High Court Deals Blow to Private Antitrust Suits

The Supreme Court, in a case considered a key test of whether businesses themselves can act as trustbusters, ruled Tuesday that a company may not go to court to halt the merger of two larger competitors solely on the basis of a “threatened price-cost squeeze.”

Since taking office in 1981, the Reagan Administration has shunned the government’s traditional policy of actively opposing corporate mergers, and this case was viewed as making it easier for rival companies to take on the role.

However, the court voted six to two that “the kind of competition that (the smaller firm) alleges here--competition for increased market share--is not activity forbidden by the antitrust laws,” Associate Justice William J. Brennan Jr. wrote for the court. “It is simply . . . vigorous competition.”

Tuesday’s decision does not close the door to private antitrust suits, but the high court made it considerably more difficult for a company bringing such action to prevail in court.

If a company could show that its merged rivals were using “predatory pricing” to drive competitors out of business, Brennan suggested, it could then demonstrate that antitrust laws were being violated.

However, as Associate Justices John Paul Stevens and Byron R. White noted in dissent, this could force a small firm to wait until the damage was done before going to court.

“Their inability to prove exactly how or why they may be harmed (by a merger) does not place them outside the circle of interested parties whom the (antitrust) statute was enacted to protect,” Stevens maintained.

Antitrust experts said Tuesday’s decision shows that the high court is moving toward the conservative view that concentrated corporate power will not necessarily limit competition.

“The court is no longer willing to infer, as in the Warren era, that big is bad,” said Les Weinstein, a Los Angeles lawyer who served in the antitrust division of the Justice Department during the Administration of President John F. Kennedy. “They want hard, clear, convincing proof” that a merger would restrict competition before moving to block it, he said.

William Baxter, a Stanford law professor who headed the antitrust division during the first term of the Reagan Administration, said the high court ruling “appears to come to a sensible middle ground.”

“If they had gone the other way, this case would have been very significant,” Baxter said. “It would have been a very radical change if they had found an adequate basis (for blocking a merger) based on total speculation about predatory pricing. It would also have been fairly radical if the court concluded that Monfort (the plaintiff in the court action) had no standing to sue.”

The case grew out of a proposed merger of two Midwestern meat-packing firms. Excel Corp., a subsidiary of Cargill Inc. and the nation’s second-largest meat packer, signed an agreement in 1983 to acquire the third-largest firm in the market, Spencer Beef. Together, these two firms would command a market share equal to the largest packer, IBP Inc.

The fifth-largest meat packer, Monfort of Colorado, with about 6% of the market, sued in federal court under a provision of the Clayton Act, which permits actions by private parties “threatened with loss or damage by a violation of the antitrust laws.”

A U.S. district court, ruling in favor of Monfort, concluded that the merger would make it more difficult to compete in the meatpacking market and would “severely narrow” its profit margin. Last year, the U.S. 10th Circuit Court of Appeals upheld that decision, concluding that a “price-cost squeeze” resulting from the creation of two powerful firms “will drive other companies out of the market.”

In reversing those rulings, the high court said it was not convinced that antitrust laws should be used to forestall “vigorous price competition.”

Without explanation, Associate Justice Harry Blackmun took no part in the decision in Cargill vs. Monfort, 85-473.