On Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 75 C 684 - George N. Leighton, Judge.
Cummings, Circuit Judge, Robert L. Kunzig, Judge of the United States Court of Claims,*fn* and Bauer, Circuit Judge.
In March 1975, the Government filed this civil action alleging that International Harvester Company's purchase of a 39% stock interest in Steiger Tractor, Inc. violated Section 7 of the Clayton Act (15 U.S.C. § 18), the so-called anti-merger statute.*fn1 The salient parts of the complaint, whose factual statements are largely uncontested, may be summarized as follows:
In recent years there has been an increased demand for high-powered and four-wheel drive farm tractors, the latter being the most powerful sold. In 1973, 22,300 high-powered farm tractors were sold or leased for $321,000,000 and 6400 four-wheel drive tractors were sold or leased for $112,000,000.
Harvester is a world-wide manufacturer of agricultural, industrial and construction equipment and over-the-road trucks. In 1973, its sales totaled $4.2 billion, and its assets were $2.8 billion. It was then the 22nd largest industrial corporation in the United States, and it is the second largest producer of agricultural machinery and equipment in this country. It is also the nation's second largest manufacturer of wheeled farm tractors, and in 1973, its sales of high-powered farm tractors amounted to $88 million.
Steiger was incorporated in 1969 and specializes in the manufacture and sale of four-wheel drive farm tractors. Its sales increased from $1.4 million in 1969 to $35.5 million in fiscal 1974. In addition to marketing tractors through 236 dealers, it manufactures four-wheel drive tractors for Harvester, Allis-Chalmers Corporation and Canadian Co-Operative Implements, Ltd. (CCIL).
In 1973, Steiger's shipment of all high-powered farm tractors accounted for 5 per cent of the national market, and the shipments of Harvester, one of Steiger's competitors accounted for 28 per cent of that market. Steiger was fourth and Harvester was second among the tenshippers of such tractors in this country. As to four-wheel drive farm tractors, Steiger's shipments were 14 per cent and Harvester's 8 per cent of the industry, with Steiger ranking third and Harvester sixth among the ten shippers of such tractors in the United States.
In 1973, Steiger produced for itself and others four-wheel drive tractors that represented 19 per cent of industry shipments of such tractors, whereas Harvester's production accounted for 6 per cent. As to all high-powered farm tractors in 1973, Steiger produced 7 per cent and Harvester 27 per cent. In that year, the top four firms shipping high-powered farm tractors accounted for 83 per cent of industry shipments whereas the top four firms shipping four-wheel drive farm tractors accounted for 73 per cent of industry shipments of such tractors.
The Government also alleged that on February 28, 1974, the two defendants entered into a Stock Purchase Agreement and a Manufacturing Agreement.*fn2 Pursuant to the former agreement, Harvester acquired 39 per cent of Steiger's common stock on May 1, 1974. The Stock Purchase Agreement gave Harvester the right to place three directors on Steiger's nine-man Board of Directors. The Manufacturing Agreement extends to October 31, 1979 (with automatic renewals until prior notice of cancellation) and provides that Steiger will assemble for Harvester four-wheel drive tractors using certain components supplied by Harvester, that Harvester will purchase certain minimum amounts of such tractors, and that Steiger will make available to Harvester a maximum of 48-52 per cent of Steiger's annual production.
Steiger's four-wheel drive farm tractors are manufactured in North Dakota and Harvester's high-powered two- and four-wheel drive farm tractors are manufactured in Illinois.
The Government charged that the effect of the Stock Purchase Agreement and Harvester's acquisition of 39 per cent of Steiger's common stock "may be substantially to lessen competition or to tend to create a monopoly in * * * interstate trade and commerce" in violation of Section 7 of the Clayton Act (note 1, supra) in the following three respects:
1. Elimination of actual and potential competition between Harvester and Steiger in the production and sale of high-powered and four-wheel drive farm tractors.
2. Substantial increase in concentration of production and sale of such machines.
3. Possible substantial lessening of competition in production and sale of such machines.
Consequently the Government requested the district court to order Harvester to divest itself of all Steiger stock and to cancel the Stock Purchase Agreement. The Government also sought to enjoin Harvester "for a period of years" from acquiring stock or assets of any concern engaged in the production or sale of tractors.
Both defendants filed answers to the complaint in May 1975 asserting, inter alia, that high-powered farm tractors were not the relevant line of commerce or market.*fn3 In Steiger's answer, it asserted that the Stock Purchase and Manufacturing Agreements between it and Harvester were entered into by Steiger to overcome serious financial problems and that they assured Steiger of new production facilities and a ready outlet for increased output, thus promoting and increasing competition in the production and sale of tractors.
After the completion of extensive discovery, the five-day trial commenced in June 1976. Fortunately for both courts, the parties agreed on the relevant lines of commerce and geographic market. Thus on the second trial day counsel stipulated that the sale and production of four-wheel drive farm tractors are relevant lines of commerce and that the United States is the relevant geographic market. They also stipulated that while articulated and rigid frame four-wheel drive tractors compete with each other in most agricultural applications, most four-wheel drive tractors sold in the United States are of an articulated design.*fn4 The parties also agreed that in recent years there has been an increased demand for high-powered farm tractors and four-wheel drive farm tractors. Almost all of the latter sold in this country have 140 or more horsepower.
The stipulation also showed that Harvester produces and sells a single rigid frame four-wheel drive tractor and sells two models of articulated four-wheel drive tractors manufactured by Steiger, which specializes in manufacturing and selling four-wheel drive farm tractors. According to the stipulation:
"Steiger produces a line of five articulated fourwheel drive tractors for agricultural use and three models adapted for construction use, under the Steiger name, and markets them through approximately 236 dealers in the United States. It also manufactures and assembles for IH [Harvester] two jointly-engineered ...