Appendix — American Cyanamid Co. v. Melamine Chemicals, Inc.
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IN THE |
Supreme Court of the United States --4
OCTOBER TERM, 1983
——
AMERICAN CYANAMID COMPANY,
Petitioner,
—against—
MELAMINE CHEMICALS, INC. ef al...
Respondents,
ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE SECOND CIRCLIT
APPENDIX TO PETITION
SANFORD M. Litvack
KENNETH E. NEWMAN®
PETER R. CHAFFETZ
JOHN P. DEAN
JOHN D. WORLAND, JR.
30 Rockefeller Plaza
New York, New York 10112
(212) 307-4100
DONALD F. TURNER
1666 K Street
Washington, D.C. 20006
Attorneys for Petitioner
American Cyanamid Company
* Counsel of Record.
TABLE OF CONTENTS
Decision of the United States Court of Appeals for
the Second Circuit, Nos. 83-6041, 83-6053 (October
a RODD. coricsasseiscstnisdanccnsicnictibeegumedcmanaiaa aaa
Final Judgment Terminating Consent Decree (Janu-
BOG, COD execvntstcnnnauisespthanstntaacesianehindisiaieeduanen
Memorandum Decision of the District Court Termi-
nating the Consent Decree (January 10, 1983) ......
Memorandum and Order of the District Court Grant-
ing Intervention (November 9, 1982) ...............00...
Memorandum of the United States in Response to
Motion of American Cyanamid Company to Termi-
nate the Final Judgment Herein (August 5, 1982)
Final Judgment, Entered August 4, 1964 ................
Complaint, Filed October 5, 1960.00.00...
PAGE
A-55
A-68
A-|
[CORRECTED COPY]
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
as
Nos. 1237, 1455—August Term, 1982
(Argued May 12, 1983 Decided October 5, 1983)
Docket Nos. 83-6041, 83-6053
—-
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
AMERICAN CYANAMID Co.,
Defendant-Appellee and
Cross-Appellant,
MELAMINE CHEMICALS, INC.,
Intervenor-A ppellant-
Cross-Appellee.
Before:
OAKES, CARDAMONE and PIERCE,
Circuit Judges.
A-2
Appeal from an order of the United States District
Court for the Southern District of New York, Brieant,
Judge), terminating a consent decree between the United
States and American Cyanamid Co.
Affirmed in part; reversed and remanded in part.
>
Ray S. Boize, Washington, D.C. (Robert J.
Brookhiser, Jean M. Allison, Howrey &
Simon, Washingtion, D.C.; James K.
Leader, Holly S. Stein, Townley & Up-
dike, New York, New York; John C.
Biehl, Ashland Oil, Inc., Ashland, Ken-
tucky; Alfred L. Price, First Mississippi
Corp., Jackson Mississippi, on the brief),
for Intervenor-Appellant-Cross Appellee.
EDWARD T. HAND, Washington, D.C. (William
F. Baxter, Assistant Attorney General,
Abbott B. Lipsky, Jr., Barry Grossman,
Gregory B. Hovendon, Joan S. Huggler, -
Department of Justice, Washington,
D.C., on the brief), for Plaintiff-Appel-
lee.
KENNETH E. NEWMAN, New York, New York
(Peter R. Chaffetz, James L. Stengel,
Donovan Leisure Newton & Irvine, New
York, New York, on the brief), for De-
fendant-Appellee-Cross-A ppellant.
A-3
PIERCE, Circuit Judge:
Melamine Chemicals, Inc. (MCI) appeals from an or-
der of the United States District Court for the Southern
District of New York, Charles L. Brieant, Judge, entered
on January 25, 1983, granting the motion of the Ameri-
can Cyanamid Co. (Cyanamid), made with the consent of
the government, to terminate all provisions of a Consent
Decree entered against Cyanamid by Judge Levet on
August 4, 1964, and resulting from a civil antitrust action
brought by the government against Cyanamid.' Cyan-
amid cross-appeals from an order entered November 11,
1982, granting MCI and Dart Chemicals, Inc. leave to
intervene permissively. At issue herein is the termination
of Part XI of the decree, which compelled Cyanamid to
purchase a portion of its requirements for melamine from
other producers of melamine. In particular, the issues to
be addressed are: (1) whether the district court erred in
permitting MCI and Dart Chemicals, Inc. to intervene;
(2) whether the district court erred in applying a “public
interest” standard to decide whether to terminate Part XI
of the decree which provided its own higher standard,
simply because the government consented to the termina-
tion; and (3) having found that a phase-out for Part XI
would be desirable, whether the district court erred in
declining to order such a phase-out “solely for reasons of
judicial impossibility.” For the reasons set forth below, we
hold that MCI was properly allowed to intervene, but that
the district court erred in applying the “public interest”
standard and in failing to devise a reasonable phase-out
period.
The subject district court decision is reported at 1982-83 Trade Cas.
(CCH) 4 65,152 (S.D.N.Y. 1983).
A-4
I. FACTS
Melamine is a white. crystalline powder used in the
manufacture of resins which, in turn, are used in the
manufacture of high-pressure laminates such as “For-
mica,” laminate resins. adhesives, artificial china, plastic
Parts for the auto industry, molding compounds, and
coatings for textile and Paper products. Melamine is a
fungible material, with no significant difference in quality
Or chemical content according to plant or country of
Origin. MCI and Cyanamid are currently the only domes-
tic United States producers of melamine.
Defendant-appellee-cross-appellant Cyanamid pro-
duces a wide variety of chemicals and chemical-based
Products, including all of the Products made from mel-
amine listed above. A Portion of the melamine which it
produces is used internally in the manufacture of these
products, and the rest is sold by Cyanamid in the “mer-
chant market”—i.e.. to domestic producers of products
containing melamine.
Intervenor-appellant-cross-appellee MCI is a melamine
producer which is a joint venture between Ashland Oil.
Inc.* and First Mississippi Corp. MCI supplies melamine
to the “merchant market.” MCI is not vertically inte-
grated and therefore does not use internally any of the
melamine which it produces.
Prior to 1964, dicyandiamide (Dicy) was the primary
raw material from which melamine was made. Cyanamid
was able to control domestic supply and price of mel-
amine through Ownership and operation of the only Dicy
Production plant in North America. Through its contro]
2 Ashland entered the melamine market in 1966 when ir acquired
Fisher Chemical Co Fisher had previously Purchased Cyanamid’s
Willow Island melamine plant under Part [\ of the consent decree here
at issue
A-5
of the United States Dicy industry, Cyanamid allegedly
had become an influential member of an international
cartel of melamine producers. This cartel allegedly con-
trolled the worldwide price and supply of melamine and
allocated markets, including restricting the importation of
foreign melamine into the United States. Cyanamid also
controlled the use of melamine technology through its
Dicy and melamine-related patents.
A. The Consent Decree
The government filed a complaint against Cyanamid on
October 5, 1960, alleging that Cyanamid had violated
Sections | and 2 of the Sherman Act, 15 U.S.C. §§ 1,2
(1976) and Section 7 of the Clayton Act, 15 U.S.C. § 18
(1976). In particular, the factual allegations in the com-
plaint were that Cyanamid was, within the period covered
by the complaint, the sole producer of melamine for sale
in the merchant market in the United States; that
Cyanamid had conspired with six foreign and domestic
companies, enabling it to exploit the advantage it derived
from its exclusive control in the United States of Dicy;
that it had manipulated the availability and prices of
Dicy, thereby discouraging domestic melamine manufac-
ture by others; that it had caused foreign producers to
refuse to sell melamine to anyone in the United States
without Cyanamid’s approval; and that, in 1956, it had
acquired Formica Co., a leading consumer of melamine
resins, for the purpose of foreclosing others from selling
melamine to Formica Co. and eliminating a substantial
independent competitive factor in the manufacture of
laminating resins and laminates. As a result, the com-
plaint alleged inter alia that the prices of melamine and
melamine-containing products were maintained at unrea-
sonably high levels; that competition in the manufacture
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of melamine and products containing melamine was less-
ened; that actual and potential competition in melamine
was foreclosed; and that the public was deprived of an
adequate supply of melamine and products containing
melamine.
A settlement agreement was entered by the parties
without trial or adjudication of any issue, and a final
judgment was entered on August 4, 1964.° The final
judgment, inter alia, required Cyanamid to divest itself
within two years of one of its two melamine producing
plants; to share its technology in melamine-related fields
for up to ten years; to forego acquisitions in melamine-re-
lated fields for ten years and obtain government or court
approval for any such acquisition in the following ten
years; to limit for ten years the amount of melamine that
Cyanamid could produce; and not to engage in certain
acts including entering into or maintaining agency rela-
tionships with the co-conspirator companies named in the
decree. At issue in this case is Part XI of the decree,
which states in part:
Cyanamid is ordered and directed to purchase an-
nually from other producers of melamine (with the
preference to United States producers) an amount of
melamine equivalent to the requirements of
Cyanamid for melamine for use by Cyanamid in the
production of laminates in the United States pro-
vided that at any time after ten (10) years from such
date, Cyanamid may petition to this Court to be
relieved from this provision, such relief to be granted
upon a showing by Cyanamid to the satisfaction of
this Court that the effect of such relief will not be
3 The settlement is reported at 1964 Trade Cas. (CCH) 4 71,166
(S.D.N.Y. 1964)
A-7
substantially to lessen competition or tend to create a
monopoly in any line of commerce in any section of
the country.
Under this provision, Cyanamid was to purchase the
melamine requirements for its recently acquired Formica
subdivision from the merchant market. As noted by the
government, the provision was designed to “deny to
Formica the benefits which might accrue from vertical
integration with Cyanamid and to require Formica to
compete worldwide for melamine with other producers of
laminates.”* Although Cyanamid was not ordered to
divest itself of Formica Co., the purchase requirement
obviously was intended to prevent Cyanamid from fore-
closing other suppliers from selling melamine to Formica
Co.
Many provisions of the consent decree have expired or
been fully satisfied since the final judgment was entered.
In particular, Cyanamid divested itself of one of its
melamine plants in 1964 and additionally the following
provisions have expired: the ban on acquisitions, the
melamine production limitations, and many of the pat-
ents subject to technology-sharing requirements. More-
over, Cyanamid and the government argue that many
significant changes in the industry have occurred during
the intervening years. One such change was the replace-
ment of the Dicy-based melamine manufacturing process
with a urea-based process owned and licensed by Sami-
carbon N.V. of the Netherlands. A second change is that
Cyanamid is no longer the sole source of melamine, as
MCI presently also produces melamine. Other changes in
the market are discussed infra.
4 Memorandum of the United States in Opposition to the Application
by American Cyanamid Company for a Protective Order to Section
XI(c) of the Final Judgment, at 3 (November 14, 1974).
A-3
B. Consent Decree Termination Proceedings
In May, 1981, Cyanamid sought the government’s con-
sent to terminate the remaining provisions of the final
judgment. Cyanamid argued that the melamine purchase
provision had become an anticompetitive subsidy to MCI.
The government undertook a fifteen-month investigation
of the alleged changes, during which comments from
interested parties were sought, and concluded that the
decree itself had indeed become anticompetitive. The
government proposed to give its consent if Cyanamid
would dedicate certain patents to the public, and
Cyanamid agreed.
On August 9, 1982, Cyanamid moved in the district
court to terminate the consent decree, and on the same
day the government filed a memorandum in support of
Cyanamid’s motion. MCI and Dart Industries, a plastic
laminates producer, moved to intervene. MCI claimed
that it had entered the melamine business in reliance on
Part XI of the decree; since MCI’s entry into the market,
Cyanamid has been one of MCI’s largest customers; and
Cyanamid had informed MCI that if the decree were
terminated, Cynamid would no longer purchase melamine
from MCI. This, MCI claimed, would have a direct and
substantial adverse impact upon MCI and upon MCI’s
customers, which compete with Cyanamid in the manu-
facture of melamine resins and melamine-containing
products.© The district court held that intervention of
; Dart Industries, Inc. contended that termination of the decree would
have an anticompetitive effect on the plastic laminates industry be-
cause it would enable Cyanamid to withdraw completely from the
nerchant melamine crystal mafket to meet its internal demands. This
would allegedly allow MCI to attain a monopoly position in the
merchant market resulting in higher prices for melamine, which in
turn would allow Cyanamid to “price squeeze” Dart out of the market.
The district court granted Dart's motion to intervene permissively, but
Dart apparently chose not to take part in this appeal
A-9
right was inappropriate, but granted MCI’s motion for
permissive intervention in an order entered on November
10, 1982.
On October 27, 1982, the district court held a hearing
on Cyanamid’s motion to terminate the decree. In an
opinion dated January 10, 1983, the court found that
“profound and complex changes have taken place in the
melamine production industry.” 1982-83 Trade Cas.
(CCH) € 65,152, at 71,536. The example of such
“changes” cited by the district court was that the urea
process for producing melamine is now used by “virtually
all” melamine producers worldwide, thus dissipating
Cyanamid’s control over the basic raw material for pro-
ducing melamine. The court noted that currently MCI is
the only producer of melamine in the United States other
than Cyanamid, and thus the sole beneficiary of the
purchase provision of the decree. The court then held that
Cyanamid was not compelled to comply with the higher
standard of proof contained in Part XI, 1.e., that ter-
mination “will not. . . substantially. . . lessen competi-
tion or tend to create a monopoly in any line of
commerce in any section of the country.” This standard
was found to apply only if Cyanamid sought termination
without the government’s consent. Instead, the court held
that when the government does consent, the proponent of
termination need only show that termination is “ ‘in the
public interest,’ ” id. at 71,538, quoting United States v.
Swift & Co., 1975-1 Trade Cas. (CCH) 4 60,201, at
65,702 (N.D. Ill. 1975).
Turning to the contentions of the laminate manufac-
turers (Dart Industries, Inc. and amicus Plastics Manu-
facturing Co. (PMC)) the court found that termination of
the decree would not enable MCI to acquire a monopoly
position in the merchant market, as Dart and PMC had
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contended, stating that “[i]f sound economic considera-
tions should prompt Cyanamid to withdraw from the
merchant melamine market, foreign producers should be
expected to compete with MCI for the merchant mel-
amine market demand previously satisfied by Cyan-
amid.” 1982-83 Trade Cas. (CCH) 4 65,152, at 71,538-39
(footnote omitted). Moreover, the court noted that verti-
cal integration is not, in and of itself, anticompetitive and
may promote efficiency and enhance competition. Verti-
cal integration with Formica Co. was found unlikely to
cause diminished competition in the plastic laminates
market, since “[e]xisting law prevents Formica from re-
ducing the price of its consumer plastic laminate products
below the cost of production.” /d. at 71,540. Thus, the
court concluded that the interests of Dart and PMC do
not require continuation of the decree.
Apropos the interests of MCI, the court found that
termination of Part XI would not be likely to “strike a
death blow to MCI, or re-establish Cyanamid as a
monopolist in melamine crystals.” Jd. Rather, it was
found that MCI could “overcome and replace the loss in
Sales attributed to the Consent Decree’s termination, by
actively competing against Cyanamid and the foreign
suppliers in the merchant melamine market.” /d. (foot-
note omitted). The court concluded that the decree should
be terminated, but found that “an abrupt termination [of
Part XI] will have an adverse impact on MCI of a serious
nature,” id. at 71,541, and that a phase-out would be
preferable. However, the court felt that it was unable to
determine the appropriate duration of a phase-out period
and ordered an abrupt termination notwithstanding its
conclusion that a phase-out was preferable. Jd. at
71,542-43.
A-11
Il. DISCUSSION
A. Intervention
We first address Cyanamid’s contention on the cross-
appeal that the district court erred in granting MCI’s
motion to intervene permissively pursuant to Fed. R. Civ.
P. 24(b).
Under Rule 24(b), a district court may grant leave to
intervene permissively if it determines that a United States
Statute creates a conditional right for the applicant to
intervene and the condition is satisfied or if the appli-
cant’s claim or defense and the main action have common
questions or law or fact. A district court’s decision on
whether leave to intervene permissively should be granted
can only be overturned if it constitutes an abuse of
discretion. United States Postal Service v. Brennan, 579
F.2d 188, 191-92 (2d Cir. 1978).
Here, after deciding that MCI could not intervene of
right, the district court addressed whether permissive
intervention should be allowed. Since no federal statute
granting a conditional right to intervene was present, the
court analyzed whether a common question of law or fact
existed and whether undue delay would result. The court
concluded that the applicants’ claims that termination
would have an anticompetitive effect on the laminates
market are directly related to the ultimate questions
herein, and that no undue delay would result from grant-
ing leave to intervene. Thus, permissive intervention was
granted. We agree with this reasoning and do not believe
that it amounted to an abuse of discretion. Thus, we
affirm the district court’s decision to grant MCI’s petition
for leave to intervene permissively.
