Petition for Review of a Decision of the Federal Trade Commission. FTC No. 9196.
Before: Thomas Tang, and Stephen S. Trott, Circuit Judges, and Rudi M. Brewster,*fn* District Judge. Opinion by Judge Tang.
Olin Corporation ("Olin" or "Company") petitions for review of an order of the Federal Trade Commission ("Commission") to divest assets acquired from the FMC Corporation ("FMC") and used to produce swimming pool sanitizing chemicals. The Commission ruled that Olin's acquisition of these assets would likely result in a substantial lessening of competition in the relevant markets in violation of section seven of the Clayton Act, 15 U.S.C. § 18, and section five of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45. We deny the petition for review.
This case concerns competition among manufacturers of swimming pool sanitizing agents, which are used to kill algae and bacteria. We focus on three such sanitizers; two are chemicals sold in dry form, and the third is liquid pool bleach (sodium hypochlorite). The case is mostly about the two dry sanitizers, "ISOS" (short for "isocyanurates," of which there are two varieties: "dichlor" and "trichlor") and, secondly, "CAL/HYPO" (short for calcium hypochlorite). A fourth chemical is also involved: "CA" (short for cyanuric acid). CA is a precursor in the manufacturing process of ISOS, and accounts for roughly 50% of the cost of ISOS production. CA is also used as a stabilizer in conjunction with the use of CAL/HYPO as a sanitizer.
Olin's dominance in the production and marketing of CAL/HYPO is not in question. Between 1980 and 1984, Olin's share of CAL/HYPO production in the United States ranged from 79% to 89%. This case arises out of Olin's attempts to expand its capabilities to produce and market ISOS.
In the late 1970s, Olin approved construction of a four-part facility in Lake Charles, Louisiana. Three parts of the facility were designed to manufacture CA and the two forms of ISOS, dichlor and trichlor. The fourth part was a packaging plant. Olin, however, encountered technical problems in making CA; this part of the Lake Charles plant was shut down in 1980, and written off the following year. Both the dichlor and the packaging facilities were shut down in 1982. The remaining part of the Lake Charles facility dedicated to trichlor production remained in operation until 1984, with Olin obtaining the CA necessary to make trichlor from Nissan, a Japanese producer of both CA and ISOS.
In 1984, Olin entered a "tolling agreement" with Monsanto Company whereby Olin would provide certain ISOS precursors to Monsanto. In return, Monsanto would produce ISOS and provide them to Olin. Olin thus became a "repackager" of ISOS. At the same time, Olin "waterbatched" its Lake Charles trichlor facility, keeping it in a state of readiness but not using it.
In early 1985, Olin entered an agreement with FMC to buy that company's swimming pool chemical business. The assets of that business included FMC's manufacturing plant for sanitizers located at South Charleston, West Virginia, and technical know-how for the production of CA. The South Charleston plant was composed of two production facilities, one each for ISOS and CA.*fn1
The Commission began its challenge to the proposed acquisition in July 1985. To avoid an injunction against the acquisition, Olin agreed to maintain the acquired assets in a state which would permit divestiture in the event the Commission found the acquisition to be violative of the antitrust laws. Olin also agreed to a graduated withdrawal from its tolling agreement with Monsanto. As a result, the Commission permitted Olin and FMC to consummate their transaction in August 1985.
In the order from which Olin has petitioned, the Commission substantially adopted the decision of the administrative law Judge, including the ALJ's Conclusion that the acquisition would violate federal antitrust law because it would likely result in a substantial lessening of competition in the relevant markets. The Commission also adopted the ALJ's proposed remedy of divestiture. Thus, the Commission ordered Olin to divest itself of all pool sanitizer assets acquired from FMC, except for "the Sulfolane process technology and know-how for the manufacture of [CA]." Olin filed a timely petition for review of the Commission's decision and order.
Olin raises four contentions. First, the Company argues that the Commission's finding that ISOS and CAL/HYPO together constitute a relevant product market lacks substantial evidence. Olin also challenges on the same ground the Commission's finding that Olin's pre-acquisition share of the ISOS market did not substantially overstate Olin's significance as a competitor in the market for dry sanitizers. Third, Olin claims that the Commission's decision rejecting Olin's "exiting assets" defense is not supported by substantial evidence. Finally, the Company contends that the Commission's order to divest the South Charleston CA facility is not within its remedial discretion.
We review the Commission's findings of fact, including its economic Conclusions, under the substantial evidence standard.
FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 454, 90 L. Ed. 2d 445, 106 S. Ct. 2009 (1986) (" Indiana Dentists ") (review of factual findings under FTC Act); Hospital Corp. of Am. v. FTC, 807 F.2d 1381, 1384-85 (7th Cir. 1986) (review of factual findings, including Commission's economic judgments, under Clayton Act), cert. denied, 481 U.S. 1038 (1987); RSR Corp. v. FTC, 602 F.2d 1317, 1320, 1325 (9th Cir. 1979) (review of factual findings, including Commission's economic judgment, under FTC Act), cert. denied, 445 U.S. 927 (1980); see 15 U.S.C. §§ 21(c), 45(c). Under this standard, "the court must accept the Commission's findings of fact if they are supported by such relevant evidence as a reasonable mind might accept as adequate to support a Conclusion." Indiana Dentists, 476 U.S. at 454 (quotation omitted).
The legal issues presented - that is, the identification of governing legal standards and their application to the facts found - are, by contrast, for the courts to resolve, although even in considering such issues the courts are to give some deference to the Commission's informed judgment that a particular commercial practice is to be condemned as "unfair."
Normally, "a delineation of proper geographic and product markets is a necessary precondition to assessment of the probabilities of a substantial effect on competition within them." United States v. General Dynamics Corp., 415 U.S. 486, 510, 39 L. Ed. 2d 530, 94 S. Ct. 1186 (1974); accord Equifax, Inc. v. FTC, 618 F.2d 63, 66 (9th Cir. 1980). There is no dispute in this case that the geographic market relevant to this case is the entire United States. The parties have further stipulated that one relevant United States product market consists solely of ISOS (the "ISOS-only" market). The Commission also identified over Olin's objection a second relevant United States product market, one comprised of both ISOS and CAL/HYPO (the "dry sanitizers" market).
Olin attacks the finding of a dry sanitizers market for two related reasons. First, in concluding that Olin's acquisition of FMC assets would likely have an anticompetitive effect, the Commission examined in part the acquisition's effect on the dry sanitizers market. Olin contends that the finding of likely anticompetitive effect is erroneous because it is premised on the existence of a relevant dry sanitizers market and because this market's existence is not supported by substantial evidence. Even if Olin were correct in this assertion, however, the Commission also looked to the acquisition's effect on the ISOS-only market in finding a violation of the antitrust laws. The Commission did not state whether its ultimate Conclusion concerning likely anticompetitive effect was dependent on analyses of both product markets, or on the analysis of one or the other. The Commission's finding of likely anticompetitive effect therefore might still be upheld based on the analysis of the ISOS-only market even if the finding of a dry sanitizers market is not supported by substantial evidence. The importance of Olin's challenge to the dry sanitizers market is thus questionable.*fn2
The second reason for Olin's attack on the identification of a relevant dry sanitizers market concerns the decision in United States v. General Dynamics Corp., 415 U.S. 486, 39 L. Ed. 2d 530, 94 S. Ct. 1186 (1974). In General Dynamics, the Supreme Court held that under certain circumstances market share can overstate competitive ability. Id. at 501-03. Relying on General Dynamics, Olin argues that the Commission erred in using Olin's pre-acquisition share of the ISOS-only market to assess the acquisition's effect on competition. Olin contends this was error because its ISOS business was not viable before the acquisition.
Based on certain language appearing in the Commission's opinion, it appears the Commission may have considered Olin's pre-acquisition ISOS business only in assessing the acquisition's effect on the dry sanitizers market, and not in regard to the ISOS-only market. The language is as follows:
The relevant market is dry sanitizers, rather than just [ISOS], and Olin was the number one producer in capacity and output in the market for dry sanitizers solely on the basis of its [CAL/HYPO] production. Nonetheless, because Olin's lead in dry sanitizers over the second largest domestic producer would be diminished if its [ISOS] capacity and output were excluded from the analysis of the market shares, the viability of Olin's [ISOS] business is significant in assessing its preacquisition market position.
(Emphasis added.) Thus, if the Commission erred in finding a relevant dry sanitizers market (as Olin contends), it becomes arguable that the Commission committed a fatal mistake in not considering the viability of Olin's pre-acquisition ISOS business before assessing the acquisition's effect in regard to the ISOS-only market.
Bearing in mind Olin's two reasons for attacking the Commission's finding of a relevant market in dry sanitizers, we turn to the basis for ...