Brief for the United States — United States v. American Bldg. Maint. Industries

Supreme Court brief1975

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= Question presentéd_-__-_---..-----------------

ONOE SRVOIVOU. 2028 220 ocelot ease

5 CNR) oe eee ree ee a

_. A. The acquiring company and the industry _-

B. The acquired companies_-_-_-_------------

A 5, Seen 6 OETNGONE....2. .... 2 oe

D. The summary judgment proceedings __ -__ _-

ESummary of argument_-_.......----------------

. Section 7 applies to firms engaged in local

activities ‘that substantially affect

os sk el en

Ry WOO es

B. The history and purpose of the

Clayton Act necessitate a broad

construction of Section 7’s com-

merce requirement___-_______-

C. The language and legislative his-

tory of the Clayton Act are con-

sistent with a broad construction

of Section 7’s commerce require-

D. This Court’s decisions construing

the commerce requirements of

the Robinson-Patman Act and

the Federal Trade Commission

Act are not controlling here-__--

1. The Robinson-Patman Act_-

2. The Federal Trade Commis-

a, Cs eee

(1)

569-955—75——-1

NOOK FP WH DN HS

Argument—Continued

II. The Benton companies were “engaged in “

commerce” for purposes of Section 7 of

the Clayton Act_....___._-__________ 36

Conclusion__-----------------------------__- 44

CITATIONS

Cases:

Apex Hosiery Co. v. Leader, 310 U.S. 469____ 21

Atlantic Cleaners & Dyers v. United States,

286 U.S. 427_________-----------_ 13, 21

Borden Co. v. Borella, 325 U.S. 679_________ 4]

Brown Shoe Co. v. United States, 370 U.S. 294... 15, 17

Burke v. Ford, 389 U.S. 320_....._-_________ 38

Federal Trade Commission v. Bunte Bros., 312

USS. 349_....._-_-.- 10, 25, 26, 27, 28, 32, 34-35

Fortner Enterprises v. U.S. Steel, 394 U.S. 495- 38

Gibbons v. Ogden, 9 Wheat. 1_..____________ 27

Gulf Oil Corp. v. Copp Paving Co., Inc.,

U.S. —— No. 73-1012, decided December

17, 1974___ 9, 10, 12, 13, 23, 24, 28-29, 35, 37, 39

Katzenbach v. McClung, 379 U.S. 294_______ 38

Kirschbaum Co. v. Walling, 316 U.S. 517_ 14, 40, 41

Lorain Journal Co. v. United States, 342 US.

BG on eens gee eae en dae donee anaes 22, 41

Mandeville Island Farms Inc. v. American

Crystal Sugar Co., 334 U.S. 219__.._______ 21, 37

Martino v. Michigan Window Cleaning Co.,

ry ¢ hs tp: ce 4]

Minnesota Rate Cases, 230 U.S. 352_________ 28, 29

_ Schechter Poultry Corp. v. United States, 295

BE oe ee peg e te neensecuencan 26

Second Employers’ Liability Cases, 223 U.S. 1_ 27, 29

Shreveport Rate Cases, 234 U.S. 342_________ 29, 30

Standard Fashion Co. v. Magrane-Houston Co.,

258 U.S. i 5

-_-_

— an

Standard Oil Co. v. United States, 221 U.S. 1- 15

Swift and Company v. United States, 196 US.

fe a ee reese anes ena 41

Transamerica Corp. v. Board of Governors, 206

F.2d 163, certioraridenied, 346 U.S.901__ 16-17, 25

United States v. American Tobacco Co., 221

ie Woon ca eaeenemeseoeee ne eeuae 15

United States v. E. I. DuPont deNemours &

Co., 353 U.S. 586__------------------ 15-16, 33

United States v. Employing Plasterers Assn.,

DAT UB. 186 seek e tence ne snus 21-22, 38

United States v. Frankfort Distilleries, 324

UD, DOG oe ep ee we 21

United States v. International Boxing Club,

Inc., 348 US. 236......---------------- 41-42

United States v. Penn-Olin Co., 378 U.S. 158-

United States v. Philadelphia National Bank,

374 U.S. 321._.----------------------- 33

United States v. South-Eastern Underwriters

Assn., 322 U.S. 583__----- 9, 13, 21, 25, 26, 42-43

United States v. Stewart, 311 U.S. 60________- 27

United States v. Women’s Sportswear Assn.,

| 336 U.S. 460......-------------------- 22

United States v. Yellow Cab Co., 332 U.S. 218_ 22, 37

Constitution and statutes:

