UNITED STATES v. GENERAL DYNAMICS CORP.

Print this transcript Transcript: 

Argument of Friedman

Chief Justice Warren E. Burger: We’ll hear arguments next in United States against General Dynamics Corporation.

Mr. Friedman, you may proceed whenever you’re ready.

Mr. Friedman: Mr. Chief Justice, may it please the Court.

This is a direct appeal from an order of the United States District Court for the Northern District of Illinois which at the trial dismissed a Government civil anti-trust case, challenging the combination of two large coal companies in Illinois as violating Section 7 of the Clayton Act.

As is true in most of these merger cases, the issues relate to the proper definition of the relevant product in geographic markets and then the final question whether within those markets the effect of the merger maybe substantially to lessen competition.

The two companies involved are the Freeman Coal Company which in effect is the acquiring company and the United Electric Coal Company which is the acquired company.

There was not a direct acquisition of one company by the other, however, the acquisition came about in this fashion.

Since 1942, a firm called Material Service Company which was primarily in the building trade in material business owned all of the stock of the Freeman Coal Company.

Beginning in 1954, the Material Service Company started to acquire stock of the United Electric, the acquired company, and by 1959, it had acquired 34% of the stock of United Electric.

At that time, the President of Freeman became the Chief Executive Officer of United Electric, and at the same time, five new members of the board where appointed to United Electric for them being people connected with Freeman and Material Service.

Justice Potter Stewart: That was in 1959?

Mr. Friedman: That was in 1959.

Justice Potter Stewart: I just -- I’m not -- you went a little fast for me.

Mr. Friedman: I am sorry.

Justice Potter Stewart: Material was the dominant stockholder in Freeman?

Mr. Friedman: Material owned all of Freeman’s since 1942.

Justice Potter Stewart: Was the sole stockholder of Freeman?

Mr. Friedman: Sole stockholder.

Justice Potter Stewart: And Freeman began acquiring Electric’s stock?

Mr. Friedman: United -- Material Service.

Justice Potter Stewart: Material not Freeman?

Mr. Friedman: That’s right, begun acquiring United Electric stock in 1954.

Justice Potter Stewart: And did so beyond the -- during the period between 54 and 59 in which time it had acquired something over 30%?

Mr. Friedman: That’s with 34%.

Justice Potter Stewart: And at that time, the -- now you’re just starting to tell that the Operations Director --

Mr. Friedman: At that time, the President of Freeman became the Chief -- the Head of the Executive Committee of the United Electric and there was a shift in the board of directors.

It was a 9-man board.

Five new members where appointed to the board, four of whom were directly connected with either Material Service or Freeman.

That is the company of companies that had control.

Justice Potter Stewart: And the other 66% of the stock of Electric in 1959 was broadly held or held out?

Mr. Friedman: Medium broadly held.

Some, it was held I think by a controllers, but I’ll come to that in a minute as to what happened.

But, I want to stress the fact that both of the expert economists in this case, both the Government’s expert and the appellee's expert testified that as a result of these events in 1959, Material Service then obtained control of United Electric.

Now, the next step in this somewhat complicated series of transactions took place a few months later in 1959 when the appellee, General Dynamics Corporation acquired all the stock of Material Service, and as result of that acquisition, it in turn got 34% of the stock of United Electric.

General Dynamics then continued to acquire the stock of United Electric and by 1967 --

Justice Potter Stewart: Through -- directly or through Freeman?

Mr. Friedman: I believe directly.

I think it has been --

Justice Potter Stewart: So then, Freeman owned 34% of the stock and General Dynamics began from zero.

Mr. Friedman: From zero, but General Dynamics --

Justice Potter Stewart: The number of shares and began building up its ownership?

Mr. Friedman: But General Dynamics of course indirectly owned all of Freeman through Material Service.

Justice Potter Stewart: But Freeman owned the 34%?

Mr. Friedman: Freeman owned the 34%, but of course at that point on, General Dynamics had complete control of Freeman.

Justice Potter Stewart: Well, I know, but there was --

Justice Byron R. White: Is that Material or Freeman [Inaudible]

Mr. Friedman: I’m sorry, I’m sorry, Material, I’m sorry Mr. Justice.

Justice Byron R. White: But not Freeman?

Mr. Friedman: Freeman did not own any of the stock of the -- and it’s my understanding that the stock after General Dynamics was acquired control of Material Service, it was then General Dynamics that in turn proceeded to acquire more United Electric stock.

Until in 1966, it had together with the 34% owned by Material Service, roughly two-thirds of the stock of United Electric.

At that point in 1966, General Dynamics made a tender offer for the balance of United Electric stock, it got all of it.

In the following year, 1967, United Electric became through a corporate merger, and wholly own subsidiary of General Dynamics.

Justice Potter Stewart: Well, what had -- when in the Government’s view was the acquisition then in this case?

Mr. Friedman: We say the acquisition was for -- in 1959, but we say moreover the acquisition continued to be solidified up until 1967, but we think 1960 -- 1959 was the acquisition and that as I will develop is an important factor in connection with the clients --

Justice Potter Stewart: Well, I know it it is and therefore, you can’t say well, it was in 1959, it was also in 1967?

Mr. Friedman: No, we think it was in 1959.

There’s a dispute as to that, but we think its just the --

Justice Potter Stewart: The date is quite important, isn’t it?

Mr. Friedman: It is, yes Mr. Justice and we think in 1959, there was an acquisition cause there's a practical matter, has shown what happened, they got control of the company.

Justice Potter Stewart: Who, not -- the General Dynamics wasn’t there at all?

Mr. Friedman: No.

United Electric got them.

I’m sorry, Material Services got control of United Electric and as result of Material Service wholly owned Freeman, this in effect at that point resulted in a combination and the kind of acquisition which Section 7 was direct.

Justice Potter Stewart: Now, is there any dispute between the parties to this case, (a) as to whether or not there was an acquisition within the meaning of Section 7 and (b) as to when that acquisition took place?

Mr. Friedman: I think -- I don’t believe Mr. Justice that they’d challenged that there was an acquisition.

I think, I’m not certain they may disagree that the acquisition took place in 1959.

I’m not sure of that.

Justice Potter Stewart: As I read your brief, you kept getting an alternative, 59 (r) of 1966, and it seemed to me that the dates can be rather critical.

Mr. Friedman: Yes -- I think Mr. Justice of -- after further study of the case, we would say the acquisition did take place in 1959.

Justice Potter Stewart: But you think there may not be agreement between you and your brothers on that.

Mr. Friedman: I think there may not.

Mr. Hedlund will have to answer that question.

Justice Potter Stewart: Alright.

Justice William H. Rehnquist: When did the Government file its complaint in this case?

Mr. Friedman: In 1969 -- I am sorry, 1967, in September 1967.

Now, there are in the United States four major coal producing areas, and the one that we’re concerned with in this case is an area in the Midwest, which we refer to as the Eastern Interior Coal Province, a phrase that is derived from the descriptions in the U.S. Geological Survey Maps.

It consists of Central and Southern Illinois, parts of Western Indiana and Western Kentucky.

All of the mines of both of these companies are not only located in the provinces I shall refer to it, but in Central and Southern Illinois.

Both of these companies, Freeman and United Electric are old and substantial companies.

Freeman got its first coal mine in 1922.

In the year 1959, it produced about 7 million tons that had revenues of $32 million.

All of Freeman’s coal is mined from deep mines.

They put shafts down and mine the coal out of the deep, out of the ground.

United Electric is even older.

