Federal Trade Commission v. Consolidated Foods Corporation

PETITIONER:Federal Trade Commission
RESPONDENT:Consolidated Foods Corporation
LOCATION:Longshore and Warehouse Union

DOCKET NO.: 422
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 380 US 592 (1965)
ARGUED: Mar 10, 1965 / Mar 11, 1965
DECIDED: Apr 28, 1965

Facts of the case

Question

  • Oral Argument – March 10, 1965
  • Audio Transcription for Oral Argument – March 10, 1965 in Federal Trade Commission v. Consolidated Foods Corporation

    Audio Transcription for Oral Argument – March 11, 1965 in Federal Trade Commission v. Consolidated Foods Corporation

    Earl Warren:

    Number 422, Federal Trade Commission, petitioner versus Consolidated Foods Corporation.

    Mr. Solicitor General.

    Archibald Cox:

    Mr. Chief Justice, may it please the Court.

    I think, first, I should create a correct an inadvertent the statement that I made yesterday, although it’s not a point, it’s not very essential.

    There is testimony in the record at page is 1664 and 1665, to the effect that in 1950 the wholesale grocery business was declining, and that Consolidated, then began to move into the retail field.

    It bought some chains which are identified in briefs.

    It also attempted to organize some retailers, and the Cardinal Stores on a somewhat loser basis without buying into them, but making them a chain that it would help to manage.

    As far as I can ascertain, the record does not show, how far Consolidated had become engaged in purchasing for resale at retail, and how far it was still purchasing for resale at wholesale, by the time this record was closed.

    But, I don’t think the point is of the essence, because in any event it was a large buyer, and I suppose also we don’t lay any stress on it, that it’s power as a buyer for immediate sale at retail was perhaps more important than it’s power as a buyer, as a wholesaler where it would have to buy what it could sell instead of choosing what went on shelves itself, but I don’t make anything at that point.

    I just want to correct any misapprehension I might have left with the Court.

    Now, yesterday, I was directing myself throughout the argument to the question whether the commission was warranted, leaving the evidence of post-acquisition market behavior aside for the moment, was warranted in finding that this merger created a probable injury to competition, within the meaning of Section 7 of the Clayton Act.

    In a nutshell, the case, I think comes down to this.

    The record shows, that Consolidated was a customer of concerns buying from 25% to 50% of the onion and garlic.

    Indeed, that it was a customer of firms buying 25% from the Gentry division, that became part of Consolidated.

    It was also a very large purchaser.

    In addition, the record shows that the merger gave Consolidated at the absolute dominant position in the onion and garlic market and as I said before, 25% of all sales were made to its customers.

    We also know as a matter of fact, that Consolidated was ready, able and willing, and it was ready and willing and at least in some cases able to use its purchasing power to acquire sales, to break into the new markets of garlic and onion.

    I think, we know as a matter of commonsense and of commercial experience, that buying power in other markets can be used and has been used in a number of instances with devastating affect in foreclosing the market you are concerned with, two independent competitors who lack that leverage.

    Now, we would say taking this together, and still for the moment, leaving aside the post-acquisition evidence, that it’s indeed a necessary inference, that the combination of the two powers creates or may substantially lessen competition within the meaning of the statute.

    That it creates sufficient probability of injury to independent competitor to cause Section 7 to apply.

    That was the conclusion that the District Court and the Third Circuit reached in a comparable situation, in the Ingersoll Rand case cited in our briefs, but we don’t need to go quite that far here.

    All we need to argue is that the Federal Trade Commission could draw this conclusion, because after all, the very purpose of creating the Federal Trade Commission, as this court pointed out in the Cement Institute case, I wish I’d quoted it in my brief, the whole purpose of setting up the commission was to have a body that was capable of appraising the affects.

    In that case, various competitive practices with Basing Point System, under Section 7 of the Clayton Act as amended of appraising the effects of various structural changes in the market, and what they were likely to do to competition.

    The commission, remember, was according to legislative history made the principal instrument for enforcing Section 7, so that it’s expertise could be brought to bare.

    I think in the sense, the answer to the argument that the respondents make here, about there being no evidence concerning the degree of probability is that, the answer that was made in the Republic Aviation case in dealing with the Labor Board.

    There, the proof showed only that there was a company rule, barring the solicitation of union members of the plant and wearing of union buttons.

    And the company argued well there was no testimony concerning the extent to which this will interfere with union organization.

    And the company replies that, that’s something — the court replied that is something for an expert body like the Labor Board to infer from the facts, one of the purposes it said which lead to the creation of such boards is to have decisions based upon evidential facts under the particular statue, made by experienced officials with an adequate appreciation of the subject interested their administration.

    To move to still another area in the Market Street Railway case, it was held at a Public Utilities Commission could infer that a lowering of the rates, and being a fares on a Street Railway could infer without direct testimony that that would resolved in an increase of passenger traffic.

    And the same thing has been applied during the Cement Institute case, and in the Morton Salt case to the Federal Trade Commission.

    [Inaudible] working experience?

    Archibald Cox:

    Well, I am just going to move onto the post-acquisition efforts, alright?

    And I will deal with that now.

    The answer in a sentence Justice Harlan that I will elaborate is that we think that the evidence was relevant, but not such as to compel the conclusion that the threat to competition was not sufficiently substantial.

    The post-acquisition evidence falls essentially into two parts, one is the statistical part, showing that during the subsequent years, it’s about seven years, seven-and-a-half years that in the garlic market, Consolidated lost shares.

    It didn’t have as large a percentage as before.

    Indeed, the share fell from 51% to 39%.

    In the onion market, its share went up 25%.

    25% of what it had been before, it had been 28% and it became 35%.

    Byron R. White:

    Is there any evidence in the records that —

    Earl Warren:

    I’d only thought seven percent.

    Archibald Cox:

    25% of what it had been.

    The 7% is 25% of 28.

    Earl Warren:

    Oh1 I see.

    Archibald Cox:

    That was what I tried to say, I am sorry.

    Byron R. White:

    Is there any attempt in the record to assign a cause for either one of those changes?

    Archibald Cox:

    There is some evidence in the record bearing on that.

    It deals particularly with the quality of the products.

    Potter Stewart:

    Technological change with respect to the onions was there in which they eliminated the woods splinters.

    Archibald Cox:

    Yes and there was also with respect to the garlic, a failure to keep pace with the technological competition.

    We say essentially two things.

    First, we rely on the point the commission made that the failure to gain in both markets, a larger share maybe explainable only by the fact that Consolidated wasn’t using all its power during this period, and we are concerned with power not actual consequences.

    Second, we suggest that the proof of the movement in the sales does not show that the reciprocal purchasing power was not operable as a factor.

    True, it is only one factor that comes into play, but we don’t suggest that quality, price and things like that were not elements.

    Indeed in this respect, it seems to be and again I wish the case within our brief, that this case is very similar to the DuPont Case.

    There are other differences, but you’ll recall it in the DuPont case the argument was made that DuPont did not enjoy a constant share of General Motor’s business that after the acquisition at times it share declined and there was testimony and a finding by the District Court, that General Motors was concerned with price and quality, in purchasing its paints, the leather that it acquired from DuPont and others, but, the court said that all those facts didn’t make any difference.

    That the evidence did show that DuPont by acquiring the General Motors Stock had acquired an ability to get sales on a basis other than price, quality, and the normal competitive thing.

    So, here we say that Consolidated had acquired that capacity, and it may well have been, that it used it in some instances and not in others.

    Now, as a matter of fact I think the evidence very strongly suggests that it may well have been holding some sales in acquiring others on the basis of its purchasing power.