United States Constitution, Article I, Section

Th CUA Oe a ee eee 29, 31

Clayton Act, Section 2, 38 Stat. 730-_------ 23

Clayton Act, 38 Stat. 730, as amended, 15

U.S.C. 12, et seg...---------- 16, 20, 27, 28, 29, 32

Section 1, 15 U.S.C. 12__________-- 2,9, 19, 31

Section 3, 15 U.S.C. 14____-__-_----__-- 13

Section 7, 15 U.S.C. 18______- ae ae 2,3,

8, 9, 10, 11, 12, 13, 14, 15, 17, 18, 23, 24,

25, 33, 34, 35, 36, 37, 39.

LEELOL ILO ORD : CE MOL LS AE A SAAD MAR IS

Constitution and statutes—Continued

Federal Trade Commission Act, Section 5, 38

Stat. 717, as amended, 15 U.S.C. 45, et seg... 25,

Magnuson-Moss Wessanty and Federal Trade

Commission ssaatiennans Act, 88 Stat.

Fy ite picdace cw gniglionasmmdnes waned em 28, 32

Robinson-Patman Act, 49 Stat. 1526, 15

U.S.C. 13, et seq......------------------- 24, 25

Section 2, 15 U.S.C. 13_.....-.....-..-- 23

Section 2(a), 15 U.S.C. 13(a)_._-- 10, 13, 23, 24

Sherman Act, 26 Stat. 209, as amended, 15.

U.S.C. 1, et seg... 9, 11, 14, 15, 16, 18, 19, 20, 21,

22, 23, 37

Section 1, 15 U.S.C. 1._-.------------ «19

Section 2, 15 U.S.C. 2.______- eden ae 19

Congressional and miscellaneous:

H. Rep. No. 627, 63d Cong., 2d Sess. _ -_--_- 15, 20

H. Rep. No. 1142, 63d Cong., 2d Sess.-_---_- 32

H. Rep. No. 1191, 81st Cong., Ist Sess._--_- 15, 18

S. Rep. No. 698, 63d Cong., 2d Sess. - ----- 14-15, 19

S. Rep. No. 1775, 81st Cong., 2d Sess. _----- 34

51 Cong. Rec. 9159. ---------------------- 30

51 Cong. Rec. 9411...--------2-----2----- 30

51 Cong. Rec. 14035-14042... ...-...------ 30

51. Come, OG: Wait ens ec cc ccnenncces sense 30-31

51 Come, Rae 1600s . .~-- ~~. - 22020 e nnn ne | 82

51 Cong. Rec. 14086... ..-...--..---..---.- 32

51, Cobe Bee.. BRAID, «.. «05-22 --sn on nesnne 30

Levy, The Clayton Law—An Imperfect Supple-

ment to the Sherman Law, 3 Va. L. Rev. 411

CO cannntdenedanwdneeurkenendensese 15

SF = —

eee OD 8 eee eee ee TO RS Tl _5_5—e EE See

Yu the Supreme Gourt of the Bited States

OctoBeR TERM, 1974

' No. 73-1689

Untrep States OF AMERICA, APPELLANT

AMERICAN BumLpING MAINTENANCE INDUSTRIES

‘ ON APPEAL FROM THE UNITED STATES DISTRICT, COURT

FOR THE OENTRAL DISTRICT OF CALIFORNIA

BRIEF FOR THE UNITED STATES

OPINION BELOW

The findings and conclusions of the district court

(App. 211-215) are unreported.