A-12
B. Standard for Termination of Part XI
Appellant MCI contends that the district court applied
an incorrect standard for terminating Part XI of the
consent decree. In particular, appellant argues that the
“public interest” standard, which the district court used,
was inapplicable here because Part XI expressly stated its
own standard for termination, which was that Cyanamid
must demonstrate that the effect of the termination “will
not be substantially to lessen competition or tend to
create a monopoly.” This language is nearly identical to
that used in Section 7 of the Clayton Act, 15 U.S.C. § 18
(1976 & Supp. V 1981).
Consent decrees have been recognized as having attri-
butes of both contracts and judicial acts. In United States
v. ITT Continental Baking Co., 420 U.S. 223, 236 n.10
(1975), the Court stated:
While [consent decrees] are arrived at by negotiation
between the parties and often admit no violation of
law, they are motivated by threatened or pending
litigation and must be approved by the court... .
Because of this dual character, consent decrees are
treated as contracts for some purposes but not for
others.
See United States v. Armour & Co., 402 U.S. 673, 681-82
(1971).
For purposes of interpreting the meaning of a consent
decree, the Supreme Court has tended to apply principles
of contract law. One such principle is to treat the decree
as an embodiment of the intent of the parties. This view is
reasonable, since such decrees are often entered without
proof of any violations and “cannot be said to have a
purpose” in and of themselves; rather, “the parties have
purposes, generally opposed to each other, and the result-
A-13
ant decree embodies as much of those opposing purposes
as the respective parties have the bargaining power and
skill to achieve.” /d. (footnote omitted). Thus, the Court
has observed that “the scope of a consent decree must be
discerned within its four corners” and “the instrument
must be construed as it is written,” id. at 682, and
“without reference to the legislation the Government
Originally sought to enforce but never proved applicable
through litigation,” /77T Continental Baking Co., 420
U.S. at 237. It should be noted, however, that this
doctrine was developed in cases in which the question for
decision was whether the existing consent decree had been
violated and the government was urging a construction of
the subject consent decree which the Court held was not
supported by the language of the decree. E.g., United
States v. Armour & Co., 402 U.S. 673 (1971); United
States v. Atlantic Refining Co., 360 U.S. 19 (1959);
Hughes v. United States, 342 U.S. 353 (1952). In each of
those cases, a danger existed that the defendant might be
penalized for conduct not prohibited by the decree. See
ITT Continental Baking Co., 420 U.S. at 237. Here, that
danger is not present since the government is not claiming
that Cyanamid is engaging in conduct in violation of the
decree. Rather, the government and Cyanamid are in
agreement as to the termination of the decree.
When the facts of a given case do not lend themselves
to easy resolution by viewing the decree as akin to a
contract, courts have turned to the quasi-judicial nature
of consent decrees and have resorted to equitable consid-
erations. For instance, in Chrysler Corp. v. United States,
316 U.S. $56 (1942), the Court was confronted with
petitions to extend the duration of a provision in an
existing decree. The provision did not expressly address
the issue of extension. The Court noted that the proper
A-14
test in those circumstances was whether “the [proposed
extension] served to effectuate or to thwart the basic
purpose of the original consent decree.” Jd. at 562.
Chrysler may be read consistently with Armour, despite
the reference by the former to “the basic purpose of the
consent decree” and the admonition by the latter that
consent decrees do not, in and of themselves, have a
purpose. As noted by the Ninth Circuit in United States
v. Motor Vehicle Manufacturers Association of the
United States, Inc., 643 F.2d 644, 650 (9th Cir. 1981)
(citation omitted):
The authority of a federal district court to adopt a
consent decree comes only from the statute which the
decree is intended to enforce. If there is a “purpose”
to be effectuated, it is the purpose of the statute
pursuant to which the government seeks relief.
Within that framework, the parties strike their bar-
gain.
Thus, when the language of a consent decree provision is
not clear on its face, a court of equity may, in construing
the provisi: 1, consider the purpose of the provision in the
overall context of the judgment at the time the judgment
was entered. Using its equitable powers, a court may
modify a decree in response to changed conditions.
United States v. Swift & Co., 286 U.S. 106, 114 (1932).
Here, the language of the decree is quite clear. Part XI
unambiguously states that “at any time after ten (10)
years from [the date Cyanamid sells one of its melamine
production plants] Cyanamid may petition to this Court
to be relieved from this provision, such relief to be
granted upon a showing by Cyanamid to the satisfaction
of this Court that the effect of such relief will not be
substantially to lessen competition or tend to create a
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monopoly in any line of commerce in any section of the
country.” No provision has been made to apply a dif-
ferent standard where the government joins with
Cyanamid in a petition to terminate the consent decree.
Thus, applying the “four corners” rule of Armour, it
would appear that the standard set forth in Part XI
applies.
An argument can be made that under contract theory,
Cyanamid and the Government, who are parties to the
decree,° should be allowed to modify the decree by
agreement. However, while it is generally true that con-
tract law provides that parties to a contract may, by
agreement, subsequently modify the contract without
court approval, Swift & Co., 1975-1 Trade Cas. (CCH)
4 60,201, at 65,702, this is not the case with respect to
consent decrees, since modification thereof always re-
quires court approval due to their quasi-judicial nature.
Such approval would be meaningless if the court were to
serve merely as a rubber stamp of modifications agreed to
by the parties. Consequently, it is appropriate for the
court to look beyond the words of the decree itself in
6 Cyanamid contends that a consent decree confers no enforceable
rights on a third party, even though the third party was intended to
benefit by the decree, citing Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723, 750 (1975). However, in this instance, where the standard
set forth in Part XI tracks the language of Section 7 and MCI has been
granted party status as an intervenor, the rule against enforcement by
third parties does not apply since, as an intervenor, MCI will be barred
under the doctrines of res judicata and collateral estoppel from
relitigating issues decided or which could have been raised in this
action. Boys Town, U.S.A., Inc. v. World Church, 349 F.2d 576,
$77-78 (Mh Cir. 1965), cert. denied, 383 U.S. 910 (1966); Federal
Procedure, Lawyers Edition § 51.207 (E. Barbre ed. 1981); 1B J.
Moore, T. Currier, Moore's Federai Practice 4 0.41 \({1}, at 1253 (1965).
its arguments under Section 7 therefore should be given full considera-
tion by this court.
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situations such as this, where the parties jointly seek a
modification of the decree.
In performing this quasi-judicial role, the court must,
of course, consider protection of the “public interest.” We
note, however, that the “public interest” should be based
on more than a broad and undefined criterion such as
promotion of the public welfare. Rather, “the words
[should] take meaning from the purposes of the regula-
tory legislation,” NAACP v. FPC, 425 U.S. 662, 669
(1976)—here, the Sherman and Clayton Acts.
The government’s complaint herein alleged violations
of Sections | and 2 of the Sherman Act and Section 7 of
the Clayton Act. The complaint charged that Cyanamid
unlawfully allocated and monopolized the domestic and
foreign markets for melamine and products containing
melamine through leadership of an international cartel of
melamine producers, its exclusive control and manipula-
tion of melamine technology and Dicy, and its acquisition
of Formica Co. in 1956, which was and continues to be
the principal domestic user of melamine to produce lami-
We note that this court's interpretation of the Antitrust Procedures
and Penalties Act, 18 U.S.C. § 16(b)-(h) (1976) (Tunney Act) is
consistent with this reasoning. /n re International Business Machines
Corp., 687 F.2d $91, 600 (2d Cir. 1982). There, a panel of this court
observed:
The Tunney Act was enacted in 1974 in response to the growing
number of settlements by consent decree in actions filed by the
Antitrust Division of the Department of Justice. Recognizing that
“[t}he entry of a consent decree is a judicial act which requires the
approval of a United States district court,” and fearing that courts
were engaging in “judicial rubber stamping” of proposals submitted
by the Justice Department, Congress determined that judicial ap-
proval should be based upon specific criteria to ensure that the
settlement terms would serve the public interest
(footnotes and citations omitted). Although, by its terms, the Tunney
Act is not applicable to a termination proceeding, it provides useful
guidance to the courts in deciding how modification procedures should
be addressed.
-
A-17
nates. Had the government’s allegations been proven at a
trial, far more extensive relief than that prescribed in the
decree would likely have been directed, e.g., divestiture is
not uncommonly the appropriate relief when a Section 7
violation is proven. Ford Motor Co. v. United States, 405
U.S. 562, 573 (1972). Judge Brieant found that “[t]he
consent decree itself was formulated so as to dissolve
Cyanamid’s monopoly of the United States melamine
industry and encourage the entrance of new producers
into the domestic melamine market.” 1982-83 Trade Cas.
(CCH) 4 65,152, at 71,535.
Within this context, it appears that the purpose of Part
XI was to nullify any tendency which Cyanamid’s ac-
quisition of Formica Co. would have to lessen competi-
tion or create a monopoly. We conclude that the standard
set forth in Part XI, which tracks the language of Section
7, is the appropriate standard even when we look beyond
the “four corners” of the decree and consider Part XI in
the context of the original allegations. Here, the “public
interest” derives meaning specifically from the Clayton
Act, and so, the criteria used for determining a Clayton
Act violation are applicable here for determining the
“public interest.”
We conclude that here the result is the same under
either the four corners theory or the quasi-judicial theory.
As noted above, the language within the four corners of
Part XI clearly indicates that the section 7 standard is
applicable even if we look beyond the four corners in our
quasi-judicial role.
C. Application of Section 7 Standard
In applying the “public interest” standard, the district
court herein stated that it was implicitly giving “careful
consideration [to] whether termination of the Provision
A-18
XI captive customer requirement will substantially lessen
competition or tend to create a monopoly,” since
“[tlermination of an antitrust Consent Decree in any
industry, which may create a monopoly or lessen competi-
tion, does not serve the public interest.” 1982-83 Trade
Cas. (CCH) 4 65,152, at 71,540.
It was the intent of Congress that Section 7 of the
Clayton Act should apply to vertical mergers and pro-
scribe those which are anticompetitive. Indeed, the 1950
amendment to the Act and the legislative history of that
amendment made clear that vertical mergers are covered.
H.R. Rep. No. 1191, 81st Cong., Ist Sess. (1949) re-
printed in 1950 U.S. Code & Ad. News 4293; see United
States v. E.I. du Pont de Nemours & Co., 353 U.S. 586,
$92 (1957).
The Supreme Court and this court have provided stan-
dards for determining whether a vertical merger is viola-
tive of the Clayton Act. In Brown Shoe Co. v. United
States, 370 U.S. 294 (1962), the Supreme Court set forth
factors to be considered by a court in determining
whether a vertical merger would violate Section 7. The
Court noted that “(t]he primary vice of a vertical merger
Or other arrangement tying a customer to a supplier is
that, by foreclosing the competitors of either party from a
segment of the market otherwise open to them, the
arrangement may act as a “ ‘clog on competition’ which
‘deprive[s]. . . rivals of a fair opportunity to compete.’ ”
Id. at 324 (citation and footnote omitted). An initial step
in determining whether such foreclosure constitutes a
violation of Section 7 is to determine the relevant markets
and the market shares of the acquiring and acquired
firms’ shares in those markets. The Brown Shoe Court
stated: “If the share of the market foreclosed is so large
that it approaches monopoly proportions, the Clayton
A-19
Act will, of course, have been violated. . . . On the
other hand, foreclosure of a de minimis share of the
market will not tend ‘substantially to lessen competi-
tion.’ ” Jd. at 328-29. If, however, the share falls between
these extremes, a number of factors must be considered,
which this court summarized in Fruehauf Corp. v. FTC,
603 F.2d 345, 353 (2d Cir. 1979):
[T]he nature and economic purpose of the arrange-
ment, the likelihood and size of any market foreclo-
sure, the extent of concentration of sellers and
buyers in the industry, the capital cost required to
enter the market, the market share needed by a buyer
or seller to achieve a profitable level of production
(sometimes referred to as “scale economy”), the
existence of a trend toward vertical concentration or
oligopoly in the industry, and whether the merger will
eliminate potential competition by one of the merg-
ing parties.
Fruehauf added several other factors to the list as well:
“the degree of market power that would be possessed by
the merged enterprise and the number and strength of
competing suppliers and purchasers, which might indicate
whether the merger would increase the risk that prices or
terms would cease to be competitive.” Jd. The Fruehauf
court characterized this list as “the standard framework
for analysis of the legality of a vertical merger.” Jd.
Here, the district court did not apply this standard
framework of analysis to the case at bar in order to
determine whether Part XI should be terminated. Instead,
it stated that “ ‘[c]lontemporary economic theory’ recog-
nizes that vertical integration may foster corporate effi-
ciency and enhance competition in the market place,”
1982-83 Trade Cas. (CCH) 4 65,152, at 71,539, and de-
A-20
ferred to the judgment of the Department of Justice.
Thus, we do not have the benefit of an analysis of record
data regarding such factors as the level of concentration,
barriers to entry, scale economies, minimum efficient
scale, or collusion. These are among the factors discussed
in the government’s 1982 merger guidelines, which can be
helpful to the court in analyzing the legality of a vertical
merger.*
The district court stated that “the Executive Branch of
Government has broad discretion in controlling and de-
termining the public’s interest in Government antitrust
litigation; a policy interest different from that of this
Court. Absent abuse of discretion, the Government’s
conclusion that a decree should be vacated should be
given great weight.” Jd. at 71,540 (citation omitted). The
district court then found that the Department of Justice
had carefully examined the contentions of the partici-
pants, and had fulfilled its obligation to represent the
public interest.
While Brown Shoe and its progeny have been the
subject of considerable criticism by academicians who
believe these cases apply overly harsh standards in assess-
ing the legality of vertical mergers,’ these cases nonethe-
less continue to constitute the current state of the law as
prescribed by the Supreme Court, which circuit and
district courts are bound to follow.
We believe it was error to apply “contemporary
economic theory” to the extent it may be distinct from
precedent, and to fail to apply the standard framework of
8 United States Department of Justice Merger Guidelines 44-52 (June
14, 1982).
9 E.g., 1V P. Areeda & D. Turner, Antitrust Law 44 1000-1019 (1980);
R. Bork, The Antitrust Paradox 225-45 (1978); Y. Brozen, Concentra-
tion, Mergers, and Public Policy 402-04 (1982).
A-21
analysis, as discussed supra. We therefore reverse the
decision of the district court insofar as it holds that “the
conditions which the decree was designed to remedy no
longer exist [and] the decree should be terminated,” and
we remand for the district court to apply the factors for
analyzing the legality of a vertical merger set forth by
Brown Shoe, Fruehauf, and other applicable cases, and
to make ‘indings of fact as to the current state of the
melamine market and the market for products that con-
tain melamine. The court’s findings and conclusions then
may be reviewed, if need be.
Upon remand, the district court may conclude that no
Section 7 violation presently exists. Should this be true,
and should the district court continue to believe that a
phase-out would be appropriate, the court should exercise
its equitable power to determine an appropriate duration
for such a phase-out. As noted by the Supreme Court in
Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944): “The
essence of equity jurisdiction has been the power of the
Chancellor to do equity and to mould each decree to the
necessities of the particular case. Flexibility rather than
rigidity has distinguished it.” Difficulty in rendering judg-
ment may only rarely be a sufficient reason for a court of
equity to refuse to exercise its equitable powers, and is
not a sufficient reason upon the facts of this case to
justify a refusal herein. Indeed, we cannot help but note
that abrupt termination of Part XI without a phase-out
period is in itself an exercise of equitable power.
A-22
Ill. CONCLUSION
For all of the reasons set forth above, we affirm the
district court's grant of MCI’s motion to intervene per-
missively, reverse the district court’s ruling that a “public
interest” standard for determining whether to terminate is
applicable, and remand to the district court for further
proceedings not inconsistent herewith.
A-23
United States District Court
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
4 Plaintiff. 60 Civ. 3857 (CLB)
against FINAL
; OMEN
AMERICAN CYANAMID COMPANY. PUBEMENT
Defendant
WHEREAS Defendant American Cyanamid Company
(“Cyanamid”) has moved for termination of the Judgment
entered herein on consent on August 4, 1964 (the “Consent
Decree”); and
WHEREAS Plaintiff United States of America has recom-
mended termination of the Consent Decree as being in the public
interest, and
The motion having come before the Court on October 27, 1982
and the Court having considered the arguments and submissions
in support of the motion, and those in opposition to the motion
made by intervenors Melamine Chemicals Inc. and Dart Indus-
tries, Inc. and amicus curiae Plastics Manufacturing Company,
and having rendered its decision herein on January 10, 1983,
finding that termination of the Consent Decree is in the public
interest and granting said motion;
IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED: that the Consent Decree is terminated, effective
January |, 1983, and on and after that date shall be of no further
force or effect, provided however that:
(1) This Judgment shall not affect the application to
Cyanamid of any of the antitrust laws of the United
States;
(2) This Court reserves jurisdiction over the parties to
and subject matter of this action to enforce any provisions
A-24
of the Decree, including any obligation to purchase mela-
mine under paragraph XI of the Decree, relative to any
period of time prior to January 1, 1983; and
(3) Pursuant to its prior agreement with the plaintiff,
Cyanamid shall dedicate to the public all unexpired pat-
ents listed in Exhibit C to the Affidavit of James I. Wyer,
sworn to August 6, 1982.
