United States v. Grinnell Corp.
384 U.S. 563 (1966)
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Rule of Law:
The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.
Facts:
- Grinnell Corporation, a manufacturer of plumbing supplies and fire sprinkler systems, acquired controlling stock interests in American District Telegraph Co. (ADT), Holmes Electric Protective Co. (Holmes), and Automatic Fire Alarm Co. of Delaware (AFA).
- ADT, Holmes, and AFA were the three largest providers of accredited central station protective services, which involved installing hazard-detecting devices on customer premises that transmitted signals to a 24/7 manned central station.
- Combined, the three companies controlled over 87% of the national market for accredited central station services.
- Over many years, ADT and Holmes acquired dozens of competing alarm service companies, with some of the acquired companies' officials agreeing not to compete in the future.
- ADT, Holmes, and AFA entered into a series of agreements that divided markets by service type and geography, effectively preventing them from competing with one another.
- For example, an agreement from 1906, whose effects persisted, allocated certain territories exclusively to Holmes for burglar alarm services, where ADT agreed not to compete.
- The companies engaged in pricing practices that included reducing rates to meet competition and substantially increasing rates in cities where they faced no competition.
- Grinnell's acquisition of ADT in 1953 eliminated Grinnell's own potential entry into the central station business and solidified its control over the other defendant companies.
Procedural Posture:
- The United States brought a civil antitrust suit against Grinnell Corporation and its three subsidiaries, ADT, Holmes, and AFA, in the U.S. District Court.
- The District Court held that the defendants had committed per se violations of § 1 of the Sherman Act and had monopolized the market in violation of § 2 of the Act.
- The District Court entered a final decree ordering relief, including requiring Grinnell to divest its stock in the other defendant companies.
- All parties appealed directly to the Supreme Court of the United States under the Expediting Act.
- The United States appealed on the grounds that the relief granted was inadequate, while the defendants appealed on the merits of the monopolization finding and the fairness of the trial.
- The Supreme Court noted probable jurisdiction to hear the appeals.
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Issue:
Does a company that controls 87% of the national accredited central station protective service market, achieved through acquisitions of competitors and market-allocation agreements, monopolize that market in violation of Section 2 of the Sherman Act?
Opinions:
Majority - Justice Douglas
Yes. A company that controls 87% of the national accredited central station protective service market through acquisitions and anticompetitive agreements has monopolized that market in violation of Section 2 of the Sherman Act. The offense of monopoly has two elements: possession of monopoly power and the willful acquisition or maintenance of that power. First, the relevant market was correctly defined as the national market for the 'cluster' of accredited central station protective services. This is because these services are unique and not reasonably interchangeable with other forms of protection like watchmen or local alarms, as evidenced by significantly greater insurance premium reductions. The geographic market is national because the defendants operate on a national level with national planning, pricing, and contracts, even if service is delivered locally. Second, the defendants' 87% market share is so predominant that it unquestionably constitutes monopoly power. Finally, this power was not the result of a superior product or business acumen but was willfully acquired and maintained through a series of anticompetitive actions, including acquiring competitors, entering into market-dividing agreements, and using exclusionary pricing practices.
Dissenting - Justice Fortas
No, the finding of monopolization cannot be sustained because the relevant market was improperly defined. The court's market definition has been tailored precisely to fit the defendants' business rather than reflecting economic realities. The geographic market should be local, not national, as the services are intensely local and customers seek suppliers within a small radius. The national scope of the defendants' corporate structure does not change the local nature of competition. Furthermore, the product market was defined too narrowly by excluding reasonably interchangeable alternatives like watchmen, local alarm systems, and unaccredited central station services, all of which provide competitive pressure. By gerrymandering the market to include only 'accredited central station protective services' on a national basis, the court created a distorted picture that inevitably led to a finding of monopoly. The case should be reversed and remanded for a new determination of the relevant market based on proper economic standards.
Dissenting - Justice Harlan
No, the government has not adequately proven the relevant market. While a national market for a 'cluster' of services may be plausible, the facts do not warrant restricting the product market to only accredited central station protective services (CSPS). The market must include products or services that are 'reasonably interchangeable,' and there is substantial evidence that other forms of protection—such as watchmen, local alarms, and unaccredited CSPS—compete with accredited services. The defendants felt competitive pressure from these alternatives, sometimes lowering prices even where they had no accredited CSPS competition. The government, which has the burden of proof, relied too heavily on inferences from physical differences and insurance discounts rather than concrete evidence of market behavior. The record leaves significant misgivings about whether the defendants truly possess the market domination required for a monopoly finding, and the case should be remanded for new findings on the relevant product market.
Analysis:
This case is a cornerstone of Section 2 monopolization jurisprudence, primarily for its clear articulation of the two-part test for monopoly: (1) monopoly power in a relevant market and (2) willful acquisition or maintenance of that power. Its analysis of the 'relevant market' is particularly significant, establishing that a 'cluster' of distinct services can constitute a single product market if that reflects commercial realities. The decision also affirms that a market can be defined as national, even for locally delivered services, if the business is planned and controlled on a national scale. This framework has guided antitrust analysis for decades, influencing how courts define markets and distinguish illegal monopolistic conduct from legitimate business success.
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