It was formed in 1919 and in 1959 it had production of 3.5 million tons, sales of $15 million.

United Electric has been an extremely profitable company.

It had profits in 1959 of $1.8 million, and it has one of the highest profit margins of any company in the coal business.

It, unlike Freeman is engaged only in strip mining.

It digs a hole.

It takes a side of a mound and pulls the coal out without going deep down into the ground with the shafts associated with deep mining.

There had been some rather dramatic changes in the coal industry since World War II.

After World War II, the coal industry lost its entire railroad business which at one point had been its mainstay to diesel oil.

In addition, there was a sharp trend away from the use of coal in household heating and in many industrial uses.

And in the 7 years from 1947 to 1954, the production of coal in this country dropped sharply, more than a third.

But since 1954, coal has made a substantial comeback as a fuel due primarily to the tremendous market it has been able to develop with the electric utility interests.

And as there’s been a great expansion in the production of electric power in the last 20 years or so, so has the production of coal increased and the result is by 1967 and 1968, the production was almost back to the post war 1947 level.

Now, most of the coal that is sold to the electric utilities is sold under long-term contract, usually five to 10 years, some of them longer.

And in addition, when a utility is planning to install a large generating station, which is going to call for a substantial amount of coal over the life of the generating station, it insists quite understandably that the utility be able to be certain of an adequate supply of coal from the coal company before it will sign the contract.

That is, the coal company has to satisfy it, that it has adequate reserves.

Now, let me speak briefly of the reserves because that is a critical issue in the case.

At the time of the acquisition in 1959, United Electric had 81 million tons of strip reserves and 27 million tons of deep reserves, a total of slightly more than 100 million tons.

Justice Byron R. White: All in this area?

Mr. Friedman: All in the State of Illinois Mr. Justice, all in the State of Illinois.

The record shows that since that time, most of these strip reserves have been committed, although, they still have what we consider substantial strip reserves at this time.

They also -- after that time acquired about 50 million tons in deep reserves which have not been mined.

Now, when we talk of reserves, the description of them, they’re always spoken of as being economically minable or economically recoverable.

What is meant by that is that they treat as reserves coal which with the present level of technology and the present price structure of coal can be taken out of the ground and sold at a profit.

Of course, as we know, what maybe economically minable today -- may not be economically minable today may turn out to be economically minable next year.

Techniques for example have improved remarkably in strip mining.

Coal that 20 years ago was considered far too deep to get out of the ground can now be extracted with new modern machinery.

We’re all familiar with the energy crisis today.

It seems not unreasonable that as other fuels, fossil fuels becomes scarce, efforts will be made to mine coal that hitherto has been considered not economically minable, and it may well be that as the price of coal goes up, the reserves that were once considered rather hopeless will suddenly take a new lease on the life.

In addition to that, coal people tend to be rather concern of estimating their reserves, and the former president of the United Electric, Mr. Colby testify that every strip mine that they open in fact turned out to have more reserves than they had estimated.

That statement is at page 144 of the record.

Now, let me just describe briefly the situation within both the Eastern Interior Coal Province and the State of Illinois and I should add, I’ll come to it in few minutes, the Government alleged in this case that there were two relevant markets.

One was the State of Illinois, the other is what we called the Eastern Interior Coal Province Sales Area, which is an area comprising eight states contiguous to and surrounding the province.

The production of coal in both the province and in the State of Illinois is today highly concentrated.

Now, we’ve set forth at page 6 of our brief a table giving the statistics.

I will not repeat them here because there's a lot of statistics, but the fact is that a relatively small number producers have the major share of coal production in these two areas.

In the same period from 1957 to 1967 -- Oh!

Let me come back, one thing, in saying, these tables we have in the brief also show that from 1957 to 1967 concentration increased.

In the same period, the actual number of producers of coal in the State of Illinois dropped 73% from a 144 to 39.

Now, it’s quite true as the appellees point out that many of these coal producers disappeared because there were small producers whose mines were exhausted or lost their markets.

On the other hand, there is an exhibit in the record at pages 101 to 106 of what we call the exhibit appendices.

There are some eight-volume printed appendix before this Court.

The transcript portions and the exhibit portions of separately paginate and at pages 101 to 106, there is an exhibit showing that 21 or 22 independent coal mines in the province were absorbed through merger from 1905 to 1968.

Now within these two concentrated markets, the province and the State of Illinois, Freeman and United Electric each had significant shares.

Again, we have a detailed table at page 58 of our brief, giving these figures.

Freeman was the second largest coal producer in both the province and the state.

It had 7% of production in the province and 14% on the state.

United Electric was the 6th largest in the province, the 8th largest in Illinois.

It had 4.5% of the production in the province and 8% of the production in Illinois.

The record also shows that Freeman and United Electric sell approximately half of their production to common customers, and the major portion of that half of their production is sold to the same facilities of the same customer.

That is each of them sells coal to the same plant of the same customer and the record also shows --

Justice Potter Stewart: These customers being electric utilities primarily?

Mr. Friedman: Mainly primarily electric utilities.

There's a few heavy industry, there's some cement plants but mainly electric utility.

Justice Lewis F. Powell: May I interrupt -- is metallurgical coal use for fuel?

Mr. Friedman: No, it is not Mr. Justice.

United -- let me explain the situation on that.

United Electric does not produce any metallurgical coal.

Justice Lewis F. Powell: What about Freeman?

Mr. Friedman: Freeman produces approximately 8% of its product is metallurgical coal.

But the major share, the overwhelming share of United -- Freeman’s production is coal that is used for the same basic purpose as United Electric, that is as a fuel to produce heat, largely boiler fuel for electric utility.

The record also shows that even at the present time, salesmen from both United Electric and Freeman continue to solicit the same customers, and the testimony is they did that before the merger, as well as after.

In dismissing the Government’s complaint, the District Court basically made three holdings.

First, the District Court said the relevant market in this case is not coal as the Government contended, but a broader category which it described is the energy market, that is an addition to coal.

The District Court said, “You have to take account of oil, natural gas and nuclear power.”

Secondly, the District Court said that the Government’s two proposed geographical markets, the Eastern Interior Province Sales Area and the State of Illinois where as it described in unrealistic, and instead the District Court proposed, suggested they should be 10 different geographic markets which the defendants had proposed.

We have set them out in this colored diagram, opposite page 48 of our brief.

And in this diagram, each -- that special color is a single geographic market according to the District Court.

The way these 10 markets where determined is as follows.

There are four freight rate districts within the State of Illinois and under the Interstate Commerce Commission's Freight Regulation, all mines in a single freight district had the same freight rate to a single facility.

So, the Court said, “We will take each of these separate freight rate districts and treat that as a separate section of the country.”

But then, the District Court did not include in the single freight rate all utility and non-utility customers.

The District Court broke it up and said one market is the utility customers in the freight rate district, another market is the non-utility customers.

The District Court excluded, however, from these four freight rate districts, the largest customer of both companies which is Commonwealth Edison to which each of them sells approximately 25% of its production and said that the Commonwealth Edison plants constituted a separate geographic market.

Those are showed in the little black dots in our map and rather interestingly one of them is in one of the freight rate geographic markets, another one is in the second in the Chicago market which is the last market and another one is in the third one and three of them are not in any market.

And finally, the Court said that the Chicago air pollution controlled district in which they are certain special requirements impose with respect to avoiding pollution, limitations on the kind of fuels you can burn and so on, that was a separate geographic market.

And then the Court went on and said that in any event, if you look at these markets and it said even accepting the government’s mark, the result will be the same, said there was no adverse effect on competition.

