Federal Trade Commission v. Procter & Gamble Company

PETITIONER:Federal Trade Commission
RESPONDENT:Procter & Gamble Company
LOCATION:Smith County Jail

DOCKET NO.: 342
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 386 US 568 (1967)
ARGUED: Feb 13, 1967
DECIDED: Apr 10, 1967

Facts of the case

Question

Audio Transcription for Oral Argument – February 13, 1967 in Federal Trade Commission v. Procter & Gamble Company

Earl Warren:

No. 342, Federal Trade Commission, Petitioner, versus Procter & Gamble Company.

Thurgood Marshall:

Mr. Chief Justice.

Earl Warren:

Mr. Solicitor General.

Thurgood Marshall:

May it please the Court.

This case is here on writ of certiorari to the United States Court of Appeals for the Sixth Circuit.

In that Court, the Court of Appeals of the Sixth Circuit set aside the Federal Trade Commission’s order that Procter & Gamble divest itself of assets from the Clorox Chemical Company, the nation’s largest bleach manufacturer, which it had acquired through a merger.

At the time of the merger in 1959 Procter & Gamble was among the nation’s 50 largest manufacturing corporations.

It’s sales in 1957 were an excess of $1 billion.

Procter & Gamble is a large diversified manufacturer of low price rapid turnover household products sold primarily through grocery, drug, and department stores.

Its annual sales of soaps and detergents in Kansas alone, products very similar to bleach were more than $500 million in 1957, for example.

Procter’s principal products are marketing to housewives largely by what is called “pre-selling.”

By pre-selling it’s understood to mean that through advertising and other sales promotions.Data in 1957, Procter was the largest advertiser in the country, spending more than $80 million on advertising and an additional $47 million in promotions.

Expenditures on advertising substantially greater than the total sales of the two leading bleach producers, Clorox and Purex.

Between 1946 and 1962, product’s net sales increased by more than 400% which shows recent rapid growth in its product sales, and this also showed a rapid diversification into new product lines closely related to its existing lines.

Procter’s president justified that approximately 70% of Procter’s household product volume came from products not even in existence in 1946.

The more narrow period between 1952 and 1957, Procter’s sales rose some 40%.

A substantial part of that growth was due to the introduction of new brands and product lines in which product — Procter has not previously been selling.

Now, as to the Clorox Company, in 1957, the Clorox Chemical Company was engaged almost exclusively in the manufacture and sale of household liquid bleach.

With 13 plants located throughout the country, Clorox was the only truly nationwide manufacturer and seller of liquid bleach.

It accounted for 48.8% of the nation’s total annual sales of household liquid bleach, and in some regional markets, Clorox’s sale was even higher.

For example, the mid-Atlantic States where Clorox had 72% of all the sales of liquid bleach.

Now, what is liquid bleach?

Household liquid bleach is used principally as a whitener in the cleansing of clothes, cleaning of clothes and also it’s used as a germicide and disinfectant at times.

All major brands of liquid bleach are chemically identical, a solution of five-and-one-quarter percent sodium high chloride in water.

Bleach is easily manufactured and its manufacture involves no patents and no trade secrets, and it’s a concentrated industry.

The bleach industry, despite the lack of technological barriers to entry remains highly concentrated.

Two firms, Clorox with 48.8% of national sales and the Purex Company with 15.7% accounted in 1959 for about 65% of the total sales of household liquid bleach.

Six firms indeed accounted for 80% of all of the sales.

The remaining 20% is scattered among some 200 other producers, most of which are quite small.

Concentration is even greater on a local or regional basis.

Thurgood Marshall:

This is due in part to the high cost of transportation of bleach in relation to its unit price.

Freight averages about 10% of the cost.

Thus, it is generally not economical for a manufacturer to sell beyond 300 miles of its plant.

So as I’ve said, only Clorox has enough plants at various locations to sell throughout the country and to be nationwide in production.

Even Purex, the second ranking seller, distributes its bleach in only one half of the nation.

The result is that the shares of the leading producers are larger in particular areas than the national figures would indicate.

For example, at the time of the merger, Clorox and two other firms had 97.8% of all the bleach sales in metropolitan Chicago.

Clorox and one other had 88% of the Southwest region, Clorox and another had 81% of the Pacific market, and Clorox alone has 70% of all the sales in the mid-Atlantic States.

Bleach is like other low priced rapid turnover household items heavily pre-sold by the manufacture through advertising.

For example, in its last full year of independent operation, Clorox spent an amount equivalent to approximately 10% of its annual sales for advertising, and numerous witnesses testified to the critical importance of advertising and promotional efforts by the manufacturer in order to create sufficient demand for his brand and to entitle it to sufficient shelf space which is allocated by the retailers according to the consumers’ demand.

Thus, this case involves the acquisition of the nation’s dominant liquid bleach producer by the nation’s leading manufacturer of other household products closely related to bleach such as detergents, soaps and cleansers or more broadly the nation’s leading manufacturers, of Procter & Gamble’s own annual report in 56 and 57 states quote.

“Low priced, rapid turnover, household items sold primarily to grocery, drug and department stores.”

Because of the functionally related product lines and merger, though conglomerate rather than horizontal or vertical, was aptly described by the Commission as one involving product extension by the acquiring firm of Procter.

At this point, I would not like to recite all of the reasons given in the opinion of the Commission which led the Commission to conclude to the effect of the merger and the words of Section 7 of the Clayton Act may be substantially to lessen competition or tend to create a monopoly in the relevant market nor shall I recite in detail the reasons given by the Sixth Circuit — by the Court of Appeals for the Sixth Circuit for its setting aside of the Commission order.

