Brunswick Corporation v. Pueblo Bowl-O-Mat, Inc. – Oral Argument – November 03, 1976

Media for Brunswick Corporation v. Pueblo Bowl-O-Mat, Inc.

Audio Transcription for Opinion Announcement – January 25, 1977 in Brunswick Corporation v. Pueblo Bowl-O-Mat, Inc.

del

Warren E. Burger:

We will hear arguments next in 75-904 Brunswick Corporation against Pueblo.

Mr. Segal, you may proceed whenever you are ready.

Bernard G. Segal:

Mr. Chief Justice, may it please the Court.

I rise to address the court in a case which has aptly been called by the Court of Appeals, the case of first impression nationally, one which explores largely virgin antitrust territory and one which involves for the first time, since the Clayton Act was passed, that we have a money damage verdict under that act.

I should like to emphasize initially that what we are here for is to argue legal issues, not facts.

Okay.

Bernard G. Segal:

That we are here to argue the subject of damages has governed by those legal issues.

There are just a few uncontroverted facts say, in facts, I think are necessary just as background whereas the plaintiffs are subsidiaries of Treadway Companies which is a chain of bowling centers that operates in the United States and each subsidiary operates a different bowling center.

Brunswick Corporation is one of two largest manufacturers and distributors of bowling equipment in the United States and it is the defendant, the petitioner here.

I should say Your Honor that the reason the litigation arouse is that prior to 1964, the bowling industry, really prior to the early 1960s was in the boom period and the bottom fell out of it.

In around 1963, 1964 there was a precipitous decline and the petitioner found itself on the verge of bankruptcy.

It had borrow $300 million because in selling to the bowling centers, the plaintiffs here, is that on conditional sales with a down payment but with a very substantial portion of it, major portion of the money being on a note basis and it had $400 million outstanding with these bowling centers of which a hundred million dollars was more than 90 days delinquent.

What it needed was someway to get cash flow.

It appraised all of these centers.

It selected those which it thought would give it cash flow.

It first tried to get them to pay and then tried to dispose all of them, dispose of the equipment as the Court of Appeals carefully outlines failing roll back, it took over these stations to operate them where it thought they would create a cash flow and what we have involved here are three local markets in which it took over stations.

Two of them, it took over station that was one of the smaller bowling stations, one of them it found that bowling centers, I should say Your Honors, it found that it simply couldn’t get the cash flow and after few years it just closed it down and left the market, that was Poughkeepsie.

The others that remained in the market, the complaint of the plaintiffs is that it should not have taken over those stations, that if it had not done so, those stations, I calling them stations those bowling centers would have folded and let me tell you, your Honor, I don’t do much bowling.

Those bowling centers would have folded and if they had folded the plaintiffs would have shared with the other centers in each of these three local markets with a business that would thus have been released.

That is the entire theory of the case.

Your Honor is there just for some reason or I guess, I know the reason, the respondents endeavored to change that theory here and I therefore read Your Honor, just what the Court of Appeal said, It happens to be at Page 25(a) of the petition for the Writ Of Certiorari, the thrust of plaintiff section fourth theory was that damages were to be computed by first assuming that each Brunswick acquired center would have closed down at the moment of takeover.

In other words, no one else could have taken over.

They were just closed down.

But for the takeover and then by projecting what portion of the closed centers business would have been captured by Treadway centers.

Now, I should say to Your Honor, that in these three markets there is no showing of any kind that the plaintiffs had any less share of the business or that the defendant got any more share of the business during the eight years from the time of takeover until the time of the second trial.

There is no showing that there was any difference in facilities.

Indeed the only showing was that three of the independent centers increased their facilities.

No showing except that the defendant gave up completely the Poughkeepsie market, gave up one of its bowling centers in the Paramus market.

The three markets are Paramus in New Jersey, Poughkeepsie in New York and Pueblo in Colorado.

I say, there is no showing of any of those because the case proceeded on the rather simple ground.

Bernard G. Segal:

Now at the trial there were two, they were charged of the violation of Section 1 of the Sherman Act and the plaintiff withdrew that.

There was a charge of the violation of Section 2 of the Sherman Act and this is important because that the Judge in charging the jury took up every bit of evidence of what was called behavioral evidence that the plaintiffs offered every shred of it, and gave it to the jury and said this is for the Section 2 Sherman Act charge and if you find these things are true, then you give a verdict to the defendant, to the plaintiffs and the jury brought in a verdict for the defendant on the Section 2, Sherman Act.

Now, when it came to the Clayton Act, Section 7, there the charge the Court restrict of its charge to a structural charge.

He said the defendant admits that it’s number one in bowling.

It’s a largest manufacturer in bowling and it serves as a banker for those to whom it sales and finally the Court said that the percentage of bowling center facilities in a local market that Brunswick obtained by the mere act of taking over a bowling center, you find that that was more than insubstantial share, were the Trial Court’s words, if you find that was more than an insubstantial share, say beyond ten percent or fifteen percent, then you may find a verdict for the plaintiffs.

Now, that was the only thing that was — that’s before this court, the only thing on question one, the only thing that was given to the jury.

When everything else had found for the defendant, my friend on the other side has some 30 pages of facts.

He talks of findings by the jury or I can’t understand if they were finding, they were for the defendants.

But since this is a law case, Your Honor; I don’t argue anything of the facts.

I have read your Honor.

Did the jury obtain a general verdict, Mr. Segal or ..?

Bernard G. Segal:

General verdict for the defendant in Section 2 Sherman Act and the verdict of something under $ 7 million dollars after trebling under the Clayton Act.

But there were no special and derogatory.

Bernard G. Segal:

None whatever Your Honor.