The rationale of that decision was basically two or three-fold.

First, the Court said that United's reserves are presently committed and the Government hasn’t shown that there where any economically minable strip coal reserves that United could acquire.

It pointed out -- the court pointed out that United Electric having all is been in the strip mining business did not have the necessary skills it said to go into the deep mining business.

And therefore, you couldn’t consider United Electric’s deep mines as reflecting any potentiality to engage in meaningful competition in the coal business.

And then the Court finally said that if you -- United Electric and Freeman is complementary rather than competitive, apparently, and when reads the opinion, the theory seems to be a game because one is a strip mine firm and the other is a deep coal mine.

Justice Byron R. White: Well, it’s a -- part of -- it is a kind of coal they sell?

Mr. Friedman: It is the kind of -- it is a kind of --

Justice Byron R. White: And what kind of customers they have?

Mr. Friedman: Some of that -- but it doesn’t -- the Court doesn’t say that exactly.

What the Court says at page 61 of the jurisdictional statement where the opinion is repeated, what the Court says is, “this companies have been and are now predominantly complimentary in nature.

United Electric is a strip mining company with no experience in deep mining or likelihood of acquiring it.

Freeman is a deep mining company with no experience or expertise in strip mining.”

And then he goes on and then he says “Freeman sells metallurgical coal.

United Electric does not encounter.”

Now again as I have indicated my answer to Justice Powell’s question, Freeman sales of metallurgical coal are a very small portion of its output.

Freeman sales a byproduct known as Dust, which is primarily in front of your --

Justice Byron R. White: What about this -- excluding Commonwealth that is none of the sales by United Electric in the two year -- in the critical years chosen by you would have or could’ve been competitive with Freeman, had the two companies been independent?

How about that --

Mr. Friedman: We disagree with that.

Justice Potter Stewart: On page 62-9.

Justice Byron R. White: That is a flat finding though, isn't it?

Mr. Friedman: That is a flat finding, but our basic answer --

Justice Byron R. White: And how are we going to -- use it -- must we turn that over for you to win?

Mr. Friedman: I don’t think -- I don’t think so Mr. Justice.

Let me explain it.

Justice Byron R. White: Let’s assume you took that -- let’s assume you agreed with the District Court on his competitive, no competition findings.

Everything that he said you agreed with.

Wouldn’t it -- wouldn't it almost make irrelevant the -- whatever maybe wrong with his product in geographical market?

Mr. Friedman: No, we don’t think so.

We don’t think so Mr. Justice.

Let me explain the reason why we don’t think so.

We think that the proper approach in these cases, this Court has repeatedly said is to consider the structure of the market, consider the structure of the market to see what happens, what happens in the market.

Justice Byron R. White: I understand that, but some of the things he says that sort -- primarily on competition.

It wouldn’t seem to me to make much difference.

What the --

Mr. Friedman: Well I think, I think Mr. Justice --

Justice Byron R. White: Even if you looked at coal as the market like you suggest that you would still arrive at his conclusion and even if you use your geographical markets to derive the same thing?

Mr. Friedman: I think Mr. Justice, he is using -- when he says these sales are not competitive, he uses it in a very, very narrow sense, not as we define competition within the meaning of Section 7.

What he is saying is that, he looks and says here were 20,000 tons of shipped to this plant and 30,000 ton shipped to this plant and these are not competitive because if there had been separate companies, obviously, the one wouldn’t have sold to the other.

We think that’s not the kind of competition to which the protections of Section 7 are restricted.

What we’re dealing with here is two large firms.

Each of which is trying to sell its coal in the area, and that it seems to us is the critical thing and the critical thing about this merger.

The vice of this merger we think is that this is taken in a concentrated market, where there’s an increasing tend towards concentration.

This has resulted in a substantial increase in the concentration.

And that we think the teachings of this Court have indicate that is enough, that is enough to make the merger prima facie illegal, unless there is some justification.

Justice Byron R. White: Well, that’s -- lets assume we agreed with you that the Court erred in the product market.

The coal is a product market.

Would the Court have to get to deal at all with the District Court's views about affect on competition?

Mr. Friedman: Well, if the Court could reverse on the market definitions and remand for the District Court to consider the case further in the light of those, we would think, however, since there is a full record before this Court and since the basic facts on which we base our case are really not disputed.

We think it would be appropriate as the Court has done in many other cases if it finds there are errors in the definition of the relevant markets to then go on and decide the competitive issue in the case.

Let me address myself a bit to -- let me just say one other thing, if I may.

In the last statement, the end of the District Court’s opinion at pages 65 to 66 of the jurisdictional statement, just before the very end of it, he says, “under the circumstance that all the mine reserves had been sold and United Electric has needed the possibility of acquiring more than of the ability to develop deep coal reserves, under these circumstances, continuation of the affiliation between United Electric and Freeman is not adverse to competition nor would divestiture benefit competition even were this Court to accept the Government’s unrealistic product and geographic market definitions.

It seems to us to what the court is saying here is basically, he doesn’t -- the Court doesn’t think that divestiture relief is appropriate or that the divestiture relief would in any way improve competition.

That it seems to us is putting the cart very definitely before the horse because before you decide what is an appropriate remedy in a case, you have to decide whether or not the merger violates Section 7, whether its effect maybe substantially to lessen competitions.

Justice William O. Douglas: As I read this record, I haven’t gone to look entirely of course, but I get the impression that we have here in totality whether large monopoly -- a fuel monopoly, oil companies, gas companies, owning coal companies and owning uranium companies, is that right?

Mr. Friedman: Well, there’s no --

Justice William O. Douglas: Does that bear from this problem before us?

Mr. Friedman: I don’t think so Mr. Justice.

What we do have I think is that we have the coal business, that the coal business here, we think is controlled, that there is an ologopolistic type of market, we have this relatively small number of producers that own most of the coal and produce most of the coals.

In addition to that, we do have evidence relating to the competition between coal, oil and natural gas, nuclear power and so on that the different types of fuel.

But I -- there’s no claim here that there’s any sort of combined monopoly involving different types of energy.

Our case here is directed against the situation in the coal industry.

Justice William O. Douglas: That’s not affected by the fact that if this, if I read the record correctly, there is a monopoly of oil and gas over coal?

Mr. Friedman: Well, not -- no.

I’m sorry Mr. Justice.

What -- there is evidence is that in recent years, some of the large oil companies have gone into the coal business for --

Justice William O. Douglas: I understand 25 of them have.

Mr. Friedman: I don’t know how many, but we know there’s a substantial number.

Now, we do know for example, one of the things that I think is significant, the argument has been made here that United Electric because it’s a strip mining company couldn’t possibly mine any of its deep mines.

In 1958 or 1959, a subsidiary of the Humble Oil Company, which is a very large company opened a deep mine.

Humble Oil Company had never, had never been in the coal mining business at all.

It was able to acquire the skills and open the large deep mine and expects to produce I think 3 million tons a year, and has entered into a contract to sell this coal at the large utilities.

Justice Potter Stewart: As I understand your argument, it runs exactly counter to the suggestions contained in the question of my Brother Douglas, because the District Court thought that the relevant market was the energy market, and you said that he was quite wrong and that he should have confined himself with -- to coal alone.

Mr. Friedman: Yes.

But I feel it Mr. -- I am sorry, I have been perhaps I misunderstood Mr. Justice --

Justice William O. Douglas: That’s why the District Court got off on the -- on that trail of the (Voice Overlap) --

Mr. Friedman: Not, no.