The Clerk is directed to enter Final Judgment accordingly.
Dated: New York, N.Y. So ordered:
January 24, 1983
/Ss/ CHARLES L. BRIEANT
US.D.J.
Judgment entered: January 25, 1983
RAYMOND F. BURGHARDT
A-25
United States District Court
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
60 Civ. 3887-CLB
Plaintiff,
against MEMORANDUM DECISION
| Termination of Consent
AMERICAN CYANAMID COMPANY, Decree |
Defendant
BRIEANT, J.
Pursuant to Rule 60(b)(5) and (6) of the F.R.Civ.P. and
Provision XV of the Consent Decree in this civil antitrust action
made August 4, 1964 by the late Hon. Richard H. Levet of this
Court, defendant American Cyanamid Company (“Cyanamid”),
with the consent of plaintiff United States Government (“Gov-
ernment”), moves to terminate all provisions of the aforesaid
decree or judgment which now remain in effect.
Intervenors Melamine Chemicals Inc. (“MCI”), a producer of
melamine, and Dart Industries (“Dart”), a plastic laminate pro-
ducer which consumes melamine, along with amicus curiae Plas-
tics Manufacturing Company, a producer of plastic laminates
and melamine resins, oppose such termination, contending that
an anticompetitive impact on the melamine and melamine related
industries will result
Melamine is a fine white crystalline powder which is used in the
manufacture of resins which in turn are used for high-pressure
laminates, such as “Formica” a well-known trade-marked prod-
uct manufactured by a division of Cyanamid, as well as artificial
chinaware, plastic parts for the automobile industry and coatings
for textile and paper products. A study in 1982 by the United
States International Trade Commission (Inv. No. 731-TA-107-
Prelim. “Melamine From Brazil”) reports that United States
consumption of melamine resins in 1981 by end uses is estimated
A-26
as follows: high-pressure laminates, such as “Formica”, 29% of
the total: surface coatings, 23%; molding compounds, 16%; paper
treating and paper coating, 15%; textile treating and textile coat-
ing, $%; and other (including adhesives), 12%. Typical of the
uses of high-pressure laminates are decorative countertops, furni-
ture and cabinet panels, tabletops, and partitions in commercial
buildings. More than 80% of all melamine molding compounds
are consumed in the manufacture of dinnerware which varies in
quality from picnic disposables to advanced products which com-
pete with fine chinaware.
Shortly following the entry of the Consent Decree there were
four domestic producers of melamine, including Cyanamid and
Fisher Chemical Co., the predecessor of MCI. Now, and since
1979, there are only two domestic producers, MCI and Cyana-
mid. There are now 17 melamine producers outside the United
States, six in Western Europe, three in Eastern Europe and the
U.S.S.R., three in Japan, and one each in Brazil, India, Kuwait,
Taiwan and the Republic of Korea. World production capacity
in 1982, by regions, is estimated by the United States Department
of Commerce as follows:
Production
— A>... &
MUNIN ONIN oecnancindcoaninianadateniandaintennesier 40%
I a etareins cre iaceetacnsnsnlneolaeretnnceigintersaties 23%
Eg NERS ARE AL EAE Se rae 1S%
Eastern Europe and the U.S.S.R. ............. 12%
SIIIINEN ccd nce-thgdtvissncdausansadésinesonsneuaneniataapaninahs 2%
Nn NN cl ieteelins 8%
BINIE = csccncssacniecad veubdbeananaitl 100%
Total world capacity to produce melamine increased from 886
million pounds in 1979 to 981 million pounds in 1982, or by 11%.
The People’s Republic of China is expected to open a melamine
plant with annual capacity of 26 million pounds by the end of
1983.
Melamine is essentially a fungible intermediate chemical.
There is no distinctive difference in quality or chemical content
according to plant or country of origin. Its production is capital
A-27
intensive; increased put-through in an operating plant does not
increase the labor costs and the chemical reaction proceeds on a
continuous flow process much the same as that of an oil refinery.
Such a product should be expected to sell at a competitive price
having a long term relation to the marginal costs of the least
efficient producer.
The complaint in this civil antitrust action was filed October 5,
1960 against Cyanamid and alleged violations of Sections | and 2
of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section 7 of the
Clayton Act, 15 U.S.C. § 18. The complaint charged that Cyan-
amid unlawfully allocated and monopolized the foreign and
domestic melamine and melamine-contained markets through its
leadership of an international cartel of melamine producers, its
exclusive control and manipulation of melamine technology and
“Dicy,” (described infra), and by its acquisition in 1956 of
Formica. Inc., then and now the principal domestic user of mela-
mine crystals for the production of high pressure laminates.
Asa result of these alleged violations, the Government alleged
that the price of melamine and melamine-contained products was
unreasonably high, the available supply of melamine unreasona-
bly low, actual competition in the melamine and melamine
related industries lessened, and the potential emergence of new
competitors in those industries effectively foreclosed.
The litigation was settled by entry of the Consent Decree
referred to above. Since that time, the Consent Decree has been
the subject of various proceedings before this Court, familiarity
with which is assumed. In 1969, 1973 and 1974, the Court
modified various provisions of the Consent Decree at the request
of Cyanamid and with the consent of the Government. In 1975,
the Government initiated criminal contempt proceedings against
Cyanamid alleging that Cyanamid in 1972 had wilfully violated
the Consent Decree’s maximum melamine production level.
This Court, after a trial found Cyanamid not guilty of a criminal
contempt. United States v. American Cyanamid Co., 1978-1
Trade Cas. 161.843 (S.D.N.Y. 1977). See also, Stamicarbon,
N.V. v. American Cyanamid Co., 506 F.2d 532 (2d Cir. 1974).
A-28
The Consent Decree itself was formulated so as to dissolve
Cyanamid’s monopoly of the United States melamine industry
and encourage the entrance of new producers into the domestic
melamine market. A brief review of its provisions may be of
assistance to the reader.
The first two provisions of the Consent Decree established the
Court's jurisdiction over this controversy and defined the termi-
nology employed in the Decree. Provision III identified the par-
ties and entities bound by the Consent Decree.
Provision IV directed Cyanamid to divest itself of its melamine
plant in Willow Island, West Virginia, within two years of the
entry date of the Decree. This was done, by sale to MCI’s
predecessor. Cyanamid was also directed to guarantee Willow
Island’s purchaser access to its employees, customer lists and
technology for one year following the purchase of the plant.
Finally, if requested by the purchaser of Willow Island, Cyana-
mid was required to purchase 50% of its melamine requirements
in excess of its own melamine production at the prevailing market
price for melamine produced in the United States for a maximum
term of ten years.
Provision V of the Decree, now expired, in effect prohibited
Cyanamid for a ten year period, from producing more than 30
million pounds of melamine per year in the United States or to
expand its domestic production capacity beyond that amount
until other domestic melamine producers increased their produc-
tion capacity by 25 million pounds.’
Provision VI enjoins Cyanamid from: (1) entering into or
maintaining an agreement to allocate or divide customers, territo-
ries or markets for the sale, manufacture or distribution of mela-
mine or melamine-contained products; (2) eliminating, limiting
1. The Court modified this provision on three separate occasions,
each time with the consent of the Government. In 1969, the part
permitted Cyanamid to build its present urea process plant in Foftier,
Louisiana, in response to the technological advance, discussed beginning
at [A-31] of the text, which enabled melamine to be produced more
economically from the raw material urea. In 1973, and again in 1974,
the Court authorized Cyanamid to increase this plant's production
capacity in light of a severe temporary worldwide melamine shortage
which occurred in those years.
A-29
or restraining competition in these products; (3) limiting or
restraining the importation or exportation of these products; and
(4) refusing to do business with any person engaged in the sale,
use or manufacture of melamine or melamine-contained prod-
ucts. This provision is still in effect.
Provision VII prohibits Cyanamid from: (1) referring mela-
mine business to any company identified as a co-conspirator in the
original complaint, or to any other company in the melamine
business; (2) from entering into an agency or distributorship
relationship with any such company; or (3) from attempting to
prevent or restrict any company from entering or participating in
the melamine business. At present, this provision is arguably
obsolete, at least as to domestic producers, since the named co-
conspirators and the then existing melamine producing com-
panies are no longer involved in melamine production.
Provision VIII currently prohibits Cyanamid from refusing to
sell melamine to any individual willing and financially able to pay
the going market price and forbids Cyanamid from establishing
price differentials between Dicy and Melamine for the purpose of,
or which would result in, restraining trade in melamine or mela-
mine resins in the United States. This latter provision is now
technologically obsolete. See infra, [A-31]. ;
Provision IX is still operative and orders Cyanamid to grant to
any party so requesting, a nonexclusive, unrestricted license
under all its existing urea, Dicy and melamine patents and to all
future patents concerning the production, use and sale of mela-
mine resin. This provision also regulated Cyanamid’s acquisition
of any new patents for a five year period which expired in August
of 1969.
Provision X directed Cyanamid for a ten year period to furnish,
upon request, all its technical information relating to the com-
mercial manufacture of Dicy, melamine and melamine resins.
This provision has been fully complied with and expired in 1974.
Provision XI, the sole present source of discord in this litiga-
tion, appears by its terms to operate in perpetuity, subject only to
A-30
defeasance after ten years upon application to the Court as
therein contemplated. It reads in relevant part as follows:
“(A) ... Cyanamid is ordered and directed to purchase
annually from other producers of melamine (with the
preference to United States producers) an amount of mel-
amine equivalent to the requirements of Cyanamid for
melamine for use by Cyanamid in the production of lami-
nates in the United States provided that at any time after
ten (10) years from such date, Cyanamid may petition to
this Court to be relieved from this provision, such relief to
be granted upon a showing by Cyanamid to the satisfac-
tion of this Court that the effect of such relief will not be
substantially to lessen competition or tend to create a
monopoly in any line of commerce in any section of the
country. Cyanamid’s requirements for the purposes of
this Section XI shall be deemed to be an amount of mela-
mine of all grades, but not superior to that customarily
used by ‘Cyanamid in the manufacture of laminates, at
least equivalent to the amount of such melamine used by
Cyanamid in its production of laminates during the pre-
ceding calendar year.
(C) In the event Cyanamid considers that the melamine
price offered for its purchase pursuant to subsection (A)
hereof is oppressively high, Cyanamid may apply to the
Court, and upon a showing by Cyanamid to the satisfac-
tion of this Court that the price is non-competitive, the
Court may grant such protective order as the Court deems
appropriate.”
Provision XII required Cyanamid to publish notice of the final
consent judgment and its obligations thereunder.
Provision XIII, presently in effect through 1984, prohibits
Cyanamid from acquiring certain melamine-related businesses
within North America without the consent of the Government or
permission of the Court. However, Cyanamid may acquire mel-
amine-related businesses located outside North America follow-
ing prompt notice to the Government.
A-3]
Provision XIV authorizes the Government, upon written
request and reasonable notice, to examine Cyanamid’s books and
records in order to secure its compliance with the Consent Decree.
Finally, by Provision XV the Court retains jurisdiction in order
to enable Cyanamid and the Government to seek enforcement,
modification of termination of the Consent Decree’s provisions.
Since the Consent Decree was entered, profound and complex
changes have taken place in the melamine production industry.
There are now two basic commercial processes for producing
melamine: (1) the urea process; and (2) the Dicyandiamide or
“Dicy” process. In 1964 there was only one process, that using
“Dicy.” Today, virtually all melamine produced worldwide
utilizes the newer and more economical urea process. The
advantages of the urea process include lower production costs,
more readily available raw materials and recyclable byproducts.
A third process using hydrogen cyanide has been patented but not
used. Both domestic producers of melamine now employ the
urea-based technology licensed from Stamicarbon N.V. of the
Netherlands.
The Stamicarbon process is most economical when used in
conjunction with urea manufacture, permitting the off gases to be
recycled. With the recycle step (Which both U.S. producers
employ), the quantity of urea necessary to produce one pound of
melamine is reduced by about 50%. The melamine vapor is
separated, cooled to a liquid, filtered, recovered by crystallization,
centrifuged, dried, pulverized and stored for shipment.
However, before the Stamicarbon process came on stream, and
prior to the commencement of this lawsuit, melamine was pro-
duced solely from Dicy. Cyanamid controlled the domestic price
and supply of Dicy through the ownership and operation of the
only Dicy production plant located in North America. By virtue
of its dominance of the domestic Dicy industry, Cyanamid alleg-
edly became an influential member of an international cartel of
melamine producers, which controlled the worldwide price and
supply of melamine, and allegedly allocated markets, restricting
the importation of foreign melamine into the United States. In
A-32
addition, Cyanamid controlled the publication and use of mela-
mine technology through its numerous Dicy and melamine
related patents. Finally, in 1956, Cyanamid acquired Formica,
Inc., the leading producer of plastic laminates and a substantial
consumer of melamine, thereby obtaining the questionable bene-
fits of vertical integration.
Cyanamid and the Government now contend that the surviving
provisions of the Consent Decree should be terminated since it is
no longer required to ensure a competitive melamine market.
They assert that fundamental changes in the industry, specifically
the industry's conversion from Dicy based melamine production
to the use of urea as a feedstock to produce melamine and the
emergence of non-cartelized foreign competitors as an alternative
source of competitive melamine supply for the United States
market, considered in light of the attendant decline of Cyana-
mid’s share of the domestic merchant market, warrant termina-
tion of the Consent Decree.“
The source of dispute in this litigation is so much of the agree-
ment between the Government and Cyanamid which would ter-
minate Provision XI of the Consent Decree, quoted supra, [A-
30], providing for compulsory purchase of melamine by Cyana-
mid on the merchant market for its Formica division. No opposi-
tion has been raised against termination of the remaining portions
of the Decree. Accordingly, since it appears obvious that the
remaining portions of the Consent Decree should be terminated,
and because the Government consents thereto, we will confine our
discussion to Provision XI.
Since MCI is now the only other producer of melamine in the
United States, it is now the sole beneficiary of the requirement
that Cyanamid make annual purchases in amounts equal to
Formica’s requirements for plastic laminate production in the
preceding year. It receives substantial revenue and has been able
2. As used herein, the merchant market comprises all sales in the
United States of melamine in its crystal or powdered form for use as a
raw material by the vendee, which sales are arms-length transactions
between unrelated parties. It does not include “sales” by Cyanamid to
any of its operating divisions or profit centers.
A-33
to achieve considerable corporate growth as a result of this semi-
captive customer.’ However, Dart and the amicus also assert
that they enjoy a continuing and direct benefit from this provision
of the Consent Decree. See infra, [A-34], et seq.
The Government and Cyanamid now assert that Provision XI
operates against the public interest and contrary to antitrust pol-
icy because it increases Cyanamid’s cost of doing business unjus-
tifiably, thereby increasing the consumer price of Cyanamid’s
Formica products. The Government contends that, at best, Pro-
vision XI now operates merely as a transfer of profits from Cyan-
amid to MCI, and that MCI, now the largest domestic melamine
3. It seems apparent that the course of dealing between Cyanamid
and MCI has resulted in the purchase by Cyanamid from MCI of
melamine at premium, full list, or non-discounted prices. Under the
Consent Decree, Cyanamid is not required to prefer United States
producers of which MCI is now the only one, if there is a significant
price differential, and also may apply to the Court under Provision XI
(C) for relief if the domestic melamine is regarded as priced “oppres-
sively high.” This latter Provision XI (C) has never been availed of by
Cyanamid. The only practical limitation on MCI’s price is that created
by the competing merchant sales of Cyanamid itself, and the importers
of foreign melamine.
Cyanamid argues that MCI has limited Cyanamid’s access to foreign
melamine by an aggressive policy of filing complaints with the United
States International Trade Commission of the Department of Com-
merce, charging that it is being injured by imports of melamine from
foreign countries sold at less than fair value (“LTFV”). There was
nothing inappropriate about MCI's activities in this regard. It did
succeed in obtaining a findingsof fact from the Commission that Japan
was selling melamine in the United States at LTFV. See “Melamine in
Crystal Form from Japan” (Inv. No. AA-1921-162) U.S. ITC Publi-
cation 796, December 1976. A dumping order concerning melamine
from Japan was published on February 2, 1977. 42 Fed. Reg. 6866.
No imports of melamine have come from Japan to the United States
since then.
MCI also attacked melamine imported from the Netherlands, Aus-
tria, Italy and Brazil, on the same grounds, precipitating separate inves-
tigations with respect to each. In none of these proceedings was MCI
successful in persuading the Commission that melamine was being sold
in the United States at LTFV. There is no doubt that the expense of
defending such proceedings tends to chill the ardor of potential import-
ers of melamine. However, the Court must assume that the 1
were decided correctly, and that MCI was within its rights in filing
them. As noted, Cyanamid has never availed itself of Provision XI (C)
of the Decree.
A-34
producer, should no longer require continued benefit from the
Decree.
