United States v. Philadelphia National Bank
10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963)
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Rule of Law:
Section 7 of the Clayton Act applies to bank mergers, and a merger which produces a firm controlling an undue percentage share of the relevant market and results in a significant increase in market concentration is presumptively illegal.
Facts:
- The Philadelphia National Bank (PNB) was the second largest and Girard Trust Corn Exchange Bank (Girard) was the third largest commercial bank with head offices in the four-county Philadelphia metropolitan area.
- The number of commercial banks in the Philadelphia area had declined from 108 in 1947 to 42 at the time of the proposed merger, partly due to prior acquisitions by both PNB and Girard.
- In November 1960, the boards of directors of PNB and Girard approved an agreement to consolidate under PNB's national bank charter.
- If consummated, the merger would create the largest bank in the Philadelphia metropolitan area.
- The resulting bank would control approximately 36% of the area's total commercial bank assets, deposits, and net loans.
- Post-merger, the two largest banks in the area would control 59% of the market, a significant increase from the 44% they controlled pre-merger.
- The four largest banks in the area would control 78% of the market after the merger.
Procedural Posture:
- The United States filed a civil action against The Philadelphia National Bank and Girard Trust Corn Exchange Bank in the U.S. District Court for the Eastern District of Pennsylvania.
- The government sought to enjoin the proposed merger, alleging violations of Section 1 of the Sherman Act and Section 7 of the Clayton Act.
- After a trial, the District Court found for the banks (appellees), holding that Section 7 of the Clayton Act was inapplicable to bank mergers and that the merger would not substantially lessen competition.
- The United States (appellant) appealed the judgment directly to the U.S. Supreme Court.
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Issue:
Does a merger between the second and third largest commercial banks in a metropolitan area, which would result in a single bank controlling at least 30% of the relevant market, violate Section 7 of the Clayton Act?
Opinions:
Majority - Justice Brennan
Yes, the merger violates Section 7 of the Clayton Act. Bank mergers are subject to Section 7, and a merger that significantly increases concentration in an already concentrated market by creating a firm with an undue market share is presumptively unlawful. First, the 1950 Celler-Kefauver amendment to Section 7, intended to close the 'assets-acquisition' loophole, must be read to cover bank mergers to avoid creating an illogical new loophole. While the asset-acquisition clause is limited to corporations under FTC jurisdiction (which excludes banks), a merger is a hybrid transaction that falls within the scope of the stock-acquisition clause, which applies to all corporations. Second, the Bank Merger Act of 1960 does not grant antitrust immunity; repeals of antitrust laws by implication are strongly disfavored, and the 1960 Act's requirement for agencies to consider competition does not displace judicial enforcement of the Clayton Act. Third, applying Section 7 to the facts, the relevant product market is the cluster of services known as 'commercial banking,' and the relevant geographic market is the four-county Philadelphia metropolitan area. The merger would result in a single firm controlling at least 30% of this market and would increase the concentration of the top two firms from 44% to 59%. Such a significant increase in concentration in an already concentrated market establishes a prima facie violation of Section 7. The banks' justifications, such as the need to compete with larger New York banks or to stimulate local economic development, cannot save a merger that is otherwise anticompetitive, as Congress has already made the policy choice in favor of competition.
Dissenting - Justice Harlan
No, the Clayton Act does not apply to this bank merger. The Court's holding nullifies the Bank Merger Act of 1960, which was Congress's deliberate and specific legislative solution for regulating competition in the unique and highly regulated banking industry. Congress explicitly rejected applying the strict standards of the Clayton Act to banks, choosing instead a flexible 'public interest' standard to be administered by expert banking agencies, which would balance competition against other factors like financial soundness and community needs. For a decade, the Justice Department, Congress, and the banking industry all operated on the understanding that Section 7 of the Clayton Act did not reach bank mergers, which are typically structured as asset acquisitions. The legislative history of the 1950 amendment to Section 7 shows a focus on industrial concentration, not banking, and the limitation of the asset-acquisition clause to FTC-regulated corporations was a deliberate exclusion of banks. The majority's expansive reading of the stock-acquisition clause to cover mergers is a 'tour de force' that ignores this history and frustrates the manifest will of Congress expressed in the 1960 Act.
Analysis:
This landmark decision fundamentally altered antitrust enforcement by establishing that heavily regulated industries like banking are not immune from the Clayton Act. It introduced a simplified, structural test for horizontal mergers, creating a presumption of illegality based on market share and concentration statistics. This 'Philadelphia National Bank presumption' significantly eased the government's burden of proof, making it easier to challenge mergers based on their structural effects on the market rather than requiring complex proof of specific anticompetitive conduct. The decision empowered the Justice Department to challenge mergers approved by regulatory agencies and remains a cornerstone of modern merger analysis.
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