Indeed, in this case Procter & Gamble points out in its brief the full thrust of the Court of Appeals’ decision to be as follows, the Procter & Gamble in its brief says, “The division of — the decision of the Court of Appeals predicated upon a comprehensive consideration of the whole record in this case turns upon one ultimate finding.”

The Court said, “Considering the record as a whole, we are of the opinion that the decision of the Second Commission is not supported by substantial evidence.”

It is partly all that the Court said.

The Commission (Inaudible) has gone the other way.

Thurgood Marshall:

Not exactly the other way.

The Commission in its original decision said that there was insufficient evidence to establish that this will be the substantial tendency; and sent it back for a hearing as to what had happened since the merger.

The hearing was held.

The Commissioner — the hearing examiner again said practically the same thing and the Commission in its second opinion held that it was not bound at all by the first opinion.

It was not the law of the case and indeed the law had changed in the interim by the Brown Shoe case and the National Bank case.

(Inaudible)

Thurgood Marshall:

All but one.

But I submit, sir, that under recognized administrative law it’s still the same commission.

Suffice it to say at this point that in our view the Court of Appeals while extensively finding the order not supported by substantial evidence, in fact, actually, disagreed which the Commission’s conclusion.

One, by substituting its own conclusion that the bleach industry was competitive for the Commission’s finding to the contrary, and two, by its failure to properly evaluate the economic and antitrust implications of potential competition and barriers to inquiry of new firms in the oligopolistic industries.

Now, first of all under Section 7 as Commissioner Elman said and nobody will dispute there is process standard as to where you’re under Section 7 or not.

But there are certain matters that are recognized.

Thurgood Marshall:

For example, there can be no doubt that in a highly concentrated market where a few of the sellers account for most of the sales, a significant, perhaps insignificant form of competitive restraint is that of potential competition.

The treat to other firms outside the market might enter if the conditions within the market such as the setting of high price level make entry attractive.

A merger then which eliminates potential competition by removing a likely entrant to the market or which weakens potential competition by increasing the barriers to entry into the market may each thereby violate Section 7.

With these general propositions I don’t believe there can be much dispute.

But the respondents assert and the court below agreed that the Commission had no factually adequate basis and, hence, no legally justifiable reasons for concluding that Procter’s acquisition of Clorox might probably impair the efficiency of potential competition.

We think the Commission’s order should have been sustained.

And as for these reasons, first, the Commission examined in detail the structure of the household liquid bleach market and it found that two items, the two firms accounted for 65% of the nation’s total sales and it found that in some section of the country the share of one firm, usually Clorox, approached monopoly proportions and that in other sections Clorox and one or two others accounted for 80% of the sales of bleach.

The Commission found that the dominant firm, Clorox, was a recognized price leader and that other firms almost uniformly followed Clorox’s lead in setting prices.

Thus, the Commission concluded that the industry was highly concentrated and oligopolistic.

The Court of Appeals, however, thought that the evidence did not establish that there was anything unhealthy about the market’s conditions.

And in making this conclusion that there was nothing unhealthy, they relied on o nly two facts.

One was the existence of a fringe of some 200 producers accounting for 20% of the nation sales.

Yet, the Commission had specifically noted that only eight fringe manufacturers had assets of over million dollars and very few had assets of more than $75,000.

Plainly, the Commission was correct in concluding that the existence of the small firms gave no assurance of competition within the industry, especially in light of the emphasis in the industry on product differentiation through mass advertising.

The second part relied under the Court of Appeals, was its conclusion that the industry was healthy and that point was that after merger, after the merger, producers other than Clorox where quote, “Were selling more bleach for more money than ever before.”

But the record shows that Clorox in the same period increased its market share from 48.7% to 52%.

In short, the court below patently erred in rejecting the Commission’s conclusions concerning the industry.

That error underlies the Courts failed to recognize the importance of the potential competition, the point which I would like to discuss.

Respondent asserts and the court below agreed that the Commission’s conclusion with respect to Procter’s likely entrant and with respect to the probe competitive effective of a threat of entry posed by this, both of which relate to potential competition are unsupported in the record.Let us turn to the evidence on potential competition and the inferences drawn there from — by the Commission.

Procter’s history of expansion and diversification through product extension, the functionally closely related product lines and the true intra-corporate memoranda of the Procter Company relating to the bleach industry and the Clorox Company.

Now, there are two memoranda in the record in which in the first, Procter said, “Procter’s experts suggested that while it might be good to go in to the liquid bleach industry it would not be profitable.

And the second one, urged that they buy Clorox providing they could buy it for $30 million or less.”

I have only averted to the evidence on the first two points, but to recapitulate Procter had a history of expansion and diversification in the industries where it had not previously sold.

Some of the expansion was internal and some by acquisition, but all of it involved the same items, low price, rapid turnover, household items, functionally related to similar production, distribution or marketing techniques, including heavy emphasis on product differentiation and the pre-selling through mass advertising.

And in addition Procter is a recognized leader in the field of soaps, detergents and cleansers.

Products whose function in relation to bleach is even more pronounced because of similar and complimentary uses.

Procter has been expanding in these very areas steadily and its strength and success in product extension is demonstrated as the Commission found by the Comet abrasive cleansing campaign.

Procter introduced Comet in 1957 at a time when Colgate-Palmolive’s brand Ajax accounted for roughly 56% of the sales of abrasive cleansers.

In the course of 22 months, Procter spent $7.2 million on advertising and promotional activities for Comet, and then — thereby achieved its 36.5% of the market.

