Petition for Writ of Certiorari — Thomas J. Lipton, Inc. v. R. C. Bigelow, Inc.

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Supreme Court, US.

FILED

88-1948

JUN 5 1989

No. 88- JOSEPH F SPANIOL, JR,

IN THE a

Supreme Court of the United States

OCTOBER TERM, 1988

THOMAS J. LIPTON, INC., and KRAFT, INC.,

Petitioners,

R.C. BIGELOW, INC.,

Re sponde nt.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

RICHARD J. WERTHEIMER *

HOWELL E. JACKSON

JAMES R. JACKSON, JR.

ARNOLD & PORTER

1200 New Hampshire Avenue, N.W.

Washington, D.C. 20036

(202) 872-6824

Attorneys for Petitioner Lipton

TEFFT W. SMITH

DANIEL F. ATTRIDGE

KIRKLAND & ELLIS

200 East Randolph Drive

Chicago, Illinois 60601

(312) 861-2212

* Counsel of Record Attorneys for Petitioner Kraft

June 5, 1989

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

In Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104

1986), this Court held that a competitor does not have

standing to seek injunctive relief against a proposed ac-

quisition under section 16 of the Clayton Act unless the

. | +°4 . . . . ,

competitor proves a likelihood of antitrust injury, that

. .

. os ee oe . Se Rares i oy - y = : 1. =r .

is, a likelihood of injury from predatory or otner anti-

Ait L

competitive misconduct that will result from the proposed

}

ia!

i cali

acquisition. If the competitor does not prove suc

‘ ‘ttc . a9 eX ¢ a n . ‘ } ] > ,) ~ 7

antitrust In, ury, Lne Lanc is OV e! and tne court need not

consider the legality ol! ne proposed merger unde} ne

‘1, ++ +

Clayton Act.

+ + : + +} i ha ‘ 7 " , 1Y) ,yvye )] Q Y)

| O! SIs e? Wi ~ { ]) » UCCUISI( nN in & rq @ can

section 16 antitrust injury to a competitor be presumed

e cA 4 , 4

soie1ry Irom the post-acquisition Market Snare ot the aC-

Irming ‘m-m?) ? ?

UU il U ALIA Y «

i A

PARTIES TO THE PROCEEDING

The parties to the proceeding in the United States

Court of Appeals for the Second Circuit, whose judgment

is sought to be reviewed, were R.C. Bigelow, Inc. (“Bige-

low”), appellant, and Thomas J. Lipton, Inc. (“Lipton”),

Celestial Seasonings, Inc. (“Celestial”), and Kraft, Inc.

(“Kraft”), appellees.

ili

LISTING REQUIRED BY RULE 28.1

Lipton is a wholly owned subsidiary of Unilever United

States, Inc. (““UNUS”). UNUS is a subsidiary of Uni-

lever N.V., a Netherlands corporation, and Unilever

PLC, a United Kingdom corporation. Unilever N.V. has

a Board of Directors identical to, and a dividend equaliza-

tion agreement with, Unilever PLC. All of Lipton’s sub-

sidiaries are wholly owned. Lipton has no other affiliates.

Kraft is a wholly owned subsidiary of Kraft General

Foods, Inc., which is a wholly owned subsidiary of Philip

Morris Companies Ine. Excluding wholly owned sub-

sidiaries, Kraft’s subsidiaries are Butland Industries

Limited, Roskill Cartage and Storage Limited, Lakeland

Dairies Pty. Ltd., Lotte Kraft Incorporated Company

and Commerciale Oselia S.p.A. Kraft is also indirectly

affiliated with its parent companies’ subsidiaries and

affiliates, all of which are directly or indirectly owned by

Philip Morris Companies Inc.

a = emer ce a rma re

TABLE OF CONTENTS

Page

COLTS A BURG | ame BEI ong s ocd cccenccncecnesikcecsanasnabreensees i

PARTIES TO THE PROCEZDING ............................... ii

LISTING REQUIRED BY RULE 28.1 .............0000.00222.... ill

TA ee Bs Cen Re role ne naa vil

OPINIONS BELOW ............... SRE Rae ae 1

JURISDICTION . ; So sews 1

ake el ee eee ee ee ko ase ee eee 2

STATEMENT OF THE CASE z 3

REASONS FOR GRANTING THE WRIT 8

CONCLUSION sabciges sis cace tg ee ene eed 18

APPENDIX A_ Opinion of the United States Court of

Appeals for the Second Circuit (Jan.

PE | REI ee Ri na Ble SE ren A la

APPENDIX B_ Opinion of the United States District

Court for the District of Connecticut

(June 15, 1988) =? : 20a

APPENDIX C Order of the United States Court of

Appeals for the Second Circuit (Mar.

8, 1989) Re 32a

TABLE OF AUTHORITIES

Cases: Page

Alberta Gas Chemicals, Ltd. v. E.I. Du Pont de

Nemours & Co., 826 F.2d 1235 (3d Cir. 1987),

cert. denied, 108 S. Ct. 2830 SRM ciriectecnscac 15

Brown Shoe Co. v. United States, 370 U.S. 294

RED Ssaxcnsessaninkasnaienineie cena ee eaten 8

Brunswick Corp. v. Pueblo Bowl-O-Mat, Ine., 429

MY CONUS cco 8, 9, 12

Burlington Indus. v. Edelman, 666 F. Supp. 799

REAR: BOTS vcvccciiccutaralie en Gee 14

Burnup & Sims, Ine. v. Posner, 688 F. Supp. 1532

Ce PUR TORE oo nhc ee ee 14

Carafas v. LaVallee, 391 U.S. 234 CREE sca 17

Cargiil, Inc. v. Monfort of Colo., Ine., 479 U.S. 104

CRIED ssiicascssnciceunads ouaroeee ai Sa die ae passim

Consolidated Gold Fields PLC vy. Minorco, S.A.,

871 F.2d 252 (2d Cir. 1989) 14

Friends of Keeseville, Inc. v. FERC, 859 F.2d 230

(eR. COR SORRY occ ee 17

Gwaltney of Smithfield v. Chesapeake Bay Found.,

ine., 464 UB. 0 (1087) ac 16-17

Indiana Grocery, Inc. v. Super Valu Stores, Inc.,

864 F.2d 1409 (7th Cir. 1989) Re ae 15

Local No. 82 V. Crowley, 467 U.S. 526 (1984)........ 17

Matsushita Elec. Indus. v. Zenith Radio Corp., 475

Was Wie ARNO) os ee ee 12,14

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.

Wee CO ee ee ee 12

Phototron Corp. v. Eastman Kodak Co., 842 F.2d

95 (5th Cir.), cert. denied, 108 S. Ct. 1996

| RIES IES, ur RARE ETI WRN Be eA, 4, 8, 14-16

Phototron Corp. v. Eastman Kodak Co., 687 F.

Supp. 1061 (N.D. Tex. 1988) 15

Powell v. McCormack, 395 U.S. 486 (1960) ........ 17

Tasty Baking Co. v. Ralston Purina, Inc., 653 F.

Supp. 1250 (E.D. Pa. 1967) ................. 13, 16

Treasurer, Inc. v. Philadelphia Nat’l Bank, 682

F. Supp. 269 (D.N.J.), aff'd mem., 853 F.2d 921

Cn TE ROY ccc 16

vii

TABLE OF AUTHORITIES—Continued

Page

United States v. W.T. Grant Co., 845 U.S. 629

PSNR Sr ey nT ANR OD ke oS 17

Statutes:

Clayton Act § 4,15 U.S.C.§15 0000 11

Clayton Act §7,15U.S.C.§18..000000002 passim

Clayton Act §16,15U.S.C.§26..... passim

Hart-Scott-Rodino Act, 15 U.S.C. ht. Yaeeeee a A 5

me UO. § 19860) oo 2

Miscellaneous:

P. Areeda & H. Hovenkamp, Antitrust Law —

SIG ARE contac Sitocc te oe ee 10, 14

Baumol & Ordover, Use of Antitrust to Subvert

Competition, 28 J.L. & Econ. 247 Os 5 ee 8

Easterbrook & Fischel, Antitrust Suits by Taraets

of Tender Offers, 80 Mich. L. Rev. 1155 (1982)... 14

Page, The Scope of Liability for Antitrust Viola-

tions, 37 Stan. L. Rev. 1445 (1985) 8

IN THE

Suprenve Court of the Wuited States

OCTOBER TERM, 1988

No. 88-

THOMAS J. LIPTON, INc., and KRAFT, INC.,

Petitioners,

R.C. BIGELOW, INC.,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioners pray for a writ of certiorari to review a

decision of the United States Court of Appeals for the

Second Circuit.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Second Circuit is reported at 867 F.2d 102 (1989),

and is reproduced in Appendix A, pp. la-19a, below. The

opinion of the United States District Court for the Dis-

trict of Connecticut is reported at 689 F. Supp. 76

(1988), and is reproduced in Appendix B, pp. 29a-3ia,

below.

JURISDICTION

The judgment of the United States Court of Appeals

for the Second Circuit was entered on January 17, 1989,

reversing a June 15, 1988, order of the United States

District Court for the District of Connecticut. Petition-

ers’ petition for rehearing with suggestion for rehearing

en banc was denied by the Court of Appeals in a March

8, 1989, order, which is reproduced in Appendix C, pp.

32a-33a, below, and the mandate of the Court of Appeals

has now issued. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1254(1).

STATUTE INVOLVED

Section 16 of the Ciayton Act, 15 U.S.C. $ 26, provides:

Any person, firm, corporation, or association shall

be entitled to sue for and have injunctive relief, in

any court of the United States having jurisdiction

over the parties, against threatened loss or damage

by a violation of the antitrust laws, including sec-

tions 13, 14, 18. and 19 of this title, when and under

the same conditions and principles as injunctive re-

lief against threatened conduct that will cause loss

or damage is granted by courts of equity, under the

rules governing such proceedings, and upon the ex-

ecution of proper bond against damages for an in-

junction improvidently granted and a showing that

the danger of irreparable loss or damage is immedi-

ate, a preliminary injunction may issue: Provided,

That nothing herein contained shall be construed to

entitle any person. firm, corporation. or association,

except the United States. to bring suit in equity for

injunctive relief against any common carrier subject

to the provisions of subtitle IV of Title 49, in re-

spect of any matter subject to the regulation, super-

vision, or other jurisdiction of the Interstate Com-

merce Commission. In any action under this section

in which the plaintiff substantially prevails, the court

shall award the cost of suit, including a reasonable

attorney’s fee, to such plaintiff.

STATEMENT OF THE CASE

l. Introduction -

The Court should grant certiorari and decide this case

in order to ensure compliance by the lower courts with

its ruling in Cargill, Inc. v. Monfort of Colo., Inc., 479

U.S. 104 (1986), and in order to resolve a conflict among

the circuits.

Less than three years ago, the Court decided in Cargill

that a competitor does not have standing to seek injunc-

tive relief against a proposed acquisition under section 16

of the Clayton Act unless it first proves likely antitrust

injury, that is, likely injury to the complaining competi-

tor from predatory pricing or other antitrust misconduct

that will result from the proposed acquisition.

The dissenting Justices in Cargill would have presumed

section 16 antitrust injury if the complaining competitor

demonstrated that the proposed acquisition was reason-

ably likely to violate section 7 of the Clayton Act by sub-

stantially lessening competition or tending to create a

monopoly... The Cargill majority refused to presume

antitrust injury from market share data or any other

evidence relevant to the merits of the section 7 challenge;

it ruled that the trial court need not reach the merits, nor

assess market share data or other evidence relevant to the

1 Section 7 of the Clayton Act, 15 U.S.C. §18, reads in relevant

part as follows:

“No person engaged in commerce or in any activity affecting

commerce shall acquire, directly or indirectly, the whole or any

part of the stock or other share capital and no person subject

to the jurisdiction of the Federal Trade Commission shall ac-

quire the whole or any part of the assets of another person

engaged also in commerce or in any activity affecting com-

merce, where in any line of commerce or in any activity affect-

ing 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.”

merits, unless the complaining competitor first demon-

strates likely antitrust injury from predatory pricing

or other antitrust misconduct made possible as a result of

the proposed acquisition.