    So, far as the garlic went, there was testimony by Dr. Prater to the affect that for many years they’ve been the leader in garlic, had the best quality and the largest share, but that they lost that because they had not spend the time, money and effort, and had not built a separate plant to handle garlic, had not carried on research.

    Archibald Cox:

    So, it’s not surprising that they lost sales, even though this was a factor in the market.

    On the other hand, if you turn and look at the onions, they were gaining sales 7% of the whole, an additional 25% over what they had.

    It’s suggested in the brief of the company, well, the figures don’t show that purchasing power had — and it came into play because we sold on 33% of the whole market in 1936, and we sold only 31% and lower percentages of the sales, of the groups of companies who were our suppliers in the processed foods market.

    Now, of course, all that shows is that there were some people who bought Consolidated’s onions, who bought more than 33% of their onions from the Consolidated.

    I think, the really important test would be how did Consolidated fair among its suppliers, where its purchasing power might come into play as compared to the part of the market which apparently was not its suppliers.

    Now, we do know who its suppliers were in this period.

    We don’t know what they bought in particular years, but it’s a constant universe, and the figures are quite interesting.

    In 1951, the sales to those who were Consolidated suppliers, were one million eight roughly and the sales to others who were not among its suppliers, where one million seven.

    By 1955, the sales to its suppliers were 2 billion 5, that’s a 35% increase and the sales to others were down to one million three, a 30% decrease.

    By 1958, the sales to suppliers were up to four million six that would be a 146% increase over 1951, and the sales to others were down to one million six, still not what they were in 1951.

    Now, 1951 may not be an entirely reliable base year.

    So I ran a similar check taking 1950 as a base.

    You find that Consolidated Gentry sales rose from two million one to six million – looks as if I must made a mistake, to six million two — oh!

    That’s the total, from two million one to six million two and that 80% of that was attributable to set sales to Consolidated suppliers.

    So, it was doing much better in the market where it did have this — in the part of the market where it did have this leverage, so far as onion went, then it was in the other part.

    And of course any technological change would be operable in both parts.

    Now, I don’t contend, I want to make it very clear, that this shows the reciprocal purchasing power at work, because the commission didn’t find that.

    All I argue is that this shows that the post-acquisition evidence isn’t very compelling, that you could draw various inferences from it.

    That it says sort of [Inaudible] you can look at it one way or look at it another way, and that consequently commission were simply entitled to take into account along with the risk, that they concluded that ultimate question was whether an improper power carrying sufficient probability of injury had been interjected into this market.

    Now the other part of the testimony concerning the post-acquisition period was direct evidence from various suppliers to Consolidated and purchasers of onions and garlic from Consolidated, saying well, we weren’t influenced by the threats of purchasing power.

    To that very briefly, we give much the same answer that we gave in the case of the statistics.

    First, we say, that there were instances where admittedly its purchasing power did pry open the market.

    Second, we say, that if you look at all the evidence with respect to the firms that testified, that they were influenced by Consolidated’s purchasing power.

    You find a number of instances where they was controversy, where they was other testimony that threw doubt on that direct evidence.

    That’s particularly true in the case Gerber’s Foods and the Morgan Packing Company.

    So that again we think, first of the instances in which it countered the purchasing power are more important than the instances in which it didn’t, because those were the proofs that there was some power and second, it adds to the other, again to inquire into the particular facts in the post-acquisition period, which isn’t too long when one thinks of being probable life of this industry in the long run development, that the commission was certainly entitled to hold fast to those facts that where known about market structure, and it based conclusion upon them, instead of being compelled to disregard to compelled by the debatable post-acquisition evidence to reach a contrary conclusion.

    I would like Mr. Chief Justice to save what time I’ve left for rebuttal.

    Earl Warren:

    You may.

    Mr. Walker.

    Daniel Walker:

    Mr. Chief Justice Warren and justices of the Supreme Court.

    Daniel Walker:

    The Federal Trade Commission and the Commentators, the Solicitor General and both friends of the Court in this case, persist in trying to make it, I believe like a test case dealing with the legality of reciprocity under the Antitrust Laws, the Legality of conglomerate mergers under Section 7, and the impropriety of considering post-acquisition evidence in the Section 7 case.

    I do not believe that any of these issues are fairly presented by this case.

    I want to say it very simply now, and if I may elaborate on it later, this is basically a fact case.

    The only issue in this case is whether substantial reciprocal buying will probably result from the Consolidated-Gentry merger.

    In other words, whether Consolidated’s purchases will probably get sales of consequence for Gentry among food processors.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    I have no quarrel with that proposition.

    It’s –-

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    I do not believe that there is any case that directly establishes it Mr. Justice White, but I believe it to be myself a position that you in light of the legislative history of Section 7, and what this court has said about Section 7 and other cases that I would not want to urge upon you the position that if a substantial market power is created by a merger, be it horizontal, vertical, conglomerate or whatever, then that merger can be reached by Section 7.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    Precisely.

    Byron R. White:

    Assume it would I take it that your position would be that [Inaudible]

    Daniel Walker:

    Well, an argument could be made as it is currently being made that the active practice of reciprocity either getting reciprocal agreements or coercive reciprocity is invalid under Section 1 of the Sherman act.

    There are cases pending on that.

    The Federal trade commission–

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    Yes sir.

    I surely do concede that point and I do want to make it perfectly clear that I respectfully disagree with the amicus curiae brief that has been filed in support of Consolidated and that is why I did not give my consent to the filing of that brief because I do not urge on this Court, the position that a merger which creates a substantial reciprocity power cannot be reached under the antitrust laws or cannot be reached specifically under Section 7.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    Well I suppose.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    It surely does not.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    Well, I would suggest Mr. Justice White if I may that at least this is the way it seems to me that a proper first test is finding out whether the issue was presented by the case.

    If under the facts of the case there is no probability of substantial reciprocal buying then you do not even have to reach the question of whether if it were present, it would be invalid.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    Well, in just speaking for myself Mr. Justice White, I believe the case to be over at that point.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    I am sure that the Court must consider that question.

    Daniel Walker:

    I am just saying that I do not argue it to you.

    Arthur J. Goldberg:

    I assume if there were no merger and if Consolidated went into onion business on its own, it would be a Section 7 case?

    Daniel Walker:

    It would not be a Section 7 case, that’s correct sir.

    Byron R. White:

    It would 1 [Inaudible]

    Daniel Walker:

    Section 1 of the Sherman Act or Section 5 of the Federal Trade Commission Act.

    I would like to suggest to the Court that this case cannot be resolved by arguing that neighbors will buy tickets for each others charity raffles or on the basis that reciprocity works in the transportation industry for example where it’s well known that it is long been a way of life.

    The issue here is in a different industry and it is whether, once more consolidated has a purchasing power of consequence among food processors that will force or induce them to buy their onion and garlic from Gentry.

    In this argument, I should like to tailor my remarks to the arguments specifically made by the Solicitor General, both in his brief and in his oral argument.

    I hope to persuade the Court that this case can only be decided on the basis of the record before you and I conceive it to be my major function in this oral argument to persuade you that that record is the heart of this case.

    Indeed, I draw some comfort from the fact that the Solicitor General, like the commission before him, largely avoids the record and I should like to invite the Court’s attention if I may to fact that the Solicitor General has not filed a reply brief or a disputed in his oral argument in any serious manner, any of the factual arguments that we have made in our brief.

    Indeed, I suggest to the court that the Solicitor General is now forced to take the extreme position that the Federal Trade Commission can decide this case simply by [Inaudible] based on an opportunity or a reciprocal buying is itself an implied admission that probable actual reciprocal buying is not proved in this record.