JURISDICTION |

‘The judgment of the district court (App. 209) was

entered on December 12, 1973. A notice of appeal to

this Court was filed on February 7, 1974, and probable

jurisdiction was noted (App. 216) on January 13,

1975. The jurisdiction of this court is conferred by

Seetion 2 of the Expediting Act, 15 U.S.C. 29. United

States v. Falstaff Brewing Corp., 410 U.S. 526.

(1)

Pere ae eer ee

QUESTION PRESENTED

Whether a corporation that performs janitorial and

_ Maintenance services within a single state for com-

' panies selling products in interstate and foreign com-

merce, that solicits and negotiates such contracts

through interstate’ communications, and that pur-

chases substantial quantities of supplies originating

in other states, is “engaged in commerce” for pur-

. poses of Section 7 of the Clayton Act.

STATUTES INVOLVED

Section 1 of the Clayton Act, 38 Stat. 730, as

amended, 15 U.S.C. 12, provides in pertinent part:

“Commerce,” as used herein, means trade or

commerce among the several States and with

' foreign nations, or between the District of Co-

lumbia or any Territory of the United States

.and any State, Territory, or foreign nation, or

between any insular possessions or other places

under the jurisdiction of the United States, or

between any such possession or place and any

State or Territory of the United States or the

District 6f Columbia or any foreign nation, or

within the District of Columbia or any Terri-

tory or any insular possession or other place

‘under the jurisdiction of the United States:

Provided, That nothing in this Act contained

shall apply to the Philippine Islands.

Section 7 of the Clayton: Act, 389 Stat. 731, as

amended, 64 Stat. 1125, 15 U.S.C. 18, provides in per-

tinent part:

No corpotation engaged in commerce shall

- aequire, directly or indirectly, the whole or any

part of the stock or other share capital and no

corporation subject to the jurisdiction of the

Federal Trade Commission shall acquire the

whole or any part of the assets of another cor-

poration engaged also in commerce, where in

any line of commerce in any section of the

country, the effect of such acquisition may be

substantially to lessen competition, or to tend

to create a monopoly.

STATEMENT

The United States instituted this civil antitrust suit

against American Building Maintenance Industries

(American Building) on January 8, 1971, contending

that American Building violated Section 7 of the

Clayton Act, as amended, 15 U.S.C. 18, by acquiring

the stock of J. E. Benton Management Corp. and by

merging Benton Maintenance Company into American

Building Maintenance Company of California, a wholly

owned subsidiary of American Building. The complaint

alleged that the merger and acquisition, which were

consumated in 1970, may substantially lessen competi-

tion in the sale of janitorial services in Southern

California and the Los Angeles area. (App. 8)' On De-

cember 12, 1973, the district court granted the defend-

ant’s motion for summary judgment, holding that

neither of the Benton companies was ‘‘engaged in

commerce’’ within the meaning of Section 7 of the

Clayton Act at the time of the merger and acquisition

(App. 214).

*The complaint defines “Southern California” as Santa Bar-

bara, Ventura, Los Angeles, Orange, San Bernardino and River-

side Counties (App. 6).

A. THE ACQUIRING COMPANY AND THE INDUSTRY

American Building Maintenance Company of Cali-

fornia is a wholly owned subsidiary of American

Building. The complaint alleged that American Build-

ing is the largest seller of janitorial services in South-

ern California and one of the largest sellers of such

services in the country. At the time the complaint was

filed, American Building had 56 janitorial service

branches serving 500 communities in the United States

and Canada. American Building’s national revenues

from janitorial services were approximately $52.4

million in 1969. In Southern California, American

Building’s janitorial service revenues for 1969 were

$10.9 million—roughly 10 percent of the market

(App. 7).

Service industries are the fastest growing segment

of the American economy. More than half of the na-

tion’s work force is employed in those industries and

soon more than half of this country’s Gross National

Product will be generated in the service sector. The

supplying of janitorial services by independent con-

tractors is one of the fastest growing service busi-

nesses. Receipts for such services increased by 324

percent from 1958 to 1967. In 1972, national receipts

for commercial, institutional and industrial cleaning

services were more than §1 billion (App. 129-133,

There is a nationwide trend toward concentration

in the janitorial service industry. The four largest

firms made at least 170 acquisitions of janitorial serv-

ice and related businesses between 1961 and 1973.