The Second Circuit’s decision below is consistent with

the dissent in Cargill but flatly contrary to the opinion

of the Court. The Second Circuit presumed antitrust

injury to a complaining competitor from the acquiring

company’s post-merger market ‘share of approximately

eighty percent of an alleged herbal tea market.

The Second Circuit’s decision also conflicts with the

decision of the Fifth Circuit in Phototron Corp. v. East-

man Kodak Co., 842 F.2d 95 (5th Cir.), cert. denied, 108

S. Ct. 1996 (1988). In Phototron, the Fifth Circuit held

that market share data cannot substitute for direct proof

of section 16 antitrust injury. The Second Circuit ex-

pressly disagreed with the Fifth Circuit in Phototron, see

867 F.2d at 109, p. 15a, below, and presumed section 16

antitrust injury solely from market share data.

2. Statement of Facts

In this case, respondent Bigelow challenged petitioner

Lipton’s proposed acquisition of Celestial. Lipton is a

manufacturer and marketer of a full line of teas, hev-

erages, and food products, and is the second largest U.S.

manufacturer of herbal tea. Celestial, which until re-

cently was_a wholly owned subsidiary of petitioner Kraft,

is the country’s largest seller of herbal teas. Respondent

Bigelow is the third largest supplier of herbal teas in

the United States.’

2 Herbal “teas” are actually not teas. Rather, they are blends of

common varieties of flowers, leaves, roots and stems of edible

plants, e.g., camomile, rose hips, hibiscus flowers, blackberry leaves,

orange peel, spearmint leaves, licorice roots and numerous others.

These herbal blends are steeped in water, yielding a natural

beverage, which is served either hot or cold.

On December 5, 1987, Kraft agreed to sell Celestial to

Lipton. Shortly thereafter, Lipton and Kraft made the

requisite premerger filings with the Department of Jus-

tice and the Federal Trade Commission (“FTC’’), the

government agencies charged with reviewing such trans-

actions under the Hart-Scott-Rodino Act, 15 U.S.C. § 18a.

The FTC then commenced a six-month investigation of

the acquisition, collecting more than 350,000 pages of

documents, deposing executives of Lipton, Kraft and

Celestial and interviewing numerous industry represen-

tatives, including executives of respondent Bigelow. Upon

completion of its investigation, the FTC elected not to

challenge the acquisition.

3. Proceedings Below

Respondent Bigelow was a vocal complainant through-

out the FTC investigation, and presented to the FTC the

same arguments that it makes in this litigation. When

the FTC failed to take action against the transaction,

Bigelow commenced this litigation on May 26, 1988,

seeking to enjoin the acquisition as a violation of section

7 of the Clayton Act, 15 U.S.C. $18. Bigelow claimed

that the acquisition would confer market power on Lipton

and thereby allow Lipton to harm Bigelow. According

to Bigelow, the proposed acquisition would enable Lipton

to deny Bigelow access to shelf space in supermarkets,

deny it access to processed herbs, and prevent Bigelow

from having loyal distributors for its products.

On May 31, 1988, the District Court held a hearing

on Bigelow’s application for a Temporary Restraining

Order (“TRO”). Lipton and Kraft opposed the TRO

with a motion to dismiss for lack of antitrust standing.

At the TRO hearing, Lipton and Kraft consented to a

stay of the merger pending disposition of their motion to

dismiss. At the suggestion of the District Court, de-

fendants’ motion to dismiss was converted into a motion

for summary judgment, and the parties agreed to an

expedited discovery schedule.

On June 15, 1988, after the parties had completed

their discovery and presented all the evidence they sought

to present, the District Court granted defendants’ motion

for summary judgment. It held that, under the stand-

ards laid down by this Court in Cargill, Bigelow had

failed to raise a genuine issue of material fact with re-

spect to whether it was threatened with antitrust injury

as a result of the proposed merger. In reaching its deci-

sion, the District Court analyzed and rejected Bigelow’s

argument that antitrust injury could be presumed from

post-merger market share.* Antitrust standing under

Cargill, according to the District Court, requires more

than market share. 689 F. Supp. at 79, p. 24a, below.

The District Court concluded that while a post-acquisition

share of eighty percent was sufficient for a prima facie

showing of “monopoly power,” a competitor must show

more than that it is competing with a monopolist in order

to have standing under Cargill. Id.

The District Court acknowledged that a showing of

monopoly power might be sufficient to demonstrate anti-

trust injury if it were also demonstrated that Lipton had

acted with predatory intent in acquiring Celestial, but

the court found no credible evidence of such predatory in-

tent in this case. 689 F. Supp. at 79-80, pp. 24a-26a,

below. Bigelow had advanced three theories of predatory

intent: (1) that predatory intent could be inferred from

Lipton’s willingness to pay a “premium” for Celestial;

(2) that Lipton’s apparent efforts to acquire Bigelow

shortly after the Celestial acquisition was ‘announced

demonstrated predatory intent; and (3) that certain

Lipton documents——-none of which were specific to the

acquisition—showed Lipton’s intent to “eliminate com-

petition.” The District Court found there to be no factual

basis for any of these allegations. Jd.

3 For purposes of the summary judgment motion, Lipton and

Kraft had stipulated that the relevant market was herbal tea and

that Lipton would have at least eighty percent of that market after

the acquisition. 689 F. Supp. at 79 n.3, p. 24a n.3, below.

Next, the District Court noted that Bigelow might also

establish antitrust standing if it presented evidence of a

substantial likelihood of predatory activity by Lipton

after the acquisition. Here again, the court concluded

that there was no issue of material fact with regard to

Bigelow’s specific allegations of likely or possible preda-

tory acts. In particular, the court concluded that there

were no factual issues with respect to whether, after the

acquisition, Lipton would be likely to: (1) engage in

predatory pricing; (2) deny Bigelow access to shelf

space; (3) exercise improper pressure over Bigelow’s

distributors; or (4) foreclose Bigelow from access to herb

supplies. 689 F. Supp. at 80-82, pp. 26a-30a, below.

On appeal to the United States Court of Appeals for

the Second Circuit, Bigelow claimed that the District

Court had erred in granting defendants’ summary judg-

ment motion. Bigelow repeated the same claims concern-

ing Lipton’s likely or possible predatory acts it had pre-

sented below. In addition, Bigelow argued that as a mat-

ter of law, a competitor’s standing to challenge an acqui-

sition should be presumed when the merging firms would

have a market share in excess of eighty percent.

The Court of Appeals reversed the District Court’s

order granting summary judgment and held that

“!mjarket share data—assuming that it is accurate and

indicative of substantial market power to eliminate com-

petition—constitutes sufficient evidence, in and of itself,

of antitrust injury to a competitor to create a genuine

issue for trial.” 867 F.2d at 111, p. 18a, below. The

Court of Appeals did not question the District Court’s

finding that there was no genuine evidence of predation

or other antitrust misconduct likely to injure Bigelow.

Instead, the court focused exclusively on the post-merger

market share of the acquiring firm and found an issue of

fact regarding the likelihood of antitrust harm implicit

in that share. The Court of Appeals presumed section 16

antitrust injury solely on the basis of market share.

The Court of Appeals expressly rejected the Fifth Cir-

cuit’s interpretation of Cargill in Phototron Corp. V.

Eastman Kodak Co., 842 F.2d 95 (5th Cir.), cert. denied,

108 S. Ct. 1996 (1988), a similar merger case. The Sec-

ond Circuit pointedly declined to follow Phototron to the

extent that it requires “proof of antitrust injury on an

application for a preliminary injunction.” 867 F.2d at

109, p. 15a, below (emphasis in original). The Court of

Appeals expressly stated that while a high market share

is not a “per se violation of section 7 of the Clayton

Act,” 867 F.2d at 110, p. 17a, below, such market share

data are sufficient evidence to create a genuine issue of

fact as to antitrust injury. The court thus held that

Bigelow had shown a “substantial likelihood of sustain-

ing ‘antitrust injury.’” 867 F.2d at 111, p. 19a, below.

The case was then remanded to the District Court for

further proceedings. Petitioners requested rehearing with

suggestion for rehearing en banc; that petition was

denied on March 8, 1989.

REASONS FOR GRANTING THE WRIT

The question of when competitors should be allowed to

invoke the antitrust laws has concerned this Court and

antitrust commentators for several decades. As this

Court has recognized, competitors generally have a strong

incentive to bring antitrust suits in precisely the wrong

eases. When another firm becomes more efficient or

profitable, competitors of that firm may seek to invoke

the antitrust laws against the firm, even though the

threat to competitors patently will not constitute the sort

of injury the antitrust laws were meant to prevent. By

contrast, if the other firm takes action that seems likely

* See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477

(1977): Brown Shoe Co. v. United States, 370 U.S. 294, 320

(1962); see also Baumol & Ordover, Use of Antitrust to Subvert

Competition, 28 J.L. & Econ. 247 (1985); Page, The Scope of

Liability for Antitrust Violations, 37 Stan. L. Rev. 1445 (1985).

to enable competitors to restrict output and raise prices,

competitors will stand to benefit and have little incentive

to challenge the action.

To prevent the antitrust laws from becoming a break-

water against the rigors of legitimate competition, this

Court has ruled that, in order to have standing to seek

relief under the antitrust laws, plaintiffs must establish

antitrust injury—that is, loss or damage “of the type

the antitrust laws were intended to prevent and _ that

flows from that which makes defendants’ acts unlaw-

ful.”* This doctrinal limitation establishes a threshold

that antitrust plaintiffs must pass before they have

standing to bring suit under the antitrust laws.

Just three years ago, in Cargill, Inc. v. Monfort of

Colo., Inc., 479 U.S. 104 (1986), the Court held that

this antitrust injury requirement applies in suits brought

by competitors to enjoin mergers under section 16 of the

Clayton Act, 15 U.S.C. $26. In that case, the lower

courts had permitted an injunction to issue under sec-

tion 16 on the ground that increased competition caused

by the merger would have harmed the plaintiff. The

Court reversed, holding that a section 16 plaintiff ‘must

show a threat of antitrust injury, and that a showing of

loss or damage due merely to increased competition does

not constitute such injury.” 479 U.S. at 122.

The Court in Cargill also addressed the question of

precisely how a competitcr could demonstrate antitrust

injury in the context of a proposed merger. The Cargill

dissent suggested that the requirement should be satisfied

“if there is a significant probability that the merger will

adversely affect competition in the market in which the

plaintiff must compete.” 479 U.S. at 123 (Stevens, J.,

dissenting). The majority, however, rejected this ap-

proach. As the dissent explained,

5 Brunswick, 429 U.S. at 489.

“(T]he Court in practical effect concludes that a

private party may not obtain injunctive relief against

a horizontal merger unless the actual or probable

conduct of the merged firms would establish a viola-

tion of the Sherman Act... . By emphasizing post-

merger conduct, the Court reduces to virtual irrele-

vance the related but distinct issue of the legality of

the merger itself.”

Id. at 123 n.1 (emphasis added). In other words, the

Cargill majority concluded that a section 16 plaintiff can

establish antitrust injury only if the plaintiff demon-

strates that the proposed merger threatens to cause the

plaintiff “an injury of the type the antitrust laws were

designed to prevent.” 479 U.S. at 111. The fact that the

merger itself might violate section 7 of the Clayton Act

was, in the dissent’s words, “irrelevant” to the issue of

antitrust injury.

