Gokongwei Vs.docx

Gokongwei vs. Securities and Exchange Commission [GR L-45911, 11 April 1979]

On 22 October 1976, John Gokongwei Jr., as stockholder of San Miguel Corporation, filed with the Securities and Exchange Commission (SEC) a petition for "declaration of nullity of amended by-laws, cancellation of certificate of filing of amended by-laws, injunction and damages with prayer for a preliminary injunction" against the majority of the members of the Board of Directors and San Miguel Corporation as an unwilling petitioner. Gokongwei contended that the Board acted without authority and in usurpation of the power of the stockholders. t was claimed that prior to the questioned amendment, Gokogwei had all the qualifications to be a director of the corporation, being a substantial stockholder thereof; that as a stockholder, Gokongwei had acquired rights inherent in stock ownership, such as the rights to vote and to be voted upon in the election of directors; and that in amending the by-laws, Soriano, et. al. purposely provided for Gokongwei's disqualification and deprived him of his vested right as afore-mentioned, hence the amended by-laws are null and void. Act/Law/Agreement Involved Petitioner claims that the amended by-laws are invalid and unreasonable because they were tailored to suppress the minority and prevent them from having representation in the Board", at the same time depriving petitioner of his "vested right" to be voted for and to vote for a person of his choice as director. In short, Gokongwei insisted that he has enough votes to be a director. Anti-Competition Effect Significantly, the combined market shares of SMC and CFC-Robina in layer pullets dressed chicken, poultry and hog feeds ice cream, instant coffee and woven fabrics would result in a position of such dominance as to affect the prevailing market factors. The doctrine of "corporate opportunity" 29 is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection. 30 Sound principles of corporate management counsel against sharing sensitive information with a director whose fiduciary duty of loyalty may well require that he disclose this information to a competitive arrival. These dangers are enhanced considerably where the common director such as the petitioner is a controlling stockholder of two of the competing corporations. It would seem manifest that in such situations, the director has an economic incentive to appropriate for the benefit of his own corporation the corporate plans and policies of the corporation where he sits as director. Pro-Competition Effect While the right of a stockholder to examine the books and records of a corporation for a lawful purpose is a matter of law, the right of such stockholder to examine the books and records of a wholly-owned subsidiary of the corporation in which he is a stockholder is a different thing. Stockholders are entitled to inspect the books and records of a corporation in order to investigate the conduct of the management, determine the financial condition of the corporation, and generally take an account of the stewardship of the officers and directors. herein, considering that the foreign subsidiary is wholly owned by San Miguel Corporation and, therefore, under Its control, it would be more in accord with equity, good faith and fair dealing to construe the statutory right of petitioner as stockholder to inspect the books and records of the corporation as extending to books and records of such wholly owned subsidiary which are in the corporation's possession and control. Conclusion Obviously, if a competitor has access to the pricing policy and cost conditions of the products of San Miguel Corporation, the essence of competition in a free market for the purpose of serving the lowest priced goods to the consuming public would be frustrated, The competitor could so manipulate the prices of his products or vary its marketing strategies by region or by brand in order to get the most out of the consumers. Where the two competing firms control a substantial segment of the market this could lead to collusion and combination in restraint of trade. Reason and experience point to the inevitable conclusion that the inherent tendency of interlocking directorates between companies that are related to each other as competitors is to blunt the edge of rivalry between the corporations, to seek out ways of compromising opposing interests, and thus eliminate competition. As respondent SMC aptly observes, knowledge by CFC-Robina of SMC's costs in various industries and regions in the country win enable the former to practice price discrimination. CFCRobina can segment the entire consuming population by geographical areas or income groups and change varying prices in order to maximize profits from every market segment. CFC-Robina could determine the most profitable volume at which it could produce for every product line in which it competes with SMC. Access to SMC pricing policy by CFC-Robina would in effect destroy free competition and deprive the consuming public of opportunity to buy goods of the highest possible quality at the lowest prices.