    I have already said to the Court that I have no quarrel with the Solicitor General’s argument that when there are reciprocal buying agreements or when there is actual coercive reciprocity that competitors are disadvantaged and that there may be a violation of the law, but I do not believe that the probability of any such coercion or agreements is proved anywhere in this record.

    The government actually goes —

    Arthur J. Goldberg:

    [Inaudible]

    Daniel Walker:

    I have shorthanded that Mr. Justice Goldberg to use the words probably, will probably, substantially lessen competition because that is the interpretation, the gloss that has been placed on the word may by this Court.

    The government actually goes further then to argue that a merger creating a probable substantiality of reciprocal buying will be bad under Section 7.

    The Solicitor General has argued that if a merger creates the inducement to engage in reciprocal buying, if it creates the opportunity for reciprocal buying, then the merger is bad.

    I should like to quote a sentence from the Solicitor General’s brief, page 25.

    “If a merger changes the structure of an industry in such a manner as to have the probability of increasing substantially the volume of reciprocal buying or enhancing the opportunities for such reciprocity, it obviously has the required anti competitive effect.”

    Byron R. White:

    You think it is wrong [Inaudible]

    Daniel Walker:

    I am not entirely sure of the answer to that question Mr. Justice White, because I can’t quite make out the answer from the government’s arguments.

    I gather though that from what the Solicitor General said yesterday and today that the government’s position which is a little more extreme than has been advanced in it’s brief thus far is that whenever there is a merger where the opportunity for reciprocal buying exist that merger is bad under Section 7 right there and without any more evidence.

    Byron R. White:

    Not with standing the [Inaudible]

    Daniel Walker:

    I do not, Mr. Justice White want to speak for the Solicitor General or purport to, but it’s certainly taking the language that he used, he said you would not have to look at that, at least that’s the way I heard it.

    Arthur J. Goldberg:

    Mr. Walker that is not what the Federal Trade Commission held?

    Daniel Walker:

    It is not what the Federal Trade Commission held in so many words.

    Arthur J. Goldberg:

    I didn’t understand what Solicitor General to say what you are saying because I heard him make a reference to the that Gentry’s competitors would be foreclosed, a probability that Gentry’s competitors would be foreclosed from the substantial share of the market for the product.

    Daniel Walker:

    That’s right Mr. Justice Goldberg, but under the Solicitor General’s theory, he assumes that foreclosure will resolve simply from the fact that the reciprocity opportunity is created by the merger.

    He says there need to be no inquiry whatsoever into evidence showing whether or not actual reciprocal buying will result and foreclosure will flow from it.

    He says opportunity alone establishes foreclosure.

    Daniel Walker:

    May I read this sentence again Mr. Justice Goldberg?

    “If a merger changes the structure of an industry in such a manner as to have the probability of increasing substantially the volume of reciprocal buying or enhancing the opportunities for such reciprocity, it obviously has the required anti competitive effect” and I suggest that this equates probability with possibility on its face and is a clear perversion of the statutory test of Section 7.

    Now what does reciprocity opportunity mean?

    All it means is that there are some companies that could or do sell to Consolidated and could or do buy from Gentry.

    This sheds absolutely no light on whether reciprocal buying will actually result.

    All it shows is that it might result.

    There is a possibility of its resulting.

    I suggest to the Court that relying on opportunity for reciprocal buying to prove effect is precisely the vice of the Federal Trade Commission’s decision and this was the reason why it was overturned by the Seventh Circuit.

    I want to say right now that of course the Federal Trade Commission as the Solicitor General has said, recited the proper Section 7 test, but mere recitation of the proper test by the commission does not foreclose this Court from examining the decision on the record to see whether they properly applied that test.

    The question is still whether on the record as a whole, there is substantial evidence to support the conclusion.

    Now the Solicitor General for the first time in this case, for the first time relies on the role of the commission as an expert body.

    Nobody has suggested that argument until we were before this Court.

    The Solicitor General said yesterday and I quote “that the commission is entitled to draw on its experience in concluding that creating an opportunity for reciprocity carries a potential or demonstrating effect.”

    And he went on to say and I quote again “that the commission has no obligation to introduce direct evidence on this point.”

    The case is that the Solicitor General has cited to you this morning are cases where it is clear even from the brief statement that he gave to you where the administrative agency had clear and actual experience with the problem where this role of expertise was adopted.

    So, far as I know outside of three transportation industry cases in the 1930s, the Federal Trade Commission has never had any experience with reciprocity and those three cases I submit are very unusual cases.

    In each of them, there was coercive reciprocity proved.

    In each of them, there was a market where the conditions were particularly conducive to reciprocal dealing and I will demonstrate to you shortly that those kind of conditions aren’t here.

    Third, in each one of those cases there was paucity than overwhelming proof of the effectiveness of the reciprocity of actually reciprocal dealing.

    I do not believe that the commission would itself espouse the test that has now been suggested by the Solicitor General.

    I invite the Court’s attention to the fact that the Federal Trade Commission has had much more experience with horizontal mergers than it has had with conglomerate mergers or with reciprocity creating mergers.

    And yet, the Federal Trade Commission has never suggested that it can rely on its role as an expert in solving even a horizontal merger case.

    I should like to read to you if I may a very brief quotation from the Commission’s decision in the second Proctor & Gamble case.

    This opinion was written by Commissioner Elman and I believe that he there repudiates in so many words the theory now suggested by the Solicitor General.

    In every Section 7 proceeding, the burden is on the complainant to prove that the merger will create a reasonable probability of a substantial lessening of competition.

    This burden is not met in any case by invocation of a talismanic per se rule by which to dispense with the need or adducing evidence of probable anti competitive effect.

    In every case, the determination of illegality, if made, must rest on specific facts.

    And I suggest that this completely repudiates the Solicitor General’s suggestion that on the point of actual probability of reciprocal buying the commission need not introduce any direct evidence.

    I should like to also mention to the Court that adoption of a rule that would give affect to the Commission’s role as an expert in Section 7 cases would create a tremendous problem because of the dual enforcement of Section 7.

    You have Federal District court deciding Section 7 cases and you have the Federal Trade Commission deciding them.

    Daniel Walker:

    The report of the Attorney General’s committee on the Antitrust Law said, that establishing different standards for application by these two agencies, one agency in a court, would create chaotic consequences.

    I believe that just thinking about it will show you that if you give the commission one role in Section 7 and the district court another role, then the Courts of Appeals and this Court are going to have a very difficult problem of review.

    Finally, I suggest that at the most any reliance on the Commission’s role as an expert can only create a rebuttable presumption.

    Surely, this cannot foreclose the respondent from coming in and proving that the presumption does not apply and that the assumption cannot be accepted and that is what we’ve proved in this case.

    The Solicitor General has emphasized in his argument, this point.

    Since at the time of the merger, in 1951, Consolidated suppliers were already purchasing from Gentry approximately 25% of the total domestic dehydrated onion and garlic supply.

    The merger had an immediate impact on that share of the market.

    I suggest you that this is just a [Inaudible] reasoning.

    It assumes that the company that was buying from Gentry on the day before the merger on April 1, 1951 for reasons of price, service and quality is somehow on the day after the merger buying from Gentry simply because Consolidated is a customer.

    But, whether this kind of reciprocal buying will result is precisely the whole problem of this case and I do not see how it can be solved by assumption.

    There is a major point in this case to which the Solicitor General has not addressed himself and I should like to make it by quoting from his brief.

    The Commission’s conclusion regarding the anti competitive effective merger was also supported by it’s analysis of the market structure.

    This showed that none of Gentry’s competitor was in a in a position to exert similar reciprocity pressures.

    Now this spotlights are very key defect in the whole government’s case.

