Ford Motor Co. v. United States, 405 U.S. 562 (1972)

Ford Motor Co. v. United States

No. 70-113

Argued November 18, 1971
Decided March 29, 1972
405 U.S. 562

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

Syllabus

In this divestiture action under § 7 of the Celler-Kefauver Antimerger Act, the Government challenged the acquisition by appellant, Ford, the second largest automobile manufacturer, of certain assets of Electric Autolite Co. (Autolite), an independent manufacturer of spark plugs and other automotive parts. The acquisition included the Autolite trade name, Autolite’s only domestic spark plug plant, and extensive rights to its nationwide distribution organization for spark plugs and batteries. The brand used in the spark plug replacement market (aftermarket) has historically been the same as the original equipment (OE) brand. Autolite and other independents had furnished manufacturers with OE plugs at or below cost, seeking to recoup their losses by profitable aftermarket sales. Ford, which previously had bought all its spark plugs from independents and was the largest purchaser from that source, made the Autolite acquisition in 1961 for the purpose of participating in the aftermarket. At about that time, General Motors (GM) had about 30% of the domestic spark plug market. Autolite had 15%, and Champion, the only other major independent, had 50% (which declined to 40% in 1964, and 33% in 1966). The District Court found that the industry’s oligopolistic structure encouraged maintenance of the OE tie, and that spark plug manufacturers, to the extent that they are not owned by auto makers, will compete more vigorously for private brand sales in the aftermarket. The court held that the acquisition of Autolite violated § 7, since its effect "may be substantially to lessen competition" in automotive spark plugs because: (1) "as both a prime candidate to manufacture and the major customer of the dominant member of the oligopoly," Ford’s pre-acquisition position was a moderating influence on the independent companies, and (2) the acquisition significantly foreclosed to independent spark plug manufacturers access to the purchaser of a substantial share of the total industry output. After hearings, the court ordered the divestiture of the Autolite plant and trade name because of the industry’s oligopolistic structure, which encouraged maintenance of the OE tie. The court stressed that it was in the self-interest of the OE spark plug manufacturers to discourage private brand sales, but noted that changes in marketing methods indicated a substantial growth in the private brand sector of the spark plug market, which, if allowed to develop without unlawful restraint, may account for 17% of the total aftermarket by 1980. Additionally, the court enjoined Ford for 10 years from manufacturing spark plugs; ordered it for five years to buy one-half its annual requirements from the divested plant under the "Autolite" name, during which time it was prohibited from using its own name on spark plugs; and, for 10 years, ordered it to continue its policy of selling to its dealers at prices no less than its prevailing minimum suggested jobbers’ selling price. In contesting divestiture, Ford argued that under its ownership Autolite became a more effective competitor against Champion and GM than it had been as an independent, and that other benefits resulted from the acquisition.

Held:

1. The District Court correctly held that the effect of Ford’s acquisition of the Autolite spark plug assets and trade name may be substantially to lessen competition in the spark plug business, and thus to violate § 7 of the Celler-Kefauver Antimerger Act; and that the alleged beneficial effects of the merger did not save it from illegality under that provision, United States v. Philadelphia National Bank, 374 U.S. 321. Pp. 569-571.

2. The relief ordered by the District Court was proper. Pp. 571-578.

(a) Divestiture is necessary to restore the pre-acquisition market structure, in which Ford was the leading purchaser from independent sources, and in which a substantial segment of the market was open to competitive selling. After the divestiture, with Ford again as a purchaser of spark plugs, competitive pressures for its business will be generated and the anti-competitive consequences of its entry as a manufacturer will be eliminated. Pp. 573-575.

(b) The ancillary injunctive provisions are necessary to give the divested plant an opportunity to reestablish its competitive position and to nurture the competitive forces at work in the marketplace. Pp. 575-578.

286 F.Supp. 407, 315 F.Supp. 372, affirmed.

DOUGLAS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, and MARSHALL, JJ., joined and in which (as to Part I and part of Part II) BLACKMUN, J., joined. STEWART, J., filed an opinion concurring in the result, post, p. 579. BURGER, C.J., post, p. 582, and BLACKMUN, J., post, p. 595, filed opinions concurring in part and dissenting in part. POWELL and REHNQUIST, JJ., took no part in the consideration or decision of the case.