Before HASTINGS, Chief Judge, and DUFFY and CASTLE, Circuit Judges.
HASTINGS, Chief Judge: We have before us the petition of Ekco Products Company for review of an order of the Federal Trade Commission. After the conclusion of an administrative proceeding, the Commission held that Ekco had violated Section 7 of the Clayton Act, Title 15 U.S.C.A. § 18, 64 Stat. 1125 (1950).*fn1
Ekco was found to have violated Section 7 by its acquisition in June, 1954 of McClintock Manufacturing Company and by its subsequent purchase in May, 1958 of certain assets of Blackman Stamping & Manufacturing Company.
The acquisition of McClintock was conglomerate in nature, since Ekco had not theretofore been engaged in the relevant line of commerce and McClintock had been neither a supplier nor a customer of Ekco. That is, the acquisition of McClintock was neither vertical nor horizontal as those terms have been conventionally used.
In brief, the Commission's order would require Ekco to divest itself of all assets acquired from McClintock, together with all additions thereto and replacements thereof, "as may be necessary to reconstitute McClintock Manufacturing Company as a going concern and effective competitor in the manufacture and sale of commercial meat-handling equipment."
The complaint in this case was issued by the Commission on September 26, 1960. It alleges in substance that Ekco is a leading producer of commercial food and meat-handling equipment and containers, including kitchen tools, tinware, cutlery, stainless steel cooking utensils, flatware and other similar items. It is the largest manufacturer of baking pans for commercial and industrial uses.
That between 1950 and 1959, Ekco's net sales rose from $36.8 million to $73.6 million and its net worth from $19.2 million to $43.7 million, largely as a result of more than twenty acquisitions.
That Ekco distributes its products through subsidiaries or sales divisions to some 10,000 customers throughout the United States, with the commercial meat-handling equipment being sold with building hardware in a separate division.
The complaint further avers that Ekco acquired McClintock on June 30, 1954 for a consideration of about $783,000. That prior to the acquisition, McClintock was engaged primarily in the manufacture and sale of a complete line of commercial meat-handling equipment, consisting of aluminum platters, pans, lugs (deep pans), and metal racks and carts used by supermarkets and grocery stores in handling, storing and transporting meat. In addition, McClintock made and sold or leased rubber greens, used for decorative purposes in meat markets and meat departments of food establishments.
It is alleged that, prior to its acquisition, McClintock was by far the largest producer of commercial meat-handling equipment in the United States, with sales of such equipment in 1953 amounting to approximately $700,000 out of its total sales of about $1.5 million. That it sold the equipment to supermarkets, grocery stores, distributors and jobbers.
That no other company competed nationally with McClintock in the manufacture and sale of this equipment, and that McClintock enjoyed a virtual monopoly in this field.
That during the year following the acquisition of McClintock, Blackman entered the field as the only company, other than Ekco, producing a complete line of commercial meat-handling equipment sold throughout the United States. That one other company, Chesley Industries, Inc., came into the national market about that time, but its sales were confined to a limited line of this equipment.
It is alleged that in 1957 total sales of the three national producers of commercial meat-handling equipment aggregated $1,278,159, of which Ekco accounted for $1,064,169, or 83.3 percent, and Blackman for $99,990, or 7.8 percent.
That after unsuccessfully attempting to acquire Chesley, Ekco purchased in May, 1958 for $142,335 that part of the business of Blackman devoted to the production and sale of meat-handling equipment, leaving Chesley the only remaining national competitor. That on the basis of the 1957 sales data, the purchase of the relevant part of Blackman's assets increased Ekco's market share from 83.3 percent to 91.1 percent.
The complaint then charges, in substance, that Ekco's acquisition of McClintock and Blackman may substantially lessen competition or tend to create a monopoly in the manufacture and sale of commercial meat-handling equipment in violation of Section 7 of the Clayton Act because of the following alleged effects: Elimination of two out of only three national companies in the commercial meat-handling equipment market; foreclosure of the sole remaining national rival, as well as potential future producers, from competing with Ekco owing to the latter's financial and economic strength, its power and ability to control prices and selling terms, its dominant and monopolistic position as the only producer in the United States of a complete line of commercial meat-handling equipment, and its demonstrated ability to erase competition by acquiring or buying out rival producers and sellers of this equipment.