    In every reciprocal buying situation there are two markets, not just one.

    The first market is the market where Consolidated buys.

    That market is the thousands of food processors all over the United States.

    The second market is the market where if reciprocal buying exists in the first market, you can have an effect on competition.

    That second market here is the market consisting of producers of dehydrated onion and garlic.

    The Solicitor General like the commission prefers to talk entirely about that second market but as I have said there can be an effect in the second market only if reciprocal buying operates in the first and neither the Federal Trade Commission, nor the Solicitor General anywhere has undertaken an analysis of the key market, the food processing market to see if it is conducive to reciprocal buying.

    We did and that’s the kind of evidence that goes to the heart to this case.

    I should like now to address myself to this problem of post acquisition evidence.

    The Solicitor General says that the commission properly relegated this evidence to a secondary role because it is ordinarily a questionable reliability and because heavy reliance on it is inconsistent with the prophylactic test of Section 7.

    But here the threshold issue, the first issue is whether any market power was created by the merger and I suggest to the Court that post-merger evidence is surely relevant on that issue to see whether that power does or does not exist, really a different question than merger effect.

    I know of no better way in the case of a completely untried and unknown power in an industry such as this to find out whether it exists and how effective it is then to look at the record of what happened.

    The government admits in its brief that evidence showing the impossibility of reciprocal buying would be relevant in a Section 7 case.

    Surely, surely it must be true that where probability is the test, evidence showing the improbability of the market power existing must also be relevant.

    Now it’s is no objection whatsoever I believe to say that post-acquisition evidence will not be available to the private treble damage litigants or that frequently the government whne it attacks the merger at the time of consummation will not have this evidence.

    The point is I believe that the Court should use what they have.

    If the evidence is available, why put on blinders.

    Daniel Walker:

    Where it’s not available, then surely a judgment must be made on the basis of the facts that are available.

    It’s very fundamental mistake to call all of the evidence that Consolidated introduced in this case as being post-acquisition in the sense that it was somehow affected by the merger.

    There are two types of evidence here.

    The first type shows the lack of actual reciprocal buying and it’s the only kind of post-acquisition evidence that the Solicitor General has addressed himself to and I want to note here that he says that on this, he will rely on the DuPont case.

    I shall be happy to join issue with the Solicitor General on the application of the DuPont case. If you would had applied in DuPont, the theory that the Solicitor General argues here, you would have had to pay no attention to seventeen years or whatever it was of post-acquisition evidence.

    You could have simply said because DuPont owns ex-percent, that it was a very large percent of the General Motor stock, we will assume that a buy-sell relationship will flow from the stock ownership.

    Is when stock ownership a more binding tie than this reciprocal power that we are talking about, but the Court didn’t do this?

    You looked at the evidence.

    You saw what happened in the marketplace.

    Did DuPont sell most of the requirements of General Motor’s automotive finishes and fabrics and you found that DuPont swept into a commanding position as you said, simply because of this stock relationship.

    And all I ask for in this case is the kind of evidence that the Supreme Court relied on in the DuPont case.

    But now I should like to talk about the second type of evidence here, the type that the Solicitor General ignores.

    This evidence deals with the conditions that exist in the food processing market.

    We put it into the record through the testimony by a large number of purchasing agents and other executives of food processing companies.

    Now this evidence may it please the Court is entirely unrelated to the merger.

    It could have been testified to, in 1951 just as well as in 1958.

    This kind of evidence I think is very important.

    I should like to take a moment if I may to put this case in a little context with the other Section 7 cases that have been decided by this Court.

    In a progression of decisions ranging from Brown Shoe to Philadelphia National Bank, this Court has reached the conclusion that a significant, horizontal elimination of competition may create a rebuttable presumption of merger illegality, and you have shown what I believe to be an understandable impatience, with the details of market behavior evidence in that kind of a case.

    You’ve been looking obviously for clear cut test, guidelines that can help the businessmen, the bar and the enforcement agencies.

    Now you have before you the first so called conglomerate merger case.

    I do not wish to waste your time trying to define a conglomerate merger.

    For convenience, I use it to mean only that it is not in the traditional, horizontal or vertical pattern.

    The only significance of this being a conglomerate merger in my opinion is that the test you have fashioned for automatic effect cases simply cannot be applied here.

    There is no automatic foreclosure effect from this kind of a merger as there is for a horizontal merger or a vertical merger.

    Now the commentators and I too, find it very strange that the Federal Trade Commission is seeking to fashion a much more severe rule for these conglomerate mergers than you and it had done for horizontal and vertical mergers where the effects are much, much clear.

    Two very well known economists, well known to this Court, Kaysen and Turner, writing in 1959 have proved to be remarkably prophetic about the test that should be fashioned for Section 7 cases.

    They advocated these severe tests, would have been called severe, that you have largely adopted.

    When Kaysen and Turner reached conglomerate mergers, they threw up their hands.

    They said the standards of illegality seemed to be wholly illusive.

    Daniel Walker:

    Indeed, Kaysen and Turner writing in 1959 said that they would go so far as to permit conglomerate acquisitions by everyone.

    Now the government in its brief, but not the Solicitor General in his oral argument does come to grips with the problem in this case, and suggests a test for determining whether reciprocal buying will probably exist.

    At page 28 of the Solicitor General’s brief, it is said that there must be an examination into the extent of the acquiring company’s buying power, and that this determines the effectiveness of the alleged leverage, which can be used to induce reciprocal buying.

    Now with this I agree, but the Court will look in vain in the Solicitor General’s brief, will listen in vain to his argument, and will look in vain in the Commission’s decision for any analysis whatsoever of the extent of Consolidated’s buying power among the nation’s thousands of food processors.

    That buying power can be tested in this record and it requires the examination of those conditions that I talked about a moment ago, what are they?

    To what extent do price, service and quality control purchasing decisions?

    To the extent that price, service and quality control obviously reciprocity affect is going to be diluted and I note that yesterday the Solicitor General made another significant omission, not contained in this brief.

    He admitted that he is not arguing that Consolidated’s buying power is so strong that it enables sales to be made without regard to price, service and quality.

    There should be a inquiry as to whether there are other controlling factors, here they are.

    Purchasing agents in this industry aren’t free to just decide what they want to buy.

    They have laboratories, quality control departments, production departments, all looking over their shoulders at every single decision, and you will see in the record that many of these purchasing agents said that their decisions were dictated by factors such as this.

    A third condition; do the food processors need Consolidated more than Consolidated needs the food processors?

    To the extent that, that food processors knows the Consolidated has to carry his product.

    For example, nationally advertised product like, Campbell Soup, he is not going to be responsive to any threat to withhold buying, because he knows it’s an empty threat.

    Now I am not going to say to the Court that any one of these conditions will make reciprocal buying impossible.

    I am going to say to you that all of them taken together inhibit, dilute and hold on any existence of reciprocal buying, where the issue is one probability all of these conditions are relevant.

    The Solicitor General yesterday said, what I thought was a very amazing thing.

    He said that this buying power advantage maybe big or small.

    He conceded that it’s a fact, its existence may vary from industry to industry, and then he said and I quote, “Whether it’s big or small is irrelevant.”

    I seriously disagree with this.

    If the buying power is small, how in the world can you reach the conclusion that there will probably be a substantial effect from the buying power?

    There must be an inquiry to see and the government says, so it is brief, although the Solicitor General did not in oral argument that the extent of the buying power is all important.

    Byron R. White:

    Mr. Walker, I take it that if Gentry — let’s assume Gentry has 50% of the market, is it merged — say out of horizontal merger with another company in the same business Puccinelli or whatever it is, but assume that company had 5% of the market, I take it under our cases that it would be a rather suspected merger, isn’t it?