—

American Building made 54 of those acquisitions,

which included five janitorial service companies in the

Los Angeles area in addition to the Benton companies

(App. 140-148).

American Building ‘has publicly acknowledged that

it intends to accelerate this acquisition program. In a

December 1971 speech to institutional investors, the

president of American Building stated: “We have

been buying four—six companies a year. I vould say

in the future it would be fair to estimate that we will

buy between six and eight companies a year” (App.

142).

B. THE ACQUIRED COMPANIES

Jess E. Benton, Jr. owned all of the stock of J. E.

Benton Management Corp. and 85 percent of the stock

of Benton Maintenance Company at the time of the

merger and acquisition (App. 49, 139). Both com-

panies sold janitorial services; Benton Management

also provided building management services and en-

gaged in the real estate business. All of the facilities

served by these companies were located in Southern

California. The complaint alleged that the Bertton

Companies (“Benton”) was the fourth largest seller of

_ janitorial services in Southern California, with 1969

sales of over $7.2 million. This represented about 7

percent of the total janitorial service sales in that area

(App. 7).

Cc, BENTON ’s OPERATIONS

Benton provided janitorial services neeessary to

support ‘the interstate operations of its customers

(App. 133-137). These customers included TRW,

569-9855—75——2

Inc., NASA Jet Propulsion Laboratory, Rockwell In-

ternational Corp., General Telephone Co., of California,

Pacific Telephone and Telegraph Co., Mobile Oil Corp.,

Union Oil Co., Texaco, Inc., Carnation Co., Teledyne,

Inc., and Tishman Realty & Construction Co. (App. 52).

. Fér its aerospace customers, Benton maintained

and cleaned offices, manufacturing areas and labora-

tories. Certain areas required exceptionally high main-

tenance quality—e.g., “clean rooms’’ utilized for

spacecraft fabrication and assembly, and rooms hous-

ing electronic data processing equipment. In these

areas, janitorial maintenance was an integral part of

production operations.’

Benton maintained and cleaned offices and rooms

containing switching equipment for its telephone com-

pany clients, corporate headquarters buildings for

Union Oil, Carnation and Teledyne, and regional

headquarters buildings for Mobil and Texaco. Benton

performed all the janitorial services for the owner

and tenants at Tishman Plaza, a large office ——

in the Los Angeles area.° ,

‘In some cases Benton’s activities were confined to

cleaning services. It assumed responsibility, in other

cases, for maintaining heating, air conditioning, elec-

trical and plumbing facilities (App. 71-90). Benton

paid utility bills for Texaco (App. 84).

Although all of Benton’s maintenance contracts

were performed in California, some of the contracts

2 App. 54-70. Cf. App. 179-181.

® App. 71-90.

were negotiated with out-of-state owners through the

use of interstate communications facilities. The Tish-

man Plaza contract was executed by Tishman execu-

tives based in New York (App. 72), and the New

York Life Insurance contract was the product of

interstate negotiations (App. 147-160). Those two con-

tracts made a significant contribution to Benton’s

total revenues.‘

Benton regularly utilized interstate communications

in its business. Between January 1, 1969, and June 30,

1970, Benton was shown to have mailed almost 200

letters across state lines to customers, potential cus-

tomers, suppliers, government agencies, etc. It also

utilized interstate telephone and telegraph facilities

(App. 146-161).

Benton purchased substantial quantities of janito-

rial supplies and other goods manufactured outside of

California. In 1969 Benton purchased more than

$120,000 in janitorial supplies which were manufac-

tured outside California,’ and paid about $36,000 in

lease fees attributable to vehicles and a computer

which were manufactured in other states (App. 145).°

*The details of these transactions are contained in exhibits

covered by the district court’s protective order of June 2, 1971.