Cargill’s application of an antitrust injury requirement

to merger cases was entirely appropriate. Mergers and

acquisitions play a critical role in disciplining corporate

managers and eliminating inefficiencies. When a _ pro-

posed merger or acquisition appears most likely to fulfil!l

these salutary functions, less efficient competitors are

prone to protect the status quo by invoking section 16. As

Professor Areeda has noted, section 16 suits offer a par-

ticularly potent device for the discomfited competitor be-

cause a “preliminary injunction may be obtained fairly

easily . . . and delay may effectively kill a transaction

where the parties’ financial agreement depends critically

on current market conditions, or where they find the

delay, uncertainty, or expense of litigation unduly burden-

some.” ° The Court’s Cargill decision ensures that com-

petitors cannot misuse section 16’s equitable remedies to

disrupt mergers that present no credible threat of anti-

competitive harm.

®6®P, Areeda & H. Hovenkamp, Avztitrust Law © 334.2b (Supp.

1988).

Cargill’s imposition of an antitrust injury require-

ment in the context of section 16 was also sensibie be-

cause the risks of underenforeement of the antitrust laws

in this eontext are so slight. Under the Hart-Scott-Rodino

Act, all major mergers ard acquisitions are reviewed by

the federal government, as was the Lipton-Celestial trans-

action. Section 16 plaintiffs serve only to backstop the

federal agencies with primary enforcement authority.

Because the temptation for misuse in this context is so

great, the Cargill antitrust injury requirement for com-

petitor actions under section 16 is sound public policy.

The costs of imposing this requirement are not high.

Competitors that cannot establish antitrust injury in

section 16 suits are not permanently precluded from

obtaining relief under the antitrust laws. If, after a

merger or acquisition is consummated, the resulting firm

does indeed violate the antitrust laws—whether through

predatory pricing or some other form of anticompetitive

misconduct—injured competitors can seek treble damages

and other appropriate remedies under section 4 of the

Clayton Act. Carqill merely stands for the proposition

that competitors cannot obtain prospective relief under

the antitrust laws unless they can establish in advance

that the mergver or acquisition will cause them antitrust

injury.

1. The Second Circuit’s approach to antitrust injury

in this case is wholly inconsistent with the Cargill deci-

sion. Here, respondent had alleged predatory intent and

a host of post-merever anticompetitive practices that. if

proven, would have satisfied the Cargq7// antitrust injury

requirement. The District Court, however, rejected each

of these allegations on the grounds that Bigelow had

failed to produce evidence supporting any of its claims.’

7In particular, the District Court found plaintiff had “failed

to raise a genuine issue of material fact regarding Lipton’s intent

in acquiring Celestial,” 689 F. Supp. at 80, p. 26a, below; “failed

to submit any evidence whatsoever in support of” its allegation of

Absent any evidence of injury of the sort that the anti-

trust laws were intended to prohibit, the District Court

ruled, plaintiff Bigelow lacked standing to challenge the

proposed merger.

The Court of Appeals did not dispute the District

Court’s finding that respondent had failed to prove any

of its allegations of predatory practices; nevertheless it

ruled that plaintiff had demonstrated antitrust injury

because defendants’ post-acquisition market share of more

than eighty percent creates “prima facie evidence of

monopoly power” and therefore “raises a presumption of

illegality and of antitrust injury to competitors of the

alleged monopolist.” 867 F.2d at 108, pp. 12a-13a, below.

The Court held that “unless defendants meet their burden

of rebutting this presumption, the merger must be en-

joined.” Jd.

The Second Circuit’s presumption of antitrust injury

eviscerates this Court’s ruling in Cargill. The central

holding of Cargill (and Brunswick Corp. v. Pueblo Bow!l-

O-Mat, Inc., 429 U.S. 519 (1983)) is that competitors

must establish a likelihood of specific antitrust injury

in order to gain standing to enforce the antitrust laws.

Contrary to section 16 and Cargill, the Second Circuit

waives this requirement by permitting plaintiffs to pre-

sume such an injury merely by alleging a high post-

merger “market” share.”

predatory pricing, 689 F. Supp. at 80, p. 27a, below; had failed

to produce evidence that defendants had intended to use promo-

tional schemes in an illegal manner or to deny Bigelow access to

shelf space, 689 F,. Supp. at 81, p. 29a, below; had “submitted no

evidence that Lipton will attempt to interfere improperly with

Bigelow’s distributors,” id.; and “lackfed] factual support in the

record” for its allegations that Lipton would exercise improper con-

trol over the raw herb market,” 689 F. Supp. at 82, p. 30a, below.

8 The Second Circuit’s presumption is also inconsistent with this

Court's recent efforts to limit the use of inferences and presump-

tions in the antitrust field. See, e.g.. Matsushita Elec. Indus. V.

Zenith Radio Corp., 475 U.S. 574, 595-98 (1986); Monsanto Co. V.

Spray-Rite Serv. Corp., 465 U.S. 752, 763-64 (1984).

Indeed, the antitrust injury presumption accepted by

the Second Circuit is virtually identical to the approach

that a minority of this Court unsuccessfully advanced

in Cargill. As the Cargill dissent itself acknowledged,

the Cargill majority ruled that, to stay in court, a com-

petitor would have to establish something more than that

a proposed merger appeared likely to affect competition.

Here, the Second Circuit has simply presumed the “some-

thing more” from the probable impact of the merger.

The Second Cireuit’s decision opens up the possibility

of precisely the sort of manipulation of the antitrust laws

that Cargill was intended to foreclose.” Under the inter-

pretation of section 16 adopted by the Court of Appeals,

a competitor may seek to enjoin any merger that results

in a hich market share in any alleged “market,” perhaps

a “market” specially crafted for the proceeding. At the

critical TRO and preliminary injunction stages of litiga-

tion, defendants would be forced to rebut a presumption

of antitrust injury. In the meantime, many economically

desirable acquisitions may be delayed or terminated."

° Cf. Tasty Baking Co. Vv. Ralston Purina, Inc., 653 F. Supp. 1250,

1272-74 (E.D. Pa. 1987) (finding antitrust injury only after ascer-

taining that there was direct evidence of predatory intent on the

part of the defendants).

10 The Second Circuit also failed to consider whether it was

sensible to presume that a merged company with a high market

share would engage in the sort of predatory pricing that might

give rise to antitrust injury. As a matter of simple economics,

predatory pricing—that is, pricing below cost is rational cor-

porate behavior only if the pricer can recoup its losses through

subsequent supra-competitive pricing. The greater the pricer’s

market share, however, the larger its predatory pricing losses will

be and the more difficult it will be for the pricer to recoup its

losses in the future.

Moreover, when a company competes in a market where there

are no barriers to entry, supra-competitive pricing is not possible

because the new entrants quickly return prices to competitive

The Second Circuit wholly failed to consider the sound

policies underlying this Court’s decision in Cargill and

the unfortunate implications of opening the doors to sec-

tion 16 suits when there is no direct evidence of antitrust

injury. The Second Circuit’s ruling is flatly inconsistent

with Cargill and therefore cannot be allowed to stand.”

2. The Second Circuit’s ruling has also precipitated a

direct conflict with the Fifth Circuit’s decision in Phototror

Corp. V. tastman Kodak Co,.'* In that case, Photo:

levels, See Matsushita Elec. Indus. v. Zenith Radio Corp., 475 U.S.

574, 589 (1986). Here Bigelow’s president testified in a deposition

that he expected no predatory pricing post-merger. There was also

uncontroverted economic evidence that barriers to entry in herbal

tea are nonexistent. 689 F. Supp. at 81 n.5, p. 29a n.5, below. Any

attempt by Lipton to charge supra-competitive prices post-merger

would thus quickly bring into the market new or returning competi-

tors, promptly driving prices down to competitive levels.

11 This case is not the only instance in which the Second Circuit

has failed to follow this Court’s ruling in Cargill. In Consolidated

Gold Fields PLC Vv. Minorco, S.A., 871 F.2d 252 (2d Cir. 1989), a

divided panel from that Circuit just three months ago ruled that a

target corporation could invoke section 16 to enjoin a hostile tender

offer. As the dissenting member of the panel noted, the majority’s

holding was in direct conflict with other post-Cargill decisions in

this area: All other federal courts to rule on this issue have

concluded that, after Cargill, targets lack standing to seek relic’

under section 16. Z/d., slip op. at 3-4 (Altimari, J., concurring in

part and dissenting in part); see Burnup & Sims, Ine. v. Posner,

688 F. Supp. 1582, 1534-35 (S.D. Fla. 1988); Burlington Indus Vv.

Edelman, 666 F. Supp. 799, 803-06 (M.D.N.C. 1987). The Second

Circuit’s Consolidated Gold Fields decision is also in conflict with

the weight of scholarly commentary. See, e.g., P. Areeda & H.

Hovenkamp, Antitrust Law © 340.2i, at 369 (Supp. 1988) (“It is

difficult to see how a tender offer target can suffer antitrust in-

jury.”); Easterbrook & Fischel, Antitrust Suits by Targets of

Tender Offers, 80 Mich. L. Rev. 1155 (1982). The Consolidated

Gold Ficlds decision, like the decision of the Court of Appeals in

this case, reveals that the Second Circuit has broken with the

Supreme Court and the rest of the federal judiciary in its inter-

pretation of section 16.

12842 F.2d 95 (Sth Cir.), cert. denied, 108 S. Ct. 1996 (1988).

tron sought to enjoin under section 16 the merger of

Kodak and Coloreraft, its two largest competitors in the

wholesale film processing industry. The post-merger

market share of Kodak-Colorcraft was projected to be be-

tween 66 and 85 percent,'® roughly equivalent to the

Lipton-Celestial share of the herbal tea market after the

merger at issue in this case. The plaintiff in Phototron

claimed that it had satisfied the Cargi/! requirement for

antitrust injury because “the competitor of a monopolist

always has standing to challenge the monopolistic con-

duct forcing it from the market.” 842 F.2d at 100.

The Fifth Circuit rejected this argument, explaining

that “[{iln Cargill, the Court required that the plaintiff

not simply be a competitor of an alleged monopolist;

rather, the plaintiff must show antitrust injury.” Jd.

The court specifically dismissed Phototron’s contention

that “the merits of the Kodak-Coloreraft merger are an

important consideration in determining standing.” Jd.

The court concluded, “|T]he notion that merely facing

the specter of a monopoly is enough to create standing

in a competitor is not the law.” Jd."

The Second Circuit in this case was candid in admit-

ting its disagreement with the Fifth Circuit’s Phototron

decision: “To the extent that Phototron requires proof

of antitrust injury on an application for a preliminary

injunction, we decline to follow its reasoning.” 867 F.2d_

at 109, p. 15a, below. As a result of this split, plaintiffs

in the Second Circuit now have standing to enjoin under

section 16 any merger of competitors that creates a sub-

18687 F. Supp. 1061, 1065 (N.D. Tex. 1988).

14The Fifth Circuit’s decision in Phototron was in accord with

a number of other Circuits that have declined to presume antitrust

injury to competitors from substantive violations of the antitrust

laws. See, e.g., Indiana Grocery, Inc. Vv. Super Valu Stores, Ine.,

864 F.2d 1409, 1419 (7th Cir. 1989); Alberta Gas Chemicals, Ltd.

v. E.l. Du Pont de Nemours & Co., 826 F.2d 1235, 1241-43 (3d Cir.

1987), cert. denied, 108 S, Ct. 28380 (1988).

stantial market share. In the Fifth Circuit and else-

where around the country,’ plaintiffs are not entitled to

this presumption of antitrust injury and must present

actual proof of predatory or other illegal activities in

order to have standing to seek injunctive relief.

As this Court has recognized in other contexts, mergers

and acquisitions play an essential role in our national

economy. Laws affecting these transactions, such as sec-

tion 16 of the Clayton Act, must be applied throughout

the country in a uniform manner. The split between the

Second and Fifth Circuits in this case has created a ma-

jor difference in the regulation of mergers, and this

Court should promptly resolve this difference by deciding

which Circuit has adopted the appropriate test.