AVON Cosmetics vs. LUNA Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said successor company. Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of petitioner Avon’s Theatrical Promotion’s Group, for which she received a per diem for each theatrical performance. By virtue of the execution of the aforequoted Supervisor’s Agreement, respondent Luna became part of the independent sales force of petitioner Avon. Sometime in the latter part of 1988, respondent Luna was invited by a former Avon employee who was then currently a Sales Manager of Sandré Philippines, Inc., a domestic corporation engaged in direct selling of vitamins and other food supplements, to sell said products. Respondent Luna apparently accepted the invitation as she then became a Group Franchise Director of Sandré Philippines, Inc. concurrently with being a Group Supervisor of petitioner Avon. As Group Franchise Director, respondent Luna began selling and/or promoting Sandré products to other Avon employees and friends. On 23 September 1988, she requested a law firm to render a legal opinion as to the legal consequence of the Supervisor’s Agreement she executed with petitioner Avon. In response to her query, a lawyer of the firm opined that the Supervisor’s Agreement was "contrary to law and public policy." Wanting to share the legal opinion she obtained from her legal counsel, respondent Luna wrote a letter to her colleagues and attached mimeographed copies of the opinion and then circulated them. ACT/LAW/AGREEMENT Supervisor’s Agreement Paragraph 5 - That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. (WON this applies to all products or only products/services in direct competition with AVON) – All products ANTICOMPETITIVE EFFECT The exclusivity clause was directed against the supervisors selling other products utilizing their training and experience, and capitalizing on Avon’s existing network for the promotion and sale of the said products. The exclusivity clause was meant to protect Avon from other companies, whether competitors or not, who would exploit the sales and promotions network already established by Avon at great expense and effort. Admittedly, both companies employ the direct selling method in order to peddle their products. By direct selling, petitioner Avon and Sandre, the manufacturer, forego the use of a middleman in selling their products, thus, controlling the price by which they are to be sold. The limitation does not affect the public at all. It is only a means by which petitioner Avon is able to protect its investment. It doesn’t take a genius to realize that by making her an important part of its distribution arm, Sandré Philippines, Inc., a newly formed direct-selling business, would be saving time, effort and money as it will no longer have to recruit, train and motivate supervisors and dealers. Respondent Luna, who learned the tricks of the trade from petitioner Avon, will do it for them. This is tantamount to unjust enrichment. Worse, the goodwill established by petitioner Avon among its loyal customers will be taken advantaged of by Sandre Philippines, Inc. It is not so hard to imagine the scenario wherein the sale of Sandré products by Avon dealers will engender a belief in the minds of loyal Avon customers that the product that they are buying had been manufactured by Avon. In other words, they will be misled into thinking that the Sandré products are in fact Avon products. From the foregoing, it cannot be said that the purpose of the subject exclusivity clause is to foreclose the competition, that is, the entrance of Sandré products in to the market. Therefore, it cannot be considered void for being against public policy. How can the protection of one’s property be violative of public policy? Sandré Philippines, Inc. is still very much free to distribute its products in the market but it must do so at its own expense. The exclusivity clause does not in any way limit its selling opportunities, just the undue use of the resources of petitioner Avon. PRO-COMPETITION EFFECT the subject provision in the Supervisor’s Agreement constitutes an unreasonable restraint of trade and, therefore, void for being contrary to public policy. Direct selling was only a method of conducting one’s trade, limiting the products would limit the income of a direct seller CONCLUSION Thus, restrictions upon trade may be upheld when not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to the party in whose favor it is imposed.18 Even contracts which prohibit an employee from engaging in business in competition with the employer are not necessarily void for being in restraint of trade. In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis-à-vis all the circumstances surrounding such agreement in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.

ERB vs. CA ACT/LAW/AGREEMENT Petitioner Pilipinas Shell Petroleum Corporation (Shell) is engaged in the business of importing crude oil, refining the same and selling various petroleum products through a network of service stations throughout the country. Private respondent Petroleum Distributors and Service Corporation (PDSC) owns and operates a Caltex service station at the corner of the MIA and Domestic Roads in Pasay City. On June 30,1983, Shell filed with the quondam Bureau of Energy Utilization (BEU) an application for authority to relocate its Shell Service Station at Tambo, Parañaque, Metro Manila, to Imelda Marcos Avenue of the same municipality. The application, which was docketed as BEU Case No. 83-09-1319, was initially rejected by the BEU because Shell's old site had been closed for five (5) years such that the relocation of the same to a new site would amount to a new construction of a gasoline outlet, which construction was then the subject of a moratorium. Subsequently, however, BEU relaxed its position and gave due course to the application. ANTICOMPETITIVE EFFECT PDSC filed an opposition to the application on the grounds that: 1.] there are adequate service stations attending to the motorists' requirements in the trading area covered by the application; 2.] ruinous competition will result from the establishment of the proposed new service station; and 3.] there is a decline not an increase in the volume of sales in the area. Two other companies, namely Petrophil and Caltex, also opposed the application on the ground that Shell failed to comply with the jurisdictional requirements. In order that the opposition based on ruinous competition may prosper, it must be shown that the opponent would be deprived of fair profits on the capital invested in its business. The mere possibility of reduction in the earnings of a business is not sufficient to prove ruinous competition. It must be shown that the business would not have sufficient gains to pay a fair rate of interest on its capital investment. 