In its answer to the Commission's complaint, Ekco admits, with minor qualifications, most of the relevant facts, but denies the conclusion that its acquisitions violated Section 7 of the Clayton Act.
During the hearings held before an examiner between August, 1961 and September, 1962, complaint counsel presented evidence in support of its case as alleged in the complaint, at the conclusion of which Ekco did not introduce evidence in its defense. During Ekco's cross-examination of Commission witnesses, several exhibits offered by Ekco were received in evidence.
On the record thus adduced, the hearing examiner filed his initial decision, made detailed findings of fact, held that the evidence did not establish a violation of Section 7 of the Clayton Act and dismissed the complaint.
The examiner dismissed the complaint primarily on the ground that owing to ease of competitive entry by others into the commercial meat-handling market and "the presence of substantial actual and incipient competition," the McClintock acquisition did not run afoul of Section 7 of the Clayton Act.
As for the Blackman asset acquisition, the examiner found that subsequent dissipation of all its assets thereby acquired rendered divestiture of such acquisition moot.
The examiner made no findings concerning Ekco's post-acquisition conduct pleaded in the complaint, holding such evidence to be irrelevant in a Section 7 case.
On appeal from the initial decision of the examiner, the Commission adopted virtually all his findings of fact, considering them to be largely undisputed, but reversed the examiner's ultimate conclusion and dismissal of the complaint and held instead that Ekco had violated Section 7 of the Clayton Act.It accompanied this holding with an extended memorandum opinion in which it treated specifically the details of its disagreement with the conclusions reached by the examiner.
The Commission then requested further briefs relating primarily to the question of the appropriate form of relief to be fashioned in its final order. On consideration of such briefs, the Commission reaffirmed its holding that Section 7 had been violated and entered the order of divestiture now before this court, accompanied by a second opinion explaining the reasons for its remedial action.
For purposes of clarity, we have set out the Commission's final order in full as Appendix A to this opinion.
Both parties to this review agree there is no material dispute concerning the relevant facts in this case and that the ultimate issue for determination is a question of law - whether Ekco's challenged acquisition of McClintock violated Section 7 of the Clayton Act.
Certain facts material to the resolution of this question of law seem clearly established.
The relevant line of commerce involved in this case is commercial meat-handling equipment, consisting of two different kinds of equipment with related uses: (1) anodized aluminum platters, pans and lugs used for handling, storage and display of meats in retail meat markets; and (2) metal racks and carts used for the storage and handling of such platters, pans and lugs in such stores. Commercial meat-handling equipment is extremely durable, hence, the replacement market is negligible.
The market for meat-handling equipment is largely confined to meat departments in retail food outlets and the cost of this equipment to such a department is about $1,000.It appears that the commercial meat-handling equipment industry as a whole is not large. The largest annual industry-wide sales volume of platters, pans and lugs was approximately $1,000,000.
While the statistical market picture for carts and racks is somewhat less complete, the figures for three of the principal companies in this field show the largest annual sales total to be only slightly over $300,000. However, the parties agree we are not concerned with a de minimus argument in this review.
Ekco is one of the nation's largest manufacturers of kitchen tools, tinware and cutlery and is one of the leading companies in other product fields. It is the principal manufacturer of commercial baking pans.Since 1952, it has manufactured large aluminum meat boxes.
It is admitted that prior to its acquisition by Ekco in 1954, McClintock enjoyed a virtual monopoly in the manufacture and sale of anodized platters, pans and lugs and was the nation's largest producer of metal racks and carts that hold such platters, pans and lugs.No complaint is made here concerning the monopoly position of McClintock in platters, pans and lugs.
In 1953, McClintock expanded into the manufacture and sale of commercial baking pans, a field in which Ekco was the largest producer.
It is conceded that at the time of its acquisition by Ekco, McClintock was in a relatively healthy condition financially and was not a failing company. However, McClintock's cash position declined between 1952 and 1954 by 29 percent, notwithstanding its increase in sales by 78 percent during the same period. McClintock had never paid any dividends. Its operations were restricted by the terms of a loan agreement that required it to maintain net current assets of ...