3. While the proposed merger of Lipton and Celestial

was stayed pending appeal to the Second Circuit, Kraft

chose to cancel the transaction and to dispose of its

ownership interest in Celestial through a management-

led buyout.’® Prior to issuing its decision in this case,

the Second Circuit was advised that the proposed acquisi-

tion was no longer pending. At the time Lipton and

Kraft argued to the Second Circuit that this intervening

event had rendered the case moot. The Second Circuit

rejected this argument on the grounds that the event con-

stituted “voluntary cessation” on the part of defendants

and that the court was not satisfied “that the in-house

buyout of Celestial is the sort of arms-length transfer

that removes the alleged threat of combination facing

Bigelow.” 867 F.2d at 106, p. 9a, below; see Gwaltney

15 See, e.g., Treasurer, Inc. V. Philadelphia Nat'l Bank, 682

F. Supp. 269 (D.N.J.), aff'd mem., 853 F.2d 921 (3d Cir. 1988) ;

Tasty Baking Co. v. Ralston Purina, Inc., 653 F. Supp. 1250 (E.D.

Pa. 1987).

16 On September 12, 1988, Kraft signed an asset purchase agree-

ment with C.S. Herb Holdings, Inc., a corporation formed to assume

ownership of Celestial on behalf of the Celestial management, and

the transfer was consummated on November 1, 1988.

of Smithfield v. Chesapeake Bay Found., Inc., 484 U.S.

49 (1987); United States v. W.T. Grant Co., 345 U.S.

629 (1953). Because “[nlowhere in the record...

ha[d] Lipton disavowed any future intention to acquire

Celestial,” the Court of Appeals reasoned that the case

remained justiciable. 867 F.2d at 106, p. 9a, below.”

In this petition, Lipton and Kraft do not challenge the

Second Circuit’s ruling on the mootness issue and limit

their request for review to the ruling of the Court of Ap-

peals on the merits.’* If, however, the Court concludes

that the case has become moot, petitioners respectfully

request that the Second Circuit’s decision be vacated and

the District Court’s order granting petitioners’ motion

for summary judgment be reinstated.

17 Following remand from the Second Circuit, the District Court

has permitted Bigelow to take discovery solely limited to the moot-

ness issue.

18 The issuance of the Second Circuit’s decision has, in fact,

enhanced the justiciability of the case. In light of the Second

Circuit’s ruling, Bigelow has stated that it will be claiming injunc-

tive relief and “the costs and attorneys’ fees to which it is entitled

as the party that has ‘substantially prevailed.’” Bigelow May 1,

1989, Status Report, at 1, 4. As the Supreme Court noted in

Local No. 82 v. Crowley, 467 U.S. 526, 536 n.11 (1984), collateral

matters, such as pending claims for attorneys’ fees, preserve the

justiciability of cases on review in the Supreme Court. See also

Powell v. McCormack, 395 U.S. 486 (1969) (collateral claim for

monetary damages will preserve justiciability of appeal from denial

of injunctive relief that is no longer needed); Carafas v. LaVallee,

391 U.S. 234 (1968) (habeas corpus petition challenging incarcera-

tion remains justiciable even after petitioner is released because of

collateral consequences of a criminal conviction). But see Friends

of Keeseville, Inc. V. FERC, 859 F.2d 230, 233 n.7 (D.C. Cir. 1988)

(“A request for attorneys’ fees does not preserve a case which is

otherwise moot.’’).

CONCLUSION

For the foregoing reasons, the petition for writ of cer-

tiorari should be granted and the Court should resolve

the split among the circuits on this issue. In the alterna-

tive, because the decision of the Court of Appeals is so

clearly inconsistent with this Court’s prior decisions, the

petition should be granted, the decision below should be

summarily vacated, and the case should be remanded for

disposition consistent with this Court’s ruling in Cargill.

Respectfully submitted,

RICHARD J. WERTHEIMER *

HOWELL E. JACKSON

JAMES R. JACKSON, JR.

ARNOLD & PORTER

1200 New Hampshire Avenue, N.W.

Washington, D.C. 20036

(202) 872-6824

Attorneys for Petitioner Lipton

TEFFT W. SMITH

DANIEL F. ATTRIDGE

KIRKLAND & ELLIS

200 East Randolph Drive

Chicago, Illinois 60601

(312) 861-2212

* Counsel of Record Attorneys for Petitioner Kraft

June 5, 1989

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 1517—August Term, 1987

(Argued: July 21, 1988 Decided: January 17, 1989)

Docket No. 88-7505

R.C. BIGELOW, INC.,

Plaintiff-A ppellant,

UNILEVER N.V., THOMAS J. LIPTON, INC.,

CELESTIAL SEASONINGS, INC., and KRAFT, INC.,

Defendants-A ppellees.

Before:

LUMBARD and ALTIMARI, Circuit Judges, and DEARIE,

District Judge.*

Appeal from a judgment of the United States District

Court for the District of Connecticut (Jose A. Cabranes,

Judge), granting defendants-appellees’ motion for sum-

mary judgment on plaintiff-appellant’s challenge to a pro-

posed merger under section 7 of the Clayton Act, and

* The Honorable Raymond J. Dearie, United States District

Court for the Eastern District of New York, sitting by designa-

tion.

thereby dismissing pluintiff-appellant’s claim for prelim-

inary injunctive relief under section 16 of the Clayton

Act.

Reversed and remanded.

————<——— ——_———

PAUL WINDELS, JR., New York, New York (Anthony

A. Dean, Clayton A. Prugh, Windels, Marx, Davies &

Ives, New York, New York, Colin E. Gunn, Westport,

Connecticut, of counsel), for Plaintiff-Appellant.

RICHARD J. WERTHEIMER, Washington, D.C. (Kenneth

V. Handal, Arnold & Porter, Washington, D.C., Tefft W.

Smith, Daniel F. Attridge, Kirkland & Ellis, Chicago,

Illinois, of counsel), for Defendants-Appellees.

ALTIMARI, Circuit Judqe:

Plaintiff-appellant R.C. Bigelow, Inc. appeals from a

judgment of the United States District Court for the Dis-

trict of Connecticut (Cabranes, J.), 689 F. Supp. 76

(1988), granting defendants-appellees’ motion for sum-

mary judgment for failure to raise a genuine issue of

material fact sufficient to establish standing to chalienge

proposed merger under sections 7 and 16 of the Clayton

Act, 15 U.S.C. $18, 26. The question presented in the

district court and on this appeal is whether, in order to

survive a motion for summary judgment, plaintiff dem-

onstrated a sufficient factual basis indicating a substan-

tial likelihood that the proposed merger of defendant-

appellee Celestial Seasonings, Inc. by defendant-appellee

Thomas J. Lipton, Inc. would threaten plaintiff with

“antitrust injury” as required by Cargill, Inc. v. Monfort

of Colorado, Inc., 479 U.S. 104 (1986) and Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).

Because we find that there is a genuine issue of material

fact regarding the threat of “antitrust injury” to plain-

tiff, we reverse.

BACKGROUND

On December 8, 1987, Thomas J. Lipton, Ine. (‘“Lip-

ton’), a wholly-owned subsidiary of Unilever N.V., an-

nounced that it had agreed to purchase Celestial Season-

ings, Ine. (‘Celestial’) from Kraft, Inc. In 1984, Celes-—

tial was sold by its founder to Kraft, a diversified con-

sumer food products company. Celestial is the largest

United States producer, with approximately 52% of the

market, of “herbal teas,” a special blend of caffeine-free

ingredients. These ‘‘teas” actually are not derived from

the “tea plant,” which is the source of what is better

known simply as “tea,” or “black tea,” but contain such

herbs and natural ingredients as peppermint, spearmint,

hibiscus flowers, camomile, orange peel, lemon rind, black-

berry leaves, licorice roots, rosehips, and lemon verbena.

Although herbal teas are ancient in origin, they have only

within the last decade or so become widely available in

supermarkets and grocery stores across the country to

those who desire caffeine-free hot beverages. Herbal teas

account for some $90 million in annual sales and repre-

sent over 90% of Celestial’s current sales.

Lipton is a competitor of Celestial in the national mar-

ket for herbal teas. It controls the second largest herbal

tea market share at 32% while at the same time being

the largest seller of black tea in the United States. In

the early 1980s, Lipton entered the herbal tea market

and for a brief time was the market leader; but since

1985 its market share has been dwindling. Lipton’s par-

ent, Unilever N.V., a Netherlands corporation, is one of

the world’s largest distributors of grocery products with

worldwide sales in excess of $30 billion and, as a result,

has gained substantial access to the all-important shelf

space of supermarkets across the country.

The third largest producer of herbal teas is plaintiff-

appellant R.C. Bigelow, Ine. (“Bigelow”). Bigelow is a

family-owned corporation founded in 1945 by Ruth C.

Bigelow in her kitchen in Manhattan. Today her son,

company president and chief executive officer David C.

Bigelow, his wife and their two daughters run the fam-

ily business employing about 260 people from the com-

pany’s headquarters in Norwalk, Connecticut. The com-

pany started out by making flavored black teas such as

“Constant Comment,” a tea blend with orange peel and

spices. Then in 1979, Bigelow entered the herbal tea mar-

ket and now has garnered a market share of 13%, ac-

counting for approximately one-third of the company’s

sales. With an initial investment of under $100,000,

Bigelow’s herbal tea sales have increased to about $10

million annually.

Within a week following Lipton’s announcement that

it planned to acquire Celestial, Lipton allegedly ap-

proached Bigelow expressing an interest in negotiating

the purchase of plaintiff, the only remaining competitor

in the herbal tea market with a significant market share.

Bigelow did not respond to Lipton’s offer. Meanwhile, in

accordance with the premerger notification requirements

of 15 U.S.C. § 18a, Lipton informed the Department of

Justice and the Federal Trade Commission (“FTC”) of

the proposed merger involving Celestial. The FTC con-

ducted a full review of the transaction over a period of

six months, and Bigelow by all accounts was an active

complainant in objecting to consummation of the impend-

ing deal.

When it became clear to Bigelow that the FTC would

take no action challenging the acquisition, Bigelow filed

an action in the district court seeking, inter alia, a tempo-

rary restraining order and preliminary injunction under

section 16 of the Clayton Act, 15 U.S.C. § 26, to prevent

the proposed merger from going forward. On May 31,

1988, the district court temporarily enjoined the merger

pending a hearing on defendants’ motion for summary

judgment set for June 10, 1988. At that hearing, defen-

dants informed the court that the &TC apparently had

decided against challenging the merger since it let the

final time extension of the statutorily required waiting

period lapse without taking any enforcement action. See

15 U.S.C. $18a(e). The parties also represented that

discovery had been completed and that, if necessary, they

were ready to proceed with a trial on the merits for per-

manent injunctive relief.

In considering Bigelow’s claim that the proposed com-

bination of the country’s two largest producers of herbal

tea would substantially lessen competition and tend to

create a monopoly, the district court was asked to decide

as a matter of law whether a competitor, who faces the

prospect of competing against an alleged monopolist con-

trolling 84% of the relevant market, has sufficiently dem-

onstrated a threat of “antitrust injury” to establish

standing under section 16 of the Clayton Act. See Car-

gill, 479 U.S. at 113: Brunswick, 429 U.S. at 489. The

district court held that Bigelow failed to raise a genuine

issue of material fact with respect to whether it was

threatened with antitrust injury. While the court indi-

cated that a post-acquisition market share of 84% was

“more than sufficient to establish a prima facie showing

of ‘monopoly power,’” 689 F. Supp. at 79; see United

States v. Waste Management, Inc., 743 F.2d 976, 981

(2d Cir. 1984), it concluded that “the mere fact that

Lipton will possess monopoly power after the proposed

acquisition is not a sufficient showing that Lipton will

exercise that power in a way that will cause injury to

Bigelow.” 689 F. Supp. at 79: see Berkey Photo, Inc. v.

Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir. 1979)

(“mere possession of monopoly power does not ipso facto

condemn a market pavticipant”), cert. denied, 444 U.S.