Despite this evidence of Procter’s expansion by product extension into functionally closely related product lines, the Court of Appeals discarded this conclusion and substituted its own conclusions as follows, quote, “Household liquid bleach is an old product.

Thurgood Marshall:

Procter is an old company.

If Procter wants to bring it, it is a prime that it never lost its balance and fell in during the many years in which such bleach was on the market.”

While in addition to the evidence of Procter’s expansion into industries in which it had not previously sold, the Commission again weighed Procter’s study of the bleach market and of the Clorox Company has demonstrated in these two memoranda, 55 and 57, and we discussed that evidence in our brief at pages 17 and 19.

Respondent, however, is quite correct in stating that the recommendation of Procter’s officials was at that time against independent entry through internal expansion.

But the fact is that that memorandum shows that Procter considered the bleach industry and had recognized that no one should doubt that the market was complimentary to those of the other Procter products.

There were some — seldom be anymore direct evidence that a firm is a likely entering into a new field.Or that it exercise a pro competitive influence by its presence on the fringe of the market beyond what we have here.

Yet, the picture is not quite complete.

There is also some evidence summarized in note 38 in page 46 of our brief that for example a small firm discontinued to manufacture bleach because of the acquisition of Clorox by Procter.

All of this evidence, especially in light of the Commission’s detailed analysis of the market structure, we think it clearly shows that Procter presented potential competition in the bleach industry.

Now, to another aspect of the merger, the merger substituted for Clorox which had assets of $12 million and sales of $40 million, the Procter Company which in 1957 had sales in excess of a billion and profits of more than $47 million.

More strikingly, however, is the comparison of the combined Procter and Clorox with the remaining competitors in the bleach industry.

The others had remaining — the others and remaining major bleach firm, Purex, which is more diversified then was Clorox had sales in a year prior to the merger totalling 5% of Procter.

In short, Procter separately grows the remaining firms in the industry for a dominant single product manufacture of bleach.

The merger substitutes giant multi product firm dominant in several product lines yet respondent Procter & Gamble has asserted and the Courts of Appeals recited that the — that the Commission’s decision condemn big business per se, and based its decision on Procter’s size.

That factual argument does not do justice to the Commission’s careful and able opinion where the Commission over and over again made its position quite explicit.

For example, the Commission said it should be very clear that in deeming Procter size a pertinent consideration in the decision of this case, we are most emphatically not adapting any view that big business per se is anticompetitive or undesirable and should be attacked under Section 7 or any other antitrust statute.

Procter’s size is significant in this case only insofar as it is huge — as it is hugely disparate compared with the size of the firms in the relevant market.

“Disparity of size not absolute size has importance in a merger of this kind.

Moreover, we do not suggest that size disparity is relevant to the decision of every merger case.

Quite possibly there are industries in which size disparity has little or no competitive significance.”

End of quote.

And the Commission then went on to show why in this case size disparity had great competitive significance because of the identical nature of a product sales depending on product differentiation through mass advertising and the large multi product firm, the Commission found quite apart from advertising discounts had great competitive advantages.

It could buy network programs and advertise several related products and it could in contrast to smaller firms afford to advertise on national network shows and thus advertise during programs when advertising is most effective.

It also would have greater regional advertising flexibility and selectivity.

It could engage in joint sales promotion largely unavailable to smaller single product firms.

In short, such a large firm would raise various entry by effective product differentiation and this would go for all of the smaller firm.

Moreover, the Commission reasoned, the substitution of Procter for Clorox makes entry and possible de-concentration of the industry fall as likely.

Instead of taking on the dominant Clorox and enter — a perspective entrant would have to challenge a dominant Procter-Clorox with all of its market power and advantages.

The Commission saw what we call the “Erie Incident” as a precursor of that power.

In October 1957, shortly after the Procter and Clorox merger, the Purex Company selected Erie, Pennsylvania, an area in which it had not previously sold its bleach to test a new bottle, an allegedly improved bleach.

Thurgood Marshall:

At that time, Clorox had 52% of the Erie market.

Through an extensive advertising campaign, Purex in five months captured 32 — 3% of the market.

Clorox’s share dropping to 35%.

Procter and Clorox responded vigorously with reduced prices and advertising and promotional activities which increased its market share beyond its previous condition — position and reduced the share of Purex to 7%.

Purex’s president and other bleach manufactures testified to their concern over the powerful promotional and advertising programs that Procter was capable of conducting.

In all events, the Commission in this case in a thorough analysis of the marketing structure found that the effect of the merger would be to weaken substantially potential competition in the industry.

Of course, for antitrust laws to be efficacious, it must apply to mergers in their incipiency.

You can’t wait until the merger has existed for 10 or more years in order to move in.

That is that there must be evidence of market structure and nobody has disagreement as to the structure or to the field or the area involved.

And once you consider the market structure and the inferences to be drawn therefrom, they must be decisive as opposed to evidence of market behavior after the acquisition.

On the normal horizontal mergers, the normal vertical merger very often there is clearer evidence of what will happen.

In the conglomerate merger very often, you cannot get positive proof and this Court has recognized in the least of cases.

The Commission is charged with analyzing and drawing these inferences.

The Commission is charged with applying it’s — the law to the evidence they have before it.

The Commission is charged with drawing the necessary inferences.

The Commission is charged with making the necessary conclusions.

It did so here in a thoroughly well-reasoned opinion.

We think that the Court of Appeals and indeed perhaps the respondents also misconceived the thrust of the Commission’s analysis and indeed the Court certainly did it in setting aside the order.