I think what the District Court did was the District Court concluded that because there is obviously competition among these different forms of energy and selling to the utilities, he concluded therefore, you should evaluate the impact of this merger in this broader energy market.

Justice Potter Stewart: And you say -- you say that was quite erroneous that he should -- that the relevant market is coal.

Mr. Friedman: That’s right.

Well, if I may -- if I may modify that Mr. Justice.

We say that there maybe an energy market in some types of mergers, but we say that coal is an alternative market.

There is -- I think the teachings of this Court have indicated there is utility -- no single relevant product market.

There maybe product markets and sub-markets, and we think that coal under the practical indicia test announced in Brown Shoe that coal is a relevant sub-market within which to measure the impact of this merger upon competition.

Chief Justice Warren E. Burger: You don’t deny the existence of an energy market area as such, do you?

Mr. Friedman: No, and Mr. Justice -- Mr. Chief Justice, for example, if we had a merger between an oil company, a natural gas company and a coal company, the energy market might be the relevant market.

All that we say is that whether or not there is an energy market, there is an addition to that, a coal market and that a coal market is a relevant market within which to determine the effect upon competition of the merger of these two coal companies.

Justice Potter Stewart: And specifically and within the geographic market of the Eastern Interior Coal products?

Mr. Friedman: Coal and sales area, and the State of --

Justice Potter Stewart: Which is what, one of five or four provinces?

Mr. Friedman: Well, there are four -- there are basically four provinces, and we have gone beyond the province to include a slightly broader area which is where the vast majority of coal produced in the province is sold.

We say that within that and the State of Illinois is the geographic markets and viewing the relevant market for this case as coal that within that market, this merger does meet the standards that this Court has developed in a large number of cases to determine prima facie, the anti-competitive effect.

Now, the basic answer that was given by the District Court in this case and was given by our opponents here is that well, as a practical matter, United Electric really isn’t a viable competitor at all.

They say United Electric as of the time of trial was about to exhaust its resources, United Electric had almost all of its strip mines committed.

The United Electric doesn’t have the capacity to mine the deep coal, and therefore, it's here, they say the disappearance of United Electric through merger could not possibly substantially lessen competition.

This it seems to us is basically another version of the traditional failing company defense.

In the traditional failing company defense, the company is failing because of its lack of financial resources.

It’s about to go under economically.

Here, the claim is that the company is about to go under resourcefully.

It doesn’t have any resources.

Now, it seems to us that this defense has to be tested by the same standards that the -- by which the court has tested the failing company defense, and the reason is that it’s fundamentally the same claim.

It’s fundamentally the claim that although it might appear on its face that an acquisition substantially lessens competition because of the change it makes in the structure of the market.

In fact, it really doesn’t because if there hadn’t been the merger, the acquired company would’ve disappeared from the market anyhow in a short time, and therefore, the fact that it disappears as a result of a merger rather than through the operation of natural economic forces can’t be viewed a substantially lessening competition.

We think this argument is fallacious for several reasons.

The first of which is that this Court has made it clear that the validity of this defense must be tested as the time -- as of the time of the merger because the question is whether as of the time of the merger, the effect maybe substantially to lessen competition, and you have look and see whether the removal of this firm by merger had an adverse competitive effect on the basis of what it’s position was when it disappeared from the market and therefore, we think that the critical time was of 1959.

As of 1959, it’s certainly cannot be said that the condition of this company’s resources was so depleted and so hopeless that it couldn’t possibly continue for any significant period.

At that time, United Electric had substantial reserves of strip coal.

There’s nothing to indicate at that that time, all of those reserves were committed.

There’s an indication that since that time, other firms had acquired strip reserves, but more important than that, more important than that, it’s just impossible at this time on the basis of hindsight, 14 years later to say what United Electric would have done if United Electric had remained an independent firm.

How it would have solved its problems?

We do know for example, the record shows that another formerly large strip mining firm, Ayrshire Collieries, since that time, although it had been -- had no deep coal experience, first acquired two small mines, with that experience, opened a large mine which has been operating for 11 years.

The appellees point out that the mine was spectacularly unsuccessful.

It lost money nine of the 11 years.

The testimony, however, is not that it lost money because they did not know how to operate the mine, but because the mine was a bad one, the roofing wasn’t right and the man said frankly, we sold the coal for too little money.

It can’t fairly be said and we also have the experience of Humble going into deep mining, I don’t think it can fairly be said now that if United Electric had remained independent, it could not possibly either have obtained additional reserves or that it could not have acquired the skills for deep mining.

Of course, it has the skills for selling and marketing coal.

That’s what its business is.

It’s in the coal business.

Justice Lewis F. Powell: Mr. Free -- Friedman, what if free -- what did Freeman do between 1959 and the date of trial with respect to the acquisition of additional reserves?

Mr. Friedman: Of strip reserves or deep reserves?

Justice Lewis F. Powell: Any kind of reserves?

Mr. Friedman: I don’t -- I’m not certain Mr. Justice, but Freeman of course had a very large; much greater reserves than United Electric at the time of this -- the acquisition.

But I would say -- I would suggest Mr. Justice that the whole history of extractive industries in America is that you have a problem.

If you’re an industry where you’re taking -- using up your raw materials and have to go out and acquire -- they did after around 1959 or 1960, United Electric did acquire this very large deep mine.

And also the testimony is that after 1959, the United Electric was willing to acquire more reserves, but they only wanted to pay farm prices for them.

And that is, they would buy a land with strip reserves at the price as one would ordinarily pay for farmland.

Now, we don’t know what an independent United Electric would've done.

It might have concluded that it was willing to pay more for this land.

It might have decided it had to buy it.

All that I am suggesting is -- it can -- I don’t think it can fairly be said at this point of time that if United Electric had remained independent, it would have found no way to solve its problems.

Justice Lewis F. Powell: Did the total reserves of General Dynamic that is controlled by Dynamic through these two subsidiaries increased substantially between 59 and date of trial?

Mr. Friedman: I understand so.

I don’t have the exact figures.

Justice Lewis F. Powell: That would be in the record, I suppose.

Mr. Friedman: I think so.

The record is huge and --

Justice Lewis F. Powell: I know.

Mr. Friedman: Well, I have looked through the 3,500 pages, frankly, I haven’t been able to check every exhibit.

But, I’m told by my colleague who tried the case that the record does show and I think it’s a fair assumption it'd be somewhere in the 17,000 pages of record, there are statistics --

Justice Lewis F. Powell: The thought underlying my questions is that General Dynamics with its vast resources was perhaps in a better position to acquire additional reserves than either one of these companies independently would've been and I wonder whether it exercised that economic power that it had?

Mr. Friedman: Well, I -- let me say Mr. Justice, there’s an exhibit in the record that shows that United Electric was a very prosperous company.

It kept increasing its profits.

It paid substantial dividends to General Dynamics during the period that General Dynamics controlled it.

It paid off all of its long-term debt.

It might have had -- it might have -- it might have found it more difficult than General Dynamics to acquire coal, but again, we do not know.

We just can’t say, and since Section 7 was dealing with probabilities, not with certainties but probabilities, it condemns mergers that -- where the effect maybe substantially to lessen competition.

Now, let me just say one other thing with respect to this failing company or failing resources defense.

This Court in both the Citizen Publishing case and in the Newspaper case, the Comics, Greater Buffalo Press has said that among other things, for this defense to be available, you have to show that the firm to whom the property was sold was the only available purchaser.

There’s nothing in this record to show that United Electric could have sold its property or disposed off its property only to Freeman or Material Service.

The initiative for this transaction did not come from United Electric.