1093 (1980). Relying on the Fifth Circuit’s observation

in Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95

(5th Cir.), cert. denied, 108 S. Ct. 1996 (1988), that the

Supreme Court’s decision in Cargill “has imposed signifi-

eant barriers to competitor attempts to enjoin merger

transactions,” id. at 102, the district court found plain-

tiff’s allegations of the threat of injury resulting from

anticompetitive or predatory activity to be merely spec-

ulative. In the court’s judgment, absent some evidence

of past instances of predatory pricing or present intent

to engage in predatory behavior following the merger,

plaintiff’s claim for injunctive relief under section 16 of

the Clayton Act must fail. Accordingly, the district court

granted defendants’ motion for summary judgment.

Following the entry of judgment in favor of defend-

ants, plaintiff immediately filed a notice of appeal and

requested a stay pending appeal from the district court.

The court denied the stay pending appeal but preserved

the status quo until this court could rule on Bigelow’s

motion for a stay. On June 21, 1988, this court heard

argument on plaintiff’s motion and ordered from the

bench that a stay be granted during the pendency of this

appeal. We heard oral argument on the merits of Bige-

low’s appeal on July 21, 1988.

Subsequent to oral argument, on September 12, 1988,

the court was informed by counsel for defendants that

Kraft had elected to cancel the proposed sale to Lipton of

Celestial pursuant to the terms of a purchase agreement

between Kraft and Lipton. Defendants thereupon moved

to dismiss the appeal as moot since “|t|he transaction at

issue—the acquisition by Lipton of Celestial Seasonings

from Kraft—has been abandoned by Kraft [who] has

sold Celestial Seasonings to another group not presently

in the tea or herb/al] tea business.”’ The moving papers

indicated that on September 12, 1988, Kraft entered into

an agreement with an investment unit of Vestar Capital

Partners, Inc. (“Vestar’’), a firm specializing in lever-

aged buyouts, for a management-led buyout of Celestial.

—

On October 3, 1988, after consideration of the motion

to dismiss the appeal and supporting and opposition

papers filed together therewith, we granted the motion

subject to agreement by the parties to reasonable condi-

tions terminating the appeal. After the parties were un-

able to agree to reasonable conditions, we denied defend-

ants’ motion to dismiss the appeal as moot on November

1, 1988. At that time, we indicated that in our judgment

the case was not moot given the uncertainty of cessation

of the alleged anticompetitive activity against Bigelow.

Thereafter, defendants moved for reconsideration of the

denial of their previous motion to dismiss the appeal on

the ground that the management-led buyout of Celestial

closed on November 1, 1988. On November 22, 1988, we

denied the motion for reconsideration.

DISCUSSION

I. Mootness.

A basic tenet of federal jurisdiction is that when a court

is presented with issues that “are no longer ‘live’” or

when the parties “lack a cognizable interest in the out-

come,” the case is moot and therefore outside the court’s

jurisdictional authority. Powell v. McCormack, 395 U.S.

486, 496 (1969) ; accord Murphy v. Hunt, 455 U.S. 478,

481 (1982) (per curiam); see U.S. Const. Art. III, § 2

(limiting judicial power to actual cases and controver-

sies). The case must be “live” at every stage of the pro-

ceeding, including the appeal. See United States v. Muns-

ingwear, 340 U.S. 36, 39 (1950). A recognized exception

to the general rule of mootness is in cases that are “ca-

pable of repetition, yet evading review.” Southern Pacific

Terminal Co. v. ICC, 219 U.S. 498, 515 (1911). The

“capable of repetition, yet evading review” doctrine, as

applied in cases other than class actions, is limited, how-

ever, to situations in which there is a “reasonable expecta-

tion” or “demonstrated probability” the: the same contro-

versy will recur involving the same complaining party.

Weinstein v. Bradford, 423 U.S. 147, 149 (1975) (per

curiam); accord Murphy, 455 U.S. at 482; Jefferson v.

Abrams, 747 F.2d 94, 96-97 (2d Cir. 1984). Nevertheless,

it is also well settled that “‘voluntary cessation of allegedly

illegal conduct .. . does not make [a] case moot.” United

States v. W.T. Grant Co., 345 U.S. 629, 682 (1953). In

such circumstances, there may very well remain a contro-

versy to be settled since a defendant “is free to return to

his old ways.” Id. While the case may still be moot if the

defendant can demonstrate that there is no “reasonable

expectation” the same controversy will recur, id. at 633;

see United States v. Aluminum Co. of America, 148 F.2d

416, 448 (1945) (L. Hand, J.), the defendant’s burden in

this regard “is a heavy one.” 845 U.S. at 633.

In the instant case, defendants contend that the Lipton/

Celestial transaction has been abandoned, and they repre-

sent that Lipton is not contemplating any new effort to

acquire Celestial. Kraft maintains that neither Lipton nor

Unilever invested in or participated in any way in the

management-led buyout of Celestial. Bigelow responds by

arguing that the claimed abandonment of the Celestial

acquisition was a unilateral action taken for the deliberate

purpose of evading a possible adverse decision by this

court. According to Bigelow, there is a “reasonable expec-

tation” that the alleged violations of the antitrust laws

will recur and in no sense has the Lipton/Celestial trans-

action been irrevocably abandoned. In view of the fact

that defendants have not disclosed who the ultimate real

parties in interest to the “new” Celestial might be and

the fact that the apparent discontinuance of the challenged

activity is the result of the intervention of a third party,

i.e., Vestar, plaintiff takes the position that there is more

than a “mere” or “abstract” possibility that Lipton will

again seek to acquire Celestial. Cf. First Nat’l Bank of

Boston v. Bellotti, 435 U.S. 765, 774-75 (1978); Wein-

stein, 423 U.S. at 149; W.7. Grant Co., 345 U.S. at 633:

Trane Co. v. O’Connor Securities, 718 F.2d 26, 27 (2d

Cir. 1983). We agree.

—— —

Defendants have not satisfied us that the in-house buy-

out of Celestial is the sort of arms-length transfer that

removes the alleged threat of combination facing Bigelow.

While defendants assert that Bigelow’s fears of a re-

vival of the Lipton/Celestial transaction is “wholly hypo-

thetical’ and that neither Celestial nor Lipton is presently

contemplating any such transaction, we note that a dis-

claimer of intention to revive allegedly unlawful conduct

does not suffice by itself to meet defendants’ heavy burden

in order to render the case moot. See W.T. Grant Co., 345

U.S. at 633. Lipton states only that it has not “[made]

any investment in or... participate[d] in any other way

in the management-led buy-out of Celestial Seasonings.”

Nowhere in the record, however, has Lipton disavowed

any future intention to acquire Celestial. Moreover, the

Supreme Court recently has emphasized that a defendant’s

heavy burden is not met unless it is “ ‘absolutely clear that

the allegedly wrongful behavior could not reasonably be

expected to recur.’” Gwaltney of Smithfield v. Chesa-

peake Bay Found., Inc., 108 8. Ct. 376, 386 (1987) (quot-

ing United States v. Phosphate Export Ass’n, Inc., 393

U.S. 199, 203 (1968)) (emphasis in Gwaltney). When

abandonment of challenged conduct seems timed to head

off an adverse determination on the merits—particularly

when supported by narrowly drawn affidavits containing

disclaimers of present intention to resume allegedly un-

lawful activity—it cannot be said that the possibility of

repetition of such activity is merely abstractly conceivable.

See W.T. Grant Co., 345 U.S. at 632-33 n.5; Trane, 718

F.2d at 27; see also Upjohn Co. v. American Home Prod-

ucts Corp., 598 F. Supp. 550, 555 (S.D.N.Y. 1984) (nar-

rowly drawn affidavits claiming abandonment of allegedly

wrongful conduct are insufficient to meet defendant’s

heavy burden); McNeilab, Inc. v. American Home Prod-

ucts Corp., 501 F. Supp. 517, 523 (S.D.N.Y. 1980)

(same); Fuchs v. Swanton Corp., 482 F. Supp. 83, 90

(S.D.N.Y. 1979) (same). Accordingly, because we believe

there is more than a “mere possibility” that Celestial may

10a

be acquired by Lipton or Unilever and because of the

significant public interest involved in having the legality

of practices challenged in this case finally settled, see W.T.

Grant Co., 345 U.S. at 632, we conclude that the case is

not moot and therefore proceed to a consideration of the

question of standing.

II. Standing.

The issue to be resolved on this appeal is a narrow one:

on a motion for summary judgment, does a competitor

have standing under the Clayton Act to enjoin the pro-

posed merger of the two largest producers in the relevant

market whose post-acquisition market share is more than

sufficient to establish a prima facie showing of monopoly

power and a presumption of illegality? Defendants main-

tain that even-at this preliminary stage of the proceedings,

plaintiff has failed to raise a genuine issue of material

fact as to whether it is threatened with “antitrust in-

jury.” We disagree.

As the district court correctly recognized, to survive a

motion for summary judgment the party opposing the

motion must provide a factual basis for its allegations so

that when all reasonable inferences therefrom are drawn

in its favor, “‘ ‘the evidence is such that a reasonable jury

could return a verdict for the nonmoving party.’” 689 F.

Supp. at 78 (quoting Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 248 (1986)); see Murray v. NBC, Inc., 844 F.2d

988, 992 (2d Cir.), cert. denied, 109 S. Ct. 391 (1988) ;

Knight v. United States Fire Insurance Co., 804 F.2d 9,

11-12 (2d Cir. 1986), cert. denied, 480 U.S. 932 (1987).

Summary judgment is appropriate “against a party who

fails to make a showing sufficient to establish the existence

of an element essential to that party’s case.” Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). The threshold

issue in an antitrust case brought under section 16 of the

Clayton Act is whether the private plaintiff is “threatened

[with] loss or damage by a violation of the antitrust

laws,” 15 U.S.C, § 26, i.e., “threatened loss or damage ‘of

lla

the type the antitrust laws were designed to prevent and

that flows from that which makes defendants’ acts unlaw-

ful.’” Cargill, Inc. v. Monfort of Colorado, Inc., 479

U.S. 104, 113 (1986) (quoting Brunswick Corp. v. Pueblo

Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)). Simply

stated, in this case we therefore must determine whether

plaintiff has raised a genuine issue of material fact suffi-

cient to show a threat of antitrust injury as the result of

the proposed merger. See id.; Brunswick, 429 U.S. at 489;

see also Volvo North America Corp. v. Men’s Int’l Profes-

sional Tennis Council, 857 F.2d 55, 66 (2d Cir. 1988).

Section 7 of the Clayton Act provides in pertinent part

that

No person ... shall acquire . . . the assets of

another person ... where... the effect of such

acquisition may be substantially to lessen competi-

tion, or to tend to create a monopoly.

15 U.S.C. § 18 (emphasis added). Under section 16 of the

Clayton Act, a private plaintiff is entitled to sue for

injunctive relief “against threatened loss or damage’’ to

remedy a violation of section 7. Jd. § 26 (emphasis

added).

In evaluating plaintiff’s antitrust claims, the starting

point is Lipton’s post-acquisition market share. See

Brown Shoe Co. v. United States, 370 U.S. 294, 343

(1962) (“market share... is one of the most important

factors to be considered when determining the probable

effects of the combination on . . . competition in the rele-

vant market”). Whether a proposed merger would sub-

stantially lessen competition or tend to create a monopoly

is determined through findings, for example, “that the

relative size of the acquiring corporation ha[s] increased

to such a point that its advantage over competitors

threaten|s] to be ‘decisive.’” Jd. at 321 n.36 (quoting

H.R. Rep. No. 1191, 81st Cong., 1st Sess. 8 (1950) ).

Indeed,

12a

a merger which produces a firm controlling an undue

percentage share of the relevant market, and results

in a significant increase in the concentration of firms

in that market, is so inherently likely to lessen com-

petition substantially that it must be enjoined in the

absence of evidence clearly showing that the merger

is not likely to have such anticompetitive effects.