Cyanamid and the Government contend, and the Court agrees,
that since the Government has consented to termination, Cyana-
mid need only show the Court that termination is in the public
interest.
The intervenors now contend that, in order to justify termina-
tion, Cyanamid must comply with the higher standard of proof
contained in Provision XI of the Consent Decree and show that
termination “will not .. . substantially . . . lessen competition or
tend to create a monopoly in any line of commerce in any section
of the country.” This Court rejects that contention. Provision
XI represents an alternative basis or evidentiary standard
adopted by the parties with the consent of the Court, by which the
Decree could be vacated or modified after a hearing, without the
consent of the Government. It is clear that where the Govern-
ment does not consent to termination or modification of an anti-
trust consent judgment, the proponent of termination must show
that the market changes said to justify termination “are so impor-
tant, that [the] dangers, once substantial, have become attenu-
ated toa shadow.” United States v. Swift & Co., 286 U.S. 107,
117 (1931).
However, where as here the Government consents to the pro-
posed termination, the proponent of termination need show
merely that termination of the Decree is “in the public’s interest.”
United States v. Swift & Co., 1975-1 Trade Cas. § 60,201, [at]
65,702 (N.D. Ill. 1975); see also United States v. General Elec-
tric Co., 1977-2 Trade Cas. © 61,659, [at] 72,717 (E.D. Pa.
1977).
The position of the intervenor parties on the subject of termina-
tion of Provision XI are different. MCI contends that the semi-
compulsory annual sales it makes to the Formica division of
Cyanamid pursuant to Provision XI are vital to its continued
existence, and that termination of the Consent Decree will end
these sales and effectively force it out of business. This “will
substantially lessen competition and . . . tend to create a monopoly
A-35
{in Cyanamid].” (MCI’s Memorandum in Opposition to Cyan-
amid’s Motion to Terminate, p. 3).
Dart’s analysis and that of the amicus Plastics Manufacturing
Company (“PMC”) are affected by their position as users of
melamine crystals. Dart, through its Ralph Wilson Plastics Divi-
sion, produces plastic laminates from melamine crystals in princi-
pal competition with Cyanamid’s Formica division. Producers
and users of plastic laminates such as Dart and the amicus PMC
are directly affected by any change in supply, demand or price in
melamine crystal merchant market. Since Cyanamid and MCI
are now the only domestic suppliers of melamine crystals, Dart
and PMC contend that termination of the Consent Decree will
have an anticompetitive impact on the plastic laminate industry.
They contend this is so because its own perceived economic self-
interest will cause Cyanamid to withdraw completely from the
melamine crystal merchant market, so as to be able to use its
entire melamine production capacity internally to meet the pro-
duction demands of its Formica division. Dart and PMC also
claim that foreign melamine producers are not reliable sources
for melamine crystals and have little competitive influence on the
domestic market.‘
As a result of Cyanamid’s assumed or supposed intention to
withdraw from the merchant melamine crystal market, and the
claimed absence of reliable and adequate foreign suppliers, Dart
alleges that MCI will inherit a monopolistic position in the
merchant melamine crystal market. Melamine resin producers,
on whom Dart and PMC rely, will be forced, it is said, “to pay
monopolistic, anti-competitive prices for raw and intermediate
materials [melamine crystals].” (Affidavit of Ralph Wilson,
sworn to October 20, 1982). When this cost increase is passed on
to plastic laminate producers, they will “be unable to compete in
the manufacture and marketing of plastic laminates and related
4. Cyanamid cites MCI’s vigorous anti-dumping campaign against
foreign melamine producers. Foreign suppliers are said to be unwilling
to risk the expense and exposure of anti-dumping proceedings in order to
offer melamine crystals at competitive prices to domestic purchasers.
There is little evidentiary basis to support this conclusion.
A-36
materials with Cyanamid, which by virtue of . . . [its ownership of
Formica] will be able to price squeeze competitors out of that line
of commerce.” (Affidavit of Ralph Wilson, sworn to Oct. 20,
1982, p. 3).
We dispose of the arguments of Dart and PMC first because
their invalidity seems clear and amenable to simple exposition.
First, contrary to the contentions of Dart and PMC, termina-
tion will not enable MCI to acquire or inherit a monopolistic
position in the merchant melamine crystal market. If sound
economic considerations should prompt Cyanamid to withdraw
from the merchant melamine market, foreign producers should
be expected to compete with MCI for the merchant melamine
market demand previously satisfied by Cyanamid.’
Nor is it reasonable to assume that Cyanamid would withdraw
from merchant sales. This assertion is both speculative and con-
trary to contemporary economic theory.
Corporate vertical integration is not, in and of itself, a violation
of the antitrust laws. Fruehauf Corp. v. F.T.C., 603 F.2d 345
(2d Cir. 1979). Under Fruehauf, vertical integration is not an
antitrust violation unless it can be shown clearly that it will have a
“probable anticompetitive impact” upon the relevant industry.
Fruehauf, supra, at 353. The “mere possibility” that such a
S$. As we previously observed, melamine is fungible, and no good will
or significant quality differential attaches to the manufacturer's brand.
During 1982, approximately 33% of the merchant market demand for
melamine crystals (excluding the demand of Formica division of Cyana-
mid) was satisfied by imported crystals. (Affidavit of Scotty B. Pat-
rick, sworn to December 8, 1982, 5). Such statistics are not indicative
of a permanent pattern because of world-wide price fluctuations in the
sources of constituent raw materials such as natural gas and the effect of
currency fluctuations in producing countries. Furthermore, it is a char-
acteristic of the method of melamine production used by Cyanamid and
MCI that lengthy plant failures may occur without warning. In 1981,
MCI and Cyanamid experienced simultaneous plant shutdowns. On
this occasion, foreign producers of melamine supplied the domestic
market demand to the total exclusion of American producers, increasing
total melamine imports from 13.7 million pounds in 1980 to 29.4 million
pounds in 1981. (Affidavit of Robert P. Kreahling, sworn to October
27, 1982, Ex. 8). This response clearly manifests foreign producers’
ability and desire to son va in the domestic melamine market when
economically feasible to do so.
A-37
result might occur ts an insufficient basis for an antitrust violation
or justification for the perpetual existence of this Decree. Frue-
hauf, supra, at 351, citing Brown Shoe Co. v. United States, 370
U.S. 294, 323 (1962); BOC International Ltd. vy. F.T.C., 557
F.2d 24, 28 (2d Cir. 1977); Crown Zellerbach Corp. v. F.T.C.,
296 F.2d 800, 24-25 (9th Cir. 1961), cert. denied, 370 U.S. 937
(1962); United States vy. Atlantic Richfield Co., 297 F.Supp.
1061, 1066 (S.D.N.Y. 1969), afd sub nom. Bartlett v. United
States, 401 U.S. 986 (1971).
Contemporary economic theory recognizes that vertical inte-
gration may foster corporate efficiency and enhance competition
in the market place. Yale Brozen, former consultant to the Jus-
tice Department's Antitrust Division, and currently Professor of
Economics at the University of Chicago, states:
“Vertical mergers produce no anticompetitive effects.
Preventing them in the name of preventing ‘foreclosure’
simply prevents the use of the cheapest method of
obtaining the efficiencies of vertical integration. Hostility
to such mergers may cause waste of the existing capital
stock, redundant capacity, and the misallocation of cur-
rent capital supplies as preventing horizontal mergers did
in the brewing industry. Also, where a firm buys from a
non-competitive set of suppliers with excess capacity,
earning little because of the excess in spite of a non-com-
petitive price, acquisition of a supplier will be cheaper
than building new facilities and will avoid wasting the
economy's limited supply of capital. Such an acquisition,
by decreasing cost to the buyer, may then force competi-
tion into the supplying industry by the buyer's competition
with others in his industry and their defensive reactions.
Vertical mergers, in this case are pro-competitive.” Yale
Brozen, Concentration, Mergers and Public Policy, at
402-03 (1982).
A rational division manager operating Cyanamid’s melamine
crystal production facility will continue to sell the merchant crys-
tal market, at market prices, whenever the market price equals or
exceeds the marginal unit cost. Since Cyanamid has a large and
A-38
recently erected facility, and since economies of scale in mela-
mine production are very great, such unit cost should exist when-
ever it is feasible for Cyanamid to operate its plant at all.
Furthermore a rational division manager operating Cyanamid’s
Formica division has no economic motivation to “buy” the crys-
tals from a sister division if they can be acquired cheaper overseas
or from MCI.“ This Court and the antitrust laws may expect
rational conduct economically motivated.
Furthermore, vacatur of the Decree does not exempt any part
or non-party from its future obligations to refrain from anticom-
petitive conduct in restraint of trade or monopolistic activity. All
pertinent statutes remain in force.
Dart and PMC also contend that termination of the Consent
Decree will establish Formica as a dominant and monopolistic
force in the plastic laminate industry by virtue of Cyanamid’s
vertical integration with Formica. MCI joins in this argument.
This Court does not believe that Cyanamid’s vertical integra-
tion with Formica will diminish competition in the plastic lami-
nate industry. Existing law prevents Formica from reducing the
price of its consumer plastic laminate products below the cost of
production. There is no basis to believe that Formica enjoys any
significant economic advantage from vertical integration so long
as the merchant melamine market price remains free from
monopolization or price fixing and we believe that the economic
self-interest of MCI and Cyanamid will assure this condition, as
will the continued foreseeable presence of importer suppliers.
Lower consumer prices for plastic laminate products should
6. Consistent with the economic concept of man as a “rationale
maximizer of his self-interest,” an individual will alter the operation of
his business in response to economic changes in his surroundings if it is
profitable todoso. Richard A. Posner, Economic Analysis of Law, at 3
(2d ed. 1977).
Industrial production is also governed by this course of conduct.
“How things are produced is determined by the competition of different
producers. The method [or raw material] that is the cheapest at =
one time, because of both physical efficiency and cost efficiency, will
displace a more costly method [or raw material]. The only way for
producers to meet price competition and maximize profits is to keep
costs at a minimum by adopting the most efficient methods = roduc-
tion].” Paul A. Samuelson, nomics, at 44 (10th ed. | 76),
A-39
ensue. The federal antitrust laws are designed to protect compe-
tition, not competitors. Buffalo Courier-Express, Inc. v. Buffalo
Evening News, Inc., 601 F.2d 48, 58 (2d Cir. 1979): see also
Hansonv. Shell Oil Co., 541 F.2d 1352, 1358-59 (9th Cir. 1976).
cert. denied, 429 U.S. 1074 (1977).
The interests of Dart, PMC and other users similarly situated
do not require continuance of the Decree.
We turn now to the contentions of MCI. Implicit in this
Court's public interest determination, is the careful consideration
of whether termination of the Provision XI captive customer
requirement will substantially lessen competition or tend to cre-
ate a monopoly. Termination of an antitrust Consent Decree in
any industry, which may create a monopoly or lessen competition,
does not serve the public interest and will not be sanctioned by
this Court.
In considering the propriety of a proposed termination, and the
public’s interest in such action, this Court recognizes that the
Department of Justice, as part of the Executive Branch of Gov-
ernment has broad discretion in controlling and determining the
public’s interest in Government antitrust litigation; a policy inter-
est different from that of this Court. See Sam Fox Publishing
Co. v. United States, 366 U.S. 683, 689 (1961).
Absent abuse of discretion, the Government's conclusion that a
decree should be vacated should be given great weight. The
Court finds, and there is no credible evidence to the contrary, that
the Justice Department has examined carefully the various con-
tentions of these participants concerning termination, and has
otherwise fulfilled its own obligation to represent the public's
interest in this case. However, this Court does not serve as a
rubber stamp for its conclusions.
All we have written above tends to show that the Consent
Decree should be terminated; our primary concern is with the
effect of the abrupt cessation of purchases by the Formica division
from MCI.
At least in the long run, this Court is not persuaded by MCI’s
argument that termination of Provision XI will strike a death
A-40
blow to MCI, or re-establish Cyanamid as a monopolist in mela-
mine crystals. Although it will take considerable time and effort,
MCI can overcome and replace the loss in sales attributed to the
Consent Decree’s termination, by actively competing against
Cyanamid and the foreign suppliers in the merchant melamine
market.” Since foreign producers presently account for a signifi-
cant share of the domestic melamine merchant market, their
Presence prevents Cyanamid or MCI from manipulating the
domestic price of melamine, unilaterally or together.
We have noted that melamine production is a capital intensive
business. MCI has invested substantial capital in a relatively
new plant at Donaldsonville, La. Obviously it cannot recover its
capital costs by withdrawing from the melamine market. I con-
clude that it is very unlikely MCI will cease melamine production
as a result of termination of the Consent Degree. MCI now has
every incentive to improve the operating efficiency of its mela-
mine plant and of its sales effort, in order to compensate for lost
revenues previously received from Cyanamid under the Consent
Decree. Furthermore, as observed in relation to Cynamaid’s
future production and sales to the merchant market, MCI has the
economic incentive to continue to produce melamine wherever it
can sell the output of its plant at a price in excess of the cost of the
marginal unit produced.
7. As we noted earlier, text at [A-37-38], it is foreseeable that
Cyanamid’s various divisions may continue to purchase melamine crys-
tals from MCI if MCI's prices are competitive. Furthermore, in view of
the recurrent spectre of unexpected shutdowns due to failure of its own
melamine plant, Cyanamid’s own economic interest may well be served
by making regular contract purchases in reasonable amounts from
MCI. Its failure or refusal to do so would tempt MCI to refuse to
respond to emergency demands of Cyanamid except by quoting esca-
lated “spot” prices
8. This economic truth is distorted somewhat in MCI’s favor: MCI's
parent has a favorable allocation of natural gas, a basic raw material
used in MCI’s plant, which continues for several years, and might find it
better to use this gas than to omit to take it. MCI’s present melamine
plant is located adjacent to and downstream in the production line from
its major source of urea and ammonia, the Triad Urea and Ammonia
Plant at Donaldsonville, La. The Triad plant is jointly owned and
operated by Triad Chemicals Corp. and one of MCI’s two corporate
parents, First Mississippi Corporation. The Donaldsonville production
A-4]
While this Court is not persuaded that the termination of Pro-
vision XI will cause MCI to go out of business, the Court finds
that an abrupt termination thereof will have an adverse impact on
MCI of a serious nature.
It is of course clear than an antitrust consent decree should only
endure so long as, and contain only such remedial measures nec-
essary to ensure competition. See United States v. Bausch &
Lomb Optical Co., 321 U.S. 707 (1944); United States v.
National Lead Co., 332 U.S. 319 (1947). An antitrust remedy
is designed to restore competition not to punish a defendant.
United States v. E. 1. du Pont Nemours & Co., 366 U.S. 316, 326
(1945).
Where, as here, the conditions which the decree was designed
to remedy no longer exist, the decree should be terminated, espe-
cially where it operates against the competitive designs of anti-
trust legislation. See King-Seeley Thermos Co. v. Aladdin
Industries, Inc., 418 F.2d 31 (2d Cir. 1969); United States v.
Imperial Chemical Industry, Ltd., 1957 Trade Cas. © 65,859 at
* 74.474 (S.D.N.Y. 1957). Accordingly, the Consent Decree
should be terminated. Indeed a strong argument can be made
that this should have been done long ago.
However, the present nature of the domestic melamine indus-
try mitigates against an abrupt termination of the Consent
Decree. Any Consent Decree is born of the Equity powers of this
Court. In exercising its powers a Court of Equity must act fairly.
A Serious question is presented, this Court finding as we do, that
the Decree should be terminated, whether relief from Provision
XI should not be done on a gradual basis over time, in order to do
Equity, and enable MCI to make the production and marketing
adjustments necessary to compensate for its sudden loss of Cyan-
amid’s Formica division as a so-called captive customer.
complex includes on-site facilities for rail and vessel transportation of
melamine to major domestic and export markets. The design and
location of this facility provides ample opportunity and incentive for
MCI to improve the efficiency of its production process and marketing
techniques, and to make more melamine rather than waste Triad’s
available constituent products.
A-42
The Consent Decree was intended, inter alia, to encourage
others to enter the melamine industry. MCI takes the position
that it 1s entitled to special consideration before a court of Equity
because it relied upon the terms of the Consent Decree in entering
the industry at a substantial investment of capital. There is
substantial authority in the antitrust field to the effect that a
decree may only be interpreted to promote competition and does
not create vested rights for the benefit of particular competitors.
See, e.g., United States v. Paramount Pictures Inc., 333 F.Supp.
1100, 1106 (S.D.N.Y.), affd., sub nom. Syufy Enterprises v.
United States, 404 U.S. 802 (1971); United States v. American
Society of Composers, Authors and Publishers, 341 F.2d 1003
(2nd Cir.), cert. denied sub nom. Metromedia, Inc. vy. American
Society of Composers, Authors and Publishers, 382 U.S. 877
(1965); United States v. Loew's Incorporated, 20 F.R.D. 423
(S.D.N.Y. 1957); United States v. Bendix Home Appliances, 10
F.R.D. 73 (S.D.N.Y. 1949).