United Electric according to the record has nothing to show that it approached Material Service and said we’re in trouble, will you take us out?

On the contrary, the initiative came from Material Service, which looked and saw this is an attractive company and it frankly said it was attractive because it recognized that its resources were dwindling, Freeman had large resources and therefore, it would seem like an attractive opportunity for it to combine its resources with this company.

And nor is there any indication in this record that United Electric made other attempts to solve its problems such as seeing if someway couldn’t be worked out to get this coal, this deep coal out of the ground.

And we think that the appellees have not, have not made the kind of showing that this Court has said is necessary before a failing company or failing resources defense can be sustained.

Chief Justice Warren E. Burger: Thank you Mr. Friedman.

Mr. Hedlund?

Argument of Reuben L. Hedlund

Mr. Reuben L. Hedlund: Mr. Chief Justice and may it please the Court.

The Government lost this case below, not because of the legal issues that they would try to raise here, but because of the controlling facts in issue.

As I will develop in my argument, these were head on controversies which Chief Judge Robson as the trier of fact decided against the Government on the basis of a meticulous 2-year review of all of the evidence in this lengthy trial record.

Thus it is our position contrary to that of my distinguished opponent that the real issue before this Court on appeal is whether these findings were clearly erroneous.

There are five factual determinations below which are particularly --

Justice Byron R. White: You think a finding of that -- the -- that the -- this merger would not have an adverse effect on competition or it’s subject to that -- clearly erroneous?

Mr. Reuben L. Hedlund: I think that the facts which support that legal conclusion are --

Justice Byron R. White: So, your answer is no?

Mr. Reuben L. Hedlund: My answer to that is no.

There are five controlling factual determinations below which I particularly want to list briefly before focusing under evidentiary support and implications.

As to the central facts found against the Governments case these included; first, the fact that the acquired company United Electric is dead competitively in all of the market’s alleged including those urged by the Government and it cannot be resurrected.

Second, it was found that United Electric and Freeman would not and could not compete with each other to any substantial degree and that was a fact, whatever the lines of commerce and whatever the Sections of the country chosen.

Third, it was found that the combination had been in effect since 1959.

The evidence was that it had not adversely effected competition, however, that competition was defined.

Fourth, it was found that present in the markets served by the United Electric-Freeman were large sophisticated buyers, wielding substantial bargaining power and practiced in the ability of playing one coal company against the other and coal itself against alternative forms of energy.

This fact spoke convincingly, an explanation of why is the Government virtually admitted and as the Court found below there had been abundant competition in the Midwest coal industry in the past which was certain to continue.

Moreover, the fact that purchases of coal and other fuels were made by powerful sophisticated buyers, place the merger in a totally different factual context than that present in other Section 7 cases before this Court, most notably Von's Grocery, Pabst and Philadelphia National Bank.

If, based on a virtual and an unprecedented census in this record of the very consumers on whose behalf this action was purportedly brought, including carefully reasoned testimony from buyers of more than one half of all the coal produced in the Midwest.

Chief Judge Robinson found that, quoting from page 65A of the jurisdictional statement, “Evidence from numerous knowledgeable industry representatives including competitors and customers of United Electric and Freeman confirms the defendant’s condition -- contention that the challenged combination has not led and is not likely to lead to a substantial lessening of competition.”

In developing these now and turning to the facts --

Justice Potter Stewart: One of the findings that you have just reviewed was the acquisition took place in 1959 and you accept that argument, I would think so?

Mr. Reuben L. Hedlund: Yes, Mr. Justice.

In fact, that was our position at trial.

At the trial the Government took a contrary position.

Justice Potter Stewart: But now the Government agrees with you.

Mr. Reuben L. Hedlund: Now the Government agrees with us.

Justice Potter Stewart: So, my earlier questions were a red herring type.

I mean, they're not -- there’s no distinction about that.

Mr. Reuben L. Hedlund: I think they’ve been answered, Mr. Justice.

Justice William H. Rehnquist: Is there any indication why if this had the adverse effect on competition the Government claim, the Government waited eight years after the acquisition to bring the action?

Mr. Reuben L. Hedlund: There is no explanation of that in the record at all, Mr. Justice Rehnquist.

And which brings up the point that we’ve made in our brief that the -- that Section 7 cases and Section 7 itself was designed to deal with incipient mergers with anti -- a merger whose anti-competitive effects was ripening.

This factual situation far from ripening into anti-competitive effect is -- it were -- first of all it never had one and secondly, the combination is in effect over at this point.

In turning to the facts, I respectfully direct the Court’s attention to the proposed findings filed by defendants in the trial court and particularly the numerous citations to the record that appear therein.

These proposed findings are at pages 880 to 1016 of the joint appendix and are a virtual encyclopedia of the facts and the evidence in this case.

Now, among the most compelling of the central determinations made below is that United Electric is just not a competitive factor in any of the markets alleged, including those suggested by the Government and it cannot become one.

And while this was one of the most hotly disputed issues at trial, the trial court’s findings on United Electric’s terminal condition are no longer seriously challenged by the Government in this appeal.

I will say that I think that since the briefs in Mr. Friedman’s argument today that perhaps they’ve gone back to that, but in any event as the court below found, United Electric was and is a competitively more abound Illinois Coal producer which by the close of this current year will be operating only two strip mines of the six it had when the acquisition took place 14 years ago.

Virtually all of the United Electric’s minable coal reserves had been sold pursuant to long-term contracts with utilities and it has no realistic hope of obtaining additional reserves to serve any of the markets alleged by the parties to this litigation.

Precisely to this point was the trial testimony of A.H. Davis, President of Central Illinois Light Company.

When asked by the Government on cross-examination whether he was in any position to say that United Electric-Freeman combination would have no effect on his company, he responded as follows, this is at page 1213 of the joint appendix.

“Well, we have studied the United Electric Reserves, Mr. Simms and we just can’t see where United Electric has the reserves to be a factor in the coal business as far as we’re concerned.”

United Electric is in fact a company that has been in liquidation for a goodly number of years and that process cannot be reversed.

It was anticipation of this that led the company in the 1960’s, I'm sorry, in the 1950’s, unsuccessfully as the court noted below and that is at page 8A of the jurisdictional statement, “To seek affiliation with other coal producer.”

And when Freeman obtained control of United Electric in 1959, it found the company with only a short term supply of minable reserves.

Irrefutable evidence of this is contained in a lengthy memorandum by the company's land manager, United Electric’s land manager some 20 years ago in November of 1955, four years before the control took place, this appears in the appendix of exhibits at page 1646.

In this memorandum, Tom Lathermer, in a desperate plea, where United Electric to improve its coal reserve position notes that quote, “We have, during years examine something over 200 coal fields.

Of those we've taken up only seven, some of the best were dropped without going into.”

Lathermer further observes that “Practically, all of our competitors have a far better organization for prospecting than we.”

The memo ends with a follow up, again, this is 1955.“

I would like to discuss the entire problem at length with you.

Some place where we can have plenty of time to go over it thoroughly as I am afraid, we are not building up properly the basis upon which our future lies.”

Now during his deposition the company’s former chief executive officer, who retired shortly after Freeman took control, defended United’s reserve policy under his pre-merger administration on the basis that the company had other uses for its money and the company had lost half its business to gas and oil, that appears in the record at page 145.

Mr. Lathermer’s prediction of some two years ago unfortunately came true in spades.

Notwithstanding the vigorous, but unsuccessful efforts of Freeman, contrary to Mr. Friedman’s argument are documented over and over again in this record, Freeman’s and General Dynamics attempts to reverse United Electric’s liquidating position.