United States v. Philadelphia Nat'l Bank, 374 U.S. 321,

363 (1963) (emphasis added). While market share data

alone does not create an irrebutable presumption of ille-

gality, see Brown Shoe, 370 U.S. at 322 n.388 (market

share data must be considered “within an industry frame-

work... [;] [s]tatistics reflecting the shares of the mar-

ket controlled by . .. the parties to the merger” must be

further examined in light of the “structure, history and

probable future” of the particular market) ; accord United

States v. General Dynamics Corp., 415 U.S. 486, 498

(1974), such a presumption can be overcome only by evi-

dence that the market share data gives an “inaccurate

account of the acquisition[’s] probable effects on competi-

tion.” See United States v. Citizens & Southern Nat’l

Bank, 422 U.S. 86, 120 (1975); United States v. Waste

Management, Inc., 743 F.2d 976, 982 (2d Cir. 1984).

Thus, unless defendants meet their burden of rebutting

this presumtion, the merger must be enjoined.

The fact that a competitor of parties to a proposed mer-

ger is seeking to remedy the alleged anticompetitive con-

duct does not significantly alter the analysis. Although we

must be wary of competitors attempting to obtain anti-

trust standing based upon prospective loss or damage due

to competition for increased market share, cf. Cargill, 479

U.S. at 116 & 122, we have little doubt that antitrust in-

jury to a competitor can be found when the market share

of the merging firms threatens to be decisive. Conse-

quently, not only is the post-acquisition market share of

84% in this case prima facie evidence of monopoly power

as the district court found, 689 F. Supp. at 79, it also

raises a presumption of illegality and of antitrust injury

13a

to competitors of the alleged monopolist who are dam-

aged by the “ ‘type of loss that the claimed violations .. .

would be likely to cause.’” Bruns::'ck, 429 U.S. at 489

(quoting Zenith Radio Corp. v. Hazeltine Research, Inc.,

395 U.S. 100, 125 (1969) ).

Relying, as did the district court, on the Fifth Circuit’s

decision in Phototron Corp. v. Eastman Kodak Co., 842

F.2d 95 (5th Cir.), cert. denied, 108 S. Ct. 1996 (1988)

defendants nevertheless contend that “ ‘the notion that

merely facing the specter of a monopoly is enough to

create standing in a competitor is not the law.’” Ap-

pellees’ Brief at 30 (quoting 842 F.2d at 100). Phototron

involved tite proposed merger of the two largest photo-

finishers in the wholesale photoprocessing market. A

competitor of the merging companies challenged the

merger, seeking a preliminary injunction barring the

impending transaction. The district court determined,

solely for the purpose of deciding whether a preliminary

injunction should issue, that the resultant market share

would range anywhere from 66-85% in the wholesale

photofinishing national market and that plaintiff had

standing to challenge merger. 687 F. Supp. 1061, 1065-

66 & 1069 (N.D. Tex. 1988). After specifically finding

that Phototron had shown a substantial likelihood of

demonstrating antitrust injury regarding its claim un-

der section 7 of the Clayton Act, id. at 1070; but cf. 842

F.2d at 98-99 & n.3 (stating that district court failed

to consider likelihood of success on standing issue), the

district court granted a preliminary injunction. On ap-

peal, the Fifth Cireuit reversed on the authority of the

Supreme Court’s decision in Cargill. The Phototron court

held that the “facially sensible proposition” that a com-

petitor has standing to challenge a merger creating an

alleged monopolist has been “undermined by Cargill.”

842 F.2d at 100. We do not agree that this is neces-

sarily so.

In Cargill, the second largest beef packer in the rele-

vant market was attempting to merge with the third

l4a

largest competitor in that market. After the proposed

merger, the combined market share of the two companies

would have been only 20.4%, below the market share of

the industry leader whose share was 27.3% and who was

not a party to the action. Instead, the fifth-largest beef

packer brought an action under section 16 of the Clay-

ton Act to enjoin the prospective merger, and after a

full trial on the merits, the district court granted per-

manent injunctive relief. 591 F. Supp. 683 (D. Colo.

1983). The Tenth Circuit subsequertly affirmed. 761

F.2d 570 (10th Cir. 1985). In its consideration of plain-

tiff’s claim of antitrust injury, the Supreme Court con-

cluded that the record evidence “[did] not support a

finding of antitrust injury, but only of threatened loss

from increased competition.” 479 U.S. at 122: The

Court stated that

the antitrust laws do not require the courts to pro-

tect small businesses from the loss of profits due to

continued competition, but only against the loss of

profits from practices forbidden by the antitrust

laws. The kind of competition that [plaintiff] alleges

here, competition for increased market share, is not

activity forbidden by the antitrust laws.

Id. at 116. The Cargill Court went on to explain that

plaintiff had failed to allege anticompetitive conduct

harmful both to “competitors and competition,” id. at

118, and that the post-merger market share was insuffi-

cient in any event to support an inference of predatory

activity following the merger. 7d. at 119 n.15. Spe-

cifically, the Court expressed doubt that a claim of

predatory pricing, even had it been advanced by plain-

tiff, would have been supported by the record given the

lack of market power to engage in such a scheme. /d. Ac-

cordingly, the Supreme Court held that the district court’s

issuance of a permanent injunction was inappropriate

since plaintiff was unable to prove at trial a threat of

antitrust injury.

15a

As the district court in Phototron recognized,

[t]he linchpin of the Cargil’ Cezision is the require-

ment that a plaintiff seeking to permanently enjoin

an allegedly unlawful business combination must

allege and prove an actionable antitrust injury which

results from the proscribed combination.

687 F. Supp. at 1067 (emphasis in original). The Fifth

Circuit in reversing the judgment of the district court,

however, quoted Justice Stevens’ dissent in Cargill that

the Supreme Court will not grant relief if there is

merely “ ‘a significant probability that the merger will

adversely affect competition in the market in which the

plaintiff must compete.’” 842 F.2d at 100 (quoting 479

U.S. at 123 (Stevens, /., dissenting) ). While this may

or may not be the law as it relates to the granting of

permanent injunctive relief after a plenary trial on the

merits, certainly a demonstrated probability at the pre-

liminary injunction stage that a merger will adversely

affect competition in the relevant market is sufficient in

order to survive a motion for summary judgment. To the

extent that Phototron requires proof of antitrust injury

on an application for a preliminary injunction, we de-

cline to follow its reasoning.

There is no question, as recognized by the district court

in this case and by the Fifth Circuit in Phototron, that

Cargill indeed “has imposed significant barriers to com-

petitor attempts to enjoin merger transactions.” Photo-

tron, 842 F.2d at 102; see 689 F. Supp. at 82. If a

competitor is attempting to establish standing to challenge

a merger based solely upon a claim of threatened injury

from predatory pricing, it faces the formidable task of

convincing a court that the alleged antitrust injury is

something other than mere losses due to “vigorous com-

petition.” Cargill, 479 U.S. at 116; see Brown Shoe, 370

U.S. at 320 (antitrust laws were enacted for “the protec-

tion of competition, not competitors”) (emphasis in orig-

16a

inal). Because the weight of economic evidence indicates

that “predatory pricing schemes are rarely tried, and even

more rarely successful,” Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 589 (1986), and com-

mentary cited therein, allegations of injury from such

practices accordingly will be found -to occur, “only infre-

quently.” Cargill, 479 U.S. at 121. This is particularly

true when the post-acquisition market share is insufficient

to support an inference that predatory activity is likely

to occur. It is important to note, however, that although

the plaintiff in Cargill was unable to demonstrate a threat

of antitrust injury, the Court expressly rejected the posi-

tion of the United States, appearing in the case as amicus

curiae, that there be a per se rule denying a competitor

standing for “necessarily speculative’ claims of post-

acquisition predatory pricing. Jd. at 120-21. In so holding,

the Cargill Court explained that “[i]t would be novel

indeed for a court to deny standing to a party seeking an

injunction against threatened injury merely because such

injuries rarely occur.” Jd. at 121.

While the Supreme Court’s decision in Cargill, there-

fore, clearly has made competitor attempts to enjoin mer-

gers more difficult, it has not rendered such attempts

impossible. In our view, this case represents one of those

instances envisioned by Congress where a competitor has

standing under the Clayton Act “to arrest the creation of

... [a] monopol{y] in [its] incipiency and before con-

summation.” §S. Rep. No. 698, 63d Cong., 2d Sess. 1

(1914); accord 8. Rep. No. 1775, 81st Cong., 2d Sess.

4-5 (1950); Brown Shoe, 370 U.S. at 317; United States

v. EI. du Pont de Nemours & Co., 353 U.S. 586, 597

(1957); F. & M. Schaefer Corp. v. C. Schmidt & Sons,

Inc., 597 F.2d 814, 816 (2d Cir. 1979) (per curiam).

Nevertheless, we are mindful, as was the Fifth Circuit

in Phototron, that “[g]iven the onerous effects of granting

a preliminary injunction ..., more than mere pleading is

necessary to establish standing.” 842 F.2d at 98; see Buf-

17a

falo Forge Co. v. Ampco-Pittsburgh Corp., 638 F.2d 568,

569 (2d Cir. 1981); Missouri Portland Cement Co. v.

Cargill, Inc., 498 F.2d 851, 870 (2d Cir.), cert. denied, 419

U.S. 883 (1974). Even at the summary judgment stage,

“antitrust law limits the range of permissible inferences

[that may be drawn] from ambiguous evidence.” Mat-

sushita, 475 U.S. at 588 (emphasis added). In the in-

stant case, unlike in Cargill, however, there is nothing

ambiguous about the post-merger market share. See R.

Bork, The Antitrust Paradox 221 & 406 (1978) (anti-

trust law should strike at horizontal mergers “creating

very large market shares (thore [over 60 or 70%] that

leave fewer than three significant rivals in any mar-

ket)’’).

That is not to say that an 84% market share is a per se

violation of section 7 of the Clayton Act. Market share

data, like any economic evidence, must be evaluated with

care. See United States Dep’t of Justice 1984 Merger

Guidelines, 49 Fed. Reg. 26,823; see also Cargill, 479 U.S.

at 121 n.17; Matsushita, 475 U.S. at 593-94. As we previ-

ously have recognized, market share data that does not

accurately reflect probable market power may not be

relied upon to invalidate a merger. See United States v.

Waste Management, Inc., 743 F.2d 976, 984 (2d Cir.

1984). At a plenary hearing on an application for a per-

manent injunction, Lipton is free to argue, for example,

that the “hot beverage” market rather than the “herbal

tea” market is the relevant market. Lipton claims here

that there is “dispositive” economic evidence indicating

that Bigelow, Lipton, Celestial and a host of others ac-

tually compete in the hot beverage market. If that is the

case, Lipton’s alleged post-acquisition 84% market share

of herbal tea will indeed “dissolve[] into insignificance.”

Appellees’ Brief at 10 n.8. That, however, is a judgment

to be made by the district court following a full trial on

the merits after giving due consideration to market share

data, evidence of concerning Lipton’s capacity to absorb

18a

the market shares of rival competitors, barriers to entry

and other factors.

At this stage of the proceedings, defendants concede

for the purposes of disposition of their motion for sum-

mary judgment that the relevant market is “herbal tea.”

689 F. Supp. at 79 n.3; cf. Phototron, 687 F. Supp. at

1063 (indicating that parties disputed whether whole-

sale photofinishing or all sources of photofinishing was

relevant market for purposes of issuing preliminary in-

junction), rev’d, 842 F.2d at 97 (same). Market share

data—assuming that it is accurate and indicative of sub-

stantial market power to eliminate competition—consti-

tutes sufficient evidence, in and of itself, of antitrust

injury to a competitor to create a genuine issue for trial.

See Tasty Baking Co. v. Ralston Purina, Inc., 653 F.

Supp. 1250, 1265 (E.D. Pa. 1987) (‘“[n]othing else need

be shown to demonstrate that defendants’ acquisition im-

permissibly creates a probable anticompetitive effect’’) ;

id. at 1274 “[ajll the predatory intent needed in this

case is demonstrated . . . by the Clayton Act §7 pre-

sumptions . . . [because], if realized, [they] would con-

stitute antitrust injury”); see also P. Areeda & H.