39Mere allegations by the oppositor that its business would be ruined by the establishment of the ice plants proposed by the applicants are not sufficient to warrant this Court to revoke the order of the Public Service Commission PRO-COMPETITIVE EFFECT The policy of the government in this regard has been to allow a free interplay of market forces with minimal government supervision. The purpose of governing legislation is to liberalize the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply, environmentally clean and high-quality petroleum products.5 Indeed, exclusivity of any franchise has not been favored by the Court, 6which is keen on promoting free competition and the development of a free market consistent with the legislative policy of deregulation as an answer to the problems of the oil industry. A distinct worldwide trend towards economic deregulation has been evident in the past decade. Both developed and developing countries have seriously considered and extensively adopted various measures for this purpose. The country has been no exception. Indeed, the buzzwords of the third millenium are "deregulation", "globalization" and "liberalization." It need not be overemphasized that this trend is reflected in our policy considerations, statutes and jurisprudence CONCLUSION It would not be remiss to point out that Caltex, PDSC's principal, whose products are being retailed by private respondent in the service outlet it operates along the MIA/Domestic Road in Pasay City, never filed any opposition to Shell's application. All told, a climate of fear and pessimism generated by unsubstantiated claims of ruinous competition already rejected in the past should not be made to retard free competition, consistently with legislative policy of deregulating and liberalizing the oil industry to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply, environmentally clean and high-quality petroleum products.

Willaware Products vs. Jesichris Manufacturing ACT/LAW/AGREEMENT [Respondent] Jesichris Manufacturing Company ([respondent] for short) filed this present complaint for damages for unfair competition with prayer for permanent injunction to enjoin [petitioner] Willaware Products Corporation ([petitioner] for short) from manufacturing and distributing plastic-made automotive parts similar to those of [respondent]. [Respondent] alleged that it is a duly registered partnership engaged in the manufacture and distribution of plastic and metal products, with principal office at No. 100 Mithi Street, Sampalukan, Caloocan City. Since its registration in 1992, [respondent] has been manufacturing in its Caloocan plant and distributing throughout the Philippines plastic-made automotive parts. [Petitioner], on the other hand, which is engaged in the manufacture and distribution of kitchenware items made of plastic and metal has its office near that of [respondent]. [Respondent] further alleged that in view of the physical proximity of [petitioner’s] office to [respondent’s] office, and in view of the fact that some of the [respondent’s] employees had transferred to [petitioner], [petitioner] had developed familiarity with [respondent’s] products, especially its plastic-made automotive parts. [Respondent] alleged that it had originated the use of plastic in place of rubber in the manufacture of automotive under chassis parts such as spring eye bushing, stabilizer bushing, shock absorber bushing, center bearing cushions, among others. [Petitioner’s] manufacture of the same automotive parts with plastic material lwas taken from [respondent’s] idea of using plastic for automotive parts. Also, [petitioner] deliberately copied [respondent’s] products all of which acts constitute unfair competition, is and are contrary to law, morals, good customs and public policy and have caused [respondent] damages in terms of lost and unrealized profits in the amount of TWO MILLION PESOS as of the date of [respond t’s] complaint. In its Answer, [petitioner] denies all the allegations of the [respondent] except for the following facts: that it is engaged in the manufacture and distribution of kitchenware items made of plastic and metal and that there’s physical proximity of [petitioner’s] office to [respondent]’s office, and that someof [respondent’s] employees had transferred to [petitioner] and that over the years [petitioner] had developed familiarity with [respondent’s] products, especially its plastic made automotive parts. RTC + CA = Jesichris ANTI COMPETITIVE EFFECT Article 28 of the Civil Code provides that "unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or high-handed method shall give rise to a right of action by the person who thereby suffers damage." From the foregoing, it is clear thatwhat is being sought to be prevented is not competitionper sebut the use of unjust, oppressive or high- handed methods which may deprive others of a fair chance to engage in business or to earn a living. Plainly,what the law prohibits is unfair competition and not competition where the means usedare fair and legitimate. In order to qualify the competition as "unfair," it must have two characteristics: (1) it must involve an injury to a competitor or trade rival, and (2) it must involve acts which are characterized as "contrary to good conscience," or "shocking to judicial sensibilities," or otherwise unlawful; in the language of our law, these include force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method. The public injury or interest is a minor factor; the essence of the matter appears to be a private wrong perpetrated by unconscionable means.9 Here, both characteristics are present. PRO-COMPETITIVE EFFECT As its Affirmative Defenses, [petitioner] claims that there can be no unfair competition as the plastic-made automotive parts are mere reproductions of original parts and their construction and composition merely conforms to the specifications of the original parts of motor vehicles they intend to replace. Thus, [respondent] cannot claim that it "originated" the use of plastic for these automotive parts. Even assuming for the sake of argument that [respondent] indeed originated the use of these plastic automotive parts, it still has no exclusive right to use, manufacture and sell these as it has no patent over these products. Furthermore, [respondent] is not the only exclusive manufacturer of these plastic-made automotive parts as there are other establishments which were already openly selling them to the public. CONCLUSION Thus, it is evident that petitioner isengaged in unfair competition as shown by his act of suddenly shifting his business from manufacturing kitchenware to plastic-made automotive parts; his luring the employees of the respondent to transfer to his employ and trying to discover the trade secrets of the respondent. Moreover, when a person starts an opposing place of business, not for the sake of profit to himself, but regardless of loss and for the sole purpose of driving his competitor out of business so that later on he can take advantage of the effects of his malevolent purpose, he is guilty of wanton wrong.