Mr. Segal, How about ..Was there a prayer for equitable relief?

Bernard G. Segal:

There was your honor..

And on the Section seven case.

Bernard G. Segal:

Well, there was a general prayer for equitable relief.

Were there proceedings held by the Judge going to equitable relief.

Bernard G. Segal:

Well, he curiously relied on the Jury’s verdict.

But did he give some equitable relief.

Bernard G. Segal:

He gave he granted the divestiture, and the Court of Appeals…

But Mr. (Inaudible), did he make some findings?

Bernard G. Segal:

I would say no Your Honor because says the Court of Appeals that one of his errors was that he relied primarily on what he regarded as the findings of the jury and the findings of jury could only be in Section two and Section two was decided for the defendants.

Or he said a lot of things about the facts.

Bernard G. Segal:

He said a lot of things about the facts; he said a lot of things about the facts.

So, why it may be that the….

Bernard G. Segal:

That’s was one of the reason he was reversed Your Honor.

But it also one of the — it’s also maybe one of the reasons that you just can’t ignore them.

Bernard G. Segal:

But we aren’t here on that Your Honor.

Bernard G. Segal:

Your Honors had two petitions, one consisted of two solid pages of questions.

But the question that you raised here we must assume that there has, –we judged this case on the assumption; there was a violation of Section 7.

Bernard G. Segal:

I am willing to assume for the purposes of argument and to precede that there was a violation.

Your arguments take up from that point.

Bernard G. Segal:

Take up from that point now, it so, happens….

But is it that you make that assumption with respect to the second question as well as first.

Bernard G. Segal:

I make that assumption.

Is that question that the failing company defends there?

Bernard G. Segal:

Second question Your Honor, we say that can not be liability because of the failing company, I am now addressing myself the question one.

For that question only assume there is a violation?

Bernard G. Segal:

Now, my friend objects to the fact that in making our concession since the court had said that there was enough for the jury to find violation of sending it back for that, we assume to that my friend seems to think that that makes a mighty difference and opens up the whole question and therefore my direct answer is the answer I gave Mr. Justice White that we are perfectly willing to assume for purposes of argument.

In this case that the acquisition, by the defendant, the acquisitions constituted of violation of Section 7, for the purposes of first …

I will take it you are also willing to assume that the act which was a violation namely the acquisition also caused some damages.

Bernard G. Segal:

No.

Just the very act.

Bernard G. Segal:

No, that I should make clear right now, to you, Your Honor.

Well I know but I thought your argument was that there was not any, that whatever damage was caused was not cause by any lessening of competition.

Bernard G. Segal:

The entire damage theory, the entire damage theory in this case as said by the Court of Appeals succinctly had a single line of damages.

There were five witnesses, indeed their testimony was so identical that the trial judge charged, if you believe one you must believe all five, which is a curious charge but they really were identical and the jury took without a dollar change what they said was minimum loss of what.

What the plaintiffs would have had if instead of taking over the station, patience they have given up the station.

Bowling alley is not a — you said yes,.

Bernard G. Segal:

Bowling, yes that’s my next case Your Honor, that proves, I prepare in advance anyway.

The sole evidence in this case, is what I have just said.

With Elah Bradman (ph) and Justice White’s expression on it, there is at least about fourth clause variation here, it is there in the sense of acquisition by Brunswick and the loss or profits on behalf of the plaintiffs.

Bernard G. Segal:

Mr. Justice Rehnquist the whole things is a about 4.

Well, but it isn’t there at least that so, you argue from there rather than arguing whether there was but for…

Bernard G. Segal:

That’s what we here for.

The court held that mere presence, mere presence without any lessening little own substantial lessening of competition would be enough.

But the mere presence was the violation?

Bernard G. Segal:

Mere presence was the violation.

Alright and what you are willing to assume that all the damage, that there was damage from mere presence but that that is not what damage has to flow from you are saying ..

Bernard G. Segal:

Precisely, Your Honor.

You are saying, we are going to see some..

Bernard G. Segal:

Some additional proof about lessening of competition.

Will you create mere presence with mere survival?

Bernard G. Segal:

Yes Your Honor in this case.

Survival of these failing allies Bowling allies.

Bernard G. Segal:

In this case, the whole of the plaintiff is premised on the fact that the Bowling centers would have gone out of business, if we had not taken them over and therefore, if we had not taken over the business would have been distributed.

In another words, what he is complaining about Your Honors is the maintenance of the competition, not the destruction of competition.

The question put to you by Mr. Justice White, used the word damage, resulting from the fact that of presence of Brunswick, is it not possible to say that damage is an inappropriate word, it has been suggested in the briefs that the plaintiffs below was seeking a windfall that would result to them as result of the elimination of competition.

Is that distinction between that sort of economic gain and damages sustained as result of wrong?

Bernard G. Segal:

Precisely, Your Honor we take the position and there is every case one reads is consonant with this position, that, damage has to be something which under this act, flows from either a reduction in competition or a creation of monopoly and that is here is called damage is just the result of ordinary competition.

If any other — if the original people had stood there, the original operators would have had the same picture, if we had forgiven the debts, which here for the first time my friend says we could have done, if we have said, all right you can owe us $400 million, we wont collect, they would have had the same presence as they have now, they would have had the same business because there is not a shred of evidence, no showing, that we got any more business after we came than our predecessors had.

There is no showing we got any more business than anyone else would have had, and the only increases in facilities are by others not by us, we have closed down.

We have not increased, there is not a shred of evidence, I say, without any question whatever, no showing of any kind that we gained anything.

Mr. Segal.