Perhaps the Court of Appeals for the Sixth Circuit was unduly diverted from its proper tax.

It noted for example and put great weight on the statement and it was difficult to harmonize the two decisions of the Commission in this case.

A harmonization which it is not changed — charged and a notation which fails to realize that there’s only one final decision and that’s the last decision of the Commission especially with regard to the post-acquisition evidence because in between the two opinions of the two commissions, the Philadelphia Bank and Brown Shoe case had certainly changed the law as to post-acquisition evidence.

And in this case the Commission carefully pointed out that while they considered the post-acquisition evidence, it had little value to their original determination.

However, even if the two opinions of the Commission were — are irreconcilable, Commissioner Elman’s opinion adequately states the reason for the change and he points it out in the beginning of his opinion.

Moreover, on such a novel question, the Commission should be free to reassess freshly the evidence.

Its decision is sound and despite what Procter & Gamble says, it’s sound in lore as well as it’s sound in economics.

Now, we submit that the judgment of the Court should be affirmed and, Mr. Chief Justice, if I can save — I’ll only need about 10 minutes for rebuttal unless there are questions.

Earl Warren:

Mr. Pride.

Frederick W. R. Pride:

May it please the Court.

The presentation here of the distinguished Solicitor General, certainly points up that in this situation certainly the Federal Trade Commission inveighs against the size of these acquiring companies and indeed as I gather from the presentation, there is the feeling here that in some way or other in these conglomerate merger situations that the Commission should have some easier way to get its hands on them rather than the standards which have been enunciated by this Court.

Now, of course, this emphasis upon the size of Procter, of course, the emphasis on the size of Clorox in its relatively small industry, there is no dispute about these factors.

Frederick W. R. Pride:

The whole point is whether if this conglomerate merger, a merger in which there has been no elimination of a competitor, in which there has been no concentration brought about in the market, whether on the basis of assumptions related solely to the size of these two companies, Section 7 has been violated.

I respectfully say, Your Honor, that is to each, thank you.

I respectfully say that is to each of your decisions in this merger field you have held the government properly so to the birth of establishing that a probable lessening of competition would be caused by the merger.

You upheld them to that standard not on the basis that some assumptions can be a substitute for evidence or on the basis that speculation here can supplant a lack a proof.

And I turn here to the decision of the Sixth Circuit for that is what you have for reviewing.

Now, the Solicitor General says that the Court of Appeals erred in its approach to the issues which were raised before it.

Well, on the face of the Court’s opinion, of course, there is reflected a conscientious and thorough examination of this record.

You have the decision of this tribunal, its considered judgment that in this area which you have said time and again is particularly within the competence of the Court of Appeals, an area in which you said — have said that the Congress entrusted the responsibility of reviewing these decisions that here, the Court of Appeals has made an exhaustive examination of a record to the point where there is not even a claim here that in anyway its review was inadequate.

And now the Solicitor General has said this morning, “But the trouble is that it did not understand the government’s theories, the reliance of the government upon the points which he is accented.”

But this is — this does not come through.

The Court of Appeals had no misconception about the government’s theories of illegality, rather it tested and it — it examined, it reaccepted each one of them.

It examined into the record and found that there was no substantial evidence to warrant their applicant in this case and turning to that.

I first go to this theory of illegality which the Solicitor General has discussed namely that Procter itself was a potential competitor in this liquid bleach industry.

To that point, Your Honors, has had a very strange genesis.

No such claim was advanced in the complaint in this action.

At no time during the lengthy trial proceedings was any such point either urged or was any indication given that the Commission was relying upon any such contention.

Indeed, it was not until long after the record was closed in the course of a second appeal to the Commission when it sua sponte for the first time gave voice to this theory.

The result has been that it has attempted to extract from a barren record some evidence to support this claim of Procter’s status as an independent entrant.

The Solicitor General has referred to what he said were two memoranda.

Well I say that there is not — that no one can extract from either one of these the slightest indication that Procter on its own had any interest in going into this liquid bleach industry.

The stockholders of the Clorox Company initiated this acquisition entirely on their own.

These men had their life work in this — their ownership of this business by reason of age and health, they were just — just had to get out of the operations.

And it was their desire to sell their interest to or to exchange their interest for the marketable securities of a large company to give some element of liquidity to their estates.

So Procter was approached.

Do you know (Inaudible)

Frederick W. R. Pride:

No, sir.

No, Mr. Justice Harlan, it was held closely by the great majority of the stock being held by the management executives in the company.

Now, up to the time of the first (Inaudible) that were made to Procter by these stockholders, there is not a hint, not a suggestion in this record that Procter had any interest whatsoever in investing its money an independent entry into this relatively small industry.

The negotiations which ensued occasioned the only piece of paper which refers in any way to independent entry.

What was that?

Frederick W. R. Pride:

It was a memorandum prepared by an employee in Procter’s promotion department analyzing the reasonableness of the price which the Clorox stockholders were asking for their stock.

And in connection with that analysis, he engaged in an estimate of what the cost of independent entry might be.

On its face, the memorandum shows that it had no other purpose that it reflected in no way any thought that Procter would go into the business.

But what is even more significant about this piece of paper, about which the Solicitor General has thought is that on the face of it, contains the flat unequivocal recommendation that Procter not go into this business on its own.

And so we have here the paradox of the one piece of paper that talks about this subject in any way, incidental or otherwise, contains a recommendation that Procter not engage in the business.

Now, the second thing about this is that of course, there isn’t the word testament in this record on this subject.

The officials of Procter testified at length.