Coca Cola vs. Gomez Petitioner Coca-Cola applied for a search warrant against Pepsi for hoarding empty Coke bottles in Pepsi’s yard, an act allegedly penalized as unfair competition under the IP Code. MTC issued the search warrants and the local police seized the goods. Later, a complaint against respondents was filed for violation of the IP Code. Respondent contended that the hoarding of empty Coke bottles did not involve fraud and deceit for them to be liable for unfair competition. MTC upheld the validity of the warrants. RTC voided the warrant for lack of probable cause of the commission of unfair competition. Issue: Whether or not respondent’s hoarding of Coke bottles constitute unfair competition. Ruling: NO. From jurisprudence, unfair competition has been defined as the passing off (or palming off) or attempting to pass off upon the public the goods or business of one person as the goods or business of another with the end and probable effect of deceiving the public. One of the essential requisites in an action to restrain unfair competition is proof of fraud; the intent to deceive must be shown before the right to recover can exist. The advent of the IP Code has not significantly changed these rulings as they are fully in accord with what Section 168 of the Code in its entirety provides. Deception, passing off and fraud upon the public are still the key elements that must be present for unfair competition to exist. As basis for this interpretative analysis, we note that Section 168.1 speaks of a person who has earned goodwill with respect to his goods and services and who is entitled to protection under the Code, with or without a registered mark. Section 168.2, as previously discussed, refers to the general definition of unfair competition. Section 168.3, on the other hand, refers to the specific instances of unfair competition, with Section 168.3(a) referring to the sale of goods given the appearance of the goods of another; Section 168.3(b), to the inducement of belief that his or her goods or services are that of another who has earned goodwill; while the disputed Section 168.3(c) being a “catch all” clause whose coverage the parties now dispute. Under all the above approaches, we conclude that the “hoarding” – as defined and charged by the petitioner – does not fall within the coverage of the IP Code and of Section 168 in particular. It does not relate to any patent, trademark, trade name or service mark that the respondents have invaded, intruded into or used without proper authority from the petitioner. Nor are the respondents alleged to be fraudulently “passing off” their products or services as those of the petitioner. The respondents are not also alleged to be undertaking any representation or misrepresentation that would confuse or tend to confuse the goods of the petitioner with those of the respondents, or vice versa. What in fact the petitioner alleges is an act foreign to the Code, to the concepts it embodies and to the acts it regulates; as alleged, hoarding inflicts unfairness by seeking to limit the opposition’s sales by depriving it of the bottles it can use for these sales. In this light, hoarding for purposes of destruction is closer to what another law, R.A. No. 623 covers. ANTI COMPETITIVE EFFECT The inherent element of unfair competition is fraud or deceit, and that hoarding of large quantities of a competitor's empty bottles is necessarily characterized by bad faith. It claims that its Bicol bottling operation was prejudiced by the respondents' hoarding and destruction of its empty bottles. The petitioner also argues that the quashal of the search warrant was improper because it complied with all the essential requisites of a valid warrant. The empty bottles were concealed in Pepsi shells to prevent discovery while they were systematically being destroyed to hamper the petitioner's bottling operation and to undermine the capability of its bottling operations in Bicol. PRO-COMPETITIVE EFFECT In their counter-affidavits, Galicia and Gomez claimed that the bottles came from various Pepsi retailers and wholesalers who included them in their return to make up for shortages of empty Pepsi bottles; they had no way of ascertaining beforehand the return of empty Coke bottles as they simply received what had been delivered; the presence of the bottles in their yard was not intentional nor deliberate; the hoarding of empty Coke bottles did not cause actual or probable deception and confusion on the part of the general public; the alleged criminal acts do not show conduct aimed at deceiving the public; there was no attempt to use the empty bottles or pass them off as the respondents' goods. The respondents also argue that the IP Code does not criminalize bottle hoarding, as the acts penalized must always involve fraud and deceit. The hoarding does not make them liable for unfair competition as there was no deception or fraud on the end-users.