    Daniel Walker:

    No question about it, Mr. Justice White, absolutely —

    Byron R. White:

    Without a whole lot of investigations as to consequences in the market.

    Daniel Walker:

    Absolutely sir, because you have an automatic elimination of competition.

    Byron R. White:

    And that’s that because Gentry was — just any of the significant addition to its already existing power is — he had some problems with that.

    Daniel Walker:

    That’s a fair statement of your decision sir.

    Byron R. White:

    Well, what about Gentry then, instead being acquired by someone who might very easily or even probably add 5% to its market share?

    Daniel Walker:

    If this Court can conclude from this record that Gentry can add in the foreseeable future or any time 5% to its market share through the use of reciprocal buying.

    Byron R. White:

    That’s a little different.

    That’s emphasizing the Gentry’s market position rather than the reciprocity.

    Daniel Walker:

    No, I am trying to say Mr. Justice White answering what I thought to be your question that if as a result of the merger, and the reciprocal buying allegedly created by the merger, Gentry were to be able to pick up 5% of the market through reciprocal buying, than you might very well have to apply the rationale of the Philadelphia National Bank case.

    But my whole point here is, that I challenge anyone to find anywhere in this record evidence that Gentry will pick up 1%, let alone 5% from the existence of reciprocal buying.

    There are two types of reciprocity that are alleged in case, and I think this is a very key point, again a point that is submerged by the Solicitor General in his oral argument.

    The first is overt.

    It depends on attempts on an express waving of the power, if you will.

    The second type is Silent reciprocity.

    The government calls it tacit accommodative reciprocity.

    Overt depends on action or silent reciprocity to operate according to the government, absolutely nothing need to be done.

    It’s there all the time from the day this merger occurred in April 1951; this supposedly awesome Silent reciprocity force has been operating every single day on food processors.

    Neither of these kinds of reciprocity can be said to be untried among food processors.

    I have pointed out that Silent has been there since 1951, if it exists.

    The Solicitor General accurately points out that Consolidated executives did believe in reciprocity in the year shortly after the merger.

    I am sure they did, but they learned the hard way just like we have proved in this record that it simply won’t work, and they were convinced also by the evidence.

    The belief of these executives in 1952-1953 stands on no better ground than the present day speculation or belief of the Federal Trade Commission.

    Both of them are proved to be an erroneous assumption in this record.

    Potter Stewart:

    You said earlier Mr. Walker that there were two basic kinds of most acquisition evidence.

    First, what actually has happened, and second, what the nature of the — the nature of this business, what you said could have easily been shown back in 1951.

    Daniel Walker:

    Yes sir!

    Potter Stewart:

    Do I understand that correctly?

    Daniel Walker:

    That’s absolutely correct Mr. Justice Stewart.

    I think that’s a very key point because those conditions nobody can knockout of this record on the basis that its post-acquisition evidence suspect because it came into the record after the merger.

    Because both of these alleged powers have been tried, because Consolidated didn’t see that sword as the government says, of overt reciprocity, and wave into the food processors because this silent reciprocity has been there everyday, it’s entirely appropriate I suggest to look and see what actually happened.

    Commission’s trial counsel did try to do this.

    First, they relied on increased Gentry sales to Consolidated’s suppliers, indeed you heard the Solicitor General rely on that this morning.

    I suggest to the Court that this is guilt by association with a vengeance. Commencing in 1951, there was a dramatic upsurge in the usage of dehydrated onion and garlic in the United States.

    Housewives started buying like mad these new convenience foods, the barbeque, sauces, the dried soups, the salad dressings, the Italian foods, the Mexican foods, and all of these required lots of dehydrated onion and garlic.

    Earl Warren:

    What year was that?

    Daniel Walker:

    1951.

    Daniel Walker:

    It’s a dramatic coincidence Mr. Chief Justice that this upsurge, commencement of it coincided at almost the same year that this merger took place.

    Arthur J. Goldberg:

    [Inaudible]

    Daniel Walker:

    I think the answer to that is interesting.

    I inquired as to why Gerber used dehydrated onion and I found that the reason is not for the babies, but for the mothers because Gerber found that the mothers were testing the baby food before they give it to the baby.[Laughter]

    Then they would buy the kind of baby food that they like the taste of best, so Gerber put onion in there.[Laughter]

    During the same period as the Solicitor General has mentioned and which we surely concede that is from 51-58, Consolidated’s retail and wholesale business has expanded.

    It has during this period, bought more food products from more food processors.

    You could choose almost any food processor of consequence in the United States and you would find that during this period of years, it sold more to Consolidated and bought more dehydrated onion and garlic.

    I suggest you that precisely the same thing would have happened, these figures of the Solicitor General relies on, if there had been no merger in this case.

    This doesn’t prove the bang of our probability of reciprocity.

    All it proves again is opportunity that is that there are food processors who, if they are going to engage in reciprocal buying can buy from Gentry because Consolidated is a customer, but whether they will or not, you can’t get out of this record.

    Now Consolidated met the Commission’s case here head-on.

    The government introduced evidence.

    They took up the cudgel on 70 companies in an effort to show that reciprocity worked.

    Consolidated and they introduced this evidence by the way just by throwing in documents, showing hearsay and circumstantial evidence with respect to reciprocity context and reciprocity working.

    We called witnesses from 50 companies.

    The commission had not called one witness to testify that reciprocal buying existed.

    We called witnesses from 51 companies.

    This included all of the important customers among the government 70.

    These companies that we had witnesses from bought more than 1/3rd of Gentry’s dehydrated onion and garlic in 1958.

    These are the witnesses who denied that they engaged in reciprocal buying and more importantly went on and testified in detail to the conditions controlling their purchasing decisions that would prevent reciprocal buying in the future.

    I won’t distress to the Court lest somebody suggest it, that this evidence is not at all lied.

    The witnesses in the Philadelphia Bank case who testified to lack of merger effect on their businesses.

    The Court said that this evidence was — that this question was too complex or lay testimony, and besides the witnesses didn’t give any concrete reasons.

    Neither of those reasons applies here.

    These witnesses were the only ones who knew the facts.

    They were the men who actually did buying all of it of dehydrated onion and garlic from 1951 to 1958.

    Nobody else would know they had it in their heads, and these men knew the reasons and gave the reasons.

    Now I want to say this quickly to the Court, reciprocity will get a few sales, no question about it.

    I want to remind you though something that the Solicitor General didn’t mention, when he referred to the examples of reciprocity effectiveness in these records.

    Daniel Walker:

    Do you know how many they were?

    He said, that on a number of occasions, reciprocity succeeded according to the evidence.

    There were three instances, three.

    And each of those three examples was brought out on direct evidence by Counsel for Consolidated Foods Corporation.

    This was a part of our trial case, call as many as possible of these people involved in the government’s case, and see on a fair open basis where reciprocity worked and where it didn’t.

    Three admitted it when I examined them and brought it out on direct examination, 48 denied it.

    Now what in the world can be the logical basis for accepting this evidence as to three companies, and rejecting it as to 48?

    The unbridged gap in the government’s case from the time it started right up to this Court is the reliance on conjecture rather than proof to support this conclusion that there were probably be substantial reciprocal buying.

    William O. Douglas:

    Does your brief refer to the record that shows the reasons for Consolidated investment in this company?

    Daniel Walker:

    Yes Mr. Justice Douglas, in this sense there is the evidence showing that because wholesale business was declining in the United States, Consolidated wished to diversify.

    It acquired a number of processing units and later some retail units and the acquisition of Gentry was in this pattern of diversifying out of wholesale and into processing.