Let me put what I understand that be your opponent’s strongest case against to you, make sure you address it directly.

As I understand their theory, it is that the acquisition was unlawful which you assume for purposes of question one and that therefore the presence in the market was unlawful which he was….

Bernard G. Segal:

May I interrupt Your Honor?

The presence not of Brunswick, the presence of the station.

Correct, but they say would not be there but for the violation of law and that therefore there is a continuing violation, they say also that the presence caused injury to them, even though it may not have caused any adverse impact on competition and they then say that the Statute provide that they can recover for an injury, which flow injury to business or property flowing from a violation of law.

Your response is as I understand it is, no, you can only recover for an injury, if it is also an injury which causes an adverse impact on competition.

Bernard G. Segal:

Correct.

What is the support for that?

Bernard G. Segal:

The support for that, Well, this Court has never had a case involving damages but it’s pronouncements in the non-damage in the government, in the equity cases have been used by cases like Gottesman in the Second Circuit where they have now, said and pretty uniformly, originally there was a big split that you can’t recover, all of them say however that the only thing you can recover and I say with hesitancy whatever that there is not a case that doesn’t say this, that the only thing you can recover that for is damages flowing from either the lessening of competition or the creation of monopoly, that when the threat ripens into reality and you can prove that flowing out of the reality is a damage to you, than you can recover and that is the only place you can recover the difference, Mr. Justice Powell that you have made is precisely of difference that the case has made.

But Mr. Segal were those cases in which one could assume for purpose of decision, I haven’t read about, that there was an injury in fact but yet no damage falling from injury.

Bernard G. Segal:

Well, that was the ultimate holding because this is the first case of a money damage.

In each case, when it came back, the court said, oh, you are just saying you are injured by the competition, you are not proving that you are injured by lessening of competition or by creation of monopoly so, though we have said the rule is you can recover, you have not proved anymore than has been proved here, you have not given us the pre-requisite for a damaged verdict, namely damage flowing from a lessening of competition which are argues for both terms.

I am not sure, I made my question this precise as I should have, did they assume in so saying that there was injury flowing from the violation even though not flowing from a injury to competition?

Bernard G. Segal:

I can’t say that expressing by..

That is a very narrow, narrow question as I understand it.

Bernard G. Segal:

In every case Your Honor you had that as a fact.

That there was an injury in fact.

Bernard G. Segal:

or whenever isn’t?

I see.

So now, in this case, do I understand Mr. Segal that you argue that you concede at least arguendo, that have there been showing here of sales below cost by your the deep pocket client, at the Bowling alleys, acquired in an issue in this case, that that would have laid the foundation for a vulnerability of monetary damage.

Bernard G. Segal:

That resulted in diminution of the level of competition.

Yes and so that, that was the yes it has….

Bernard G. Segal:

On our assumption there would have be damages about, would that be true?

Was there evidence of sales below cost here?

Bernard G. Segal:

No evidence of sale below cost, there was 30-40 pages.

There were things that for instance

Trip to Europe and so on.

Bernard G. Segal:

Yeah, now that was trips of two people for the whole United States, we demonstrated…..

Cut rate group….

Bernard G. Segal:

No, not cut rate there was only one charge of cut rate in the record and that was that in order to attract youngsters in the summer, we gave them a special rate in mornings when youngsters normally did not play but our total promotion cost was under 3% whereas the plaintiff’s total promotion cost was 3%.

But there was evidence wasn’t there….

Bernard G. Segal:

Oh, yes there was evidence but all that was Section 2, Your Honor.

Yes, but there is jury’s verdict on Section 2 might have been premised upon the proposition that there was no intent, that they were in fact sales below cost, but there were no intent.

Bernard G. Segal:

But of course, that the Court said that’s not evidence for you on section 7.

The Court said you, you must find these three propositions, it’s three that I had outlined to Your Honor and that’s said by the Court Of Appeals and that is categorically the case that’s one reached the charge of the jury.

But if, as I understand, you are not going to see that a case for a monetary damages resulting from a violation of Section 7, in these circumstances could be based upon sales below cost, by the bowling alleys acquired by your client than shouldn’t the Plaintiff, even if the Court of Appeals theory is wholly wrong, shouldn’t he be entitled to prove that on a new trial?

Bernard G. Segal:

Provided that the sales below cost have resulted in what there is no showing of here.

A lessening of competition.

Well, that that is unfair competition, isn’t it, that’s for sales below cost by a monopolist?

Bernard G. Segal:

Our sales below cost may get me no business Your Honor.

You have got to show it cut me something.

Bernard G. Segal:

Sales below cost will show the violation but not the damage….

Well, then shouldn’t the plaintiffs be entitled on a new trial even assuming you are quite right about to how erroneous the Court Of Appeals was to show sales below cost had resulting damages.

Bernard G. Segal:

Right, but in this case, and I emphasize this once, before I leave, there is not a shred of effort by any of the five witnesses on damages, to show that there was any damage from predatory conduct, the plaintiffs decided that the place where they could get real money here was, millions of dollars, if they could have established because the centers were continued in operation instead of close, they were entitled to what they lost, that’s what the gambled on and I would stake whatever reputation I might have that there is not a shred of evidence of damage on any of a point in this case.

Bernard G. Segal:

Now, Your Honor, I think, I have said enough about question 1, as my time runs on, and I will talk therefore about question 2.

You have seven minutes left including your rebuttal, Mr Segal.

Bernard G. Segal:

Then I would be very brief, because I would like a little time for rebuttal.

The simple question here is, obviously the law is that if what the defendant took over in each case was a failing company project, then the violation of the Anti-Trust Law does not exist, whether it’s Section 2 or Section 7.