Not a single question was ever addressed to them, bore in any way upon this point and the net result of it all was of course that they had no opportunity to demonstrate, to demonstrate why it was that independent entry into this sort of a business would not be in the interest of the company.

And I come to the point that you have said, Your Honors, in your last decision dealing with this point of potential entry that it must be established by some evidence in the record, and I would just point up the bareness of this record by contrasting it with what you had before you in the panel and case where there you pointed out that each of the joint ventures there had evidenced, a long sustained and strong interest in entering the market.

Also, you pointed out that each of those companies had compelling reasons for entering the market.

There is not a shred of any such self evidence here.

You also noted that the industry was rapidly expanding in terms of new markets and new uses for the product.

But here, there is not the slightest showing that any such conditions existed and indeed the evidence here is not that the existing facilities were not adequate to supply actual and prospective demands, but that it is exactly to the contract.

And also in the panel and Your Honors, it was said that the record showed that each of the ventures could have gone into the market at a reasonable profit.

The only thing remotely touching on that factor here is the testimony that liquid bleach was a low profit product with no showing, respecting any profit potential which would attract new entries.

I say that these are the factors which would be your significance to any businessman in any realistic way in determining whether he would invest his money in entry into a new product market.

Yet contrary to what you add in panel and there’s not even a barebones of any such showing here and yet there it was held that the evidence was not conclusive that each of the joint ventures would have entered on its own and you remanded the case.

Now, respecting this whole point of Procter as a potential entry I maintain and respectively suggest that on this record, considering the origin of all these, considering the fact that there is nothing but sheer assumption that because — because Procter is a multi-product company and because liquid bleach is used in washing machines and sold through supermarkets, the government and on this alone is (Inaudible) that it can be regarded as a potential entrant.

They say the record will support no such theory, no such conclusion.

The Court of Appeals carefully looked into all these evidence.

It said in respect of evidence, not theories.

It said in respect of evidence no less than four times that on the record here there was nothing to show that Procter had any intention of going into the business and nothing to show any probability that it might have done so.

Now, you have the other prong of this argument which was somewhat likely touched on this morning that regardless of whether Procter really would have gone into the business regardless of the evidence on that point that some significance attaches to what Clorox would have thought Procter might have done.

And hence, the theory goes that regardless of a — any likelihood, Clorox must have been — must have feared Procter as a potential entrant and hence administered its pricing policies in the light of that concern.

Well as to that, I can simply observe what I have said about the utter lack of anything here to indicate why Procter might have gone into this particular industry.

I say that any imaginary psychological concern by the Clorox management in that direction would have been both irrational and illogic.

And I maintain that on this aspect of the government’s theory of illegality, there is just no substantial evidence in this record to support it and that the Court of Appeals properly rejected.

Before leaving this point of the decision of the court below, I need not labor here the extent or reliance of the respondent on the significance of that decision, the significance of it in the light of the principles which this Court expressed in the Universal Camera.

I say that on — in this particular setting, where this decision below rest entirely upon the determination that there was no substantial evidence to support the Commission’s conclusions that this in particular is a case which calls for the application of that standard of review which Your Honors have enunciated being one in which the Court will not intervene to set aside decisions of the court below predicated upon — on the lack of substantial evidence unless there is the rare instance of a gross misapplication or gross misapprehension of the standards of review.

Next, Your Honor, is I like to talk about this second theory of illegality the Solicitor General has discussed.

Frederick W. R. Pride:

This is the proposition that regardless of all else, Procter’s substitution for Clorox in this industry will have such substantial deterrent effects upon potential competition as to violate the statute.

Now, the — the Solicitor General gave expression to the certain facets of the post acquisition evidenced here which lower upon conditions in the industry after the acquisition occurred.

The more important aspects of that, I maintain go to the question upon — to the issue in respect of effects upon this some class of potential competitors where the government’s theory as premised upon its assumptions that what it cause competitive advantages which would stem from the acquisition would be of such significance as to cause other people who might have come in to stay away.

Well, inline with this, I simply note that as to some of these other factors which — as to which there was no evidence, the Commission in the trial proceedings along trial proceedings here, examined into every conceivable advantage which it could dream up as stemming from the acquisition.

It — these were gone into hearings — hearings throughout the country.

The net result of them has been that most of them have fallen by the wayside.

They’re not even in the government’s briefs, do we hear anything about.

And in that respect, I was somewhat surprised this morning that I heard nothing from the distinguished Solicitor General about these advantages which are the things that the government has contended are going to keep other people from getting into this business.

For example, regardless of all the time put into it in the trial proceeding, there is no — no claim here that there were any advantages in production, manufacture, which could be attributed to the acquisition.

As to distribution, the government does talk in its brief about Procter’s large sales force that there is no direct claim that that — that the Clorox distribution system through a network of brokers would be discontinued.

And the Court of Appeals said there was none and that there was no reason to — no showing as to why it would be of an advantage anyway.

No — no showing here that by reason of Procter’s ownership, there would be some more easy access to shelf space.

Or is there anything to establish that any knowhow or expertise that Procter would augment the demonstrated merchandising abilities of Clorox.

And that Court of Appeals so held as to that issue, one thing which has been emphasized almost to the exclusion of all else in this so-called competitive advantages.

It is a matter of which the Solicitor General has not adverted as yet.

Yet this — this was a matter which the government has said in its briefs represented the most conspicuous cost advantage which could be a tribute of the acquisition.

And that was this matter of discounts in network television.

The government’s papers, this has been accented then exaggerated as the one thing which shows that this substitution of Procter for Clorox had great competitive significance.

