UNITED STATES SUPREME COURT DECISIONS ON-LINE

In 1960, Pennsalt Chemicals Corporation and Olin Mathieson Company signed a joint venture agreement, each acquiring 50% of the newly formed Penn-Olin Chemical Company, which began producing sodium chlorate in 1961 in Kentucky. The Government seeks to dissolve the joint venture as violating § 7 of the Clayton Act and §1 of the Sherman Act. The parties agree that the line of commerce is sodium chlorate and that the relevant market is the southeastern part of the United States. The District Court determined that the test under the Clayton Act is whether, as a matter of probability, both companies would have entered the market as individual competitors if Penn-Olin had not been formed. The court found it impossible to conclude that both companies would have so entered, and, finding that neither statute had been violated, dismissed the complaint.

Held:

1. Section 7 of the Clayton Act applies to a joint venture, wherein two companies form a third to engage in a new enterprise. Pp. 378 U. S. 167-168.

(a) The test of § 7 is the effect of the acquisition. The formation of a joint venture and the acquisition of its stock would substantially lessen competition between the owners if both are engaged in commerce. This is true whether the competition between the joint venturers is actual or potential, or whether the new company is formed for a wholly new enterprise, because the new company is established to engage in commerce and to further the business of its parents, who are already in commerce. P. 378 U. S. 168.

(b) The economic effects of an acquisition are determined at the time of suit, United States v. E. I. du Pont de Nemours & Co., 353 U. S. 586, 353 U. S. 607, and Penn-Olin was clearly engaged in commerce then. P. 378 U. S. 168.

2. To carry out the national policy of preserving and promoting a free competitive economy, the same overall considerations apply to joint ventures as to mergers, although different criteria may control, clubjuris

Page 378 U. S. 159

and actual restraint need not be proved, only reasonable likelihood of a substantial lessening of competition. Pp. 378 U. S. 169-172.

3. The test of whether a joint venture might substantially lessen competition within the meaning of § 7 is not only whether both parent companies would probably have entered the market, or whether one would probably have entered alone, but also whether the joint venture eliminated the potential competition of the company that might have stayed at the edge of the market, threatening to enter. Pp. 378 U. S. 172-174.

(a) The joint venture may well have eliminated any prospective competition between Pennsalt and Olin, just as a merger eliminates actual competition. P. 378 U. S. 173.

(b) The presence of a potential competitor having the capability of entering an oligopolistic market may be a substantial incentive to competition. P. 378 U. S. 174.

4. A finding should have been made by the trial court as to the reasonable probability that either Pennsalt or Olin would have built a plant while the other remained a significant potential competitor. Pp. 378 U. S. 175-176.

5. In determining the probability of substantial lessening of competition, the trial court might take into account the following criteria: the number and power of the competitors in the market; the background of their growth; the power of the joint venturers; the relationship of their lines of commerce; the competition existing between them and the power of each in dealing with the other's competitors; the setting in which the joint venture was formed; the reasons and necessities for its existence; the joint venture's line of commerce and the relationship thereof to its parents; the adaptability of its line of commerce to noncompetitive practices; the potential power of the joint venture in the market; an appraisal of competition in the market if one of the parents entered alone, instead of through the joint venture; in that event, the effect of the other parent's potential competition; and such other factors as might indicate potential risk to competition in the market. Pp. 378 U. S. 176-177.

217 F.Supp. 110, judgment vacated and case remanded. clubjuris

Page 378 U. S. 160