We proceeded on the postulate that since the entire theory of the Plaintiffs was that if we hadn’t taken over, the centers would have had a fold, they would have had to go out of existence, — I will just quote the testimony of their witnesses on damages.

One of them said, he was asked, “what was the assumption on which he gave these figures, which the jury adopted without change?”

He said, “well, that centers would have fallen would have fallen of their own economic weight, if Brunswick didn’t prop them up”.

And I read from the brief of the respondents in the Court Of Appeals, he said that these centers were marginal and sub-marginal bowling centers that would otherwise have folded, if it weren’t for what we put into them”

Mr Segal, would you come and either you can say that for rebuttal if you want to save the time, but i would be interested in your response to their argument that the failing company defense really does not or should not apply in the vertical acquisition situation.

Bernard G. Segal:

Oh, Your Honors, on that they are just that wrong.

I will say to Your Honors that they cite the US Steel case, and Your Honor yes, and in that case, it was sent back for the sole purpose of whether the fact substantiated the failing company doctrine and that was vertical.

In the cases that have been with Brown Shoe, Brown Shoe gave to the entire congressional debate, to show that the amendments of 1950 were intended to apply to vertical companies.

And I say to Your Honors, here again, there isn’t a case that denies it in a vertical …

Well, again, let me try and put the question, a little more forcefully, because I want to be sure, I get your thinking on it.

It seems to that the theory of the failing company defense is that in a horizontal acquisition, it doesn’t make much difference whether it goes out of business or its acquired by the competitor, because you end up for the same kind of market, but in the vertical acquisition case, you have really kind of a different theory in the Proctor And Gamble case, in the law, that’s a deep pocket getting into a market, and presumably changing things that would otherwise exist.

Now, one may question that wasn’t in the Proctor And Gamble but it is part of the law.

Now, how does that theory of the failing company defense fit, when the vice is adding a deep pocket competitor to the market that wouldn’t otherwise be there….

Bernard G. Segal:

Well, Your Honor, again the question is deep pocket may be a violation, it may be that in a government suited can be injoint, it maybe that it can be divested, but the act is categorically specific in applying to vertical as the Brown Shoe shows….

I know the act does, but does the failing company defense, is the theory that the failing company defense fits here as said….

Bernard G. Segal:

Both those cases apply it, the debate is on the failing company in both of them, and they make it categorically so and I think that’s so because whether it is vertical or not, the theory is that they don’t want a company which would disappear from the market to disappear and if the only alternative is for ‘X’ to take it over.

Congress has decided as a matter of Anti-Trust Policy, that it prefers to have that entity remained in the market, rather than to have it disappear and therefore it says, if it’s a failing company, you can take it over.

Now, the only issue here was, not whether it would apply actually, the issue was had we proved it?

And very simply, this is our belief.

That can be no doubt that the theory on which this case was tried, on which the damages were sought, was that if we didn’t take them over, they would have withered and died and left the market.

Otherwise there is no damage theory at all.

Both the Trail Court, the Court of Appeals felt that it was our affirmative duty to prove it.

I say to Your Honors, having now tried cases for 40 years, that any time I got an admission, I never tried to prove what was admitted by the other party.

And when the admission is the entire theory, the entire basis, the only way that they can prevail at all ,then your Honors, I wasn’t — I didn’t try the case, but I am frank to say, if I had been there, I would have considered it poor advocacy to see whether you could better that, better the whole foundation stone of the other side’s case, and I say to Your Honors that without the failing company doctrine, there is no claim for damages here, and with a failing company doctrine, we are entitled to judgment, on the matter of damages.

Warren E. Burger:

Thank you Mr. Segal.

Mr. Hoffmann.

Malcolm A. Hoffmann:

Mr. Chief Justice, may it please the Court.

Mr. Segal started his remarks by referring to the uncontroverted facts, I hope, I maybe allowed to have your indulgence for say five minutes of my time to controvert the uncontroverted facts.

I hope also that if I fail to controvert some of them in the course of this argument before this court, and my failure to do that, will not be considered an omission.

We have a case, Your Honor of a vertical integration.

What has happened is, that a largest bowling supplier, the maker of the equipment used by bowling center operations, integrated forward into the bowling operation business.

It made the pinsetters which are the most costly equipment that a bowling center has to use, had to buy, and it made the lanes.

It represents the — for each center who buys from Brunswick, perhaps a $700, 000 of investment, if it’s a 40 lane which is not an uncommon size.

There we start, Your Honor and come in 1960,s and my adversary will have you believe that in 1960”s Brunswick tided on the edge of banks.

No such thing, not even in the worst years, which preceded its decision to go into the bowling center operation business, but was it anyways near that, indeed in its worst years, its collection received from bowling center debtors were $87 million and more, taking away interest on debts were like and this has been broken down to the bowling operation, you have a balance on the plus side of cash flow of $32 million.

This is the giant which Judge Gibbons referred to coming into the land of the Pigmies which all of the bowling center operated the debt to Brunswick itself.

Now, if we cast the case into an abstract, theoretical case, about, is it all right to recover damages for mere presence, which is the language and forgive me, your Honor, is I think it’s somewhat unfortunate language, which is in First questions premise.

If you cast it in so general ways than you discount, the whole factual showing of what this case was about.

The twice pride case, the 10 year case, the case in which Judge Ripple made many findings about predatory practices, a case in which unlike my advisory’s representation to the court, there were independent findings made by judge Ripple on the equity side, in addition to the findings made by the jury itself.

May I suggest you, why don’t you talk in on the microphone.

Malcolm A. Hoffmann:

I am so sorry.