Well, I can understand the — the soft-pedaling this now.

In the first place, both before and the — and after this acquisition, Clorox never used network television.

This had nothing to do with discounts or available funds or what have you.

Simply based upon the decision of management, the Clorox advertising agency that in this sort of a regionally oriented business, network television was inappropriate and that spot television was the only thing should — that should be utilized.

And it’s the only thing that ever has been utilized and there’s nothing to show that there is any reason why conditions have changed or would change.

But in the second, as to this most Commission says or which the government says it’s the most conspicuous cost advantage.

The circumstances are that these discounts which have been built up as representing tremendous savings or potential savings, the fact is that the discounts have either been completely discontinued by this time or being discontinued by all three of the networks.

This was not only widely publicized, but it was a subject of testimony before Senate hearings at the end of last year, the same hearings which the government refers to in its brief and in which the — all of the representatives of all networks testified that this, whatever importance they have was a thing of the past.

I can understand this — the grant of the government been resting so much of its case upon these discounts as has been done in its brief and upon its contention that they have anti-competitive significance.

And I say that particular because in the same Senate hearings at which this network representatives testified and which went into all claims about discriminations and discounts and otherwise in advertising, Mr. Zimmerman, the acting Assistant Attorney General testified and he testified and stated he was testifying four of the antitrust division.

His comments respecting these advertising discounts which have been so built up here as well as other forms of so-called discriminations.

His testimony was, I quote, “We do not know to what extent if at all these forms of discrimination exist nor do we know how serious an impact they might have.”

Frederick W. R. Pride:

He concluded with the colorful observation.

We have no view one way or the other on whether we have an octopus or a pussy cat here.

And I say that the anomalous or any judgment to be predicated in any respect upon either the substantiality or the likelihood or any effects resulting from what are now these non-existent discounts.

I think that the Solicitor General probably touched upon the decisive intention of the government here when he alluded to Procter’s size to its success in connection with various products to its large expenditures for advertising.

Of course, I simply say in passing as to this millions that said Procter spends because this overlooks completely the realism that these advertising expenditures had to support some 30 or more major products.

And on the government’s own — on the face of the government’s brief, it appears that the average expenditure for each of these Procter products were substantially less — substantially less than Clorox spent in the year before the acquisition for advertising and promotion.

And the Solicitor General also made reference to another Procter product commenting which he said was introduced by Procter and achieved widespread acceptance.

But the implication that I got from this recital was that Procter’s spending of some $7 million within a 22 months period to launch this new and improved, demonstrably improved product that in somehow or other this reflected — had some sinister significance.

But the fact of the mater is that in that same 22 months period as the record here shows, Clorox Chemical Company on its own before the acquisition had spent more than that in the advertising of the established Clorox product and where no extensive introductory expenses were required.

I say that these — these references to events like this without some indication of why they are significant or important or fit into this whole line of assumptions by the government, the just as meetings and that you’re down to — I started to say, this point that by reason of Procter’s size just it’s — it’s the abstract point of it being a — a big company that somebody, some potential competitor would be scared of and not come in.

This assumption the government is — is presenting here, and that is all it is.

(Inaudible)

Frederick W. R. Pride:

It is, Mr. Justice.

Well, I understood that the (Inaudible) is the relevant factor here, the structure of this market (Inaudible)

Frederick W. R. Pride:

Oh, I beg your pardon.

I did not attribute that to him.

No, sir, I say that in — on analysis, that is what the government’s contention comes down to and I recognize that he just claimed that.

It has been disclaimed here.

But Your Honor I — I say that on a record such as this where we’re talking about something supported by substantial evidence not by some visceral reaction as to how somebody might — psychological reactions of some possible entry.

On this — on this record, I say that there is nothing to show that it is anything but Procter’s size.

Now, at some other records, some other case that this is — this may have a different import but the — the — in any — in phrasing through with that, the government recognized that it could not simply leave this class of supposititious possible entrance hanging in a vacuum.

It purported to give some identification to that and it said that they might be large multi product companies like Colgate or Lever Brothers or General Food.

And of course there isn’t a word in this record which supports any deep such deduction or any word in the record to indicate why these companies or anybody else might be interested or attracted to going into this business on their own.

But even if you want to indulge in those assumptions, I say why would any of these companies be deterred by Procter’s substitution?

Are they competing with it in every sort of product day in and day out?

They have no timidity about taking it on and you’re talking about other potential entrants, what about the large chain supermarkets?

Each of them has their private brands of liquid bleach.

Now, in liquid bleach, would they compete with Procter in practically every product which it manufactures and distributes?

And many of them were institutions, so much a larger size than Procter.

Why should they be deterred by these?

Frederick W. R. Pride:

And a few, I suppose I want to press these assumptions, why isn’t it equally reasonable to say that the very fact that Procter now is in this business might well be an incentive to its competitors in other lines to enter as well?

I — I do not advance that that.

I simply state that if we’re talking about this sort of assumption in respect of potential entry that then something more than the assumptions which are indulged in here should be required on this record.

I also point to the fact that on this question of size and the alleged advantages that might flow from it that the Court of Appeals here as well said that Clorox was financially self-sufficient.

It said that it was enabled financially to engage in any advertising or promotional projects within the bounds of responsible business schedule.

The same applies to any engagement in competitive — competitive contest with others and I just touched upon that in terms of the Solicitor General’s reference to a competitive encounter in pure — in Erie, Pennsylvania.

The lone example in a — of record of — and — and approached on the part of Purex, the second largest company to enter the Erie, Pennsylvania market where Procter — where Clorox was also engaged in business.