Hovenkamp, Antitrust Law { 340.2g, at 365-66 (Supp.

1988); cf. Alberta Gas Chemicals Ltd. v. EI. du Pont de

Nemours & Co., 826 F.2d 1235, 1246 (3d Cir. 1987) (de

minimis foreclosure of competition in already heavily

concentrated industry does not establish violation of § 7

or resultant antitrust injury), cert. denied, 108 S. Ct.

2830 (1988). Bigelow therefore is entitled to the benefit

of all reasonable inferences that follow from the alleged

deliberate acquisition by merger of substantial monopoly

power in the herbal tea market and to a presumption that

following the merger Lipton would be likely to eliminate

competition in that market by, inter alia, reducing Bige-

low’s access to supermarket shelf space for its products.

19a

CONCLUSION

Accordingly, because we find that plaintiff has demon-

strated a substantial likelihood of sustaining “antitrust

injury,” the judgment of the district court granting de-

fendants’ motion for summary judgment is reversed, and

the case is remanded to the district court for further

proceedings consistent with this opinion.

Reversed and remanded.

20a

APPENDIX B

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

Civil Number B-88-299 (JAC)

R.C. BIGELOW, INC.

UNILEVER N.V., THOMAS J. LIPTON, INC.,

_CELESTIAL SEASONINGS, INC. and KRAFT, INC.

[Filed June 15, 1988]

Appearances:

PAUL WINDELS, JR.

ANTHONY A. DEAN

(Windels. Marx, Devies & Ives)

New York, NY

Counsel for Plaintiff

RICHARD ORR

(Tyler Cooper & Alcorn)

New Haven, CT

Counsel for Defendants Thomas J. Lipton, Inc.,

Celestial Seasonings, Inc. and Kraft, Ine.

RICHARD J. WERTHEIMER

(Arnold & Porter)

Washington, D.C.

Counsel for Defendant Thomas J. Lipton, Inc.

TEFFT W. SMITH

(Kirkland & Ellis)

Chicago, IL

Counsel for Defendants Celestial Seasonings,

Ine. and Kraft, Ine.

2la

RULING ON MOTION FOR SUMMARY JUDGMENT

JOSE A. CABRANES, District Judge:

Plaintiff R.C. Bigelow, Ine. (“Bigelow”), the nation’s

third largest producer of herbal tea, seeks to enjoin a

proposed merger of the two largest producers of herbal

tea in the country. The question presented is whether

Bigelow has made a sufficient showing of “antitrust in-

jury” to establish standing under section 16 of the Clay-

ton Act, 15 U.S.C. § 26.

Bigelow brings this action for injunctive relief against

Unilever N.V. (“Unilever”), Thomas J. Lipton, Ine.

(“Lipton”), Celestial Seasonings, Ine. (“Celestial”), and

Kraft, Inc. (“Kraft’’),' pursuant to section 16 of the

Clayton Act, 15 U.S.C. § 26. Bigelow alleges that the

proposed acquisition by Lipton of Celestial will substan-

tially lessen competition and create a monopoly in the

national market for herbal teas, thereby threatening Big-

elow with serious loss and damages. Defendants have

moved for summary judgment on the ground that plain-

tiff lacks standing to assert its claim for injunctive re-

lief.

‘Celestial is a subsidiary of Kraft, and Lipton is a subsidiary

of Unilever. Although Unilever has neither entered an appearance

in this case nor responded in any other manner, the parties are in

agreement that Unilever’s presence in this action is unnecessary

at this stage of the proceedings. See Certified Official Transcript

of Hearing of June 10, 1988 (filed June 13, 1988) (“Transcript”)

at 13-14.

2 Defendant originally filed a document entitled “Defendants’

Memorandum in Opposition to Plaintiff’s Request for a Temporary

Restraining Order.” At the hearing of May 31, 1988, the de-

fendants agreed that that memorandum was, in effect, a motion

to dismiss for failure to state a claim, and agreed to have the

court consider the documents as such. At the same time. the court

and the parties agreed on a schedule for expedited discovery prior

to a hearing on defendants’ motion and, if necessary, a hearing

on plaintiff’s motion for a preliminary injunction. Rule 12(b) of

the Federal Rules of Civil Procedure provides that if, on a motion

22a

On May 31, 1988, the court entered a temporary re-

straining order upon the consent of defendants Lipton,

Celestial and Kraft enjoining defendants from carrying

out the proposed transaction until either defendants’ dis-

positive motion is granted, or a trial on the merits now

scheduled for June 20, 1988 is concluded. A hearing on

the motion for summary judgment was held on June 10,

1988. At that hearing, the parties represented that, if

necessary, they were ready to proceed to a trial on the

merits, and that no new or additional discovery would

be necessary. See Certified Official Transcript of Hear-

ing of June 10, 1988 (filed June 138, 1988) (“Tran-

script’) at 61-63, 67-68. Accordingly, the motion for

summary judgment is ripe for decision.

In order to grant a motion for summary judgment, the

court must determine that there is no “genuine issue as

to any material fact” and that “the party is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(c).

A “material” fact is one whose resolution will affect the

ultimate determination of the case. See Anderson v. Lib-

erty Lobby, Inc., 106 S. Ct. 2505, 2510 (1986). A factual

dispute is “genuine” when “the evidence is such that a

reasonable jury could return a verdict for the nonmoving

party.” Id. The party opposing summary judgment must

provide a factual basis for its allegations and may not

rely on “mere speculation or conjecture as to the true

nature of the facts.” Knight v. United States Fire In-

surance Co., 804 F.2d 9, 12 (2d Cir. 1986), cert. denied,

107 8. Ct. 1570 (1987). In determining whether a mate-

rial issue of fact exists, the court must resolve all am-

to dismiss for failure to state a claim, “matters outside the pleading

are presented to and not excluded by the court, the motion shall be

treated as one for summary judgment.” At the hearing of June 10,

1988, the parties agreed that the court might treat the pending mo-

tion as one for summary judgment. See Transcript at 15.

23a

biguities and draw all inferences against the moving

party. See Anderson, 106 S. Ct. at 2509-11. Accordingly,

the court must determine whether plaintiff has raised a

genuine issue of material fact with respect to the thres-

hold standing issue of “antitrust injury.”

II,

Section 16 of the Clayton Act, 15 U.S.C. § 26, provides

injunctive relief for private parties “threatened [with]

loss or damage by a violation of the antitrust laws.” In

Cargill, Inc. v. Monfort of Colorado, Inc., 107 S. Ct. 484

(1986), the Supreme Court held that only a private plain-

tiff threatened with “antitrust injury” has standing to

sue under section 16. In other words, “a private plain-

tiff must allege threatened loss or damage ‘of the type the

antitrust laws were designed to prevent and that flows

from that which makes defendants’ acts unlawful.’” 107

S. Ct. at 491 (quoting Brunswick Corp. v. Pueblo Bowl-

O-Mat, Inc., 429 U.S. 477, 489 (1977)). Because the

antitrust laws “were enacted for ‘the protection of com-

petition, not competitors,” Brunswick, 429 U.S. at 488

(quoting Brown Shoe Co. v. United States, 370 U.S. 294,

320 (1962)) (emphasis in Brown), “only harm stem-

ming from a reduction in competition qualifies as injury

cognizable under the antitrust laws.” Adams v. Pan

American World Airways, Inc., 828 F.2d 24, 26 (D.C.

Cir. 1987), cert. denied, 108 S. Ct. 1225 (1988). Activity

which seeks to reduce competition is also referred to as

“anticompetitive” or “predatory.” See Aspen Skiing Co.

v. Aspen Highlands Skiing Corp., 105 8. Ct. 2847, 2857

(1985). In this case, therefore, the question is whether

the proposed acquisition of Celestial by Lipton poses a

threat of harm to Bigelow resulting from anticompetitive

or predatory activity.

It is undisputed that the acquisition of Celestial by

Lipton will result in Lipton’s control of at least 80%

24a

of the market in herbal teas.’ See Exhibit 9 to Affidavit

of Clayton A. Prugh (filed June 9, 1988) (“Prugh Affi-

davit”); Transcript at 20. A post-acquisition market

share of 80% is more than sufficient to establish a prima

facie showing of “monopoly power.” See United States v.

Waste Management, Inc., 743 £.2d 976, 981 (2d Cir.

1984). It is clear, however, that “[t]he mere possession

of monopoly power does not ipso facto condemn a market

participant.” Berkey Photo, Inc. v. Eastman Kodak Co.,

603 F.2d 262, 275 (2d Cir. 1979), cert. denied, 444 U.S.

1093 (1980);. see also Northeastern Telephone Co. v.

American Telephone & Telegraph Co., 651 F.2d 76, 84-

85 (2d Cir. 1981), cert. denied, 455 U.S. 948 (1982).

As the Court of Appeals for the Fifth Circuit recently

observed, “[i]n Cargill, the [Supreme] Court required

that the plaintiff not simply be a competitor of an alleged

monopolist; rather, the plaintiff must show antitrust in-

jury.” Phototron Corp. v. Eastman Kodak Co., 842 F.2d

95, 100 (5th Cir. 1988). Accordingly, the mere fact that

Lipton will possess monopoly power after the proposed

acquisition is not a sufficient showing that Lipton will

exercise that power in a way that will cause antitrust

injury to Bigelow. See also 3 P. Areeda & H. Hoven-

kamp, Antitrust Law § 710 (Supp. 1987) (“Mere mo-

nopoly pricing is not a violation of the Sherman Act.”).

It is arguable that a showing of monopoly power would

be sufficient if it were also shown that Lipton was acting

with predatory intent wl.en it sought to acquire Celestial.

See Aspen Skiing, 105 S. Ct. at 2857 & n.28. Bigelow

contends that Lipton intends to acquire Celestial in order

to secure monopoly power and thereafter drive plaintiff

out of the herbal tea market. In support of this con-

tention, Bigelow argues that Lipton has paid “a sub-

stantial premium over the realistic value of Celestial”

3 Defendants agreed to assume for the purposes of this argument

that the relevant market is “herbal tea” as opposed to “tea.” See

Transcript at 18.

25a

and is prepared to pay this premium as a means to

obtaining monopoly power. Memorandum of Law in

Support of Plaintiff’s Motion for a Preliminary Injunc-

tion (filed May 26, 1988) at 14. Bigelow has also sub-

mitted evidence showing that Lipton approached Bigelow

one week after the proposed acquisition was announced

expressing an interest to buy Bigelow. See Affidavit of

David C. Bigelow (filed May 30, 1988) (“Bigelow Af-

fidavit”) at {| 34. In plaintiff’s view, this evidence demon-

strates that Lipton was acting with predatory intent

when it sought to acquire Celestial.

There is nothing in the record, however, to indicate

why the proposed purchase price for Celestial ought to

be regarded as excessively high. More important, there

is nothing in the record to suggest that Lipton was will-

ing to pay a substantial premium in order to obtain

monopoly power. To the contrary, there is evidence show-

ing that Celestial was sold to Kraft four years earlier

at a price within reasonable range of the price now being

offered by Lipton. See Deposition of David W. Frost

(filed June 9, 1988) at 15. Indeed, the president of plain-

tiff, David C. Bigelow, has testified that he would be

willing to sell his own company (whose market share is

less than a third of Celestial’s) for a substantially

greater sum than Lipton is offering to pay for Celestial.

See Deposition of David C. Bigelow (filed June 10, 1988)

(“Bigelow Deposition”) at 253; Plaintiff’s Memorandum

of Law in Opposition to Def: -dants’ Motion to Dismiss

(filed June 9, 1988) (“Plaintiff’s Memorandum”) at 3.

Mr. Bigelow also observed, with reference to the high

value of his own company, that “franchises [sic] are very

valuable today. I don’t have to tell you. Franchises like

Bigelow, Lipton, and Celestial [are] strongly valuable.”