5 The district court findings focused only on Benton’s direct

interstate purchases which were admittedly small. The court

found direct purchases aggregating approximately $140 and

interstate telephone calls of $19.78 (Finding 7, App. 212;

Finding 15, App. 213). The findings do not reflect Benton's

purchases of out-of-state products from local distributors,

which, as noted in the text, were substantial.

* Benton also expended about $80,000 in funds advanced by

clients for gas, water, electricity and elevator parts which orig-

inated outside of California (App. 145, 184-185).

D. THE SUMMARY JUDGMENT PROCEEDINGS

American Building filed a motion for summary

judgment together with proposed findings of fact and

conclusions of law. After receiving memoranda, affida-

vits and counter-affidavits from both parties and hear-

ing oral argument, the district judge adopted, with

minor modifications, the findings and conclusions

submitted by American Building. The court did not

expand its findings to reflect evidentiary material sub-

mitted after American Building prepared its original

proposed findings."

The court found that the Benton companies con-

ducted their businesses entirely within California, and

that Benton did not advertise nationally. Benton’s

purchases of products ‘‘which were shipped to it from

outside California” and its expenditures for inter-

state telephone calls, the court concluded, were de

mintmus (App. 212.). The court held that each Ben-

ton company “was not a corporation engaged in com-

merece” and that ‘“‘[t]here is no jurisdiction of the

Federal Court in this action under Section 7 of the

Clayton Act (15 U.S.C. §18)” (App. 214).

* American Building submitted its proposed findings on Au-

gust 28, 1973 in conjunction with the filing of its motion for

summary judgment of dismissal (App. 4). The government

submitted extensive evidentiary material in the form of aff-

davits of customers, suppliers, competitors and experts on Oc-

tober 15, 1973 (App. 4). The district court adopted, almost

verbatim, American Building’s proposed findings (App. 211-

215). Since those findings do not reflect the material contained

in the affidavits submitted by the government concerning the

Benton companies’ activities—the accuracy of which is not

seriously disputed—the court’s findings are clearly deficient.

)

SUMMARY OF ARGUMENT

The question presented by this case is whether the

words “engaged in commerce’”’ as used in Section 7 of

the Clayton Act encompass firms engaged in intrastate

activities that substantially affect commerce. This

question was presented but not resolved in Gulf Ol

Corp. v. Copp Paving Co., Inc. No. 73-1012, decided

December 17, 1974. We adhere to the view set forth

in our brief amicus curiae in Gulf Oil, supra, that

“engaged in commerce” for purposes of Section 7

means :all commerce subject to federal jurisdiction

under the commerce power.

1. A broad—eonstruction of the commerce require-

ment of Section 7 is consistent with the history and

. purpose of the Clayton Act. That Act was a remedial

statute designed to correct deficiencies in the Sher-

man Act. The Sherman Act has been construed to

cover local activities that substantially affect inter-.

state commerce (United States v. South-Eastern Un-

derwriters Assn., 322 U.S. 533), and it would be

anomalous to interpret the Clayton Act—a statute

intended to supplement the Sherman Act—more re-

strictively. |

2. The language and legislative history of the Clay-

ton Act necessitate a broad construction of Section

7’s commerce requirement. See pp. 18-23, infra. The

definition of “commerce” contained in Section 1 of

the Clayton Act and its accompanying legislative his-

tory show that Congress intended to claim broader:

commerce coverage than that provided in the Sher-

is 10

man Act. Although the Congressional debates on the

Clayton bill do not reveal a consensus concerning the

precise scope of the commerce power, the debates do

show that a majority did not believe that federal ju-

risdiction was limited to activities in the “flow of

commerce”. That view was supported by contempo-

raneous judicial decisions. Equally importantly, the

legislative history confirms that Congress intended

to claim the full sweep of its power to regulate

commerce.

3. This Court’s decisions regarding the commerce

requirements of the Robinson-Patman Act (Gulf Cl

Corp. Vv. Copp Paving Co., Inc., supra, slip op. a:

6-12) and the Federal Trade Commission Act (Fed-

cral Trade Commission v. Bunte Bros., 312 U.S. 349)

are not controlling here.