Well, now above all that was that even the short space of two months, Purex — Purex went in to this market and captured 35%.

The Clorox of course responded and it engaged in extra advertising, some extra promotion, and — and the net result of it was that it captured its — recaptured its share.

Purex share went down from this 35% it originally achieved to some 7%.

But this is a type of competitive encounter which is the essence of competition I maintain and that’s particularly so because not even the government here has said that this was in any way related to Procter’s acquisition or that any funds were necessary to supplement Clorox’s financial resources.

And the Court of Appeals pointed out that this is simply a — an incident in which Clorox on its own undoubtedly would have responded as it did in this period of a couple of short months after the acquisition.

And as the Court of Appeals said, “The result undoubtedly would’ve been the same.”

Earl Warren:

I understood the Solicitor General to say that a sizeable percentage of this 200 manufacturers of the bleaching product were very small institutions, some of them less than $75,000.

I’m wondering if this increase to advertising power and so forth of — of the major company Procter would affect them in any way.

Frederick W. R. Pride:

Well, I’m — I’m glad your brought that up.

Earl Warren:

Also, I — I’d like to ask if it might keep other people from getting into that business —

Frederick W. R. Pride:

Well, I’m —

Earl Warren:

— on the same small basis.

Frederick W. R. Pride:

I’m — I’m glad you brought that out because on this record and as found by the Court of Appeals, there was no — there is nothing to support any assumption that the advertising — the overall advertising engaged in by Clorox would be affected one way or the other by the acquisition.

The testimony is that it was never inhibited by any lack of money and that its advertising expenditures were tied simply to the business like proposition of the maximum amount to expend to securely optimum return.

And that there is nothing here to indicate that with or without Procter’s resources, there is anything which would — which would require or which would encourage or cause the people in charge of the Clorox business before or after to be affected in any way by some availability of additional money in — in any realistic business sense that isn’t the test.

And I don’t think that in — in line with that, I do not believe that it could be foreseeable that any competitors, large or small, would be in anyway adversely affected by this substitution.

Earl Warren:

Is there anything in the record to indicate how many entries or have been into the business in recent years?

Frederick W. R. Pride:

There is no evidence, Your Honor, in respect of that particularly in terms of these small concerns that you have mentioned.

And certainly, the — you’re right, the evidence is that the larger part — the great majority of — of this 200 producers are what — what you would call relatively small companies in terms of total assets.

But I — I — point out to you that one of the peculiarities of this business is that it’s a regionally oriented business.

The — as the Solicitor General said the physical characteristics of the product are required in that way.

And in these regional areas, the evidence is that the cost of entry as the government concedes, on a regional basis is low and yet I know of no evidence in this record that shows that since the acquisition, any new entrant, large or small, has come in to the business.

(Inaudible) and that there job was to look at this merger as of the time that this merger took place (Inaudible)

Frederick W. R. Pride:

Well, I think —

Supposing that’s true.

Supposing that analysis of it is true, and one accepts — one accepts your criticism and the Court of Appeals which (Inaudible) of objective evidence so to speak, anti-competitive effect and they’re left with nothing but the Commission’s view (Inaudible) delegated its power.What should this Court do with a reason (Inaudible) by the Commission based upon facts as to the structure of the industry which is not dispute, what should this Court do with the — what should the Court do or the Court of Appeals to do that kind of a so-called expert judgment (Inaudible)

Frederick W. R. Pride:

I — I’d answer that in two ways.First, is to this — this letter point, the fact that you — you referring to this as an expert judgment by the Commission.

Let me say that there is in the briefs here, the government makes no — puts no reliance upon this so-called element of expertise, but assuming as — as you say that — that this was involved.

You certainly have said —

Well, yeah, I’m talking about expertise (Inaudible) —

Frederick W. R. Pride:

Yes.

(Inaudible)

Frederick W. R. Pride:

I understand.

But you — you have said in Consolidated Foods, for example, that this sort of Commission expertise must be supported by substantial evidence in the record.

It can’t be just a guess and the one — one earlier question you asked, Justice Harlan, which bears upon this very point, isn’t to inquire it about this — what is going on in the Commission.

The first Commission, when it got this, it said that the evidence in the record would not support a finding of illegality, and there was in that record this Erie incident in the Comet business and what have you.

And it said that it could dismiss the complaint rather it decided to remand it.

But the point that I make here is that after the remand, this matter came up to the Commission on a second opinion.

And they’ve been — that group of Commissioners rejected the decision of the first and held that the — that the Act have been violated.

But it was on the same record that the first Commission utilized because of the determination by the second Commission that the very evidence which had — instructed be put in on the remand was needlessly in the record and it had no place in its consideration.

And it was that the Court of Appeals said was error and the other aspect of it is that where you have some question of Commission expertise and you have two groups of Commissioners in the diametrically — having diametrically opposed conclusions, seemed to me than any matter of a consensus of expertise pretty well goes out the window.

Earl Warren:

(Inaudible) case by what the first Commission did or the second?

Frederick W. R. Pride:

Oh, I think you have to decide this case in terms of the Court of Appeals’ decision about the Commission’s second decision, Your Honor.

Earl Warren:

But what — what did the Court of Appeals found by the decision of the first Commission or the second?

Frederick W. R. Pride:

It — it said it wasn’t bound by either.

It — it took up.

It — it tested the case in the light of the second Commission’s decision, tested entirely on that.But it said, here, we cannot ignore the fact when we’re talking about probabilities and things of that nature that the first Commission —

Earl Warren:

(Inaudible) is found to give some consideration to — to what the Commission below —

Frederick W. R. Pride:

(Inaudible)

Earl Warren:

Now, what was it judging, the first Commission or the second?