SmithKline Corp. v. Eli Lilly & Co. SKC sued Lilly for various antitrust violations, seeking damages and an injunction. The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." SmithKline Corp. (SKC) and Eli Lilly and Co. (Lilly) were manufacturers of prescription drugs, including antibiotics. In 1964 Lilly introduced the first cephalosporin antibiotic, Keflin (cephalothin), into the United States market. It subsequently introduced four additional cephalosporin drugs: in 1972 Keflex (cephalexin), in 1967 Loridine (cephaloridine), in 1971 Kafocin (cephaloglycin), and in 1973 Kefzol (cefazolin). Lilly had patents on all its cephalosporin antibiotics except Kefzol (cefazolin), which this case concerns. From 1964 to 1972, Lilly's patents gave it a monopoly over all the cephalosporin drugs then in use. In 1973, competitors began to introduce new cephalosporins. The first was SKC's Ancef (cefazolin); Lilly then introduced Kefzol, its identical form of cefazolin ACT/AGREEMENT/LAW Before 1973 Lilly adopted a marketing program known as the Cephalosporin Savings Plan (CSP), designed to make its cephalosporins more competitive with other antibiotics. The CSP provided that a rebate in the form of Lilly merchandise would be paid to hospitals based on the total amount of Lilly cephalosporins that they purchased. ANTICOMPETITIVE EFFECT The 1974 revised CSP in practical effect combined hospital purchases of Keflex and Keflin with those of Kefzol. In 1974 the two market leaders, Keflex and Keflin, accounted for 75% of all hospital cephalosporin purchases; Kefzol/Ancef was a small fraction of that. Hospitals were free to purchase SmithKline's Ancef with their Keflin and Keflex orders with Lilly, so no tie-in was compelled, but if they did so they risked loss of the 3% rebate on all cephalosporin purchases from Lilly, where 75% of the total was Keflex and Keflin. This calculated out, the court said, to make SKC give a 16% to 30% discount on Ancef sales to meet Lilly's 3% on Keflex and Keflin on an equal net dollar basis. Bundling is the setting of the total price of a purchase of several products or services from one seller at a lower level than the sum of the prices of the products or services purchased separately from several sellers. Typically, one of the bundled items (the "primary product") is available only from the seller engaging in the bundling, while the other item or items (the "secondary product") can be obtained from several sellers. The effect of the practice is to divert purchasers who need the primary product to the bundling seller and away from other sellers of only the secondary product. For that reason, the practice may be held an antitrust violation PRO-COMPETITIVE EFFECT Hospitals were free to purchase SmithKline's Ancef with their Keflin and Keflex orders with Lilly, so no tie-in was compelled, but if they did so they risked loss of the 3% rebate on all cephalosporin purchases from Lilly, where 75% of the total was Keflex and Keflin. CONCLUSION The result was to sell all three products on a non-competitive basis in what would have otherwise been a competitive market for Ancef and Kefzol. The effect of the Revised CSP was to force SmithKline to pay rebates on one product, Ancef, equal to rebates paid by Lilly based on volume sales of three products. The bundling program "was effective at keeping SmithKline out of the market while also preserving Keflin's monopoly," because: The 3% rebate on Keflin and Keflex contributed 17% of the 20% effective rebate on Kefzol. But that rebate came as a lump-sum amount. If the hospital were to expand its use of Kefzol, it would get only a 3% savings. If the hospital were to replace $100 of Keflin with $50 of Kefzol, it would lose a 3% rebate on $50. Thus, under the Revised CSP, there was a reduced incentive to substitute Kefzol for Keflin. The Supreme Court has defined monopoly power as "the power to control prices or exclude competition", n sum, the act of willful acquisition and maintenance of monopoly power was brought about by linking products on which Lilly faced no competition Keflin and Keflex with a competitive product, Kefzol. The result was to sell all three products on a non-competitive basis in what would have otherwise been a competitive market for Ancef and Kefzol. The effect of the Revised CSP was to force SmithKline to pay rebates on one product, Ancef, equal to rebates paid by Lilly based on volume sales of three products. On the basis of expert testimony, the court found SmithKline's prospects for continuing in the cephalosporin market under these conditions to be poor. With Lilly's cephalosporins subject to no serious price competition from other sellers, with the barriers to entering the market substantial, and with the prospects of new competition extremely uncertain, we are confronted with a factual complex in which Lilly has the awesome power of a monopolist. Although it enjoyed the status of a legal monopolist when it was engaged in the manufacture and sale of its original patented products, that status changed when it instituted its Revised CSP. The goal of that plan was to associate Lilly's legal monopolistic practices with an illegal activity that directly affected the price, supply, and demand of Kefzol and Ancef. Were it not for the Lilly's Revised CSP, the price, supply, and demand of Kefzol and Ancef would have been determined by the economic laws of a competitive market. The Revised CSP blatantly revised those economic laws and made Lilly a transgressor under § 2 of the Sherman Act.