United Electric’s reserve position was discussed time and again, commencing at the board meetings, commencing with control by Freeman, that is in the record.

The United Electric’s Vice President for Operation testified that he had an open book, an open check book, to acquire reserves.

The company’s former President at the trial testified that he put no restrictions on the company in acquiring reserves as long as they were black.

So compelling was this evidence that even the Government stated at trial, “That after 1959 Ulysses management sought to acquire economically recoverable reserves.”

My distinguished opponent would try to walk away from that concession now, saying, “Well, that’s talking about -- that’s not talking about the future.”

But the fact is that the question of future reserve prospects is one best committed as it was in this case to expert testimony industry knowledge and not lay speculation or what we submit is an incredible plea for judicial notice contained in the Government’s brief in chief.

Finally, on United Electric’s inability to regain it’s lost --

Justice Potter Stewart: It’s an incredible plea for judicial notice?

Mr. Reuben L. Hedlund: Yes.

Justice Potter Stewart: And what are -- what --

Mr. Reuben L. Hedlund: The judicial notice that they request --

Justice Potter Stewart: What -- why do they hesitate to judicial -- to judicially know?

Mr. Reuben L. Hedlund: That United Electric will acquire additional reserves in the future, that is what the plea for judicial notice is Your Honor.

Justice Potter Stewart: I see.

Mr. Reuben L. Hedlund: Finally, on United Electric’s inability to regain its lost competitive position in the future --

Chief Justice Warren E. Burger: Excuse me, Mr. Hedlund, on this record isn’t it there some indication that estimates of future reserves were quite far over the mark when they were made just relatively in recent years?

Mr. Reuben L. Hedlund: To the contrary Mr. Chief Justice, I think the record is the other way.

While Mr. Colby did testify that the company always -- that their mines ended up having more coal than they had thought at the outset, the fact is that we have the Mary Moore mine of United Electric that closed two years earlier than anticipated.

We now have the Banner mine of United Electric which isclosing this year, a -- three years earlier anticipated.

Chief Justice Warren E. Burger: Well, and the point I was driving at, I thought this record indicated that earlier estimates proved to be too optimistic.

Mr. Reuben L. Hedlund: Oh!

Yes.

Chief Justice Warren E. Burger: And their reserves ran out much sooner than the --

Mr. Reuben L. Hedlund: That’s correct.

I'm sorry Mr. Chief Justice, I misunderstood your question.

Yes, that’s correct.

Finally on United Electric’s inability to regain its lost competitive position in the future.

We need only observe that this was confirmed in the record by Paul Weir Company, one of the world’s leading mining engineering consulting firms and one I might add, is frequently used by the Federal Government itself, by the head of the State of Illinois Geological Survey, by an experienced independent geologist whose life work had been acquiring coal fields for producers and by other knowledgeable industry witnesses.

As Frank Nugent, President of United Freeman, put it in his deposition by the Government, I think this really sums it up.

Let me answer at this way Mr. Cusack and maybe it will save sometime.

The people who are in the business, knowledgeable as I said before such as Mr. Kels, Mr. Mollins, and Norman Kelb are thoroughly familiar with the strip acreage that is available in this state and there is not any necessity for any conversation between me and people in the business as to whether there are strip reserves available.

The question is not debatable.

We know that they are not there, so there's just isn’t anything to discuss.

That goes down to Cab Engineers who have just been in the business a couple of years.

There is not a utility man in the state, a knowledgeable utility man in the state who does not know that the strip reserves are not available.

There is not a salesman selling shovels and equipments who does not know that the reserves are not available.

They have a key interest in it.

The Caterpillar Tractor Company are knowledgeable in that area.

They know the reserves are not available.

Their sales programs are directed elsewhere because the reserves are not here.

This is not a question that isdebatable among coal people.

It is an accepted fact that reserves are not here, that testimony appears at page 62 of the record.

Justice Byron R. White: Well, I gather your -- one of your arguments must be that as a -- in terms of United’s condition in 1959, anybody, no matter who the acquirer was could have acquired United without any damaging effect on competition because of its position in the market.

That it was just too – too worn out company, too ineffective competitively to be a factor under Section -- in the Section 7 case.

Mr. Reuben L. Hedlund: And that would be my position Mr. Justice White, but I don’t believe I need to go back far because in the context of this case, you have the lack of competition between Freeman and United Electric.

Justice Byron R. White: Well, would you say that Free -- did Freeman get any customers through United?

Mr. Reuben L. Hedlund: No.

Justice Byron R. White: Did they make some joint bids?

Mr. Reuben L. Hedlund: No.

Justice Byron R. White: Did they -- did Freeman help United to carry out some of its contracts?

Mr. Reuben L. Hedlund: There were four instances and I believe these are mentioned in our brief where United Electric was able to enter into long-term contracts.

This took place in 1966 or so, able to enter into long term contracts because at the tail end of the 20-year period involved, Freeman was willing to guarantee that there would be coal there for the utility.

In other words, --

Justice Byron R. White: What did that did do the other two competitors?

Mr. Reuben L. Hedlund: The two competitors of Freeman it did not to -- it has to be looked at it seems to me from the utility stand point.

Justice Byron R. White: Well, whatever the competition, the two other competitors if one or the other who might wanted to to get that utility customer?

Mr. Reuben L. Hedlund: If permitted United Electric to provide more vigorous competition against the coal companies with whom they were competing.

Justice Byron R. White: Because of the union with Freeman?

Mr. Reuben L. Hedlund: That’s correct.

Beyond United Electric’s terminal condition whether viewed in 1959 and 1967 or at any other time, a second central finding of the decision below on the basis of all the evidence was that contrary to the Government’s allegations, United Electric and Freeman would not and could not compete with each other to any substantial degree.

This salient fact, one unquestionably committed to the province of the trier of fact and subsequently determined by Chief Judge Robinson from all the evidence is inescapable as the Court below recognized even under the Government’s market definitions.

But prior to trial, the Government admitted in its answers to interrogatories that it could not name any customer of either United Electric or Freeman who had been and would be deprived of actual or potential competition because of the combination, their answers to interrogatories appear at page 305 and 318 of the joint appendix.

At the trial however, the Government relied upon charts, showing shipments to purported common customers of United Electric and Freeman in its attempt to find actual and potential competition between them.

However, based on the evidence from the very customers involved on these charts that testimony and the testimony of the Government’s own economist and the testimony of the defendant’s executives, the Government’s charts were totally discredited and the information shown thereon was demonstrated to be flat wrong.

Many of the shipments weren't even to the same plant and others were of non-competing products, albeit to the same plant to illustrate.

Freeman shipped Inland Steel metallurgical coal for making steel, while United Electric ship inland steam coal for power generation.

Others were unique situation shown at trial to be non competitive, take TVA for example.

United Electric’s shipments to TVA involved a situation where adverse river conditions precluded it from making its normal shipments.

TVA’s coal purchaser testified at trial that United Electric was not a potential supplier of TVA.

The Government’s Economist agreed, the Government’s own economist.

As he put it, this is at 1694 of the record, “the way of the thing occurred in the record, I would not say that that particular shipment represented competition.”

Executives from other consumers listed on the Government’s charts similarly denied that both United Electric and Freeman could've competed for their business.

In view of the simplicity of the proposition involved, the almost unlimited scope of pretrial discovery permitted the Government, the 11-year period that the combination had been in effect by the time of trial and the fact that the Court had before it, the testimony of purchasers of more than one half of the coal produced in the Midwest, there can logically be, we submit, one reason why the Government failed in its attempt to show that United Electric and Freeman were substantial potential competitors and that reason is simply because they were not.