Cyanamid argues with some justification that the only provi-
sions in the Consent Decree which worked to the benefit of spe-
cific competitors were of fixed duration, and that it did not expect
or agree to become “the guarantor of any specific company” or
that it would be held to any such obligations 18 years later, when,
because of the changes in the industry, and the effect of the
Consent Decree, its monopoly power had ended. Cyanamid also
argues that “to transform this Government case into a contest
between MCI and Cyanamid as to which is most deserving of
judicial solicitude is to deprive Cyanamid of rights it bargained
for in settling the case.” (Memorandum docketed December 21,
1982, p. 16). This argument may overstate the case somewhat,
and tends more to show that the provisions of Provision XI may
have been improvident when made.’
9. «This comment is not disrespectful of the memory of our esteemed
colleague, predecessor and friend Judge Levet. Like most district
judges, then and now, Judge Levet viewed litigation as an adversarial
ae peny favored the settlement of disputes on consent and would have
ad no qualms about approving a consent decree under the circum-
stances existing when this decree was presented. When entered, this
Decree had the support of the Justice Department and was in accord
with the economic and antitrust theories then fashionable.
A-43
The current economic recession and particularly the difficulties
faced by domestic manufacturers of automobiles who are large
users of melamine products, affect both MCI and Cyanamid.
Products of Cyanamid’s Formica division are used to a large
extent in the construction industry. Here too, consumption is
down due to current economic conditions.
At the time the Consent Decree was framed, other domestic
producers were envisioned besides Cyanamid and MCI’s prede-
cessor, Fisher Chemical Company, so that true “reliance” in the
traditional sense is probably not present here. That is to say, it
cannot be shown that MCI’s predecessor entered the market with
the reasonable expectation of being the sole beneficiary of the
Captive customer provision in the Decree.
Recognizing the countervailing harm which the phased-out
purchasing requirement might impose on Cyanamid, the Court
would be willing to undertake so to provide, in order that the
sudden disruption of the long standing relationships created by
the Decree would not cause undue harm to MCI, its investors and
employees. In the present fragile state of our economy, the
nation can ill afford any abrupt industrial change which may
increase unemployment or cause more manufacturing capacity to
become idle. A Court of Equity should not be a party to creating
such hardship, particularly where the only issue is whether the
Court should act abruptly, or gradually over a sufficient period of
time to permit a less painful adjustment.
Cyanamid, once it takes delivery of its remaining 1982
purchase requirements from MCI, will have an inventory position
of approximately 20 million pounds of melamine crystal, almost
twice its ordinary inventory at this time of year. The cost of
carrying this inventory is said to approximate $40,000.00 per
month, and the present inventory may be more than sufficient to
cover the demands of its Formica division in the entire calendar
year 1983, which is expected to be approximately six million
pounds of melamine. (Affidavit of Robert P. Kreahling, sworn to
December 20, 1982, 1% 10, 20).
A-44
This Court, attempting to assist the parties in reaching a com-
promise, indicated a desire to consider whether in its modification
of this Decree MCI could obtain the benefit of a “weaning period™
during which Cyanamid’s Formica division would gradually
phase itself out as a purchaser, and MCI could adjust gradually to
fully competitive conditions. Efforts of the parties, at the Court's
urging, to reach agreement for a gradual phasing out of Provision
XI were unsuccessful.’
Absent agreement, this Court had been prepared to impose a
period of time for a gradual phasing out of the purchase require-
ment of Provision XI, and this Court is convinced that a Court of
Equity functioning under ideal circumstances should do so.
On reflection, however, there appears to be a fundamental
difficulty of impracticality, a prudent consideration of the sort
which also regulates a Court of Equity in the exercise of its
traditional powers. A Court of Equity will not exercise its equi-
table powers where it would “require such constant superinten-
dence as to make judicial control a matter of extreme difficulty.”
Standard Fashion Co. v. Siegel-Cooper Co., 157 N.Y. 60, 66
(1898); see also, Beck v. Allison, 56 N.Y. 366, 370 (1874). Nor
will a Court of Equity grant equitable relief where it “appears to
be impossible or impracitcable.” Doyle v. Allstate Ins. Co., |
N.Y.2d 439, 443 (1956). In this situation, it is the difficulty in
rendering judgment, not of enforcing it, that causes the Court to
hesitate.
The Court could not simply pick a number between one year
and ten years on an arbitrary basis during which to phase out the
requirement. A rationale basis would have to be found to deter-
mine a reasonable period of time during which MCI could adjust
to the sudden withdrawal of its captive customer, the Formica
division of Cyanamid, without causing undue hardship in the
form of unemployment or waste of assets. In making such a
determination, a Court of Equity would also have to consider the
equities favoring Cyanamid, which is now possessed of 20 million
pounds of MCI melamine, presently and in the foreseeable future
10. Pursuant to Rule 408, F.R.Evid., this Court has not considered
the respective offers of compromise proposed by the parties.
A-45
unuseable for economic reasons, and being stored at a substantial
monthly expense.
Ordinarily it is an article of judicial faith that any disputed
matter can be resolved simply by conducting an evidentiary hear-
ing, but this Court perceives no way by which it could determine
in this case, after or without an evidentiary hearing, that a precise
term of months or years and no longer, would be fair and ade-
quate to allow a gradual phasing in of competition for sales of
melamine crystals to the Formica division of American Cyana-
mid, which never should have been allowed to stop in the first
place, and yet not so long and onerous as to burden Cyanamid
unfairly.
Solely for reasons of judicial impossibility, and in light of the
inability of the parties to agree on a gradual phased in termina-
tion, the Court declines to make such a requirement a condition of
its granting of the relief requested herein.
The present application is granted to the extent that defendant
American Cyanamid Company is hereby released from all execu-
tory provisions of the Consent Decree dated August 4, 1964,
except those which are merely declaratory of existing law, such
release to become effective as of January 1, 1983.
All obligations attaching on or prior to December 31, 1982,
including purchases of melamine for the Formica division during
that year under Provision X1I, shall remain in full force and effect
and must be adhered to. This Court reserves jurisdiction over the
parties and subject matter to enforce any provisions of the Decree
relative to any period of time prior to January 1, 1983.
The foregoing constitutes this Court's findings of fact and con-
clusions of law pursuant to its hearing conducted on October 27,
1982, and all submissions received and docketed since that date.
4-46
Settle an order or judgment on five (5) days notice of settle-
ment or waiver of notice. Each party shall bear its own costs
Dated: New York, New York
January 10, 1983
CHARLES L. BRIEANT
Charles L. Brieant
U.S. D. J
A-47
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEw York
UNITED STATES OF AMERICA,
Plaintiff, 60 Civ. 3857-CLB
against MEMORANDUM AND
. : -. ORDER
AMERICAN CYANAMID COMPANY,
Defendant
BRIEANT, J.
Before the Court at this time are two applications for interven-
tion pursuant to Rule 24, F.R.Civ.P. in which Melamine Chemi-
cals Inc. (“MCI”), a producer of melamine, and Dart Industries
Inc. (“Dart”), a manufacturer of plastic laminates which con-
sumes melamine, seek to intervene in a motion by defendant
American Cyanamid Company (“Cyanamid™) to terminate the
1964 Consent Decree in this antitrust action.
On October 27, 1982, during oral argument on the motions, the
Court by oral order, granted the motion of Plastics Manufactur-
ing Co., Inc. (“PMI”) to appear as an amicus curiae in this
action.
Although a full description of this litigation’s extended history
is inappropriate for purposes of this application, a brief discussion
is necessary.
The Justice Department filed this civil action on October 5,
1960 alleging that Cyanamid violated provisions of both the Sher-
man and Clayton Acts by monopolizing the markets for mela-
mine and melamine-containing products. In 1964, the parties
entered into the Consent Decree settling the case, which was
approved by the late Hon. Richard H. Levet, a Judge of this
Court. United States v. American Cyanamid Co., 1964 Trade
Cas. (CCH) 171,166 (S.D.N.Y. 1964).
A-48
On August 9, 1982. after a fifteen month investigation, the
Justice Department and Cyanamid filed a proposed stipulation
with this Court, seeking an order terminating the 1964 Consent
Decree.
Pursuant to the disclosure procedures of 15 U.S.C. § 16, Cyan-
amid duly published notice of the proposed termination in two
consecutive editions of the Wall Street Journal, the Journal of
Commerce and the Chemical Marketing Reporter. Interested
parties were then given sixty days to respond to the Department
of Justice concerning the proposed termination. As a result,
MCI, Dart and PMI submitted objections to the proposed termi-
nation. Each now seeks to participate in the litigation on the
district court level
The Consent Decree has been amended on three occasions
since 1964. Arguably. since it was issued, many of its provisions
have become obsolete. Some have expired. However, Provision
XI, the portion of the Consent Decree in which movants are
interested, has remained in effect unchanged.
Provision XI requires Cyanamid
“... to purchase annually from other producers of mela-
mine (with preference to United States producers) an
amount of melamine equivalent to. .. [Cyanamid’s mela-
mine requirements for the preceding year which it used]
in the production of laminates in the United States pro-
vided that at any time after ten (10) years from such date,
Cyanamid may petition to this Court to be relieved from
this provision, such relief to be granted upon a showing by
Cyanamid to the satisfaction of this Court that the effect
of such relief will not be substantially to lessen competi-
tion or tend to create a monopoly in any line of commerce
in any section of the country.”
We need not consider at this time the interesting history of this
provision, nor its motivation when presented to and adopted by
the Court. We note however that Cyanamid had acquired
Formica, Inc. (“Formica”), then and perhaps now the world’s
leading melamine laminate manufacturer, and a substantial pur-
chaser of melamine.
ESS:~CS EI
A-49
In reliance on the Consent Decree’s terms, MCI along with
other venture Capitalists, entered the melamine crystal Produc-
tion industry. With time, only MC] Proved able to survive in the
industry. To date it is the only domestic Producer of melamine
Crystals other than Cyanamid. Asa result, the practical effect of
Provision XI is to Provide MCI with substantial forced annual
sales of melamine crystals to Cyanamid at Prices limited only by
the availability of foreign product
In support of its application to intervene, MC} contends that
the annual sales it receives pursuant to Provision XI are vital to its
continued existence, and that termination of the Decree will end
these sales and effectively force it out of business. This “will
substantially lessen competition and... tend to create a monopoly
[in Cyanamid].” (MCI's Memorandum in Opposition to Cyan-
amid’s Motion to Terminate, p. 3)
MCI alleges that the Government has either “misconceived or
ignored the true issues” in evaluating the Propriety of the pro-
Posed termination of the Decree. (MCI's Memo in Opp.. p. 14).
Specifically, MCI contends that the Government has failed or
refused to consider three relevant facts: (1) Cyanamid’s owner-
ship of Formica: ( 2) the effect of the Proposed termination on the
other customers and markets for melamine resins, laminates and
other products that use melamine; and (3) Cyanamid’s status as
both a producer and consumer of melamine. (MCI's Memo in
Opp., p. 15).
Proposed intervenor Dart, through its Ralph Wilson Plastics
Division, produces Plastic laminates in Principal competition with
Cyanamid’s Formica division. Melamine resin. a basic raw
material used in the Production of Plastic laminates, js Produced
from melamine Crystals. As a result. Producers of plastic lam;
nates, such as Dart and PMI. are ultimately affected by any
supply or demand change in the melamine crystal market
Since Cyanamid and MCI are now the only domestic suppliers
of melamine crystals, Dart contends that termination of the Con-
sent Decree will have an anticompetitive impact on the plastic
laminate industry because it will enable or encourage C yanamid
A-50
to withdraw completely from the melamine crystal market, in
order to use its melamine production capacity internally to meet
the production demands of Formica. Whether or not this is a
valid contention does not resolve the issue of intervention.
Dart and PMI assert that foreign melamine producers are not
reliable sources for melamine crystals and have little competitive
influence on the melamine or melamine related markets. They
allege that as a result of MCI's vigorous anti-dumping campaign
against foreign melamine producers, foreign suppliers are unwill-
ing to risk the expense and exposure of anti-dumping proceedings
in order to offer melamine crystals at competitive prices to domes-
tic purchasers. (PMI’s Memo in Opp., p. 7). Here again
whether or not this is a valid contention does not resolve the issue
of intervention.
Asa result of Cyanamid’s supposed intention to withdraw from
the melamine crystal market and the absence of reliable and
adequate foreign suppliers, Dart alleges that MC/ will inherit a
monopolistic position in the melamine crystal market. Melamine
resin producers, on whom Dart and PMI rely, will be forced, it is
said, “to pay monopolistic, anti-competitive prices for raw and
intermediate materials.” (Affidavit of Ralph Wilson, sworn to
October 20, 1982). When this cost increase is passed on to
plastic laminate producers, they will “be unable to compete in the
manufacture and marketing of plastic laminates and related
materials with Cyanamid, which by virtue of . . . [its ownership of
Formica} will be able to price squeeze competitors out of that line
of commerce.” (Affidavit of Ralph Wilson, sworn to Oct. 20,
1982. p.3). Here again whether or not this is a valid contention
does not resolve the issue of intervention.
In opposition to applicants’ motions to intervene, the Justice
Department asserts that it has fully examined and evaluated the
applicants’ contentions and has nonetheless concluded that termi-
nation of the Consent Decree is appropriate because it 1s no longer
necessary to imsure a competitive melamine market
A-51
In support of this conclusion, Justice Department cites the
fundamental changes in the melamine industry and the emer-
gence of foreign producers as realistic, competitive sources of
melamine crystals.
The immediate question presented here is solely whether MCI
and Dart should be permitted to intervene in this action pursuant
to Rule 24, F.R.Civ.P. as of right, as they assert, or permissively,
in the Court's discretion.
The Court notes at the outset that counsel for the parties have
conceded on the record that Cyanamid’s motion to terminate may
be resolved by the Court essentially on the present record before
it. without the introduction of significant additional evidence and
without further hearings. Therefore, it seems implicit that inter-
vention is sought here primarily to preserve the applicants’ right
to appeal this Court's ultimate determination of Cyanamid’s
motion to terminate the Consent Decree, and possibly also to
present any additional information should the Court request same
after further study.
In order for MCI or Dart to intervene as of right, they must
satisfy Rule 24(a)(2), F-R-Civ.P., which states in relevant part
that:
“(a) Intervention of Right. Upon timely application
anyone shall be permitted to intervene in an action: ... (2)
when the applicant claims an interest relating to the prop-
erty or transaction which is the subject of the action and
he is so situated that the disposition of the action may as a
practical matter impair or impede his ability to protect
that interest, unless the applicant's interest is adequately
represented by the existing parties 8
in Government antitrust consent decree hearings, it has been
held consistently, with the rarest exception, that a private party
will not be permitted to intervene as of right absent a showing that
the Government has failed “fairly. vigorously and faithfully” to
represent the public interest. nited States v. Ciba Corp., 50
FRE 507 (SDNY. 1970); see also United States \ Stroh
Brewery Co. 1982-2 Trade Cas. (CCH) © 64,782 (D.DC
A-52
1982): United States v. Carrols Development Corp., 454 F.Supp.
1215 (N.D.N.Y. 1978); United States v. Hartford-Empire Co..
$73 F.2d 1 (6th Cir. 1978); United States v. Mid-American
Dairyman, Inc., 1977-1 Trade Cas. (CCH) © 61,508 (W.D. Mo.
1977): United States v. Associated Milk Producers, Inc., 534
F.2d 113 (8th Cir.), cert. denied sub nom. National Farmers’
Organization, Inc. v. United States, 429 U.S. 940 ( 1976); United
States v. Paramount Pictures, Inc., 333 F.Supp. 1100 (S.D.N.Y.
1971), aff'd., 404 U.S. 802 (1971); United States v. Western
Electric Co., 1968 Trade Cas. € 72,415 (D. N.J. 1968), aff'd. sub
nom. Clark Walter and Sons, Inc. v. United States, 392 U.S. 659
(1968).
The leading exception to the numerous cases denying interven-
tion as of right in matters such as this is Cascade Natural Gas
Corp. v. El Paso Natural Gas Co., 386 U.S. 129 (1967). In
Cascade, the Court permitted parties to intervene as of right
where it found that the Government, in entering an antitrust
consent decree, had compromised the interest of the public and of
the proposed intervenors allegedly in direct contradiction Of the
Supreme Court's prior mandate to the contrary. Subsequent
decisions have limited the scope of Cascade to its rather unusual
presumed facts, which are not present in this litigation. United
States v. Ciba, supra; United States v. Paramount Pictures, Inc.,
supra; United States v. American Telephone and Telegraph Co..
§52 F. Supp. 131 at 218, n. 362 (D.D.C. 1982).
In light of the present record before the Court, there is no basis
whatever to find thatthe Government has failed in any respect to
pursue and represent the public interest in this litigation in good
faith. Accordingly, intervention as of right is inappropriate.