The terms of Section 2(a) of the Robinson-Pat-

man Act are more restrictive than the language of

Section 7 and the courts have consistently construed

Section 2(a) to require a sale crossing a state line.

Moreover, in enacting the Robinson-Patman Act,

Congress expressly rejected proposed language that

would have provided broader commerce coverage.

This Court’s decision in Bunte Bros., construing the

Federal. Trade Commission Act, is based on factors

which are not relevant to Section 7 and in part upon

the unfounded assumption that Congress always in-

cludes words such as “affecting commerce’’ when it

wishes to regulate intrastate commerce which affects

interstate commerce. Congress did not follow that style

» ——

of draftsmanship in 1914. It had no reason to do so be-

cause the contemporaneous judicial decisions defined

“commerce among the States’’ to include all commerce

except commerce which is confined within one state

and does not affect other states.

4, Thus, the language, history and purpose of the

statute demonstrate that ‘‘engaged ‘in commerce”

means engaged in activities subject to the Commerce

Power. Activities which affect the flow of commerce

are subject to the Commerce Power and Benton en-

gaged in such activities. It purchased and leased sub-

stantial quantities of goods which originated outside

California. Such purchases have frequently been rec-

ognized in Sherman Act cases as sufficient to establish

the requisite effect upon interstate commerce. Benton

also affected commerce by providing essential services

to several of the country’s leading interstate enter-

prises. Therefore, the Benton companies Were “en-

gaged in commerce’’ for purposes of Section, 7%

Even if “engaged in commerce”’ were equated with

being in the “flow of commerce”, Benton’s activities

satisfy that test. Benton prov bed services to numer-

ous clients engaged in interstate and foreign conimerce

and those services were essential to its clients’ inter-

state operations. Indeed, those interstate enterprises

“contracted out” essential operations to Benton. :

ARGUMENT

L SECTION 7 APPLIES TO FIRMS ENGAGED IN LOCAL ACTIVITIES THAT

SUBSTANTIALLY AFFECT COMMERCE

A. INTRODUCTION

The district court erred in concluding that the Ben-

ton companies were not “engaged in commerce’’ at

the time of their respective merger with, and acquisi-

tion by, American Building. Although the court did

not fully explain its understanding of the words

“engaged in commerce”, it adopted a restrictive con-

struction that is contrary to both the history and

purpose of Section 7 of the Clayton Act.

This Court has never determined the meaning of

“engaged in commerce” for purposes of Section 7.

This question was presented in Gulf Oil Corp. v. Copp

Paving Co., Inc., No. 73-1012, decided December 17,

1974, and while it was discussed in the Court’s opinion

(see slip op. 14-17), the Court ultimately determined

that it need not resolve the issue since the record con-

tained “no evidence of effect on interstate commerce”

(id. at 16). Thus, Mr. Justice Powell’s opinion for

the Court concluded, “* * *- the ‘effects on commerce’

theory, even if legally correct, must fail for want of

proof’ (id. at 16-17).

The record in this case establishes that the Benton

companies were engaged in activities that “affect’’

interstate commerce. See pp. 36-44, infra. The ques-

tion of the proper construction of “engaged in com-

merce” for purposes of Section 7 of the Clayton Act—

which this Court did not resolve in Gulf Oil Corp. v.

; 7

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» Paving Co., Inc., supra—is therefore presented

e adhere to our submission presented in our brief

us curiae in Gulf Oil Corp. v. Copp Paving Co.,

supra, that in enacting the Clayton Act, Congress

ht to claim the full sweep of its power to regu-

commerce. Accordingly, the commerce require-

; of the Clayton Act should be construed, like that

ie Sherman Act (United States v. South-Eastern

erwriters Assn., 322 U.S. 533), to reach all activ-

that affect interstate commerce.

Gulf Oil Corp. v. Copp Paving Co., Inc., supra,

Court commented that the “in commerce’’ Jan-

e of Sections 3 and 7 of thé Clayton Act and

ion 2(a) of the Robinson-Patman Act “appears to

te only persons or activities within the flow of

‘state commece * * *” (slip op. 8). But we submit

it should not be assumed that the words “in

nerce” have a uniform meaning that can be

ied without regard to the historical and linguistic

»xt in which they have been used.

ords normally do not have a single plain meaning

can be applied in every circumstance, and this is

icularly true in the case of words such as ‘‘com-

e,” “in commerce,” “interstate commerce,” ete.