Now, we had not only Judge Ripple making findings of practices which would be not possible for any competitor or of the plaintiffs other than an integrated supplier and bowling center operator.

But we also had the Third Circuit, endorsing these findings and saying that there was sufficient evidence to present to the Jury on the later part of Section 7, that is to say on a substantial lessening of competition and a tendency to create a monopoly.

Now, if Your Honor, please, a fact is a fact as Mrs. Wiggins said, the taste is one which bristles with such a smart, a something casual, some by-product get bristles with that.

Just so, I understand what your position is.

Suppose that the Court of Appeal had expressly said or suppose we read the record as indicating of this, that there was a violation here in the sense of the — there might be a lessening of competition in the future or tendency to create a monopoly, but the record is barren of any actual impact on competition but nevertheless there is violation of Section 7.

But and the Court of Appeals says,” Nevertheless damages is recoverable from the mere fact of the violation.”

Now what is your position on that?

Malcolm A. Hoffmann:

My position is that is wisdom Your Honor, the…

You say that damages..

Malcolm A. Hoffmann:

I say the damages may be, and I would like to explain that if I might Justice White.

The presence itself is not something which happened in one split instant of time, when Brunswick acquired a bowling center.

The presence is something which has started that way and that was illegal on the premise which Mr. Segal expects and which is in your questions and it continues a retention, holding on.

This court has said in so many words, in IT & T and (Inaudible) is equally acquisition and acquisition itself is what is prohibited under Section 7, providing the whole statute to satisfy, providing there is also the necessary tendency effect.

Now, there is no magic in probability as opposed to established lessoning in competition, if the tort is the acquisition and if the plaintiff can show damages causal from that tort then he satisfies, it seems to me, the normal test for a damages.

And May I suggest, that here Your Honor, the acquisition itself is contaminated, not just because it is an acquisition but because the Trial court and the Third Circuit agreed, felt that it was wrong to bring into the small markets, the pygmies referred to by Judge Gibbons, the integrated strength of The Brunswick Corporation.

Malcolm A. Hoffmann:

That is vividly illustrated by the circumstance that it is a predator and all these fellows were, it is debtors or at least half of them.

The Brunswick was number one but they had a size of a competitor in AMF, which incidentally the Third Circuit noted, did not see fit to go forward at integrate in competition with its own customers.

So, this acquisition is wrong because it brings into this market, the power of Brunswick.

You know any cases that would support the recovery of damages on the premise that you can recover damages just from the violation itself without any proof of decrease of competition.

Malcolm A. Hoffmann:

Your Honor, this is what is called a new question in this but I think we may analogies to cases involving status.

I was about to say the status here is an unlawful status of Brunswick in these three small markets.

It had no business being there, when the fox goes into the hen house, it is bad for him to be there from the first, we do not have to wait for former to route him out with shot.

So it is the status, Your Honor, which I think is wrong.

It may not apply to every acquisition but it is seems to me it applies to the acquisitions here and I would like to break down what happened because I think this is critical to first question.

Brunswick had many thousands of pinsetters out on the installment plan.

Brunswick sold them under conditional bills, sale and with a right to foreclose on the property, in the event of non-payment.

What Brunswick did was in most instances, when it was dissatisfied that it could not get paid, is to repossess both the pinsetters which are automatic equipment for setting up pins in an alley and without which today, there is almost no bowling done.

Both the pinsetters and the lanes which are of thin veneer wood sitting on a cement base and which are easily removable.

They removed them and resold them. Thus step one is, Brunswick exercise to choice.

Once it decides to repossess those pinsetters and lanes, the bowling center, as a practical matter could no longer function.

This isn’t the case where the market necessarily put out one of the weak competitors.

Brunswick put out of business it is own customer by deciding to go this route.

It depends on — if then just the bank and not a manufacturer.

Malcolm A. Hoffmann:

It also has that function of being a bank ..

But if was just a bank, and not a manufacturer, but there will be something illegal about there foreclosing.

Malcolm A. Hoffmann:

No, if it stayed in the banking business, certainly not, but if as a bank, it decided to foreclose on a delinquent creditor, in order now to take over its business and go into a different market, I would submit, yes there is something wrong.

Mr. Hoffman, along that line, let’s assume for the moment that instead of Brunswick Corporation acquiring the Bowling Centers, they have been acquired by another great National Corporation, you name it General Motors or IBM, that had even deeper pocket and make all of the other factual assumptions, that you make in this case, would you see any distinction?

Malcolm A. Hoffmann:

Your Honor, there is a shifting of the nature, of the power which is brought into the market.

I could conceive of a situation, if which one of the world biggest corporations went in to Bowling Center operation business, without any potential of impact of lessening of competition, in which case, is that potential wasn’t there, even the subjunctive language of the Statute that is may substantiate to lessen or tend to create a monopoly, even that language would not be satisfied as thus there would be no….

If one of these other giants acquired these centers?

If it said they have financial resources to do the things that you feel that Brunswick has done or will, would it not — what difference would it make?

Malcolm A. Hoffmann:

Well, it could convert money into power and if it converted money into power then certainly, the case becomes similar, that for Your Honor, I rated with your question….

When I am leading after Meek, Mr. Hoffman, isn’t your complaint really that, this is a conglomerate type merger not a vertical merger in the normal sense.

The part is normally, in a vertical merger, are they competitors of the acquiring company that dries up customers, but here what’s the other company in this….

Malcolm A. Hoffmann:

One is horizontal and..

What’s the other company in this business, AMS is not complaining.