Pursuant to Rule 24(b)(2), F.R-Civ.P.:
“Upon timely application anyone may be permitted to
intervene in an action: .. (2) when an applicant's claim or
defense and the main action have a question of law or fact
in common In exercising its discretion the court shall
consider whether the intervention will unduly delay or
prejudice the adjudication of the rights of the original
parties ~
A-53
The ultimate issues now posed in this case are (1) whether
termination of the Consent Decree will lesson competition, or (2)
tend to create a monopoly, or (3) enhance or detract from the
current competitive balance of the melamine crystal and mela-
mine related markets.
In determining that question, the Court must consider MCI
and Dart’s respective claims that termination will have an undue
or unlawful anti-competitive impact on the respective melamine
markets of concern to them. Without question, such claims are
directly related to the subject matter of this litigation.
As a practical matter, permissive intervention, if granted here,
will not unduly delay or prejudice the original parties to this
litigation. The time consuming and expensive discovery
demands often asserted by intervening parties will not be endured
here. Applicants seek only to preserve their right to appeal an
adverse decision in this action, and to participate in such further
proceedings as this Court may direct on its own motion. Any
attendant delay attributed to such an appeal of this Court's ulti-
mate determination would not be unduly prejudicial and at least
in theory would be in accord with fundamental concepts of
Justice.
As held in United States v. American Telephone and Telegraph
Co., supra, the court has considerable latitude in assuring that the
public interest is served in antitrust consent decree hearings:
“The procedures required for the protection of the public
interest necessarily depend upon many different circum-
stances—which is precisely why the Congress left to the
courts’ discretion the means by which their public interest
responsibilities would be effected.” [552 F.Supp. at 216]
In the Telephone case, supra, the court permitted numerous par-
ties to intervene in order to preserve, among other things, the
applicants’ right to appeal the entry of the proposed consent
decree.
Although the circumstances of this case do not approach the
complexity of the Telephone litigation, the case before this Court
is an unusual one. Although MCI was not granted specific rights
A-54
in the Consent Decree, it may be said to have relied upon and
profited from its perpetual provisions. Surely a Court of Equity
cannot ignore this history, although we do not Suggest MC]
thereby gained any vested rights in its continuance. The anti-
trust laws protect competition, not competitors. See Buffalo
Courier-Express, Inc. v. Buffalo Evening News, 44] F.Supp. 628,
646 (W.D.N.Y. 1977), rev'd. on other grounds, 601 F.2d 48 (2d
Cir. 1979) and cases cited thereunder. Dart’s Position is essen-
tially similar, although perhaps adverse to MCI in the market.
In light of the unusual factual Setting, and the close relation-
ship between the applicants’ claims and the main issue now before
the Court, I conclude that the applicants should each be granted
permissive intervention as parties in this action.
Applicants’ motions to intervene are granted in the Court's
discretion pursuant to Rule 24(b)(2), F.R.Civ.P., conditioned
upon their continued adherence. respectively, to alk procedural
Stipulations and agreements offered at the hearing. See Tran-
script of October 27, 1982.
So Ordered.
Dated: New York, New York
November 9, 1982
CHARLES L. BRIEANT
Charles L. Brieant
U.S. D. J.
A-55
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
UNITED STATES OF AMERICA,
Plaintiff. Civil Action No
—against— 60 Civ. 3857
(CLB)
AMERICAN CYANAMID COMPANY,
Defendant
MEMORANDUM OF THE UNITED STATES IN
RESPONSE TO MOTION OF AMERICAN CYANAMID
COMPANY TO TERMINATE THE FINAL JUDGMENT
HEREIN
American Cyanamid Company (“Cyanamid”), the defendant
herein, has moved this Court to terminate the Final Judgment in
this action, which was entered on August 4, 1964. Ina Stipula-
tion between Cyanamid and the United States, Cyanamid has
agreed to publish notice of the motion, and an invitation for
comments thereon, in The Wall Street Journal, The Journal of
Commerce and The Chemical Marketing Reporter; and the
United States has tentatively consented to the entry of an order
terminating the Final Judgment at any time more than seventy
(70) days after the last publication of such notice, provided that
Cyanamid dedicates to the public all patents subject to the
mandatory licensing provision of the Final Judgment. Cyanamid
has agreed to this condition.
In this memorandum we summarize the Complaint and Final
Judgment, explain the reasons why the United States has con-
sented to termination of the Judgment, and discuss the legal
standards and precedents regarding judgment termination. We
also discuss the procedures proposed by the Government, and
agreed to by Cyanamid, for giving public notice of the pending
motion, obtaining public comment thereon, and assuring the right
A-56
of the Government to withdraw its consent during and after the
comment period
I. The Complaint and the Final Judgment
The Complaint in this action was filed on October 5, 1960. It
charged that, beginning in 1937, Cyanamid had violated Sections
1 and 2 of the Sherman Act (15 U.S.C. §§ 1 & 2) by monopoliz-
ing melamine and melamine-containing products through an ille-
gal agreement made with six foreign and domestic companies in
order to exploit the competitive advantage which Cyanamid had
in the manufacture and sale of these products. This advantage
came primarily from Cyanamid’s exclusive domestic control of
dicyandiamide (“dicy”), the raw material from which melamine
was then primarily made. Cyanamid had manipulated the avail-
ability and pricing of dicy to discourage melamine manufacture
by others, and had also caused foreign producers to refuse to sell
melamine to anyone in the United States not approved by Cyana-
mid. The Complaint also charged that Cyanamid had violated
Section 7 of the Clayton Act (15 U.S.C. § 18) by its acquisition
of the Formica Company, a leading consumer of melamine lami-
nating resins.
In July 1964 a proposed consent judgment was filed in this
Court, and it was subsequently entered on August 4, 1964. The
Judgment called tor Cyanamid to divest itself within two years of
the larger of its two melamine manufacturing facilities, and to
take a number of other steps designed to break up Cyanamid’s
monopoly of melamine in the United States. These steps
included time-limited obligations, such as sharing its know-how
and technology in melamine-related fields for up to twenty-two
years; foregoing acquisitions in melamine-related products for ten
years and obtaining Government or Court approval for such
acquisitions for another ten years; and limiting for ten years the
amount of melamine it produced unless overall production
increased to a stated amount. In addition, the Judgment
enjoined Cyanamid in perpetuity from engaging in certain
anticompetitive acts, most of which would involve violations of
A-57
the antitrust laws even absent the decree, and also from entering
into or continuing agency and other relationships with co-conspir-
ator companies or firms in the melamine business. Finally,
Cyanamid was required to purchase annually, preferably from
domestic producers, an amount of melamine equal to its domestic
use for laminates.
Some of the decree’s provisions have expired. Divestiture of a
melamine-from-dicy plant was accomplished in 1964. The 10-
year ban on acquisitions in melamine fields has expired, as has the
production limitation. In addition, many of the patents subject
to the compulsory licensing requirement have expired. The fol-
lowing provisions of the Judgment are still in effect:
(1) Section VI, which enjoins Cyanamid from (a) entering
into Or maintaining any agreement to allocate or divide custom-
ers, territories or markets in melamine or melamine-containing
products; (b) limiting or restraining competition in these prod-
ucts; (C) restraining the importation into or exportation from the
United States of any such products; or (d) refusing to do business
in these products with anyone;
(2) Section VII, which enjoins Cyanamid from (a) referring
any orders or requests for information for dicy, melamine or
melamine-containing products to any co-conspirator or any com-
pany in a melamine business; (b) entering into distributor or
agency relationships with such companies with respect to dicy,
melamine or melamine-containing products; (c) coercing anyone
not to engage in the manufacture or sale of dicy, melamine, or
melamine-containing products; and (d) restraining the uses to
which these products might be put after sale;
(3) Section VIII, which enjoins Cyanamid from refusing to
sell dicy or any melamine resin to anyone able to pay for it, and
from fixing the differential between the prices charged by it for
dicy and for melamine or melamine resins so as to restrain trade;
A-S%
(4) Section IX, which requires Cyanamid to grant a license.
subject to reasonable royalty fees, for patents acquired by C yana-
mid for up to five years following entry of the decree (1969)
covering melamine made from dicy and m:iamine resins;
(S) Section XI, which requires Cyanamid to purchase annu-
ally from other producers of melamine (with a preference to
United States producers) an amount of melamine equivalent to
Cyanamid’s requirements for its production of laminates in the
United States in the preceding year; and
(6) Section XIII, which requires Cyanamid, until 1984, to
obtain the approval of the Government or the Court for any
acquisition in North America of a melamine-related business.
Since entry of the decree, this Court has on three occasions
entered orders affecting Cyanamid’s obligations under it. Cyan-
amid was twice (in 1973 and 1974) allowed to produce a quantity
of melamine greater than that then permitted under (now-
expired) Section V of the Judgment, and in 1969 Cyanamid was
allowed to begin construction of a melamine-from-urea plant in
Louisiana, which effectively increased its capacity to produce
melamine. In addition, in 1975 this Court ruled that Cyanamid
was not guilty of criminal contempt when it produced more than
30 million pounds of melamine in 1972. United States v. Ameri-
can Cyanamid Co., 1978-1 Trade Cas. £61,843 (S.D.NLY.
1977).
Il. The Reasons Why the Government Has Consented To
Termination of This Final Judgment.
The principal goal of the Final Judgment was to break up a
monopoly which was alleged to have resulted in artificially high
prices for such diverse items as laminated plastics, unbreakable
dinnerware, and water and flameproof products. Cyanamid’s
control of the basic raw material for melamine—dicy—and its
agreements with the co-conspirator firms provided the primary
bases for the Sherman Act violations alleged.
A-S9
Today, the circumstances under which the markets for mela-
mine and melamine-containing products operate are completely
different from those which obtained in the pre-complaint period.
Cyanamid no longer controls the basic raw material from which
melamine is made and it no longer has the power to dictate te
whom and how foreign suppliers of melamine itself will sell.
Even more significantly, it is no longer the sole domestic seller of
melamine for the merchant market.
Melamine presently is produced in the United States by Cyan-
amid and by Melamine Chemicals, Inc. (*MCI"). Both produce
melamine at plants in Louisiana using melamine-from-urea tech-
nology developed by a Dutch company. In such case, the urea is
produced at an adjacent facility which uses natural gas as its
basic ingredient. Both domestic producers presently operate
under long-term contracts with different suppliers for their mela-
mine feedstocks. Capacity for each company’s plant is about 70
million pounds annually.
The major portion of Cyanamid’s melamine production is con-
sumed by it internally; the remainder is sold on the merchant
market. In 1980, according to defendant's representations,
Cyanamid’s sales to this market were about 17.6 million pounds;
in 1981 such sales amounted to some 8.8 million pounds. Cyana-
mid estimates, based on industry information, that its sales to the
merchant market in 1981 amounted to 15.3%, while MCI’s sales
to this market amounted to some 34%.
An increasingly significant factor in the domestic market for
melamine has been the role of imports, which supplied some 50%
of the market in 1981. Since an adverse ruling in the Interna-
tional Trade Commission in 1976, Japan’s melamine sales in this
country have been small, but significant quantities of Dutch,
Italian, Austrian, Brazilian and Kuwaiti melamine have been sold
here since then at prices below those of the American producers.
It is thus eminently clear that competitive factors exist at this
time, in sharp contrast to the pre-Judgment situation.
A-60
Given the present state of competition in the melamine market.
the reasons which once existed for the requirement that Cyana-
mid purchase a portion of its melamine requirements from a
domestic producer have ceased to be compelling. To the extent
that a purchase requirement adds to Cyanamid’s costs of doing
business, such costs work against price reductions in melamine-
containing products made by Cyanamid, and the requirement
now disserves the public. To the extent that such a provision
results merely in a transfer of profits from one competitor to
another, it also fails to benefit the public. Neither does a public
benefit accrue from the remaining sections of the Judgment.
Cyanamid has agreed to dedicate to the public the patents still
covered by the Judgment. These patents cover several mela-
mine-related processes and products, and their availability in the
public domain will guarantee their fullest potential use.
Termination of the other remaining provisions of the Judgment
should result in no loss to the public interest. Section VI, for
example, proscribes conduct which, if engaged in after termina-
tion of the Judgment, would violate the antitrust laws. The
prospect of a Sherman Act prosecution should be as effective a
deterrent to such conduct as the continued existence of Section
Vi.
The same point may be made with respect to Section VII, to the
extent that that provision enjoins coercive or exclusionary con-
duct. However, Section VII also prohibits certain business rela-
tionships, including distributorship or agency arrangements, with
others engaged in the melamine business. Under present circum-
stances many such arrangements may be otherwise lawful and
Procompetitive. Since the antitrust laws wil! be fully applicable
to any such relationship which has an anticompetitive purpose or
effect, the absolute prohibitions of Section VII no longer serve the
public interest in vigorous and unfettered competition.
Section VIII relates specifically to the melamine-from-dicy
technology. Since that technology is now obsolete, the section no
longer has any practical effect.
A-61
With respect to Cyanamid’s obligation under Section XIII
until 1984 to obtain the approval of the Government or the Court
before acquiring any melamine-related business in North
America, we are satisfied that adequate notice of any acquisition
which may be anticompetitive will be given to the Government
even without the Judgment. Acquisitions of significant size
would necessarily be reported under the Hart-Scott-Rodino Act
and would, of course, be reviewed under the appropriate stan-
dards. Even smaller acquisitions are likely to be reviewed
through the Antitrust Division's normal investigatory channels.
Melamine-related acquisitions by Cyanamid have been
prohibited or regulated by the decree for 18 years. It appears
unlikely that the public will be disserved in any way by the
termination of this time-limited provision within two years of its
expiration.
In view of the foregoing, efficient allocation of prosecutorial
and judicial resources dictates that the decree be disposed of in its
entirety at this time. Some of its terms are unduly restrictive in
today’s markets by reason of changed competitive circumstances,
and others are merely superfluous. Termination of this decree
would serve the public interest in promoting competitive and
efficient markets.
Ill. The Legal Standards Applicable to the Termination Of
An Antitrust Decree with the Consent of the
Government
This Court has jurisdiction to modify or terminate the Final
Judgment pursuant to Section XV of the Judgment, Rules
60(b)(5) and (6) of the Federal Rules of Civil Procedure, and
“principles inherent in the jurisdiction of the chancery.” United
States v. Swift & Co., 286 U.S. 106, 114 (1932).
Where, as here, the United States consents to the proposed
termination of the final judgment in a government antitrust case,
the issue before the Court is whether termination of the judgment
is “in the public interest.” United States v. Swift & Co., 1975-1
Trade Cas. 160,201 at 65,702 (N.D. Ill. 1975); see also United
States v. General Electric Co., 1977-2 Trade Cas. 961,659 at
A-62
72,717 (E.D. Pa. 1977). This is the same standard that a district
court applies in deciding whether to enter an initial consent
decree submitted by the Government in an antitrust proceeding.
See 18S USC. §16(e) (1976); United States v. Radio Corp. of
America, 46 F. Supp. 654, 656 (D. Del. 1942), appeal dismissed,
318 U.S. 796 (1943) (“modification or vacation of a consent
decree . . . involves the same duty of the court independently to
determine that the acton is equitable and in the public interest” as
does the entry of a consent decree initially).
The Supreme Court has held that where the words “public
interest” appear in federal statutes designed to regulate public
sector behavior, they “take meaning from the purposes of the
regulatory legislation.” NAACP v. FPC, 425 U.S. 662, 669
(1976). In this case, the Sherman Act is the underlying statute,
and “the policy unequivocally laid down by [that] Act is competi-
tion.” Northern Pacific Railway v. United States, 356 U.S. 1, 4
(1958); accord, e.g., National Society of Professional Engineers
v. United States, 435 U.S. 679, 695 (1978).
Thus, the ultimate question before the Court at this time is
whether termination of the Final Judgment, by removing some
lingering restraints upon Cyanamid’s ability to compete with
respect to the sale of melamine and melamine-containing prod-
ucts, would serve the public interest in “free and unfettered com-
petition as the rule of trade.” Northern Pacific Railway v.
United States, supra, 356 US. at 4.
In answering this question, the Court should recognize that the
Department of Justice has broad discretion in controlling govern-
ment antitrust litigation. See Sam Fox Publishing Co. v. United
States, 366 U.S. 683, 689 (1961); cf Control Data Corp. v.
International Business Machines Corp., 306 F. Supp. 839, 845
(D. Minn. 1969), aff'd sub nom. Data Processing Financial &
General Corp. v. International Business Machines Corp., 430
F.2d 1277 (8th Cir. 1970) (“The Attorney General is the repre-
sentative of the public interest in antitrust cases brought by the
[G]overnment” ).
A-63
In United States v. Mid-America Dairymen, Inc., 1977-1
Trade Cas. © 61,508 at 71,980 (W.D. Mo. 1977), the court accu-
rately summarized the judiciary’s role in determining whether the
initial entry of a consent decree is “in the public interest”:
Absent a showing of corrupt failure of the government
to discharge its duty, the Court, in making its public inter-
est finding, should . . . carefully consider the explanations
of the government . . . and its responses to comments in
order to determine whether those explanations are reason-
able under the circumstances. .. .