    The evidence shows directly although you haven’t asked the question sir though, that reciprocity was never thought of in connection with this merger.

    No executive and there was flat testimony on this, it never occurred to anyone that reciprocal buying can exist here before the merger took place.

    William O. Douglas:

    Do you have the record references in your brief that you can just supply them?

    Daniel Walker:

    Yes sir, we surely can supply them.

    William O. Douglas:

    Would see if you could get them before the end of oral argument now?

    Byron R. White:

    Didn’t the Mr. Solicitor General referred to that same evidence?

    Daniel Walker:

    Yes sir, I have only added the additional evidence that reciprocity was not a factor at all in this case.

    Byron R. White:

    [Inaudible]

    Daniel Walker:

    I believe so but I ma not sure Mr. Justice White.

    Byron R. White:

    It’s on page 64?

    Daniel Walker:

    I shall like to spend the moment, if I may, on the statistical evidence in this case that we rely on and If I may, in this connection, I should like to ask the Court if you will to turn to the chart on page 7 of our brief, because I believe this to be one the most dramatic pieces of evidence in this case.

    It is the blue brief on page 7.

    Earl Warren:

    The main brief?

    Daniel Walker:

    Yes sir, the main brief and I perhaps at this moment should divert to say that we filed two volumes to the brief, the second volume is called the Reciprocity Supplement and this is a very important document.

    I urge to the Court not to overlook it because you will find there in detail these conditions that I talked about that are the heart of this case.

    Now looking at the chart, the red bar on the left shows that in 1957 Gentry’s overall market share, it share of onion sales to all companies was 38%.

    Now I shall like to take the other companies, and the Solicitor General mentioned this briefly, but he didn’t tell you where these companies came from.

    These are the groups of the companies that were selected at each of the various stages of this case by the government in an effort to show that reciprocity worked.

    They chose the companies.

    Daniel Walker:

    The ones that are being relied on by the Solicitor General before this Court are the eight companies.

    There Gentry sold 33% as opposed to its market share of 38%.

    Before the Seventh Circuit, counsel for the Commission picked out 17.

    Thereby 1957, Gentry sold 32% as compared to its market share of 38% and with the hearing examiner’s nine companies, the figure was 23%.

    But take all of the 70 companies, every one of the companies selected by the government at the outset of this case to prove reciprocity effectiveness and if you take sales to all 70, Gentry’s percentage was 32% as opposed to its market share of 38% and this after 6 full years of overt reciprocity with each one of these companies and after 6 full years of this alleged silent reciprocity.

    Byron R. White:

    You don’t have a chart for showing that what the share of sale to these companies were in 1951?

    Daniel Walker:

    No, because that data is not possible to obtain from the evidence Mr. Justice White.

    Byron R. White:

    Let’s assume for the moment in each group, in each of these – in each group of these companies 1951 were buying less and than they are buying in 57, it would be true?

    Daniel Walker:

    I think, it very probably is true because of the industry growth.

    Byron R. White:

    What does this prove?

    Daniel Walker:

    Well, it proves, if I may Mr. Justice White, that if reciprocity were effecting, than if it were operating in this industry, Gentry ought to do better and the Solicitor General has argued that it has done better when the Consolidated supplier is subjected to reciprocity than it does with all of its companies.

    Byron R. White:

    That’s just an argument.

    Daniel Walker:

    Yeah.

    Byron R. White:

    That’s just an argument, and if the facts were that that all of these companies were buying less in 1951 than were in 1957, I think the case would considerably be different?

    Daniel Walker:

    On an absolute basis do you mean Mr. Justice White or on a percentage basis?

    Byron R. White:

    On a percentage basis?

    Daniel Walker:

    It surely, it surely would look different.

    Byron R. White:

    Yeah, and so we don’t really know about [Inaudible] on a percentage basis.

    Daniel Walker:

    No, we do not sir, but what we do know is —

    Byron R. White:

    Is this really so effective?

    Daniel Walker:

    I think it is very effective in demonstrating that after seven years or six full years Mr. Justine White, it shows that Gentry didn’t do any better with the companies subjected to reciprocity than it did with companies with all of its customers and I think it is some evidence, I quickly agree with you even if it is not conclusive evidence.

    Now, I should like to spend a moment on the market share evidence, and first I want to make it abundantly clear to the Court, that I do not argue that post-merger decline in market shares proves that the merger did not affect competition.

    That’s not my argument.

    What I do say to you is that this evidence corroborates the other evidence we just looked at and all of the other evidence in this record showing that reciprocity is not affective.

    As Mr. Justice White so properly pointed out, you cannot pick up one bit of evidence in this case and say it’s conclusive, but if you put all of it together, I think you have a very persuasive case at least overcoming whatever you want to choose to call the Commission’s presumption or assumption or conjuncture.

    Now, with the market share data, if the Court wishes to look at it, the chart appears on page 29 of our brief, and you will see from this chart that Basic was the dominant onion producer in 1951 and it’s still the dominant onion producer.

    I should like to mention in this connection that the Solicitor General overstated the case when he said that Gentry was the dominant producer.

    It has never been the dominant producer in this market.

    Basic has always been the dominant producer.

    Gentry’s increased market share came as the Court will see, in onion, only after 1955, and that coincided with the time when it installed its new metal dehydration equipment that solved the wood splinter problem and gave it a quality edge over its competitors.

    Daniel Walker:

    Now, this is not speculation.

    The evidence would show that with just three companies, Lipton, Beech-Nut and Snow, Gentry sold over one million more pounds in 1957 than it did in 1954 to these three companies for this very reason; that is elimination of the wood splinters.

    That one million pounds alone accounts for, I believe about 24% of Gentry’s total sales in 1954 and about 7% of total industry production.

    In garlic, you see that the picture went the other way.

    Gentry went down by 12% from 51% to 39%.

    Now, the Solicitor General relies on this when he says that Gentry perhaps had inferior garlic quality.

    Well, I want to ask this question, if this reciprocal buying was operating so powerfully in this market, why didn’t it enable the garlic share to stay even if Gentry did have inferior quality?

    I submit to you that again, not conclusive, not controlling, but the cross-trends of these market shares, onion up, garlic down is some very persuasive evidence that ordinary competitive conditions were operating in this market.

    I should like to mention again the fact that according to the government’s arguments, since the day in 1951 when this merger took place, this supposedly awesome silent reciprocity power has been operating.

    Food processors are supposed to automatically buy from their customer simply because they know which side of the bread the butter is on.

    Well, there are thousands of food processors in the United States, and if this power were as effective as the government says it is, you would think, I would think that they would have been literally knocking down Gentry’s door to get out at its dehydrated onion and garlic and buy it in order to please Consolidated.

    And whatever else the statistical evidence shows; it surely proves that food processors in the United States were not beating down Gentry’s door to get their product.

    Byron R. White:

    Well, Mr. Walker, I understand your argument to be that Consolidated used all the power it had?

    Daniel Walker:

    I am not making that argument Mr. Justice White.

    I am saying because —

    Byron R. White:

    Do you know what the result would be if it had?

    Daniel Walker:

    I don’t have very — well, first you’re assuming Mr. Justice White that there is a power there to use and I do not accept the assumption that there is a power.

    I am saying to you that that the power —

    Byron R. White:

    If I ask you if they used all the power you have and you said you want to argue they haven’t, and you said that you weren’t that that they weren’t.

    Daniel Walker:

    Well, I wanted to quickly go on and make it clear that by saying that I wasn’t accepting any assumption that there was a power there that was on exercise.

    Byron R. White:

    Well then they were using all the power they had?