And this was because of the different locations of the mines, the different modes and cost of transportation available to each and because of the varying quality characteristics of their respective coals.

And we repeat those were the facts, whatever the market’s chosen and specifically even if the market definition issues in the litigation had been resolved the way the Government wanted them to be.

Another central finding below was that since 1959, the year when Freeman obtained control of United Electric, a fact by the way brought to the attention of the anti-trust division at that time which took no action, the Court found that since 1959, the United Electric-Freeman combination had not adversely effected competition whether the markets used for that analysis were those of the Government or the defendants.

That finding was based upon an analysis made by the Court of the structure of the coal industry and its markets upon the testimony of industry representatives as well as experts and upon the Government’s own admissions.

This showed first as I've discussed that United Electric and Freeman would not and could not compete to any substantial degree.

Beyond that, the trial court specifically found that the record was not only, “Devoid of any signs of anti competitive performance and behavior in the coal industry but rather the past performance of the industry suggests there has been intense competition among coal producers.”

In fact, the Government in response to defendant’s proposed findings below was forced to concede that it and this is the Government’s own words, quote it has never asserted during the 20 years proceeding 1967 that the coal industry was not competitive.

The Government acknowledged moreover that the mine mouth price of coal in 1968 was less than at the beginning of the post-war period despite general inflation in wholesale prices and that there had been marked improvements in coal technology techniques and productivity.

The trial court specifically found, “from all the evidence presented at trial it appears that coal producers will be under continuing pressure to reduce costs and keep prices low if they are to continue to serve their last remaining large market for steam coal among the factors which made this clear where the sophistication and market power of coal buyers in the presence of a substantial number of viable coal competitors.”

In addition, the Court found particularly significance, the wealth of evidence dealing with the tremendous competitive pressure placed on coal producers from suppliers of alternative fuels.

This pressure was expected to intensify in the future particularly in light of the ever increasing environmental consideration.

Commonwealth Edison spokesman at trial summed up the situation as follows at page 1414 of the record, “Well, as far as Commonwealth Edison is concerned, we have sort of have put our eggs in the nuclear basket.

We believe that nuclear power is the best way to provide base load electric generation and we intend to move in this direction.

Indeed a representative of the Atomic Energy Commission testified that in the long-term the most economical way to generate electricity would be a combination of nuclear and pump storage facilities together with gas turbine picking units.

Moreover, even with respect to the Government’s coal production statistics which we contend were improperly aggregated and thus meaningless, an obscured the fact that United Electric and Freeman were predominantly complementary rather than competitive companies.

It was shown then on the Government’s production statistics that excluding Peabody, the production shares of the two, four and ten largest producers since 1959 remained stable or declined, this is shown at pages 1276 and 77 of the appendix of exhibits.

The effect that Peabody's increase in size has had on the Midwestern coal industry, has of course been cured to the Government’s satisfaction by virtue of the divestiture consent decree it obtained against Peabody in 1967 and deconcentration has been further advanced by the entry of the Humble Oil into coal production.

The establishment of the midland operation divested by Peabody and the continued decline of the United-Freeman position.

It should be noted in this latter regard that the evidence was that United Electric-Freeman combination accounted for less of the Midwest coal production in 1967 than it did in 1959.

In fact, as the Court found below, the combination had experienced more than a 10% decrease in its percentage of such production since 1959.

The Court anticipated that this would continue to drop as United Electric’s mines closed as their reserves played out.

That these predictions have become true is a matter of which we submit this Court could take judicial notice by examining the post-trial publications of the State of Illinois and the United States’ Bureau of Mines.

These show that United Electric-Freeman’s combined coal production for 1972 was almost 4 million tons less than the 14 million ton total in 1967 and that it's share of Midwest production has dropped by more a third.

The final factual finding upon which I wish to focus was the testimony of knowledgeable industry witnesses in this case.

Notwithstanding a diligent Government search before trial for competitors or customers of the combination whose testimony would tend to prove the alleged adverse effect on competition, the Government was unable to find a single member of the class for whose benefit this action was purportedly brought to add any substance to its claims.

The defendants, however, did adduce evidence from a broad cross section of both producers and consumers to the effect that the combination had not had and would not have an adverse effect on competition.

This came from large, medium size and small public utilities, a rural electric cooperative, a federal electric authority, a retail coal dealer and several industrial concerns as well as large and small coal producers and the significant thing here about this testimony of consumers and producers is like is that it came from knowledgeable witnesses who gave concrete reasons for their conclusions as was required by this Court’s admonition in Philadelphia National Bank.

The most dramatic example, I submit of this took place during the Government’s lone attempt to establish that these witnesses were in different to and unsophisticated about the competitive implications of mergers of coal producers.

This occurred during the cross-examination by the Government of Davis, President of Central Illinois Light Company.

This elicited the fact that Mr. Davis had in the past taken the initiative in complaining to the anti-trust division.

When his evaluation led him to conclude that another merger between coal producers did pose a threat to competition, a question was asked of Mr. Davis, “Would you be concern Mr. Davis as President of SELCO with UEC and Freeman merged with Trueex.

As your department undoubtedly knows, Mr. Davis testified, “we made a compliant several years ago about the merger of two coal companies in our area and you have reached the satisfactory settlement, I take it with those two companies.

So, anything that we feel reduces the amount of competition in our area, we are certainly not that bashful about making a complaint.”

If Trueex were emerged with say Peabody in our area, wed make another complaint.

But why would that bother you Mr. Davis, the Government asked, Mr. Davis said, “It’s a reduction of competition in our area.”

The Government’s first response to these determinations --

Chief Justice Warren E. Burger: Did you have the page in the transcript for that?

Mr. Reuben L. Hedlund: I'm sorry Mr. Chief Justice.

Yes, that’s page 1222 to 23 in the --

Justice William J. Brennan: Well, its page 45 of your brief.

Mr. Reuben L. Hedlund: That’s correct.

The Government’s first response to these determinations is that Judge Robinson somehow did not make the proper structural analysis dictated by the cases.

It seems to me that the trouble with that argument is two-fold.

First of all, it does not avoid the hard reality of the specific finding by the trial court that the combination would not have an adverse effect on competition even if the Government’s product in geographic market definitions were accepted in full.

The second trouble is that the trial court did in fact make the structural analysis which the Government claims is missing and did so in conformity with the cases.

Almost one third of the opinion below is devoted to such considerations as the rankings of the defendants in both coal production and coal reserves, the background of the coal industry, the changes in the demand for coal, the emergence of the utilities as the principle market for coal, the changes that had taken place in production techniques, the way in which coal producers competed for their principle market utilities and indeed one section of the opinion is even titled, “Changes in the structure of the coal industry,” are over read, that four point of Judge Robinson’s opinion he declares that coal is the subject of a litigation.

Now, what the Government really complains about, we submit is that the Court refuse to decide the case solely in the numbers the Government had put on their charts.

Now, even if these numbers had been something more than improperly aggregated coal production statistics which they were decidedly not, it seems to us that writing numbers on the blackboard is not enough in the present case where the issue is not whether the Government has made out of prima facie case but whether on the basis of all the evidence after a full trial, a likely adverse on effect on competition has been shown.

Even where the statistical data and evidence is not misleading, this Court has stressed in Brown Shoe that its important should not obscure that only a further examination of the particular market, its structure, history, probable future and provide the appropriate setting for judging the probable anticompetitive effect of the merger.