This Court may not substitute its opinion or views con-
cerning the prosecution of alleged violations of the anti-
trust laws or the deterr ination of appropriate injunctive
relief for the settlement of such cases absent proof of an
abuse of discretion.
The same role is appropriate when the Government consents to
the termination of a decree. Where the Department of Justice
has offered a reasoned and reasonable explanation of why the
termination of a judgment vindicates the public interest in free
and unfettered competition, and there is no “showing of corrup'
failure of the government to discharge its duty,” the Court should
defer to the Department's conclusions concerning the appropri-
ateness of the termination.’
IV. The Proposed Procedures for Giving Public Notice of
the Pending Motion and Inviting Comment Thereon
United States v. Swift & Co., supra, 1975-1 Trade Cas. at
65,703, discusses a court's responsibility to implement procedures
1. Over the years, courts have approved literally hundreds of con-
sent orders ifying or terminating government antitrust decrees
Recent instances include:
United States v. Grinnell Corp?, Cw No. 2785/1967 (DRA
May § and January 20, 1982). Lmited States v. Great Lakes
Towing Co., Civ. No. 8003 [Equity No. 72] (N_D. Ohio Decem-
ber 2, 1981). United States v. Witco Chem. Corp, \98%2-\ Trade
Cas. 164,59] (WD. Pa 198) ). United States v. Lee Shubert.
A-64
that will give nonparties notice of, and an opportunity to comment
upon, antitrust judgment modifications proposed by consent of
the parties
Cognizant .. . of the public interest in competitive eco-
nomic activity, established chancery powers and duties,
and the occasional fallibility of the Government, the court
is, at the very least, obligated to insure that the public, and
all interested parties, have received adequate notice of the
proposed modification. . . . ( Footnote omitted.)
The Department of Justice believes that giving the public
notice of the filing of a motion to terminate the final judgment ina
government antitrust case, and an opportunity to comment upon
that motion, is necessary to insure that both the Department and
the Court properly assess the “public interest.” Accordingly,
over the years, the Department has adopted and refined proce-
dures to apply when a tentative decision has been made to support
1982-1 Trade Cas. £64,572 (S.D.N.Y.); United States v. New
York Coffee & Sugar Exch., Inc., 1982-1 Trade Cas. 64,540
(S.D.N.Y. 1981); United States v. Hart Schaffner & Marx, Civ.
No. 68-C-2167 (N.D. Ill. Sept. 30, 1981); United States v. Scott
Aviation Div., A-T-O Inc., Civ. No. 8432-E (W.D.N.Y. July 23,
1981): United States v. International Boxing Club, Inc., Civ.
No. 74-81 (S.D.N_Y. June 30, 1981); United States v. American
Thread Co., Eq. No. 312 (D.N.J. June 19, 1981); United States
v. Coca-Cola Bottling Co., 1980-81 Trade Cas. 63,604 (C.D.
Cal. 1980); United States v. SKF Indus., Inc., Civ. No. 9862
(N.D. Ohio November 3, 1980); United States v. Quaker State
Oil Ref. Corp., 1980-81 Trade Cas. £63,627 (W.D. Pa. 1980):
United States v. Leviton Mfg. Co., Inc., 1980-2 Trade Cas.
63,543 (D. Conn. 1980); United States v Georgia Automatic
Merchandising Council, Inc., 1980-2 Trade Cas. *63,448 (N.D.
Ga. 1980); United States v. Aerofin Corp., 1979-1 Trade Cas.
£62,598 (S.D.N.Y. 1979); United States v. Imperial Chemica!
Indus., Lid., Civ. No. 24-13 (S.D.N.Y., December 12, 1979);
United States v. First Natl City Bank, 1978-1 Trade Cas.
62.223 (S.D.N.Y. 1978); United States v. Hartford-Empire
Co., 1978-1 Trade Cas. 62.057 (N.D. Ohio 1976); and United
—_7 v. General Electric Co., 1977-2 Trade Cas. 61,659 (E.D
a. 1977)
We are not aware of any instance in which a consent modification or
termination has been rejected by a court
A-65
modification or termination of a judgment in an antitrust case.
The essential elements of this procedure are as follows:
|. When the motion is filed, the Department issues a press
release which (a) summarizes the complaint, the judgment, and
the Government's reasons for consenting to the motion: (b)
explains where copies of all the relevant papers can be inspected
(in most cases, at the offices of the Antitrust Division and the
Clerk of the Court where the motion was filed); (c) states that
copies of the papers can be obtained from the Antitrust Division,
upon request and payment of the copying fees prescribed by
Justice Department regulations; and (d) invites all interested
persons to send comments concerning the proposed modification
or termination to the Antitrust Division during the next sixty
days.
2. The defendant publishes notice of its motiun in two consec-
utive issues of the national edition of The Wall Street Journal and
in two consecutive issues of the trade journal(s) most likely to be
read by persons interested in the market(s) affected by the judg-
ment. The published notices invite public comment and contain
essentially the same information about the proceeding as appears
in the Department's press release, omitting only the description of
the Department's reasons for consenting to the motion.
3. The Department of Justice files with the court copies of all
comments that it receives.
4. The parties stipulate that the court will not rule upon the
motion for at least seventy days after the last publication of the
notices described above (and thus for at least ten days after the
close of the period for public comments), and the Government
reserves the right to withdraw its consent to the motion at any
time until an order modifying or terminating the judgment is
entered.’
2. Withdrawal yo Department of Justice of its consent would be
significant because the legal standard applicable to a motion to modify
or terminate an antitrust judgment over the Government's objection is
far stricter than the standard ne modification or termination
with our consent. Where the Opposes a motion to modify
A-66
We believe that this procedure is well designed to provide all
potentially interested persons with notice that a motion to termi-
nate a judgment is pending, and an adequate opportunity to
comment thereon.’ The defendants here have agreed to follow
this procedure, including publication of appropriate notices in
The Wall Street Journal, The Journal of Commerce, and The
Chemical Marketing Reporter The parties are therefore sub-
mitting to the Court a separate proposed order establishing this
procedural approach, and we ask that it be entered forthwith.
or terminate an antitrust decree, the moving party must demonstrate
that changes since entry of the judgment “are so important that dangers,
once substantial, have become attenuated to a shadow.... Nothing less
than a clear showing of grievous wrong evoked by new and unforeseen
conditions should lead [a court] to change what was decreed.
— States v. Swift & Co., 286 U.S. 106, 119 (1932).
In a recent case involving a consent modification of an antitrust
judgment a district court directed the parties to follow the procedures
rth in the Antitrust Procedures and Penalties Act (the “APPA™),
1S U.S.C. §16(b)-(h) (1976). United States v. Motor Vehicle Mfrs.
Ass'n, 1981-2 Trade Cas. £64,370 (D.C. Cal. 1981). The Court's
order does not, however, purport to hold that the APPA is applicable to
all consent modifications as a matter of law. Further, we Caos that
the decision was incorrect because the APPA operates only when an
initial consent decree is presented to a court for approval. We note,
nonetheless, that the procedures pro here generally follow those of
the APPA, with rhe differences that make the pr ures we propose
more likely to bring the defendant's motion to the attention of interested
nonparties. For example, the APPA would require that notices be
published in the Federal Register and in newspapers in the District of
Columbia and in this district. The procedure we propose, on the other
hand, would require publication in The Wall Street Journal, The Jour-
nal of Commerce and The Chemical Marketing Reporter, where notices
are more likely to be seen by the persons who will be most interested in
the defendant's motion. Accordingly, we submit that not only is the
APPA inapplicable here, but its procedures would provide decidedly
inferior notice under the circumstances. Cf. United States v. General
Electric Co., supra, 1977-2 Trade Cas. at 72,716 n.1.
4. The Department of Justice intends to send copies of Cyanamid’s
motion papers and this memorandum to Melamine Chemicals, Inc., the
only domestic melamine producer other than Cyanamid and therefore
the firm that would be most directly affected by termination of the
purchase requirement of Section XI of the Final Judgment.
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5S. Conclusion
For the foregoing reasons, the United States (1) asks the Court
to enter the order submitted herewith directing publication of
notice of Cyanamid's motion, and (2) tentatively consents to the
termination of the Final Judgment herein, provided that Cyana-
mid dedicates to the public all patents subject to the mandatory
licensing provision of the Final Judgment.
August 5, 1982
, Respectfully submitted,
GREGORY B. HOVENDON
Gregory B. Hovendon
JOAN S. HUGGLER
COSCO HOSES HO09 00900000000 6000006000006006060006500000090600608
Joan S. Huggler
Attorneys, Antitrust Division
United States Department of Justice
Washington, D.C. 20530
Attorneys for the Plaintiff
United States of America
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UNITED STATES DISTRICT COURT
SOUTHERN DisTRICT OF NEW YORK
UNITED STATES OF AMERICA,
Plaintiff. Civil Action
—against— No. 60 Civil 3857
Entered: August 4, 1964
AMERICAN CYANAMID COMPANY,
Defendant
FINAL JUDGMENT
Plaintiff, United States of America, having filed its complaint
herein on October 5, 1960, and an amendment thereto on October
13, 1960, and defendant, American Cyanamid Company, having
appeared and filed its answer to such complaint, as amended,
denying the substantive allegations thereof; and plaintiff and
defendant, by their respective attorneys, having severally con-
sented to the making and entry of this Final Judgment without
trial or adjudication of any issue of fact or law herein, and without
this Final Judgment constituting evidence or an admission by
either party hereto with respect to any such issue, and the Court
having considered the matter and being duly advised,
Now, THEREFORE, before any testimony has been taken and
without trial or adjudication of any issue of fact or law herein and
upon consent of the parties hereto, it is hereby
ORDERED, ADJUDGED and DECREED as follow:
This Court has jurisdiction of the subject matter hereof and
of the parties hereto. The complaint stated claims for relief
against the defendant under Sections i and 2 of the Act of Con-
gress of July 2, 1890, entitled “An act to protect trade and com-
merce against unlawful restraints and monopolies,” commonly
known as the Sherman Act, as amended, and under Section 7 of
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the Act of Congress of October 15, 1914, entitled “an act to
supplement existing laws against unlawful restraints and monop-
olies, and for other purposes,” commonly known as the Clayton
Act, as amended.
As used in this Final Judgment:
(A) “Cyanamid” shall mean the defendant, American Cyana-
mid Company, a corporation organized and existing under the
laws of the State of Maine;
(B) “Subsidiary” shall mean in respect to any corporation,
including Cyanamid, a second corporation, a majority of whose
Outstanding voting stock is owned or directly or indirectly con-
trolled by such first corporation;
(C) “Person” shall mean any individual, partnership, firm,
corporation, association or other legal or business entity;
(D) “Co-conspirators” shall mean the following corporations,
their successors and assigns, and each of them:
(1) Monsanto Chemical Company, a corporation
organized and existing under the laws of Delaware;
(2) Ciba Limited, a corporation organized and existing
under the laws of Switzerland;
(3) Ciba Products Corp., a corporation organized and
existing under the laws of Delaware;
(4) British Industrial Plastics Ltd., a corporation
organized and existing under the British Companies Act;
(5) Societe des Produits Azotes, a corporation organ-
ized and existing under the laws of France; and
(6) The British Oxygen Company Limited, a corpora-
tion organized and existing under the British Companies
Act;
(E) “Acquirer” shall mean any person, who is a purchaser or
lesser pursuant to Section IV of this Final Judgment, approved by
plaintiff, or the Court after notice to the plaintiff and opportunity
to be heard;
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(F) “United States” shall mean the United States, its territo-
ries and possessions;
(G) “North America” shall mean that portion of the Western
Hemisphere north of the country called Guatemala including the
islands adjacent thereto, the Greater and Lesser Antilles and the
United States;
(H) “Dicy” shall mean diayandiamide, the basic raw material
from which melamine heretofore has been and is commercially
produced, the basic ingredients of which are limestone, carbon
and nitrogen which are chemically changed through the applica-
tion of heat, electricity, pressure and the additjon of other
substances;
(1) “Melamine” shall mean the compound, C,H,N,, produced
commercially from dicy, calcium cyanamid, urea or any other
substance;
(J) “Melamine resin” shall mean a reaction product of (1)
melamine and an aldehyde or (2) melamine, an aldehyde and one
or more other chemical components;
(K) “Laminates” shall mean articles formed by the combined
action of heat and pressure on composite assemblies composed of
super-imposed layers of material, with the use of a melamine
resin, where an exterior surface takes a substantial degree of the
characteristics of the melamine resin used for the formation of
such composite assemblies;
(L) “Molding compound” shall mean a composition, contain-
ing melamine resin and a filler, which is customarily formed,
shipped, and set under the combined action of heat and pressure;
(M) “Patents” shall mean any United States Letters Patent
and Applications therefor, all reissues, divisions, continuations or
extensions thereof, and patents issued upon said applications:
(1) “Present Patents” shall mean such patents as are
owned or controlled by Cyanamid or under which Cyana-
mid has the right to grant licenses, on the date of entry of
this Final Judgment;
(2) “Future Patents” shall mean such Patents (other
than those Present Patents as defined in subparagraph (1)
of this subsection (M)) which are issued to, filed,
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acquired or controlled by Cyanamid or under which Cyan-
amid may acquire the right to grant sublicenses, at any
time within five (5) years from the date of entry of this
Final Judgment;
(N) “Willow Island” shall mean that portion of the chemical
complex owned and operated by Cyanamid at Willow Island,
West Virginia, which is housed in building No. 95, in which
portion Cyanamid produces melamine together with the adjacent
melamine storage silo and those storage tanks forming an integral
part of the melamine manufacturing process and the real estate
adjacent thereto. The major items of equipment are set forth in
Appendix A hereto and the real estate in Appendix B hereto.
The provisions of this Final Judgment applicable to Cyanamid
shall apply also to its officers, agents, servants, employees, subsid-
iaries, successors and assigns, and to those persons in active con-
cert or participation with it who receive actual notice of this Final
Judgment by personal service or otherwise, but shall not apply to
transactions solely between Cyanamid and its said officers,
agents, servants, employees and subsidiaries, or solely between
any of them.
IV
(A) Cyanamid is ordered and directed forthwith to initiate
action to place it in a position to comply with the following terms
of this Section IV.
(B) Cyanamid shall within two (2) years following the date of
entry of this Final Judgment dispose of Willow Island. Such
disposition shall be consistent with any one of the following:
(1) The sale of Willow Island. Such sale of Willow
Island may be conditioned upon Cyanamid’s having the
right of first refusal should the owner desire to sell Willow
Island for use other than the manufacture of melamine,
subject however, to sub-section (B) of Section V of this
Final Judgment;
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(2) The sale of the personal property, including
machinery, tools and equifment of Willow Island and
used or usable in the manufacture of melamine from dicy.
Such sale shall be for the purpose of aiding or enabling the
purchaser to manufacture melamine from dicy at a plant
to be located at a site other than Willow Island; or
(3) The lease of Willow Island for a term of five (5)
years. Such lease shall be expressly conditioned upon the
lessee undertaking to sell to Cyanamid its requirements in
the United States for melamine, up to a maximum of
thirty (30) million pounds per year, for a term of ten (10)
years and further conditioned upon the lessee undertaking
to construct, during such lease term, a plant ready for
production of melamine by the time of expiration of the
lease. Cyanamid shall furnish, at the lessee’s option oper-
ating services (including but not limited to maintenance,
utilities, steam, water, sewage disposal and the use of rail-
road siding and loading platforms) at cost, including rea-
sonable overhead expense.
(C) Any proposal for such disposition by Cyanamid of Willow
Island shall be subject to the approval of this Court, after hearing
both plaintiff and defendant in regard thereto.
(D) Cyanamid shall reasonably cooperate with the vendee or
lessee in the employment of personnel associated with the opera-
tion and management of Willow Island whom the vendee or lessee
may desire to employ and shall release from any employment
contract any such persons, who, within a reasonable time, not to
exceed sixty (60) days after the consummation of the disposal,
notify Cyanamid of their desire to accept such employment.
(E) For a period of one (1) year from the date of disposition
of Willow Island; after receipt of a written request, Cyanamid is
ordered and directed to make available at Willow Island a person
or persons technically qualified in the manufacture of melamine
from dicy by the process it used at Willow Island to supplement,
explain or demonstrate the technical information to be supplied
under Section X of this Final Judgment for the purpose of assist-
ing the acquirer. For each such person Cyanamid may charge an
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amount not to exceed his traveling and living expenses and the
actual cost to Cyanamid for the time involved.
(F) Cyanamid shall, at acquirer's option, agree with the
acquirer to do the following:
(1) Purchase a minimum of fifty percent (50%) of
Cyanamid’s melamine requirements in excess of its own
melamine production at the prevailing market price for
melamine produced in the United States for a term not
exceeding ten (10) years;
(2) Furnish at cost engineering and technical assis-
tance in connection with the establishment and start-up
operations of a new plant to produce melamine; and
(3) Furnish a list of purchasers of melamine from
Cyanamid during the twelve (12) months next preceding
the date of entry of this Final Judgment, and fora term of
five (5S) years after said entry refer some or all orders for
or inquiries about melamine to said acquirer notwith-
standing the provisions of subsection (A) of Section VII
of this Final Judgment.