    Daniel Walker:

    Well, I suppose this depends on how you assess the power.

    May I answer it this way Mr. Justice White?

    That if by power you mean Consolidated’s ability to go to customers and say look, you buy onion and garlic from Gentry because we buy from you, then yes, they used what they had, and the evidence proves that it didn’t work.

    Byron R. White:

    Do you think that Gentry or the Consolidated did ask.

    You’re assuming and record shows that, although the record show that not only did Consolidated just deny that it went out and attempted to use reciprocal buying.

    Daniel Walker:

    It definitely did not Mr. Justice White.

    There were almost –

    Byron R. White:

    Deny it or use it?

    Daniel Walker:

    There were almost 200 documents introduced and evidenced by the government showing that with almost 100 food processors Consolidated did use it.

    Daniel Walker:

    It used all kinds.

    Take grocery store products.

    Byron R. White:

    But had Consolidated ever denied that it used it?

    Daniel Walker:

    It never denied that it tried to use this reciprocity dealing suggestion with its customers.

    Byron R. White:

    So, the record, do you think the record shows that that to the extent Consolidated thought it might have any power, it really tried to use it?

    Daniel Walker:

    And learned the hard way that it wouldn’t work, yes sir.

    Byron R. White:

    That’s your theory.

    Earl Warren:

    Of course –

    Arthur J. Goldberg:

    [Inaudible] in case where [Inaudible]

    Daniel Walker:

    That’s right Mr. Justice Goldberg.

    As I said in the Seventh Circuit, I am glad that this evidence is in the record because it enables us to show that although tried, it didn’t work.

    Byron R. White:

    You would have a tough time denying it, wouldn’t you?

    Daniel Walker:

    Well, I would still have the argument Mr. Justice White, which I believe, it remains there no matter what door you go out on this point, and that is that assuming it is there, in the absence of some evidence by the government that has the burden to proof is not consistent with Section 7, but here it was tried.

    William O. Douglas:

    Did you know that it is a right potential record of these.

    Daniel Walker:

    I do not —

    William O. Douglas:

    A new management said tomorrow we don’t know.

    We affirm this case; we don’t know what the new management would do tomorrow.

    Daniel Walker:

    But Mr. Justice Douglas, they couldn’t do any more tomorrow a new management and the existing management tried to do.

    It isn’t the potential power.

    William O. Douglas:

    I should say we don’t know, do we?

    Daniel Walker:

    Well, [Attempt to Laughter] we do know this.

    We know it was tried and we know it didn’t work.

    What reason is there to suspect Mr. Justice Douglas, that among food processors —

    William O. Douglas:

    I don’t know.

    We don’t know.

    We’re at the early stages of this thing.

    Daniel Walker:

    Precisely.

    William O. Douglas:

    There are lots of statutes of limitations they have to run and we don’t know how estopped or how [Inaudible] anti trust problems this management is?

    Daniel Walker:

    Well, if I may Mr. Justice Douglas, the second laying of the government’s argument is this so called silent reciprocity.

    This doesn’t depend on management doing anything or being afraid of antitrust consequences.

    Daniel Walker:

    According to the government, they’re supposed to automatically buy from a customer.

    Did they?

    They did not and I think that seven years of evidence showing not only they did not Mr. Justice Douglas, but please more importantly, that there are conditions existing among food processors that will keep it from operating it in the future.

    I am not saying to you that you’ve got to decide the Section 7 test case on the basis on the past.

    I am saying that if you look at the market structure evidence in this case, the real market, you will find structural things existing that will prevent reciprocity from being effective in the future, no matter what Consolidated’s management decides to do.

    This is my argument.

    Now, I quickly say to you Mr. Justice Douglas, going on a little further on this very point.

    Potter Stewart:

    What if the situation changed?

    What if the Court should decide this case in your favor and the situation changed in the future?

    Would the res judicata and/or some statue of limitations be operable and —

    Daniel Walker:

    I do not see that it would be under Section 7 since you said in DuPont that at any time that a market threatens to have the anti competitive effects —

    Potter Stewart:

    That’s right.

    Daniel Walker:

    The government can attack it.

    So there can be no res judicata, no statute of limitation.

    Now, a skeptic may argue that this evidence that I’ve been talking to you about is not conclusive.

    Perhaps it is not, but surely it should cause this.

    It should cause the trier of fact to reexamine his premise.

    It should cause him to look back over his shoulder, and see whether that assumption that reciprocal buying will always inevitably result from a merger of creating the opportunity may not be true.

    At the very least, it should cause a closer, harder look at the structure of the key market, not onion and garlic producing, but the thousands of food processors.

    I should like to take one more example that I believe to be a very dramatic one.

    The Court is aware of the fact as I have mentioned before that there is this factor of consumer demand that requires companies like Consolidated to carry these products whether they want to or not.

    I should like to take three of these; Hormel, the Birds Eye Division of General Foods, and Oscar Mayer.

    I am sure you are all familiar with their products.

    By 1958, Consolidated bought $764,000 worth of Birds Eye products.

    It bought $500,000 worth of Oscar Mayer’s products and it bought $320,000 worth from Hormel, and yet from 1951 to 1958 despite these very large purchases by Consolidated, Gentry has been spectacularly unsuccessful in selling to these companies.

    In this total span of years, it sold 30,000 pounds of dehydrated onion and garlic during a period of time when its competitors sold over 800,000 pounds of dehydrated onion and garlic.

    Now the government argues that existing Gentry customers well be locked in by this merger.

    That is if the company buying from Gentry in 1951 is going to be locked to Gentry, because Consolidated is a customer, but let’s just look at some examples, what is the proof of the pudding.

    Birds Eye and Armour where Consolidated from Armour bought one million dollars worth of their products.

    They were Gentry customers in 1951, and yet both of these companies absolutely stopped buying from Gentry after 1951.

    Daniel Walker:

    If a large meat packer such as Swift should buy a meat market, this Court knows that the competitors of Swift are going to be foreclosed from selling to that meat market.

    If the meat market enters into a long-term requirements contract with Swift, you know that Swift’s competitors can’t sell to that meat market during the duration of the contract, and the same is true with tying agreements.

    If you have to buy A to get B, then you know that the competing sellers of A are going to be foreclosed for making that sale.

    To use Judge Yankwitcher’s very colorful language in a different context, all of these three vertical devices that I have mentioned build market foreclosure fences that are bull strong, horse high and hog tight.

    Not so, I suggest to this Court with reciprocal buying.

    It’s hard even to tell whether it exists in the first place.

    It’s duration is surely not fixed and its market foreclosure effect is hard to measure, and this is all the more reason I suggest to take a harder look at the market to see whether these foreclosure effects will probably exist.

    It ran on over a course of a couple of years Mr. Justice Harlan, because hearings were held in different cities over different periods of time, no depositions, all of the hearings with a before the hearing examiner of the Federal Trade Commission.

    Now if this Court should choose to assume that reciprocity is practiced in human relations and because it does, and because it may exist in some other industries, it will be prevalent and effective here, then as I have said before, there is precious little left for Consolidated to say.

    But if this Court recognizes that outside this record, there is a complete absence of empirical evidence anywhere about the sales inducing power of Consolidated among food processors then we have much to say.

    Now I ask this Court for no sweeping rule that would bless conglomerate mergers generally or reciprocity creating mergers.

    There will be time enough to consider such rules and principles when a proper case comes to this Court where effective reciprocity or its probability of existence in the future is proved.

    There will be time enough for you to consider whether reciprocity can violate Section 1 of the Sherman Act or Section 5 of the Federal Trade Commission Act when such a case comes before this Court.

    What we do ask in the words of Mr. Justice Brandeis, is that there be here a factual showing of illegality.