Malcolm A. Hoffmann:

In a horizontal in fact this, is how, the moment Brunswick becomes a Bowling Center proprietor, then it is the horizontal competitor of these other bowling proprietors in the same competitive market and it’s then that this power which we complain comes into play, but I want it to — if I may, break down this acquisitions into two steps, the first I describe, as being an effect the foreclosure, the second is the choice made by Brunswick, which was to run the center as a Bowling Center, Bowling Center consists more of — just the lanes and automatic pinsetters, there are liquor licenses, restaurant, nurseries involved in big parking lot, in a piece of Real Estates zone, to make a Bowling Center and goodwill as well.

Brunswick decided to do it that way.

Now, this isn’t then a case where we had confronted was what happened in the market?

Brunswick quoted for a bonus, on the debt, and the record has much evidence that when it chose to do so, it did that.

It did that in San Juan for years, it did that in Jacksonville, Florida and else where.

It just made more favorable arrangements with the debtors, because I suppose, it thought that this way it had some future prospective being paid in full, for what did it sold, so that was a choice which it did make in this….

William H. Rehnquist:

Mr. Hoffman, in your view, could Brunswick without actually foreclosing but continuing to being a larger and larger partner of a particular alley and perhaps acquiring more and more dominance over its policy?

Could your client eventually, if it had a cause of action against it, even though what happens formally taken over title to the place?

Malcolm A. Hoffmann:

Mr. Justice Rehnquist, I find that a difficult question because I – without knowing the message used and to accomplished that I wouldn’t know whether we couldn’t find it will run or foul to the law, it might very well, if not having engaged in a acquisition run or foul of Section 2, or Section 1 as well of the Sherman Act.

This is really a clash of policy, it seems to me.

But Mr. Hoffman, my problem is by taking over and letting — suppose Brunswick had just said we will forgive the debt which you suggest let thme keep on running?

Malcolm A. Hoffmann:

Or forbear, make it easier to pay.

Did they have any complain?

Malcolm A. Hoffmann:

No, we couldn’t have a complaint unless we work in that competitive market and we would definitely treat it, then I think, we might well have a complain and indeed, we had an aspect of this case that involves that, which we ultimately lost on.

Well, if you go back to your original answer you wouldn’t, you wouldn’t have entitled, you wouldn’t have either two or seven violations would you?

Malcolm A. Hoffmann:

If only did was to forbear and not for us, you might have had a violation of 2(a) of Robinson-Patman Act.

Well, now, it just — exactly what was the difference?

The same Bowling alley would run right?

Malcolm A. Hoffmann:

Yes.

Now, it’s running solely, because your, complain is Brunswick is running and what’s the difference, what happened when Brunswick took it almost?

Malcolm A. Hoffmann:

Eloquently, if Your Honors would be good enough to just look at the Appendix to our brief, it answers I think this question as well as a question which Mr. Segal answered about selling below cost.

I have, we have an Appendix Here. In Appendix A, it’s 1(A) attached to this brief of the respondents.

This is taken from the records of the Brunswick and it shows how these centers were run.

If you would look at the first line from ‘65 through ‘68, Delmont or at a loss each year, same from ‘69 to ‘70 then a small profit in ‘71 and in ’72.

We also have highlighted an aspect to the case pointed to how much it would be in the hands of the independent proprietor, using testimony which showed that that they had at least a differential of $2000 laying in advantage because they did not pay themselves for their machines, the cost of annual payment and the interest made this $2000 difference.

But in any case, they run these centers as you see year after year at a loss.

Dutchess, they ran into loss until finally they got tired of it, and they stopped running it at all.

Now, interstate was run only for the first year at loss, and you would have to thought that the enemy troops had marched on City Hall if you read the reply brief of my adversary about that circumstance because he says well, we were misrepresenting to the Court that it was run at a loss and Fairlawn is one center, one of the number of centers in the Paramus market where in fact, a profit took place, but if your eyes goes down to page, you see there were others there, Tenpin in the mall, the one closest to our center in the Paramus, that run at a loss, Lodi, run at a loss.

Now, Sir, that’s an answer to the question about price as well?

Malcolm A. Hoffmann:

If the deep pocket runs centers for five years at a loss, that means the price wasn’t sufficient to yield a profit and it means that one reason or another and I am not trying to argue the Section 2 aspects…

Mr. Hoffman, I am just trying to recall the briefs, does the record shows that these were actual losses, or are these computed losses based on the assumptions that they have paid actually?

Malcolm A. Hoffmann:

These losses are essentially derived including the parenthesis.

It doesn’t make assumption as to paying interest that independents had to pay or something like that?

Malcolm A. Hoffmann:

The comparison is based upon our testimony but the loss figures for Brunswick are simply taken off their in evidence and part of the Appendix.

Mr Hoffman, suppose that a Brunswick could come into a market and made a vertical acquisition of a perfectly healthy bowling center, they just decided, they get in to the retail market and suppose one of these centers was that kind of a center –obviously I am moving you towards the second point in the case.

But isn’t it critical to your case in proving your damages that these centers were not healthy Centers?

Malcolm A. Hoffmann:

Well, if Your Honors please, the thing that is critical is that because we feel and I think this court has a numerous damage cases brief with us, that once you have tort submitted and show the violation, you don’t have to go with mathematical precision to your damage demonstration.

I understand that….

Malcolm A. Hoffmann:

But you see Your Honor, if may I had this if you have to charge, let’s say an advertising program to a loss or profit by the competitors, it is an exceedingly difficult thing to….

But suppose, in my example, the Brunswick acquires a perfectly healthy bowling center and the business figures remain exactly the same for all of the centers in the city for five years.

Now, you would have — but it might very well be that, that the court might find the acquisition to be a violation of the Section 7 but how about your action for damages?