Brown Shoe Co., Inc. v. United States, 370 U.S. 294 (1962)

The Government brought suit to enjoin consummation of a merger of two corporations on the ground that its effect might be substantially to lessen competition or to tend to create a monopoly in the production, distribution and sale of shoes, in violation of § 7 of the Clayton Act, as amended in 1950. The District Court found that the merger would increase concentration in the shoe industry, both in manufacturing and retailing, eliminate one of the corporations as a substantial competitor in the retail field, and establish a manufacturer-retailer relationship which would deprive all but the top firms in the industry of a fair opportunity to compete, and that, therefore, it probably would result in a further substantial lessening of competition and an increased tendency toward monopoly. It enjoined appellant from having or acquiring any further interest in the business, stock, or assets of the other corporation, required full divestiture by appellant of the other corporation's stock and assets, and ordered appellant to propose in the immediate future a plan for carrying into effect the Court's order of divestiture. ACT/LAW/AGREEMENT Merger between the G. R. Kinney Company, Inc. (Kinney) and the Brown Shoe Company, Inc. (Brown), through an exchange of Kinney for Brown stock, would violate § 7 of the Clayton Act, 15 U.S.C. § 18. The Act, as amended, provides in pertinent part: "No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly." The complaint sought injunctive relief under § 15 of the Clayton Act, 15 U.S.C. § 25, to restrain consummation of the merger. ANTI COMPETITIVE EFFECT Between 1950 and 1956, nine independent shoe store chains, operating 1,114 retail shoe stores, were found to have become subsidiaries of these large firms and to have ceased their independent operations. And once the manufacturers acquired retail outlets, the District Court found there was a "definite trend" for the parent manufacturers to supply an ever increasing percentage of the retail outlets' needs, thereby foreclosing other manufacturers from effectively competing for the retail accounts. Manufacturer-dominated stores were found to be "drying up" the available outlets for independent producers. Another "definite trend" found to exist in the shoe industry was a decrease in the number of plants manufacturing shoes. And there appears to have been a concomitant decrease in the number of firms manufacturing shoes. In 1947, there were 1,077 independent manufacturers of shoes, but, by 1954, their number had decreased about 10% to 970. Significant aspect of this merger is that it creates a large national chain which is integrated with a manufacturing operation. The retail outlets of integrated companies, by eliminating wholesalers and by increasing the volume of purchases from the manufacturing division of the enterprise, can market their own brands at prices below those of competing independent retailers. Of course, some of the results of large integrated or chain operations are beneficial to consumers. Their expansion is not rendered unlawful by the mere fact that small independent stores may be adversely affected. It is competition, not competitors, which the Act protects. But we cannot fail to recognize Congress' desire to promote competition through the protection of viable, small, locally owned business. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision. PRO-COMPETITIVE EFFECT The District Court found that, although domestic shoe production was scattered among a large number of manufacturers, a small number of large companies occupied a commanding position. Thus, while the 24 largest manufacturers produced about 35% of the Nation's shoes, the top 4 -- International, Endicott-Johnson, Brown (including Kinney) and General Shoe -- alone produced approximately 23% of the Nation's shoes, or 65% of the production of the top 24. CONCLUSION "Where several large enterprises are extending their power by successive small acquisitions, the cumulative effect of their purchases may be to convert an industry from one of intense competition among many enterprises to one in which three or four large concerns produce the entire supply." On the basis of the record before us, we believe the Government sustained its burden of proof. We hold that the District Court was correct in concluding that this merger may tend to lessen competition substantially in the retail sale of men's, women's, and children's shoes in the overwhelming majority of those cities and their environs in which both Brown and Kinney sell through owned or controlled outlets.