Frederick W. R. Pride:

I think it was judging the — the decision of the second Commission taking into account —

Earl Warren:

(Inaudible)

Frederick W. R. Pride:

Yes, taking into account the fact that another group of Commissioners had decided that there was no evidence in the same record to support a finding of illegality.

Do you think I have misapprehended the Commission (Inaudible) sort of a re-rationalization of the Commission’s job (Inaudible) to what he’s really saying that — in that (Inaudible) as the structure of the industry without regard to — delimited by specific (Inaudible) then to reach an informed judgment on whether in each judgment’s this (Inaudible) to your evident?

Frederick W. R. Pride:

Well, I think — I think —

And if that so, it seems to me that the states as they then stood in effect that — the suggestion by the government, there should be a new law at (Inaudible)

Frederick W. R. Pride:

And I — I share your reaction to that.

Am I — am I wrong by that?

Frederick W. R. Pride:

No, I think not.And I think Commissioner Elman was touching all bases in that prolix opinion up here in terms of —

(Inaudible)

Frederick W. R. Pride:

Well, prolix anyway.

I think he — he was saying that the Commission would like to have some easier way to get its hands on these conglomerate acquisitions.

And I say despite that objective and that desire that the — there’s nothing that I read here — read in your decisions which indicates that the statute says that or which indicates that there should be any relaxation of the basic requirement that substantial evidence must be produced to establish a violation.

But you do regard that as (Inaudible)

Frederick W. R. Pride:

I think it’s posed.

I would now like the event that my partner, Mr. Royall, who will use up the remainder of our time in terms of some of these — the aspects of this post acquisition.

Earl Warren:

General Royall.

Kenneth C. Royall:

The matter we are undertaking to determine now has this aspect which should be called it seems to me to the attention of everyone.

The validity of this merger is due — is dependent upon in large effect — in the large extent and perhaps primarily and finally in whether or not there was injury to anyone in connection with this case.

Situation is that, 12 years ago, the aging owners of Clorox Chemical sought to sell their business and to realize on the long investment.

Age and deterioration was the compelling motive.

Finally, after discussion with several companies, a sale was made to Procter & Gamble in 1957.

The sale was public and open and available before it was made and after it was made throughout the industries near to or up to this claim.

The Federal Trade Commission attacked the acquisition and the uncontested — and on the other hand the uncontested and incontestable figure showed that in the post-merger period, competitors of Clorox have sold more bleach for more money than they ever did before the acquisition.

And then, the mutually agreed statistics, not picked statistics, the figure show that the competitors of Clorox, those who are competing with them day by day have sold $200 million more — 200 million more units and received $45 million more than before the merger.

Our position is even stronger in the last year for which this share of dollar is available.

The competitors sold more bleach than the competitors, our competitors — people fighting us, sold more bleach that ever before in their history.

What the government wishes to do is to ignore this evidence and to substitute guesses and hunches that as a future — to determine the future of the industry, but there is no record to justify that approach.

The Commission itself, when it first reviewed this record, remanded the proceedings as has been mentioned.

In his own words, it held that such guesses and hunches were nothing more than treacherous conjecture.

That’s what the Commission said.

The remand was designed to give the government a second chance to prove the case that had been lost.

But even then, the government brought in no witnesses and no competitor of Clorox was called to testify.

Kenneth C. Royall:

Another one, yet these witnesses — these were the witnesses who could best tell the situation after the acquisition or be told nothing and they claim that they were fully familiar with the bleach industry and they were all well known to the Commission.

If there had been an iota of substance in the government’s claim, these competitors would have been called and testified and they were not.

Not one of them was summoned.

Their absence tells its own story.

Indeed in this whole case, no competitor of Clorox testified that he had lost a single customer, the competitors not — they not testified they lost a single customer.

Or their business had been adversely affected in any way by this acquisition and those are the facts I cannot begin to say.

Earl Warren:

General, I think your time has expired.

Kenneth C. Royall:

What?

Earl Warren:

I think your time has expired a couple of minutes ago but if you have one — just one following statement, you may make it.

Kenneth C. Royall:

Let me just select one.

The government has the burden of proofing the substantial evidence that as the result of this acquisition competition may be lessened in the liquid bleach industry.

There is no such truth in any part of the record.

Earl Warren:

Mr. Solicitor General.

Thurgood Marshall:

Mr. Chief Judge, may it please the Court.

Mr. Justice Harlan on the question of whether there is a public cooperation and not Clorox in the exhibits at page 111X, it appears that Clorox is listed on the Pacific Coast stock exchange, that’s on page 111 of the record.

Mr. Pride emphasized that we were soft-pedaling this TV package deal.

Well, the answer to that is we filed a reply brief on it which is the opposite of self-pedaling it.

The reply brief also directs to attention of the Court to the argument about the opposition on the Penn-Olin case in which we point out it is not whether Procter in fact would have entered the bleach industry on its own but for the merger.

It is whether Procter’s ability and willingness to enter if Clorox made any attractive offer is the point involved.

The one other point that I’d like to mention is that the — repeatedly the statement is made that there’s nothing in the record and I suggest that the Court in this instance is not required to read the entire record because Commissioner Elman in his opinion has so carefully gone over it that’s why we see no need to go over it here.

And we respectfully suggest that the judgment of the Court of Appeals for the Sixth Circuit be reversed.

Thank you.

Earl Warren:

We’ll recess now.