Malcolm A. Hoffmann:

My action for damages – I would be able to claim no damages in that case.

So, it is, it is …..

Malcolm A. Hoffmann:

..on the theory present.

So, it is important that you prove something more than a violation to recover damages.

Malcolm A. Hoffmann:

Your Honor, we have proved and I think the record is clear in this.

Which is true of any anti-trust, you have to prove your damages, you have to show it.

Malcolm A. Hoffmann:

If Your Honor please, if the wrong doer puts the company out of business, then the natural economic course has been changed by the wrong, it’s has been change by the substitution of this deep pocket or a company which not might but would have gone out of the business and here with very respect to Third Circuit erred in my opinion.

Mr. Hoffman, let me interrupt you just once more because I want to sure, I understand your theory.

As I understand, none of the plaintiffs actually went out of business.

Malcolm A. Hoffmann:

All three centers standards involved did not go out of business but we have also carried operations at a loss.

Now, what is the legal significance of the facts set forth in this Appendix, namely as you contend that the companies taken over by Brunswick lost money, what difference does that make?

What’ s this, I just find normal.

Malcolm A. Hoffmann:

The difference is that in a normal course, an independent operator, operating a center at a losing rate is going to go out of the business.

It is just further evidence of the fact that you considered already as debt so they would have gone out of the business instead of being taken — that is the only way…

Malcolm A. Hoffmann:

Precisely, there is also evidence now, if, with great respect, it’s also evidence as to the power to control price.

Normally….

Was there is any evidence that the prices in the market changed, I did not think there was?

Malcolm A. Hoffmann:

Your Honor, it is donnish, there is evidence about price changes here and there, there are all kinds of evidence under attempts to prove second part of Section 7, but it isn’t tied with precision to damages to these three plaintiffs.

You think the price was raised or lowered by reason of the acquisition.

Malcolm A. Hoffmann:

We submit, the price is necessarily lowered because normally in the market the price would be enough to reflect these some….

So then it is like you started to speak sometime ago about a clash of policies, is the clash on the one hand in the public interest to low prices and the other policy, the policy to small businesses staying in business or what is the clash of policies?

Malcolm A. Hoffmann:

Your Honor those are not the two antipodal things, I hope.

The two policies are Section 4 of the Clayton Act which is designed to create a private vendors for Antitrust violation in great numbers to augment the forces over the Department of Justice and which provides with no exceptions for threefold damages and for attorney’s fees wherever the plaintiff has been injured in his business or property by reason of a violation of Antitrust laws.

That policy is an important one and it applies to Section 7 as is indicated by Legislative history not just statements of people which Mr. Justice Jackson said, aren’t read by the President when he signs bills but it’s by what the Congress did, 1914 Clayton Act Section7, Prohibition of Acquisition of Stock, directly or indirectly in a competitor.

Three bills went through, the first two would have not put that under Section for threefold damages.

The final bill that went out did.

In 1950, once, more, modification of Section7, now, to include the remedy for what had become the lawyer’s device to escape old Section7 and that was to throw the acquisition of assets as well as stock in to Section7 and when that happened, Congress again had a chance that to change the Section4.

It did not do so, Justice Pastore (ph) in the Antitrust laws, we made again the change this time with Section 4, in which among other things of state was given a right sue or injury done to citizens.

Though has been made to take that with Section 7 from the thrust of Section 4, so, then that’s the policy.

Is there a policy opposite?

Is there policy in favor of acquisition by capital?

I suggest that as Mr. Justice Brennan pointed out in a Philadelphia Bank case.

The policy is the opposite.

The policy is to not to expand by taking over the businesses and ingenuity and efforts of other man, but to do it internally.

That’s what the Congress was after.

It only maybe done under Section 7, when it is done in such a way as to satisfy the reach of statute, do I am permitted to do on failing business?

I have three minutes left.

Mr. Hoffman, may I ask this question because the record show the principal products sold by Brunswick to your clients, for example, as it does, what are they?

Malcolm A. Hoffmann:

The principal products are the automatic pinsetting equipment which is further more costly.

It’s about $8500 and that valid sum over the years per installation per lane and you can see 40 lanes center, that’s very sizable and then about $4500 for the lane itself.

The wood veneer that goes on the bed, those are the principal items but there are other things.

Balls, there is continuous, if your mind is reaching to it’s commerce, there is continuous maintenance service and much more credit relations which have to be serviced for.

What is the depreciable life of the pinsetting equipment and the bowling alley?

Malcolm A. Hoffmann:

Was it known at the time of filing, it was believed to be 20 years, it was not known then because automatic pinsetters were discovered by AMF, landed by AMF in about 1956.

Is any evidence in the record as to the annual sales or other types of equipment to plaintiffs centers.

Malcolm A. Hoffmann:

The bowling balls and gloves and the other things.

Yes there is such evidence.

What percentage really of total sales would that be sales of Brunswick Corporation to bowling centers.

Malcolm A. Hoffmann:

I don’t have the.

If you eliminate the pinsetters, it is a small percentage.

A very small percentage.

Malcolm A. Hoffmann:

It is small percentage.

It’s quite unlike the typical radical integrated acquisition where the purpose among others is to acquire customers who will be buying on a regular basis from the acquiring corporation.

Malcolm A. Hoffmann:

For the regular — the machine themselves, the pinsetter’s machines, Your Honor.

These regular servicing which includes repair parts, these things are under great pressure.

Heavy balls, roll gum, the alley and those repair parts come from Brunswick.

The machines needs servicing and so on so, this is a continuous aspect of business which I can break out for you now, but it is in the record as the (Inaudible) there is a page A1603 in our Appendix and it’s the set up under the heading a machine and miscellaneous.

