy. Pp.
402 U. S.
556-557.
327 F. Supp. 305, reversed and remanded.
DOUGLAS, J., delivered the opinion for a unanimous Court.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This is a civil antitrust case brought by the United States
charging a violation of § 7 of the Clayton Act, [
Footnote 1]
Page 402 U. S. 551
as amended, 64 Stat. 1125, 15 U.S.C. § 18. The main thrust of
the case involves the acquisition by Greater Buffalo Press, Inc.
(Greater Buffalo), of all the stock of International Color Printing
Co. (International). The complaint, at the secondary level, charged
that Greater Buffalo, Hearst Corp., through its unincorporated
division King Features Syndicate (King), Newspaper Enterprise
Association, Inc. (NEA), and others, had conspired to restrain the
sale to newspapers of the printing of comic supplements in
violation of § 1 of the Sherman Act, as amended, 26 Stat. 209, 15
U.S.C. § 1. It also charged that Hearst and NEA were violators of
certain tying arrangements involving the licensing of comic
features and the sale of comic supplements. [
Footnote 2]
Before trial, a consent decree was entered against Hearst,
enjoining King from entering into any agreement limiting
competition in the printing of color comic supplements and barring
any tying arrangement.
After full trial, the District Court dismissed the complaint.
[
Footnote 3] The case came here
under § 2 of the Expediting Act, as amended, 32 Stat. 823, 15
U.S.C. § 29. We noted probable jurisdiction, 400 U.S. 990. We
reverse the judgment below.
The case involves the comic supplement business used weekends by
most newspapers. Some papers print their own comic supplements;
others purchase them.
Greater Buffalo prints color supplements for newspapers and
sells them.
International prints color comic supplements for King only.
Page 402 U. S. 552
Most color comic supplements are printed by companies like
Greater Buffalo and sold to newspapers. But individual newspapers
contract for the purchase of comic features, and it is those comics
that Greater Buffalo prints for the particular papers.
The most popular comic features used by major metropolitan
papers are controlled by King.
Greater Buffalo has no control over the ownership of features,
and therefore does not license them. As noted, however, King is a
licensor; and moreover, it prints "ready-print" supplements which
are pre-printed and supplied to many newspapers only with masthead
change.
The District Court declared that the acquisition of
International by Greater Buffalo has not, and will not, result in a
substantial lessening of competition in the color comic supplement
industry, and therefore did not constitute a violation of § 7 of
the Clayton Act.
The basic error of the District Court, in our view, was in its
finding that the significant lines of commerce involved in this
action should be divided into
"two distinct and separate categories: (1) the printing of color
comic supplements for newspapers which do not print their own, and
(2) the printing of color comic supplements for syndicates engaged
in the sale of copyrighted comic features to newspapers. These are
the lines of commerce -- to treat them together as one line of
commerce,
i.e., the printing and sale of color comic
supplements, would be to ignore the tremendous leverage of the
syndicates which control the copyrighted features."
As we read the record, the printing of color comic supplements
and their sale are component parts of the color comic supplement
printing business. One firm or company may both print and sell;
another may print, yet sell through a third organization, as does
International through King. The "area of effective
competition,"
Page 402 U. S. 553
Standard Oil Co. v. United States, 337 U.
S. 293,
337 U. S.
299-300 n. 5, comprises the business of Greater Buffalo,
International, and King. There may be submarkets within this broad
market for antitrust purposes (
Brown Shoe Co. v. United
States, 370 U. S. 294,
370 U. S.
325), but, as we said in
United States v.
Phillipsburg National Bank, 399 U. S. 350,
399 U. S. 360,
"submarkets are not a basis for the disregard of a broader line of
commerce that has economic significance."
The District Court, proceeding from its premise as to the
relevant market, analyzed the effects on the competition between
Greater Buffalo and International resulting from the purchase of
the stock of the latter. The true import would include not only
that, but also the effect on competition of the alliance with King,
through the acquisition of King's client, International. The three
of them were engaged in the single line of commerce consisting of
the printing and distribution of color comic supplements. The
printing of color comics is the same no matter for whom it is done
or through whom they are distributed. The combination of those who
print and sell comic supplements with those who sell comic
supplements printed by others fastens more tightly the hold of the
group on the side of supplement printing business. As a result of
the acquisition, King has become dependent on Greater Buffalo for
most of the printing which it sells in competition with Greater
Buffalo. Greater Buffalo, it is said, had no long-term contract for
King's business following the acquisition. Yet it had the almost
certain right to print for King, its principal selling competitor,
and a 10-year contract was entered into in the summer after the
acquisition. There is evidence that Greater Buffalo has taken
accounts from King since the acquisition. But existing competition
between them is naturally restricted to sales at a price
Page 402 U. S. 554
higher than Greater Buffalo charges King for printing, and it is
not that fuller competition that could exist if King had an
independent printing source.
King's executive officer proposed, after the stock acquisition
of International, that King acquire its own color supplement
printing capacity.
"Even if it cost money to do this and diminished profits,
wouldn't that be better than the eventual loss of most, if not all,
of our readyprint business?"
"
* * * *"
"The Syndicate, which, for more than a quarter of a century, has
been number one in the readyprint field, is now, at best, number
two, and quite helpless. Newspaper history clearly emphasizes the
difficulty, in fact, hopelessness of regaining a lost position.