United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377 (1956) In a civil action under § 4 of the Sherman Act, the Government charged that appellee had monopolized interstate commerce in cellophane in violation of § 2 of the Act. During the relevant period, appellee produced almost 75% of the cellophane sold in the United States; but cellophane constituted less than 20% of all flexible packaging materials sold in the United States. The trial court found that the relevant market for determining the extent of appellee's market control was the market for flexible packaging materials, and that competition from other materials in that market prevented appellee from possessing monopoly powers in its sales of cellophane. Accordingly, it dismissed the complaint. ACT/LAW/AGREEMENT Section 2 monopolization violation has two elements: (1) the possession of monopoly power in the relevant market; and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. Section 2 also bans attempted monopolization, which has the following elements: (1) qualifying exclusionary or anticompetitive acts designed to establish a monopoly (2) specific intent to monopolize; and (3) dangerous probability of success (actual monopolization). ANTICOMPETITIVE EFFECT That du Pont's power to set the price of cellophane has been limited only by the competition afforded by other flexible packaging materials. Moreover, it may be practically impossible for anyone to commence manufacturing cellophane without full access to du Pont's technique. However, du Pont has no power to prevent competition from other wrapping materials. The trial court consequently had to determine whether competition from the other wrappings prevented du Pont from possessing monopoly power in violation of § 2. Price and competition are so intimately entwined that any discussion of theory must treat them as one. It is inconceivable that price could be controlled without power over competition, or vice versa. This approach to the determination of monopoly power is strengthened by this Court's conclusion in prior cases that, when an alleged monopolist has power over price and competition, an intention to monopolize in a proper case may be assumed. PRO-COMPETITIVE EFFECT Cellophane furnishes less than 7% of wrappings for bakery products, 25% for candy, 32% for snacks, 35% for meats and poultry, 27% for crackers and biscuits, 47% for fresh produce, and 34% for frozen foods. Seventy-five to eighty percent of cigarettes are wrapped in cellophane. Thus, cellophane shares the packaging market with others. The over-all result is that cellophane accounts for 17.9% of flexible wrapping materials, measured by the wrapping surface. CONCLUSION We conclude that cellophane's interchangeability with the other materials mentioned suffices to make it a part of this flexible packaging material market. On the record in this case, it cannot be said that the variations in price between cellophane and other flexible packaging ma terials prevent them from being competitive or gave appellee monopoly power over prices. Even if du Pont did possess monopoly power over sales of cellophane, it was not subject to Sherman Act prosecution, because (1) the acquisition of that power was protected by patents, and (2) that power was acquired solely through du Pont's business expertness. It was thrust upon du Pont.

US vs. Pabst Brewing In 1958, Pabst Brewing Company, the country's tenth largest brewer, acquired Blatz Brewing Company, the eighteenth largest, thus becoming the fifth largest with 4.49% of the total industry sales. The Government brought this action charging that the acquisition violated § 7 of the Clayton Act because its effect "may be substantially to lessen competition" in the production and sale of beer in the United States, in Wisconsin, and in the three-state area comprising Wisconsin, Illinois and Michigan. The Government introduced evidence to establish a marked decline in the number of brewers and a sharp rise in the share of the market controlled by the leading brewers, both prior to and following this merger. It also showed that the combined share of the two companies in Wisconsin in 1957 was 23.95%, and in the three-state area was 11.32%. At the close of the Government's case, the District Court dismissed the case, finding that the Government had not shown that Wisconsin or the three-state area as a relevant geographic market within which the probable effect of the acquisition should be tested, and had not shown that the merger might substantially lessen competition in the continental United States, the only relevant geographic market. ACT/LAW/AGREEMENT Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly." The merger would allegedly give Pabst a monopoly over Wisconsin, Illinois, and Detroit for beer. Anti-Competitive Effect The merger of Pabst and Blatz brought together two very large brewers competing against each other in 40 States. In 1957, these two companies had combined sales which accounted for 23.95% of the beer sales in Wisconsin, 11.32% of the sales in the three-state area of Wisconsin, Illinois, and Michigan, and 4.49% of the sales throughout the country. Pro Competition Between 1957 and 1961, the Nation's 10 leading brewers increased their combined shares of sales from 45.06% to 52.60%. In Wisconsin, the four leading sellers accounted for 47.74% of the State's sales in 1957, and, by 1961, this share had increased to 58.62%. In the three-state area, the evidence showed that, in 1957, Blatz was the sixth largest seller, with 5.84% of the total sales there, and Pabst ranked seventh, with 5.48%. As was true in the beer industry throughout the Nation, there was a trend toward concentration in the three- state area. From 1957 to 1961, the number of major brewers selling there dropped from 104 to 86, and, during the same period, the eight leading sellers increased their combined shares of beer sales from 58.93% to 67.65%. Conclusion concentration in an industry, whatever its causes, is a highly relevant factor in deciding how substantial the anticompetitive effect of a merger may be.

