United States v. Continental Can Co.
378 U.S. 441, 12 L. Ed. 2d 953, 1964 U.S. LEXIS 2224 (1964)
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Rule of Law:
Under Section 7 of the Clayton Act, the relevant product market ("line of commerce") can encompass products from different industries if there is sufficient inter-industry competition and reasonable interchangeability of use between them. A merger that substantially increases concentration in such a cross-elastic market may be prohibited as anticompetitive.
Facts:
- Continental Can Company was the second-largest producer of metal containers in the United States, shipping approximately 33% of all such containers sold in 1955.
- The metal container market was highly concentrated, with Continental and American Can Company together accounting for approximately 71% of all shipments.
- Hazel-Atlas Glass Company was the third-largest producer of glass containers in the nation, with approximately 9.6% of glass container shipments in 1955.
- The glass container market was also highly concentrated, with the top three firms, including Hazel-Atlas, controlling 55.4% of shipments.
- Metal and glass containers, while physically distinct, were in vigorous and substantial competition with each other to serve as packaging for numerous end-use products, including baby food, beer, soft drinks, and household chemicals.
- In 1956, Continental Can acquired all the assets, business, and good will of Hazel-Atlas Glass Company in exchange for stock and assumption of liabilities.
Procedural Posture:
- The United States Government filed an action in the U.S. District Court for the Southern District of New York seeking a judgment that Continental Can's acquisition of Hazel-Atlas violated § 7 of the Clayton Act.
- The District Court denied the Government's request for a temporary restraining order, and the merger was consummated.
- The case was tried by the court without a jury.
- At the close of the Government’s case, the District Court granted Continental Can's motion to dismiss the complaint, finding that the Government had failed to prove a reasonable probability of anticompetitive effect in any line of commerce.
- The United States Government filed a direct appeal to the Supreme Court of the United States.
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Issue:
Does the acquisition of a leading glass container manufacturer by a leading metal can manufacturer violate Section 7 of the Clayton Act where there is significant inter-industry competition between the two product types for the same end uses, thereby creating a combined 'glass and metal container' product market for antitrust analysis?
Opinions:
Majority - Justice White
Yes. The acquisition violates Section 7 of the Clayton Act because the pervasive inter-industry competition between glass and metal containers is sufficient to warrant treating them as a combined relevant product market, and the merger significantly increases concentration in that already concentrated market. The District Court employed an unduly narrow construction of competition by limiting its analysis to separate, pre-defined industries. The proper 'line of commerce' must 'conform to competitive reality,' which means it can cut across industry lines where there is reasonable interchangeability of use and cross-elasticity of demand, as there is here between metal and glass. In this combined market, the merger united the second-largest firm (Continental, 21.9%) and the sixth-largest firm (Hazel-Atlas, 3.1%), increasing Continental's share to 25% and reducing the number of significant competitors. This increase in concentration in an oligopolistic market is precisely the kind of 'incipient' threat to competition that Section 7 was designed to prevent, under the principles established in cases like United States v. Philadelphia National Bank.
Concurring - Justice Goldberg
Yes. Based on the government's prima facie case, the acquisition may violate Section 7 by combining dominant firms in a product market that can be defined as including both metal and glass containers. I agree that the 'line of commerce' must conform to 'competitive reality.' However, this holding should not be read as a final determination of the market's boundaries. On remand, Continental Can should have the opportunity to rebut the government's case and prove that other materials, such as plastic, compete so effectively with metal and glass that they must be included in the determinative line of commerce.
Dissenting - Justice Harlan
No. The acquisition does not violate Section 7 of the Clayton Act because the Court improperly creates an artificial 'line of commerce' that has no basis in economic reality. The majority's conclusion reads the 'line of commerce' element out of the statute by simply equating the existence of any competition with the existence of a relevant product market. The 'combined glass and metal container industries' is a nonexistent market invented by the Court to reach a desired result. The proper analysis, which the District Court correctly performed, is to examine the merger's competitive effects in the actual, distinct lines of commerce—the metal container industry and the glass container industry. The lower court found no evidence that the merger would dampen competition in either industry or between them. The majority's reliance on market share percentages from this spurious, fabricated market is a 'travesty of economics' and an unwise departure from established antitrust law.
Analysis:
This decision significantly broadened the scope of Section 7 of the Clayton Act by establishing that a relevant product market can be defined across traditional industry lines. By allowing a market to be defined by the 'competitive reality' of inter-industry product substitution, the Court made it easier for the government to challenge conglomerate and product-extension mergers. This precedent moved antitrust analysis away from rigid industry categories and toward a more functional approach focused on actual competitive dynamics, including the interchangeability of use and cross-elasticity of demand. Consequently, firms in concentrated industries became more vulnerable to antitrust challenges when acquiring a major competitor in a related, substitutable product industry.