    We ask only that this determination of legality or illegality be made on the record in this case, and that the test applied, the probability of substantial effect, not possibility of some effect.

    If the court will pardon my presumptuousness, I am confident that if you apply the probability of substantial effect test rather than possibility of some affect as I believe the Commission did, you’ll conclude that the Seventh Circuit properly overturned the decision of the Federal Trade Commission.

    Earl Warren:

    Mr. Solicitor General.

    Archibald Cox:

    Mr. Chief Justice, may it —

    Earl Warren:

    Did you want to tender something [Inaudible]

    Daniel Walker:

    I wanted to tender an answer to the question the record places where this evidence appears with respect to the reasons for acquiring Gentry, that is in the record 141-148 which establishes that reciprocity was not considered in connection with the advisability of the merger, and at 1709-1710, on the reasons for Consolidated’s diversification out of wholesale [Inaudible]

    Byron R. White:

    Can I ask one other question?

    Was this the stock or an asset acquisition?

    Daniel Walker:

    It was an asset acquisition Mr. Justice White.

    By the way, the reason why this merger wasn’t attacked for so long I suggest is because this investigation started out under Section 5 of the Federal Trade Commission Act in 1954, and it wasn’t until after the DuPont decision in 1957 that the Federal Trade Commission decided to turn this into a Section 7 case, and that’s the reason for this delay that Mr. Deck was asked about.

    Hugo L. Black:

    Are those the only record references?

    Daniel Walker:

    I believe they are, [Inaudible] yes, sir.

    Earl Warren:

    Mr. Solicitor General.

    Archibald Cox:

    Mr. Chief Justice, may it please the Court.

    I think the most useful thing I can do during my rebuttal is to try to restate what the government’s position is here, because I think Mr. Walker has in his enthusiasm considerably misstated it.

    We do rely, most emphatically upon the figures, the invented figures concerning market shares in this case.

    Archibald Cox:

    It was made of the utmost importance by the Commission, and I thought it was made of almost borrowing reputation in my argument, that Gentry, and therefore Consolidated was already a dominant, one of the two dominant firms in these markets, that it had around a third of them to combine 51% of one, 28% of the other at the beginning, and that is a very important effect.

    Byron R. White:

    So you wouldn’t Mr. Solicitor General, I didn’t understand your oral argument that way.

    I understand – I understood your oral argument to zero in reciprocity as such.

    I was mistaken.

    And I take it then you would [Inaudible] if Puccinelli had been acquired here rather than Gentry, you wouldn’t be here arguing this case?

    Archibald Cox:

    I would certainly say it was a very different case and I doubt that we would be here arguing, but I would certainly say it was a very different case.

    They have Mr. Justice Stewart, there was a little fellow and I would think that in a market way you had two great big firms Justice White, that the addition of this additional power as you were suggesting, will probably made no difference.

    The other effect that is surely relevant, and that the Commission laid great stress, and there is no difference between me and my client in this case, was that Gentry, Consolidated, it was making 25% of the sales to people who were its customers, and this was the minimum amount of the market where the power; its buying power in other market could be found.

    Now as they were — if only — if its customers were only 2% of the purchases in the market for seasoning, one again would have a very different story, and I don’t purport to say except in general words like substantial, just where the line lies.

    This is the Federal Trade Commission case.

    It decided it on the facts before it, and we tribute great significance to that.

    Now, second I think I might suggest a word about our position concerning the statues.

    If Consolidated had built the necessary processing plants and gone into the onion and garlic market through internal expansion as they sometime say that incurs there would be no Section 7 case under the Clayton Act.

    If it used the power of reciprocal buying and perhaps it did attempted to use then there would be a case under Section 5 of Federal Trade Commission Act. I think it would be under that Mr. Justice White rather than Section 1 of the Sherman Act in that one wouldn’t read Section, might be an monopolizing case if they got big enough, but Section 5 of the Federal Trade Commission Act would be the one primarily [Inaudible]

    Byron R. White:

    The real question is, the real question is that’s not the position you are taking as if they required Puccinelli as in seen stock acquisition, that was a subsidiary and there was actual reciprocity operated.

    Archibald Cox:

    If there was actually reciprocity operating there would be —

    Byron R. White:

    The Section 1 case.

    Archibald Cox:

    Well, I think the question would be we’d have a Section 5 case under the Federal Trade –

    Byron R. White:

    [Inaudible] Section 1.

    Archibald Cox:

    Section 1?

    Byron R. White:

    Exactly.

    Archibald Cox:

    Well, I would think it would be Section 7 of the Clayton Act that we would use if anything.

    Byron R. White:

    Well, you will probably lose?

    Archibald Cox:

    Well, if we would lose under that [Laughter] that’s why I say if anything, if we use Section 1 of the Sherman Act it seems to me a fortiori we would lose since Section 7 is stricter than Section 1.

    Byron R. White:

    You are just suggesting reciprocity as such, proper effective reciprocity as such does not violate anything except Section —

    Archibald Cox:

    Yes, yes.

    Byron R. White:

    Section 5?

    Archibald Cox:

    And I also, I thought I said in the answer to Your Honor’s question a minute ago that if they had acquired Puccinelli it would have been entirely different case which certainly this case would not lead to saying that they couldn’t acquire Puccinelli.

    I think that in this market given all these facts that acquiring Puccinelli no harm done, probably been a fine thing, it would have introduced some competition in the market.

    Byron R. White:

    Puccinelli came to Consolidated as independent company and said look why don’t you our – how did we get together here and you don’t need your suppliers at all.

    Byron R. White:

    Let’s just agree that you will try to get us some customers.

    And —

    Archibald Cox:

    Then it would be, then it might be a Section 1 question.

    Byron R. White:

    Not exactly, what I [Inaudible] reason there would be because the typical buying power [Inaudible] in the agreement.

    Archibald Cox:

    And using reciprocal buying power although we don’t have to pass on it here, we would say was an unfair method of competition and I suppose an agreement to use it by – held to be here an agreement that violates Section 1.

    Byron R. White:

    Exactly, and if they had acquired the stock of Puccinelli and they have that sort of arrangement being the parent and the sub with that kind of an operation, I wouldn’t think — I would think there is something wrong with the typical buying power that it would be an effective [Inaudible]

    Archibald Cox:

    As you now put the case, I think it would a Section 1 case.

    It would have an element, we don’t have to worry about here and that is Puccinelli little in the market whereas Gentry was big and I do stress that as an element of the case.

    Now, the second point on which I think Mr. Walker is building in a straw man is that we do not say, I don’t think we say in that brief and I certainly did not say oral argument, I said just the opposite.

    We do not say that this post-acquisition evidence was irrelevant.

    I think that it clearly is we concede it’s relevance on the issue of whether Consolidated acquired power to use this leverage.

    We do say that it is not compelling and that Commission that evaluated it and that it did not disprove the existence of this improper leverage in the onion and garlic market.

    Earl Warren:

    Finish your statement first.

    Archibald Cox:

    I was simply going to add that we do not agree either where the many statements in the reply brief to the affect that reciprocity was ineffective.

    I say particularly, I was going to take a minute to read it but I say it particularly the evidence concerning Gerber which and the salesman’s report concerning the efforts to sell to Gerber which appear along about page 2268 of the record and the evidence concerning Morgan Packing Company in the form of admissions by Consolidated along about page 2086 of the record.

    Now, there are many instances where people testify generally that they were buying on the basis of quality and price, but when you scrutinize it, you find there was a good deal of testimony the other way.

    This was one of things which we say leads to discounting the post-acquisition evidence and relying primarily on market structure.

    Thank you.