Leegin Creative Leather Products, Inc. v. PSKS, Inc. Leegin Creative Leather Products, a manufacturer of women's accessories, entered into vertical minimum price agreements with its retailers. The agreements required the retailers to charge no less than certain minimum prices for Leegin products. According to Leegin, the price minimums were intended to encourage competition among retailers in customer service and product promotion. When one retailer, PSKS, discounted Leegin products below the minimum, Leegin dropped the retailer. PSKS sued, arguing that Leegin was violating Section 1 of the Sherman Act by engaging in anticompetitive price fixing. Under the Supreme Court's 1911 decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., mandatory minimum price agreements are per se illegal under the Act - that is, they are automatically illegal regardless of the circumstances. Leegin argued that this rule was based on outdated economics. It contended that a better legal analysis would be the "rule of reason," under which price minimums would be held illegal only in cases where they could be shown to be anticompetitive. Both the District Court and U.S. Court of Appeals for the Fifth Circuit rejected these arguments. The courts felt compelled to follow the Supreme Court's rule in the Dr. Miles case, under which Leegin's practices were illegal regardless of the economic arguments put forward by the company. Act/Law/Agreement The District Court excluded expert testimony about Leegin’s pricing policy’s procompetitive effects on the ground that Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, makes it per se illegal under §1 of the Sherman Act for a manufacturer and its distributor to agree on the minimum price the distributor can charge for the manufacturer’s goods. At trial, PSKS alleged that Leegin and its retailers had agreed to fix prices, but Leegin argued that its pricing policy was lawful under §1. Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” Anti-Competitive Effect Setting minimum resale prices may also have anticompetitive effects; and unlawful price fixing, designed solely to obtain monopoly profits, is an ever present temptation. Resale price maintenance may, for example, facilitate a manufacturer cartel or be used to organize retail cartels. It can also be abused by a powerful manufacturer or retailer. Thus, the potential anticompetitive consequences of vertical price restraints must not be ignored or underestimated. Pro-Competitive Effect Economics literature is replete with procompetitive justifications for a manufacturer’s use of resale price maintenance, and the few recent studies on the subject also cast doubt on the conclusion that the practice meets the criteria for a per se rule. The justifications for vertical price restraints are similar to those for other vertical restraints. Minimum resale price maintenance can stimulate interbrand competition among manufacturers selling different brands of the same type of product by reducing intrabrand competition among retailers selling the same brand. This is important because the antitrust laws’ “primary purpose … is to protect interbrand competition,” A single manufacturer’s use of vertical price restraints tends to eliminate intrabrand price competition; this in turn encourages retailers to invest in services or promotional efforts that aid the manufacturer’s position as against rival manufacturers. Resale price maintenance may also give consumers more options to choose among low-price, low-service brands; high-price, high-service brands; and brands falling in between. Absent vertical price restraints, retail services that enhance interbrand competition might be underprovided because discounting retailers can free ride on retailers who furnish services and then capture some of the demand those services generate. Conclusion The Court ruled 5-4 that " Dr. Miles should be overruled and that vertical price restraints are to be judged by the rule of reason." Justice Anthony Kennedy's majority opinion held that Dr. Miles had erred by treating vertical minimum price agreements between manufacturers and retailers as analogous to horizontal price-fixing agreements between sellers. The Court cited evidence from the economic literature that vertical minimum price agreements are rarely anticompetitive and can often function to increase interbrand competition. The Court acknowledged that in some cases vertical price minimums might facilitate manufacturer cartels, but it held that instances where the price agreements are abused for illegal anticompetitive purposes can be determined on a case-by-case basis under the rule of reason. The mere fact that vertical price minimums may lead to higher prices for goods cannot reflect negatively on its legality under the Sherman Act, because there are many legitimate business decisions that may ultimately result in higher prices. The majority also acknowledged that the principle of stare decisis would weigh against overruling the nearly 100-year-old precedent in Dr. Miles, but it held that the Sherman Act is to be treated as a "common-law statute," which must be allowed to evolve in the courts as economic knowledge and circumstances change. The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with this opinion.