The machines and miscellaneous, the servicing aspects of them are 3% of the gross income figure.

The pro-shop and other things that give supplies add to that.

Mr. Hoffman, I wanted you to see, your time is up.

Why do not you just in a word tell us your answer to the dilemma that the bill you are in under question two, is to how you cant have a (Inaudible).

Malcolm A. Hoffmann:

It’s no dilemma Your Honor, it seems to me because this is a matter for defense failing business.

It’s not all together clear, that’s even desirable to have such a defense.

But it is never been held nor even suggest that failing business is a state of nature which prevents the operation of Section 7, and in the Buslowe case and in the Citizens Power bidding and the International Shoe and all the historic failing business cases, that was made clear and what meant to be shown was not even asserted by the defendant.

Part of this, was not even in their pleadings, ever attempt made at the trial, example, to show that there was no viable alternative but the Brunswick acquisition was part of showing necessary and indeed as to couple of the centers which were picked up bankruptcy sale, Brunswick urge is even now that that they should be separately dealt with, fail on and in a state they say were profit making centers but even there said is, there were other people who wanted to bowling.

There was indeed the curious episode where somebody bought a center and within 24 hours time he was given a $5000 profit by Brunswick.

Indeed Brunswick called up the Chairman of Board at 11 O’clock at night.

This is all in the evidence in order to get the approval to buy back from one Mr. Victorla (ph), a center which he had taken at that bankruptcy sale that you don’t have the elements of the defense.

You have no consideration given, to the alternatives.

Failing business is not a formative prescription of law.

You don’t make a determination, that, well, this is a failing business therefore it’s already…

I take it under the Court of Appeals remand that you might lose on the failing company document.

Malcolm A. Hoffmann:

I didn’t so read that Your Honor.

You didn’t.

Malcolm A. Hoffmann:

I was much more concerned about commerce.

Are there more proceedings to be held with respect to whether there were alternatives.

Malcolm A. Hoffmann:

Your Honor, if Brunswick has the chance in a new trial, I am sure they will make some effort to repair this mischief.

But I don’t think the remand is to be interpreted that way on failing business.

Malcolm A. Hoffmann:

Remand essentially is on instructions.

Thank you very much.

Warren E. Burger:

Thank you Mr. Hoffman.

Mr. Segal, do you have to say something further.

Bernard G. Segal:

No Your Honor.

Having just two minutes, want to correct some things….

Warren E. Burger:

Now the jury has to correspond.

You have few more minutes.

Bernard G. Segal:

Thank you very much, Your Honor.

Mr. Chief Justice, I do not want to have the records stand where I said we were in serious financial condition and my friend rises to say no indeed things were booming for us.

I therefore read to Your Honors just four sentences from the opinion of the Court of Appeals particularly because it is Judge Gibbons to whom my friend refers as having indicated that things were riding very high and handsome for us.

I read Judge Gibbons.

Potter Stewart:

What page of the opinion?

Bernard G. Segal:

Page 7(a), Justice Stewart.

Over the years Brunswick had borrowed close to $300 million in order to finance the manufacture and sale of bowling equipment.

By late 1964, it’s receivables were in excess of $400 million, of which more than $100 million were over 90 days delinquent.

Brunswick was clearly in serious financial difficulty and in effort to refers that it’s the theory of riding condition, Brunswick’s management decided on a plan and it’s back plan that Your Honors have before you.

So, that as in so much that my friend has done, he is simply not arguing this case Your Honors.

Let me give you another example.

He took Your Honors time to say that in cases like the movie cases, you don’t have to be precise in damages.

Your Honor, this is the most precise case, I have known in my entire experience.

Five witnesses got up and said here is the minimum, here is the maximum and they were identical.

The jury took the identical figures not a penny difference and he argues to Your Honor, a theory as to where damages can’t be.

What we have here, if Your Honors please, is very simple.

We have a judge who frankly says, I am venturing into new ground.

In my judgment, he relished Your Honors taking certiorari on the case.

It rides throughout his opinion that he would love to have it determined.

He has concluded that if someone is there and admittedly as the questions if Your Honors have indicated.

If we had forborne, there wouldn’t be a change in the market.

There is not a showing by anybody that the market situation has changed, that anybody has a greater share than before.

Bernard G. Segal:

That anybody has more equipment other than three independents who put in a little more equipment.

What we have here is a Judge who has concluded that in this limited area of liability namely, Section 7, where we are breaking new ground.

If you are don’t deliver what Section 7 says, namely a lessening of competition, you nevertheless can have damages.

Now, one of Your Honors has asked, are there any cases and I say this again categorically, every case I have read and we have given the quotations in our brief, that has pronounced the new theory that you can have damages under Section 7 says, only if you can demonstrate the damage flows from a lessening of competition or a creation of monopoly.

On the second point Your Honor, I think I have said enough.

The sole question that the Court of Appeals decided against this on the failing company doctrine is that it was our obligation affirmatively approved.

I have leave Your Honors with a thought, that if anything has been demonstrated this morning by friend’s own argument, it is that these were failing companies.

Why would we adduce proof?

When it ran throughout the case where the case was rampant, where the whole theory of the case was.

That if we hadn’t taken over thy would have failed.

No, no one else would have taken over, no one would.

Why did we, why were we willing to operate some of (Inaudible), because we needed cash flow.

We would had been bankrupt if we didn’t get cash flow.

We needed money dollars not profits.

We didn’t worry about depreciation which caused losses.

We needed cash flow and the record shows the cash flow for every center.

I thank you, your honors.

Warren E. Burger:

Thank you gentleman, the case is submitted.