(C) Cyanamid may, at acquirer's option, agree with the
acquirer to operate Willow Island for the account of such
acquirer for a term of five (5) years.
Vv
(A) From the date of entry of this Final Judgment and for a
period of ten (10) years from the date of disposition of Willow
Island, or until melamine production capacity in the United
States (other than melamine producing capacity of any co-con-
spirator and of Cyanamid) shall be increased by a total of more
than twenty-five (25) million pounds per year over the total of
such capacity at the date of disposition, but in no event for °
period of less than five (5) years, Cyanamid is enjoined anu
restrained from:
(1) Expanding its production capacity in the United
States for melamine beyond thirty (30) million pounds a
year; and
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(2) Producing in the United States in any calendar
year from said date of disposition of Willow Island more
than thirty (30) million pounds of melamine. In comput-
ing such production in any year, the amount of Cyana-
mid’s melamine imports in the preceding calendar year of
melamine made by Cyanamid outside the United States
shall be deemed to be a part of Cyanamid’s production.
(B) From the date of disposition of Willow Island, Cyanamid
is enjoined and restrained from the manufacture of melamine in
Willow Island, except as permitted by subsection (G) of Section
IV of this Final Judgment.
(C) Cyanamid is ordered and directed to purchase an amount
of melamine equivalent to the requirements of Cyanamid for
melamine for use in its production of laminates in accordance
with Section XI of this Final Judgment.
Vi
(A) Cyanamid is enjoined and restrained from directly or
indirectly, entering into, performing, adhering to, maintaining or
furthering, or claiming any rights under any combination, con-
spiracy, contract, agreement, arrangement or understanding with
any person to:
(1) Allocate or divide customers, territories or markets
for the manufacture, sale or distribution of dicy, mela-
mine, any melamine resin or any product containing any
of them;
(2) Eliminate, limit, restrain or prevent competition,
or leave any person free from competition, in the manufac-
ture, use, sale or distribution of dicy, melamine, any mela-
mine resin or any product containing any of them;
(3) Limit, restrain or prevent importation into or
exportation from the United States of dicy, melamine, any
melamine resin or any product containing any of them;
(4) Boycott or otherwise refuse to do business with any
person engaged in the manufacture, use, distribution or
sale of dicy, melamine, any melamine resin or any product
containing any of them;
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or attempting to do anything forbidden in this subsection (A).
(B) Nothing in this Section VI shall be deemed to prohibit
Cyanamid from making any arrangements or agreements with
respect to activities carried on elsewhere than in the United States
which do not have the purpose or effect of restraining or mono-
polizing the domestic or foreign commerce of the United States;
provided, however, that in any civil proceedings instituted by
either party hereto involving this Section VI because of arrange-
ments or agreements with respect to activities carried on in coun-
tries other than the United States, the burden of proof shall be
upon Cyanamid to establish that such arrangements or agree-
ments do not restrain or monopolize the domestic or foreign
commerce of the United States.
Vil
Cyanamid is enjoined and restrained from:
(A) Referring or attempting to refer
(1) Any order or any potential order for dicy, mela-
mine, any melamine resin or any product containing any
of them to any co-conspirator or to any person in the
United States which is engaged in the manufacture
thereof, or is an agent or sales representative of any such
co-conspirator or such manufacturer; or
(2) Any inquiry or request for literature or informa-
tion relating to dicy, melamine, any melamine resin or any
product containing any of them to any co-conspirator or
any agent or sales representative of any such co-
conspirator;
(B) Utilizing as a distributor or agent for the distribution or
sale of dicy, melamine, any melamine resin or any product con-
taining any of them:
(1) Any co-conspirator or any person known by Cyan-
amid to be a sales agent of a co-conspirator; or
(2) Any person, in any country outside the United
States, engaged in the manufacture thereof or any person
known by Cyanamid to be a sales agent of any such person
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where the purpose or effect is to restrain the trade or
commerce of the United States;
(C) Utilizing as an agent for the distribution or sale of dicy,
melamine or any melamine resin any person in the United States
engaged in the manufacture thereof or any person known by
Cyanamid to be a sales agent of any such person;
(D) Acting as a distributor or agent for the sale or distribution
of dicy, melamine, any melamine resin or any product containing
any of them for
(1) any co-conspirator;
(2) any person engaged in the United States in the
manufacture or distribution thereof; or
(3) any person in any country outside the United
States engaged in the manufacture or distribution thereof
where the purpose or effect is to restrain the trade or
commerce of the United States;
(E) Coercing or attempting to coerce any person not to
engage in the manufacture, use or sale of dicy, melamine, any
melamine resin or any product containing any of them; or
(F) Restricting or limiting or attempting to restrict or limit
the uses to which dicy, melamine, any melamine resin or any
product containing any of them may be put after sale thereof.
Vill
Cyanamid is enjoined and restrained from:
(A) Refusing to sell dicy or any melamine resin to any person
in the United States willing and financially able to purchase the
same, at prices and on terms and conditions of sale corresponding
to those regularly offered by Cyanamid to purchasers thereof in
the United States of the same classification, except as such refusal
may be required by Section VII of this Final Judgment; or
(B) fixing or determining the differential between the prices
charged by Cyanamid for dicy and the prices charged by Cyana-
mid in the United States for melamine or melamine resins for the
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purpose, or with the natural and probable effect, of restraining
trade or commerce in melamine or melamine resins in the United
States.
IX
(A) Cyanamid is ordered and directed to grant to any appli-
cant making written request therefor a non-exclusive and
unrestricted license or sublicense for the life of the patent, under
any, some or all applicable Present Patents, to
(1) make and sell dicy;
(2) make and sell melamine from dicy;
(3) make and sell any melamine resin; and
(4) use any melamine resin;
and under any, some or all applicable Future Presents, to
(a) make and sell dicy; and
(b) make and sell melamine from dicy.
Each such license or sublicense shall be royalty-free.
(B) Cyanamid is ordered and directed to grant to any appli-
cant making written request therefor a non-exclusive and
unrestricted license or sublicense for the life of the patent, under
(1) any, some or all Present Patents and Future Pat-
ents to make and sell melamine from urea; and
(2) any, some or all Future Patents to
(a) make and sell any melamine resin; and
(b) use any melamine resin;
without any limitation or condition whatsoever except that:
(a) The license may be non-transferable;
(b) a reasonable and non-discriminatory royalty
may be charged;
(c) Reasonable provisions may be made for periodic
royalty reports by the licensee to Cyanamid and inspec-
tion of the books and records of the licensee by an
independent auditor acceptable to both Cyanamid and
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the licensee, who shall report to Cyanamid only the
amount of the royalty due and payable;
(d) Reasonable provisions may be made for cancel-
lation of the license upon failure of the licensee to make
the reports, pay the royalties, or permit inspection of the
books and records as herein provided; and
(e) The license must provide that the licensee may
cancel the license at any time after one (1) year from
the initial date thereof by giving to Cyanamid thirty
(30) days’ notice in writing.
(C) Upon receipt of a written request for a license under
subsection (B) above, Cyanamid shall advise the applicant of the
royalty it deems reasonable for such patent or patents to which
the application pertains. If Cyanamid and the applicant are
unable to agree within ninety (90) days upon what constitutes a
reasonable royalty the applicant shall have those rights under
such patent or patents to which its application pertains, without
the payment of royalty or other compensation as though a license
had issued. Cyanamid or the applicant may apply to this Court,
upon notice to the plaintiff, for a determination of a reasonable
royalty. In such proceeding the burden of proof shall be upon
Cyanamid to establish the reasonableness of any royalty
requested. Pending the completion of any such court proceeding,
Cyanamid or the applicant may, upon notice to the plaintiff,
apply to this Court to fix an interim royalty rate, pending final
determination of what constitutes a reasonable royalty. If this
Court fixes such interim royalty rate, a license shall then issue
providing for the periodic payment of royalties at such interim
rate from the date of the making of such application by the
applicant, and whether or not such interim rate is fixed, any final
order may provide for such adjustments including retroactive
royalties, as this Court may order after final determination of a
reasonable royalty.
(D) The taking of a license pursuant to this Final Judgment
shall not be construed as preventing any person from attacking, at
any time, the validity or scope of any of said patents nor shall this
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Final Judgment be construed as imputing any validity or value to
any of said patents.
(E) Cyanamid is enjoined and restrained from disposing of
any of said patents, or rights thereunder, so as to deprive it of the
power to grant licenses as required by this Section IX unless it be
a condition of such disposition that the transferee shall observe
the provisions of said Section IX with respect to the patents and
rights so acquired and shall file with this Court, prior to such
disposition, an undertaking to that effect.
(F) Cyanamid is enjoined and restrained, for a period of five
(5) years from the date of entry of this Final Judgment, from
inquiring, directly or indirectly, title to, or any interest in, or
license under any United States Letters Patent unless
(1) Cyanamid also obtains the right to issue licenses
under such patents as required by this Section IX; or
(2) Cyanamid has acquired a non-exclusive right or
license and shal! have made a bona fide effort (not includ-
ing additional monetary consideration) to persuade the
licensor to make available to any third person requesting
the same, a right or license equivalent to that required of
Cyanamid by this Section IX and on terms and conditions
at least as favorable as those accorded to Cyanamid.
(G) At the time of the granting of a license or sublicense
under this Section IX, Cyanamid shall also grant to the licensee,
to the extent Cyanamid has the right to do so, an unrestricted
unconditional, non-exclusive and a royalty-free grant of immu-
nity under any, some, or all foreign patents with respect to prod-
ucts manufactured under such license or sublicense, and
Cyanamid is enjoined and restrained from selling or otherwise
disposing of the right to grant immunities under any patent as
provided in this subsection (G).
X
(A) Cyanamid is ordered and directed for a period of ten
(10) years from the date of entry of this Final Judgment, upon
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payment to Cyanamid of its cost of compilation to furnish, upon
written request;
(1) To any person engaged or desiring to engage in the
United States in the manufacture of dicy, melamine or
any melamine resin or melamine resins (a) all technical
information, which Cyanamid has and which Cyanamid
has the right to furnish on the date of entry of this Final
Judgment, usable for the manufacture of, and which will
enable such person to manufacture commercially dicy,
melamine from dicy and any such melamine resin or
resins; and (b).such additional technical information
relating to the use of such melamine resin or resins as
Cyanamid has furnished to its customers in the United
States;
(2) To any licensee under Section IX of this Final
Judgment engaged or desiring to engage in the United
States in the manufacture or use of dicy, melamine or any
melamine resin all technical information, which Cyana-
mid has and (a) which Cyanamid acquires within five (5)
years from the date of entry of this Final Judgment and
(b) which Cyanamid has the right to furnish at such time,
reasonably necessary to enable the licensee to practice the
invention or inventions under the licensed patent or
patents.
(B) Cyanamid may, «sa condition to furnishing such techni-
cal information pursuit to subsection (A) above, require the
person to whom it is iurnished to agree in writing to keep such
technical information confidential and to use such technical infor-
mation received pursuant to subsection (A) above only for its
own manufacture or use in the United States, and Cyanamid
may, as a condition to furnishing such technical information here-
after acquired by Cyanamid require such person to agree in writ-
ing not to advertise or use the fact that it has received such
technical information from Cyanamid in the sale of its products.
(C) Cyanamid shall not be deemed, in connection with the
furnishing of technical information pursuant to this Section X of
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this Final Judgment, to have given any warranty against infringe-
ment of patents, or any warranty of success in connection with the
use of such information.
(D) In the event of disagreement as to either the amount of
the cost of compilation charges payable to Cyanamid or reason-
able royalty under this Section X of this Final Judgment, the
matter shall be determined in the manner set forth in subsection
(C) of Section IX of this Final Judgment.
(E) Cyanamid is enjoined and restrained from making any
disposition of any such technical information, used or usable, on
any basis which would restrict Cyanamid from complying with
any of the provisions of this Section X with respect to such
information unless it be a condition of such disposition that the
transferee shall observe the provision of said Section X with
respect to such information and shall file with this Court, prior to
such disposition, an undertaking to that effect.
Xl
(A) Commencing with the date of the disposition of Willow
Island, Cyanamid is ordered and directed to purchase annually
from other producers of melamine (with the preference to United
States producers) an amount of melamine equivalent to the
requirements of Cyanamid for melamine for use by Cyanamid in
the production of laminates in the United States provided that at
any time after ten (10) years from such date, Cyanamid may
petition to this Court to be relieved from this provision, such relief
to be granted upon a showing by Cyanamid to the satisfaction of
this Court that the effect of such relief will not be substantially to
lessen competition or tend to create a monopoly in any line of
commerce in any section of the country. Cyanamid’s require-
ments for the purposes of this Section XI shall be deemed to be an
amount of melamine of all grades, but not superior to that cus-
tomarily used by Cyanamid in the manufacture of laminates, at
least equivalent to the amount of such melamine used by Cyana-
mid in its production of laminates during the preceding calendar
year.
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(B) Cyanamid is directed to file with the Court, and serve a
copy on plaintiff, an affidavit setting forth all the facts justifying
any failure to purchase its melamine requirements in accordance
with subsection (A) above. Such affidavit shall be filed within
thirty (30) days after said failure.
(C) In the event Cyanamid considers that the exclusive price
offered for its purchase pursuant to subsection (A) hereof is
oppressively high, Cyanamid may apply to the Court, and upon a
showing by Cyanamid to the satisfaction of this Court that the
price is non-competitive, the Court may grant such protective
order as the Court deems appropriate.
XII
Cyanamid is ordered to publish in the trade journal called Oil,
Paint & Drug Reporter within ninety (90) days after the entry of
this Final Judgment a notice and advertisement to the following
effect:
(1) Cyanamid will grant licenses under its patents to
make, use and sell dicy, melamine and melamine resins in
accordance with subsections (A) and (B) of Section IX of
this Final Judgment;
_ (2) Cyanamid will sell dicy and melamine resins made
by it in accordance with subsection (A) of Section VIII of
this Final Judgment; and
(3) Cyanamid will furnish technical information in
accordance with Section X of this Final Judgment.
XIII
(A) For a period of ten (10) years from the date of entry of
this Final Judgment, Cyanamid is enjoined and restrained from
acquiring, directly or indirectly, any of the assets (except goods
or products bought in, or incidental to, the ordinary course of
business), business or goodwill of, or any of the shares of stock or
other financial interest in, any person engaged in the manufacture
or sale in the United States of dicy, melamine, any melamine
resin, laminates, molding compounds or the end products made
y
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from such molding compounds; provided, however, that Cyana-
mid may acquire those assets, business and goodwill of such
person which are not employed in the manufacture or sale in the
United States of dicy, melamine, any melamine resin, laminates,
molding compounds or the end products made from such molding
compounds, with the consent of the plaintiff or upon a showing to
the satisfaction of this Court that the effect of such acquisition
will not be to eliminate or adversely affect such person in his
manufacture, use or sale of melamine, or any melamine resin or
any product containing either or both of them.
(B) Fora ten (10) year period, after the ten (10) year period
provided for in subsection (A) above, Cyanamid is enjoined and
restrained from acquiring directly or indirectly, any of the assets
(except goods or products bought in, or incidental to, the ordinary
course of business), business or goodwill of, or any of the shares of
stock or other financial interest in, any such person in the United
States except with the consent of plaintiff or upon a showing to
the satisfaction of this Court that the effect of any such acquisi-
tion will not be substantially to lessen competition or to tend to
create a monopoly in the manufacture or sale of dicy, melamine,
melamine resins, laminates, molding compounds or the end prod-
ucts made from such molding compounds in any line of commerce
in any section of the country.
(C) Fora period of twenty (20) years from the date of entry
of this Final Judgment, Cyanamid is, subject to the terms of
subsections (A) and (B) above, enjoined and restrained from
acquiring, directly or indirectly, any of the assets (except goods
or products bought in, or incidental to, the ordinary course of
business), business or goodwill of, or any of the shares of stock or
other financial interest in, any person engaged in the United
States in the manufacture of products of which a functionally
significant ingredient is melamine or melamine resins except with
the consent of the plaintiff or upon a showing to the satisfaction of
this Court that the effect of any such acquisition will not be
substantially to lessen competition in, to tend to create a monop-
oly in or unreasonably restrain the trade or commerce of the
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United States in the manufacture, use or sale of any such
products.
(D) For a period of twenty (20) years from the date of entry
of this Final Judgment, Cyanamid is, subject to the terms of
subsections (A), (B) and (C) above, enjoined and restrained
from acquiring, directly or indirectly, any of the assets (except
goods or products bought in, or incidental to, the ordinary course
of business), business or goodwill of, or any of the shares of stock
or other financial interest in, any person engaged in any country
outside the United States in the manufacture or sale of dicy,
melamine, any melamine resins, laminates, molding co
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