Square to the point here is the testimony at trail of the Government’s own economist, James Fulsome.

But during the litigation, it came to our attention that while the antitrust division was trying to split up the United Electric and Freeman, they were acting affirmatively at the same time to approve a merger of two other Illinois coal producers that would have been structurally indistinguishable from United Electric-Freeman with the resulting combination in either situation constituting the second largest coal producer in Illinois and in the Midwest.

Now, at trial, I submitted to Mr. Fulsome a hypothetical based solely upon the structural numbers of the merger which the Government said it would approve.

I asked him to assume that the two companies were buyable and I asked him whether he would conclude on the basis of those facts that the merger posed a threat to competition.

Mr. Fulsome was not prepared to rest an appraisal on the numbers alone as he quoted, “I would still want more information.

I would still want to look further.”

So in this case, if the Government’s numbers did anything at all and we say they didn’t, in view of among other things, they are improper aggregation.

The fact that production data rather than reserved data was used and the fact that even then, they included non-competing forms of coal, they created at most of presumption that was rebutted and overcome by the facts which defendants placed in evidence.

With Commonwealth Edison testifying that they have put their eggs in the nuclear basket, with the documented loss of coal’s position in other markets, were the undisputed fact that a coal producer competes for long-term contracts not with production’s statistics but with verifiable uncommitted coal reserves and with the Government’s own economist challenging the use of the Eastern Interior Coal Province sale’s area as a market and failing to support the proposition that Illinois was a market, we submit that the trial court was undoubtedly correct in its finding at page 65A.

That the only evidence produced by the Government to support their claim of a substantial lessening of competition was statistics which fail to reflect the very real competition coal faces from other forms of energy and which proofs together coal producers and to economically unrealistic markets while ignoring the key factor in a coal producer’s market strength, coal reserves.

The Government’s remaining and we submit late arriving argument also fails.

If there’d be any significance, and we say there is none, that the fact that Judge Robinson entered no specific findings with respect to United Electric’s prospects of 1959.

It is because Government trial counsel not only failed to request such findings but asked the trial court not to make them.

However, defendants did propose findings on evidence that they had put in the record concerning United Electric’s debilitated condition in 1959, the reasons why that unhappy circumstance had come about and the merger efforts of United before 1959 to try solve the problem.

In the face of the lack of evidence to the contrary, however, all the Government could claim at trial was that those findings were irrelevant.

If I may make a few more specific comments to certain other things that Mr. Friedman touched on as far as the state of the record.

I would suggest a careful look at the Government’s exhibit on mergers since 1959, that’s at -- that’s at page 106, I believe.

A careful analysis of that will show that almost all of the mergers since 1959 have involved the Peabody Coal Company as I've already referred to and that another rather large looking one on the record was in fact an acquisition of an existing company in the Midwest from a company outside the Midwest.

With respect to Mr. Justice Douglas’ observation about a fuel monopoly --

Justice William O. Douglas: That was the question.

Mr. Reuben L. Hedlund: A question sir.

There is a reference or at least an aspect of that in Judge Robinson’s opinion in which he does note that 25% of the production of coal in the Midwest has been produced by oil companies.

General Dynamics of course has no other fuel interest or utility interest for that matter, other than these two coal companies.

As to whether Ayrshire’s attempt to deep mining proves that anybody can go into deep mining, I would respectfully refer the Court to the testimony of Ayrshire’s witness at trial on that subject and it was -- we submit, for square against the Government.

As far as General Dynamics reserve position, a coal reserve position in the Midwest or elsewhere in the country, that has not changed except as a result of small increments of the two coal companies involved since 1959.

Justice Lewis F. Powell: Mr. Hedlund, would you comment on the nature of the competition or however you describe it between these two companies with respect to Commonwealth Edison?

Mr. Reuben L. Hedlund: Yes, Mr. Justice.

The competition for Commonwealth Edison has to be viewed it seems to us in three lights.

The first of which is that Commonwealth Edison is a unique, unique coal purchaser in the Midwest.

It purchases one third of all the production in the State of Illinois, for example.

Unlike any other coal purchaser revealed by either the Government or ourselves, it must buy coal from a variety of producing districts.

We believe that the real competition then for Edison’s coal purchasers is among the producers in a district and not between different districts.

Secondly, in view of Edison's substantial size, their world leading commitment to nuclear energy, the sophistication and care with which that company makes every fuel decision that it -- we do not think that this combination could have any effect on Commonwealth Edison as indeed was confirmed by their witness at trial.

A dimension of these I think, Mr. Justice Powell is that the Government’s request or at haste to point out I should say at trial that Commonwealth Edison does not take unfair advantage of coal producers.

Justice Lewis F. Powell: Does the record show how many suppliers of coal are used by a Commonwealth Edison?

Mr. Reuben L. Hedlund: Yes, Your Honor.

Those are -- in defendant’s exhibit 49, I'm sorry not 49, at defendant’s exhibit 55.

Well, that discloses only the producing districts.

The actual names of the customers, I do not think it is shown, but I could be wrong.

To conclude, we submit that the decision below comports completely with settled principles of merger law and policy and signals no softening out or a retreat from established barriers to anticompetitive mergers.

The findings below, we submit were not clearly erroneous and we respectfully urge that the judgment be affirmed.

If there are no further questions, that would conclude my argument.

Chief Justice Warren E. Burger: Thank you Mr. Hedlund.

I think now Mr. Friedman, you have few minutes left.

Rebuttal of Friedman

Mr. Friedman: Mr. Chief Justice may it please the Court.

Now, the Government doesn’t see this as basically a factual case.

Our opponents have attempted to present this as a case in which the District Court fully considered all the factual issues resolved and against the Government and therefore as they see it that’s the end of it.

We think the basic issue in this case is whether the traditional standards that this Court has applied in passing upon the validity of mergers under Section 7, an analysis of the structure of the industry where the prime emphasis in on increases in concentration in the concentrated market where Congress has made the judgment that increases in concentration or distressing the trend in the American economy that should be halted in their incipiency.

Whether the principles this Court as announced in those cases are somehow not applicable to this industry because of the critical aspect of the reserves in this industry and because of the weak position United Electric was developing in its reserves and we think the whole question of whether United Electric continued as a viable entity in this industry has to depend upon whether they’ve succeeded in establishing this failing company or failing resources defense.

We think you can’t just say because it looked as though United Electric in 1959 would have some troubles surviving, therefore, you jettison all the analysis that this Court has made in the past on this issue and merely say, it's there for a factual question that we let the District Court decide whether in the District Court by the way did make these decisions as of 1959, the time of the merger, it made them as of the time of trial, I would say presently.

Whether we let the District Court say that nevertheless this merger is to be approved because on the basis of the record, it concluded that in 1972, 1972 that United Electric was unlikely at that point to consider as a viable entity and that the divestiture would be inappropriate thing.

A suggestion has been here that, well, are really the coal industry is terribly competitive.

Everyone is competing for business, people are fighting to get business, that’s not the standard for determining the validity of a merger under Section 7.

What Congress was concerned with was changes in the structure of the industry.

Not where the people were vigorously competing.

I dare say there's a -- there are few industries, I think more competitive, more competitive than the retail grocery industry and I have no doubt that the industry, the retail grocery industry in Los Angeles where this Court held a merge of bonds and shopping bag illegal was at least as competitive as the coal industry involved in Illinois.

If anything, it was probably more competitive, but that didn’t change the Court’s decision.

Chief Justice Warren E. Burger: Thank you Mr. Friedman.

Thank you gentlemen.

The case is submitted.