Id. Finally, the evidence in the record supports Lipton’s

position that the purchase price reflects in part Lipton’s

expected cost savings and efficiencies. See Exhibit 13 to

Prugh Affidavit; Attachment 3 to Affidavit of Andrew M.

26a

Rosenfield (filed June 19, 1988) at Exhibit 1. Without

some factual showing that Lipton’s purchase price re-

flects a payment for monopoly power, plaintiff’s allega-

tions of predatory intent remain speculative.

Plaintiff has also submitted several of Lipton’s internal

memoranda for the purpose of demonstrating Lipton’s

intent to “eliminate competition” in the herbal tea mar-

ket. See Exhibits 17, 18, 19, 20, 21, 23, 24 to Prugh

Affidavit. However, these memoranda indicate nothing

more than general competitive intent to “play hardball”

with the competition. Bigelow Deposition at 158. They

do not suggest that Lipton intended to “eliminate compe-

tition” by any means other than fair competition. To the

contrary, the evidence demonstrates that Lipton simply

intended to engage in “vigorous competition.” Cargill,

107 S. Ct. at 492. Without evidence that Lipton’s acqui-

sition of Celestial is an attempt “te exclude rivals on

some basis other than efficiency,” , Bigelow’s allegations

of predatory intent must fail. R. Bork, The Antitrust

Paradox 138 (1978).

Although plaintiff has failed to raise a genuine issue

of material fact regarding Lipton’s intent in acquiring

Celestial, plaintiff may nevertheless establish “antitrust

injury” if it can show that there is a substantial like-

lihood that Lipton will engage in predatory activity after

the acquisition. In this regard, Bigelow alleges several

predatory practices in which Lipton is likely to engage,

with resulting antitrust injury. These are: (a) preda-

tory pricing; (b) improper control over retail store shelf

space and promotional schemes; (c) improper control

over distributors to retail stores; and (d) improper

control over suppliers of raw herbs.

Predatory pricing has been authoritatively defined by

the Supreme Court as “pricing below an appropriate

_ ew do

27a

measure of cost for the purpose of eliminating competi-

tors in the short run and reducing competition in the long

run.” Cargill, 107 S. Ct. at 498. Our Court of Appeals,

in turn, has defined the appropriate measure of cost as

“prices below reasonably anticipated marginal cost.”

Northeastern Telephone, 651 F.2d at 84. The Supreme

Court has warned that “[c]laims of threatened injury

from predatory pricing must... be evaluated with care,”

Cargill, 107 S. Ct. at 495 n.17, since predatory pricing

schemes are infrequently attempted and their success is

“inherently uncertain.” Matsushita Electric Industrial

Co., Inc. v. Zenith Radio Corp., 106 S. Ct. 1348, 1357

(1986) .*

Althongh plaintiff alieges that Lipton will engage in

selective and temporary price reductions for at least

some brands to a level below cost, see Bigelow Affidavit

at 22, plaintiff has nevertheless failed to submit any

evidence whatsoever in support of this allegation. To the

contrary, Mr. Bigelow stated in his deposition that he

has °“‘no idea what prices will do” after the proposed

acquisition. Bigelow Deposition at 137. Upon being

asked “[w]hat specifically, if anything, do you believe

that Lipton will do in the marketplace for herb tea

upon the consummation of [the proposed acquisition],”

Mr. Bigelow responded, “If I were to answer that, I mean

it would just be pure speculation on my part... as to

what I would anticipate that they would do. I have no

idea how they are going to manage the two companies.”

Id. at 138. Plaintiff’s counsel concedes that plaintiff has

submitted no evidence of past instances of predatory

The Supreme Court has also noted that “the mechanism by

which a firm engages in predatory pricing—lowering prices—is the

same mechanism by which a firm stimulates competition; because

‘cutting prices in order to increase business often is the very

essence of competition ... mistaken inferences ... are especially

costly, because they chill the very conduct the antitrust laws are

designed to protect.’” Cargill, 107 S. Ct. at 495 nJ7 (quoting

Matsushita, 106'S. Ct. at 1360).

28a

pricing, see Transcript at 52, and there is no evidence in

the record to suggest a present intent to engage in any

such activity in the future. The evidence relied upon by

plaintiff in this case is similar to that found insufficient

by the Supreme Court in Cargill, where the Court ob-

served that the “evidence” of predatory pricing consisted

“only of four passing references . . . to the possibility

that [defendant’s] prices might dip below cost.” Cargill,

107 S. Ct. at 494. The Court found such evidence to

“fall far short of establishing an allegation of injury

from predatory pricing.” Jd. Similarly, plaintiff’s un-

supported and contradictory allegations of predatory

pricing in this case are insufficient to establish a threat

of antitrust injury.°

In addition to predatory pricing, Bigelow argues that

Lipton will induce supermarket chains to decrease or

eliminate the amount of shelf space and the promotional

schemes allocated to Bigelow. It has submitted evidence

of Lipton’s prior use of “planograms,” or store shelf

schematics, in support of its claim that Lipton will at-

tempt to influence improperly retail stores. See Exhibits

33, 35 to Prugh Affidavit. Bigelow contends that Lipton,

because it would command a monopoly share of the herbal

tea market, could effectively require retailers to adopt

these self-serving schematics or planograms.

The only material which Bigelow has submitted in

support of this allegation, however, is a letter from its

5 Even if the court were to have found that plaintiff had raised

a genuine issue of material fact with respect to whether there

- was a substantial likelihood that Lipton would engage in predatory

pricing, plaintiff has failed to submit any evidence raising a genu-

ine issue concerning Lipton’s ability to absorb the market shares

of its competitors once prices have been cut, and the barriers to

entry in the market when prices are subsequently raised to supra-

competitive levels. These factors are also essential to a claim of

predatory pricing, see Cargill, 107 S. Ct. at 494 n.15, and plaintiff’s

failure to raise genuine issues of material fact with respect to

them would also be fatal to its claim of predatory pricing.

29a

attorney to the Federal Trade Commission which sets

forth a list of retail chain stores which allegedly have

adopted Lipton’s tea department schematic. See Exhibit

35 to Prugh Affidavit. However, standing alone, this in-

formation, if taken as true for the purposes of this

motion, fails to raise a genuine issue of material fact

with respect to whether Lipton will improperly compel

retail store chains to adopt its schematics. Indeed, de-

fendants have submitted an affidavit by Zip Lemmerman,

Senior Vice President, Merchandising, for Pathmark

Supermarkets, in which Mr. Lemmerman states that “it

is Pathmark, and not Lipton or any other supplier, which

decides shelf location and how much space each product

will receive in the allocation.” Affidavit of Zip Lemmer-

man, Exhibit 3 to Defendants’ Memorandum in Opposi-

tion to Plaintiff’s Request for a Temporary Restraining

Order (filed May 31, 1988). Bigelow does not contend

that planograms are per se illegal, but rather, that Lip-

ton will employ such schematics in an illegal manner.

Without some evidence of a prior history of such be-

havior, however, or a present intent to engage in such

behavior in the future, Bigelow has failed to raise a

genuine issue of material fact on this claim.*®

Plaintiff also alleges as predatory activity that Lipton

will exercise improper control over distributors and sup-

pliers. With respect to distributors, Bigelow submitted

no evidence that Lipton will attempt to interfere im-

properly with plaintiff’s distributors. Indeed, Mr. Bigelow

views these distributors as “loyal” to his company.

Bigelow Deposition at 191. He noted that his company

6 Indeed, David C. Bigelow testified at his deposition that he

does not expect Lipton to increase the amount of advertising and

promotions for herbal tea previously expended by Lipton and

Celestial. See Bigelow Deposition at 182. Mr. Bigelow even sug-

gested that there might be a reduction. See id. at 247.

30a

has “a longstanding relationship with these distributors

and we are very, very strong with these people.” Jd. at

190. In fact, Mr. Bigelow stated that his distributors

would have “no reason” at this time to anticipate reduc-

ing or eliminating their services to plaintiff. Jd. at 187-

88.

With respect to suppliers, plaintiff contends that the

proposed acquisition poses a threat that Lipton will exer-

cise improper control over the raw herb market. Again,

however, Bigelow’s allegations lack factual support in the

record. No evidence in the record has been brought to

the court’s attention to support Bigelow’s claims that it

will suffer any shortage of raw materials as a result of

the proposed acquisition. Although Bigelow has submitted

evidence suggesting that the raw herb market suffers

from “major world shortages,” Exhibit 29 to Prugh Affi-

davit, there is no evidence suggesting that Lipton will

intentionally interfere with plaintiff’s supply of raw herbs

during these times of shortage. Accordingly, the court

finds that plaintiff has failed to raise a genuine issue of

material fact concerning Lipton’s alleged predatory con-

trol over distributors and suppliers.

ITT.

As the Court of Appeals for the Fifth Circuit has ob-

served, “Cargill has imposed significant barriers to com-

petitor attempts to enjoin merger transactions.” Photo-

tron Corp., 842 F.2d at 102. “Proof that an entity will

commit bad acts is difficult to provide at the preliminary

injunction stage. This is not to say, however, that once

those bad acts occur, relief cannot be had. The antitrust

laws provide treble damage recovery for competitors who

successfully attack anticompetitive activities.” Jd. Al-

though Bigelow asserts that at a later date it will be

nearly impossible to unscramble the proverbial “scrambled

eggs” of antitrust lore, see Plaintiff’s Memorandum at 19,

3la

it is the ease that Bigelow will nonetheless have an action

for treble damages and injunctive relief for any antitrust

injuries that it may suffer.’ Having failed at this pre-

liminary stage to raise a genuine issue of material fact

with respect to whether it is threatened with antitrust

injury, plaintiff’s claim must fail. Accordingly, defend-

ants’ motion for summary judgment must be granted.

CONCLUSION

For the reasons stated above, defendants’ motion for

summary judgment is granted.

It is so ordered.

Dated at New Haven, Connecticut, this 15th day of

June, 1988.

s/ José A. Cabranes

JOSE A. CABRANES

United States District Judge

7 At oral argument, counsel for plaintiff contended that plaintiff

would not have a remedy at law if Lipton were to engage in the

alleged activity because the alleged predatory activity would be too

difficult to prove. See Transcript at 55-56. If plaintiff concedes

that he would not be able to prove that he had suffered antitrust

injury once the alleged illegal activity occurred, then it is difficult

to understand how the court could find that a substantial likelihood

now exists that plaintiff will suffer antitrust injury in the future.

Cf. Cargill, 107 S. Ct. 490 (noting that “[i]t would be anomalous

. to read the Clayton Act to authorize a private plaintiff to

secure an injunction against a threatened injury for which he

would not be entitled to compensation if the injury actually

occurred”).

-—————— <<

32a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

At a stated term of the United States Court of Appeals

for the Second Circuit, held at the United States Court-

house, in the City of New York, on the eighth day of

March, one thousand nine hundred and eighty-nine.

Docket Number 88-7505

R.C. BIGELOW, INC.,

Plaintiff-A ppellant,

-\-

UNILEVER N.V., THOMAS J. LIPTON, INC.,

CELESTIAL SEASONINGS, INC., and KRAFT, INC.,

Defendants-A ppellees.

[Filed Mar. 8, 1989]

A petition for rehearing containing a suggestion that

the action be reheard in banc having been filed herein by

Defendants-Appellees, UNILEVER N.V., THOMAS J. LIP-

TON, INC., CELESTIAL SEASONINGS, INC., and KRAFT, INC.

Upon consideration by the panel that heard the appeal,

itis

Ordered that said petition for rehearing is DENIED.

33a

It is further noted that the suggestion for rehearing in

banc has been transmitted to the judges of the court in

regular active service and to any other judge that heard

the appeal and that no such judge has requested that a

vote be taken thereon.

ELAINE B. GOLDSMITH

Clerk

By /s/ Fred M. Cassidy

Ch. Deputy Clerk

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.