Court: Supreme Court of the United States; June 22, 1964; Federal Supreme Court; Federal Appellate Court
The court evaluated whether the 1959 acquisition of Rome Cable Corporation by the Aluminum Company of America (Alcoa) violated Section 7 of the Clayton Act by substantially lessening competition or creating a monopoly in the wire and cable industry. The United States initiated the suit claiming a violation and sought divestiture after the District Court ruled in favor of Alcoa, finding no violation. The case involves determining the relevant "line of commerce."
Aluminum wire and cable is categorized into bare and insulated aluminum conductors, primarily used by electric utilities for power transmission. In 1958, Rome produced a small percentage of aluminum conductors while Alcoa held a significant market share. The District Court recognized bare aluminum conductor as a separate line of commerce but rejected the broader aluminum conductor line status, stating that insulated aluminum conductor could not be distinct from copper conductor due to its competitive relationship.
However, the court concluded that this competitive relationship does not prevent the classification of insulated aluminum conductor as a submarket under Section 7. Although insulated aluminum conductor is generally considered inferior to its copper counterpart, it has gained market share in overhead applications, indicating its competitive presence. The court noted that insulated aluminum conductor's share of annual installations grew significantly from 1950 to 1959, underscoring its relevance in assessing market dynamics.
Competition for overhead distribution using copper is diminishing, as manufacturers of insulated copper conductors cannot overcome their cost disadvantage unless they switch to aluminum. Insulated aluminum conductors are priced at 50% to 65% of copper conductors, making them more economically viable, and the costs associated with their installation are also generally lower. The District Court correctly identified that insulated aluminum conductors form a separate sub-market from insulated copper conductors, despite serving the same customer base, as the price and economic factors are critical in distinguishing the two.
Unlike the shoe market, where minor price differences were not deemed significant, the substantial price gap between aluminum and copper conductors cannot be overlooked. Both bare and insulated aluminum conductors are appropriate to be grouped in a single market since they are utilized for electricity conduction and sold to the same electrical utilities. While both types compete, their specific applications differ, with aluminum favored for overhead use and copper for underground and indoor applications due to aluminum’s brittleness and size.
The analysis concludes that insulated aluminum conductors constitute a submarket under Section 7 of the Clayton Act. The merger in question violates this section, as Alcoa holds significant market power, having previously monopolized the aluminum industry, which was addressed following World War II by allowing other companies to enter the market. By 1960, several companies had established themselves, with Alcoa still holding a substantial capacity of primary aluminum production.
In 1958, prior to the merger, Alcoa dominated the aluminum conductor market with a 27.8% share and led in bare aluminum conductor at 32.5%. Together with Kaiser, they controlled 50% of the aluminum conductor market, while the top three competitors accounted for over 76%. A mere nine companies produced 95.7% of aluminum conductors, indicating a highly concentrated market. In insulated aluminum conductor, Alcoa ranked third with 11.6%, and Rome was eighth at 4.7%. Overall, five companies held 65.4% of the insulated market.
The market exhibited significant concentration, predominantly influenced by a few major firms, with only minor contributions from independents resulting from federal intervention rather than competitive dynamics. A key legal principle from United States v. Philadelphia National Bank highlighted that preventing even slight increases in concentration is crucial when markets are already highly concentrated. The Celler-Kefauver amendments aimed to curtail minor accretions of market power that could be destructive to competition.
The potential acquisition of Rome, which would add only 1.3% to Alcoa's market share, could still substantially lessen competition under Section 7. The law emphasizes the importance of maintaining an environment with many sellers, as oligopolistic conditions could foster non-competitive behaviors among major firms. Despite its small percentage, Rome ranked ninth overall and fourth among independents in the aluminum conductor market, demonstrating its role as a significant and aggressive competitor, particularly noted for its innovations in aluminum insulation.
Rome maintained a diverse range of high-quality copper wire and cable products alongside its aluminum conductor business, showcasing expertise in insulation and a robust research and sales organization. Post-merger, Alcoa appointed Rome as the distributor for its entire conductor line, highlighting Rome's competitive significance as intended by Congress in Section 7 of the Clayton Act. The court reversed the judgment requiring divestiture and remanded the case for further proceedings. Section 7 prohibits corporate acquisitions that may substantially lessen competition or create monopolies. The distinction between transmission (wholesale) and distribution (retail) lines was clarified, with precedents cited for defining lines of commerce. The dissent's criticism regarding the classification of aluminum conductors was countered by findings that both bare and insulated aluminum conductors represent separate lines of commerce. Alcoa's intent to acquire Rome was influenced by a series of previous acquisitions in the aluminum sector, reducing the number of independent fabricators to four, each with less than 1% market share based on 1959 data.