There is plenty of current evidence to substantiate this."
"If Koessler [head of Greater Buffalo], because of what he has
done the past few years, were to be attacked, in my opinion he
would lose, but there is the danger, I suppose, of our becoming an
accessory. Here is another reason why I think that, if we were in
the readyprint field with plants of our own, it would restore a
competitive aspect, and certainly that wouldn't be discouraged in
Washington."
Prior to the acquisition, King put pressure on International to
construct a southern plant to meet Greater Buffalo's proposed
expansion there. Prior to the acquisition, King also induced
International to cut its price to meet competition, and actually
transferred a few contracts from International to Greater Buffalo
because of prices.
Those practices ceased after the acquisition. Greater Buffalo
acquired control of about 75% of independent color comic supplement
printing, leaving King no reliable alternative supply. Greater
Buffalo and International,
Page 402 U. S. 555
which had been competitors, ceased to be such. The threat that
newspaper customers will do their own printing is, of course, a
factor in the competitive situation. But, according to the record,
color comic supplement printing requires exacting mechanical
techniques performed by specially trained personnel, and
independent printers specializing in supplement printing and
handling a high volume of business can produce a high quality
product more economically than most newspapers.
The test of § 7 is whether the effect of an acquisition "may be
substantially to lessen competition." The concentration of 75% of
the independent color comic supplement printing business in one
firm points firmly to the conclusion that the difficulties of new
entrants becoming real competitors of Greater Buffalo are greatly
increased.
We also disagree with the District Court that the acquisition of
International by Greater Buffalo was within the "failing company"
exception to § 7 of the Clayton Act.
That test is met only if two requirements are satisfied: (1)
that the resources of International were "so depleted and the
prospect of rehabilitation so remote that it faced the grave
probability of a business failure . . . ,"
International Shoe
Co. v. Federal Trade Comm'n, 280 U. S. 291,
280 U. S. 302,
and (2) that there was no other prospective purchaser for it.
Citizen Publishing Co. v. United States, 394 U.
S. 131,
394 U. S.
138.
It is true that its owners wished to sell, rather than raise the
capital needed for modernization and expansion, and that King, its
sole customer, was threatening to place some of its business
elsewhere. Yet King had not threatened to invoke, nor had it
invoked, the six-month cancellation provision in the contract. Its
expansion plans were being actively pursued, and it continued to
pay dividends to its owners. Indeed, in the year of the sale, it
had shown a substantial increase in profits.
Page 402 U. S. 556
Moreover, only King and Greater Buffalo were considered as
prospective purchasers; the numerous other smaller color comic
supplement printers were never even approached.
Since the District Court found no violation of § 7, it naturally
did not reach the question of remedy, though it said that, if there
were a violation, it would not warrant "a court's exercising its
discretion to order a divestiture fifteen years after the
occurrence of the alleged illegal conduct." That is not the law;
the passage of time
per se is no barrier to divestiture of
stock illegally acquired.
United States v. Du Pont,
353 U. S. 586,
353 U. S. 590;
366 U. S. 366 U.S.
316. Divestiture performs several functions, the foremost being the
liquidation of the illegally acquired market power.
Schine
Chain Theatres v. United States, 334 U.
S. 110,
334 U. S.
127-129.
We do not, however, reach the question of divestiture. A
majority of the Court is of the view that the nature of the decree
to be fashioned should be initially considered by the District
Court. In that connection two additional questions will need to be
passed on by the District Court.
First is the question of the consent decree entered
with Hearst. As to it the District Court said:
"King Features may continue to engage in the practice of
combining the sale of features and printing until the court shall
determine the antitrust issue as to Greater Buffalo. The decree
also provided that Hearst shall obey the antitrust laws during the
pendency of the action."
We do not have enough information about the consent decree and
its operation and the related facts to know how it should now be
integrated into a decree.
Second. In the fifties, Greater Buffalo erected a
printing plant at Lufkin, Texas, to improve its market in that area
by saving transportation costs. There is some evidence that, in
1950, Greater Buffalo made a moral commitment to certain newspapers
to build a plant in the
Page 402 U. S. 557
Deep South. A plant was constructed at Sylacauga, Alabama, after
the acquisition of International.
There are cross-currents in the record which suggest that the
Sylacauga plant was the product of International's wishes, rather
than Greater Buffalo's, and that the primary motive for Greater
Buffalo's acquisition of International stock was to eliminate
International's planned expansion in the South as a competitive
threat.
The status of the Sylacauga plant is a matter to be considered
by the District Court under the controlling precedents.
See,
e.g., United States v. Aluminum Co. of America, 247 F.
Supp. 308,
aff'd, 382 U. S. 12.
The judgment is reversed, and the cause remanded for the
drafting of a decree and the making of such additional findings
both as respects the consent decree and the Sylacauga plant as may
be appropriate or necessary for an effective remedy.
Reversed and remanded.
[
Footnote 1]
Section 7 provides in part:
"That 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."
[
Footnote 2]
A monopolization charge against Greater Buffalo was eliminated
by an amended complaint.
[
Footnote 3]
The United States did not appeal from the dismissal against
NEA.