1 words have been used in different statutes at

rent times to describe different combinations of

‘ities and transactions. They may not even have

isely the same meaning in different provisions of

same statute. See Atlantic Cleaners & Dyers v.

ed States, 286 U.S. 427, 433-434.

569-955—75——_3

In Kirschbaum Co. v. Walling, 316 U.S. 517, this:

Court observed (td. at 520-521):

The body of Congressional enactments regu-

lating commerce reveals a process of legislation

which is strikingly empiric. The degree of ac-

commodation made by Congress from time to

time in the relations between federal and state

governments has varied with the subject matter

of the legislation, the history behind the par-

ticular field of regulation, the specific terms in

which the new regulatory legislation has been

east, and the procedures established for its

administration.

As we shall now show, our submission regarding

the proper construction of the words “engaged in com-

merce” in Section 7 of the Clayton Act is consistent

with both the history and purpose of the statute.

B. THE HISTORY AND PURPOSE OF THE CLAYTON ACT NEC-

ESSITATE A BROAD CONSTRUCTION OF SECTION 7’8

COMMERCE REQUIREMENT |

As the official title of the Clayton Act (“An Act To

supplement existing laws against unlawful restraints

and monopolies * * *,’’ 38 Stat. 730) implies, Congress

intended to extend the proscription of the anti-trust

laws to transactions and trade practices not covered

by the Sherman Act. The Senate Report declared that

the objective of the Act was (S. Rep. No. 698, 63d

Cong., 2d Sess., p. 1):

* * * to prohibit and make unlawful certain

trade practices which, as a rule, singly and in

themselves, are not covered by the [Sherman |

Act], or other existing antitrust acts, and thus,

; 15

by making these practices illegal, to arrest the

_ ereation of trusts, conspiracies, and monopolies

_in their incipiency and before consumma- —

| . tion © *,

See, ¢.g., Standard Fashion Co. v. Magrane-Houston

) Co., 258 U.S. 346, 355-356 ; Brown Shoe Co. v. United

States, 370 U.S. 294, 318n. 39, |

Section 7 was enacted in response to the great mer-

ger movement which began at the end of the nine-

teenth century. See H. Rep. No. 1191, 81st Cong., 1st.

Sess., p. 8. Decisions by this Court in Standard Oil

Co. v. United States, 221 U.S. 1, and United States v.

American Tobacco Co., 221 U.S. 106, were perceived ,

widely, if incorrectly, as emasculating the Sherman

Act. See Levy, ‘The Clayton Law—An Imperfect

Supplement to the Sherman Law, 3 Va. L. Rev. 411,

414-415 (1916). Section 7 of the Clayton Act was

designed to supplement the Sherman Act and arrest

the creation of trusts or monopolies in their incip-

iency.

The House Committee Report states that Section 8

of the House Bill, which became Section 7 of the Clay-

ton Act, was intended to eliminate the ‘evil resulting

from the aggregation of economic power through stock

acquisitions “so far as it is possible to do so.’’ H. Rep.

No. 627, 63d Cong., 2d Sess., ‘p. 17.

This Court discussed the purposes of Section 7 as

it read prior to the 1950 amendments in United States

v. E. I. DuPont De Nemours & Co., 353 U.S. 586, and

observed ‘(353 U.S. at 589): .

Section 7 is designed to arrest in its incipi-

ency not only the substantial lessening of com-

petition from the acquisition by one corpora-

_ tion of the whole or any part of the stock of a

competing ¢orporation, but also to arrest in

their incipiency restraints or monopolies in a

relevant market which, as a reasonable prob-

ability, appear at the time of suit likely to re-

sult from the acquisition by one corporation of

all or any part of the stock of any other corpo-

ration. The section is violated whether or not

actual restraints or monopolies, or the substan-

tial lessening of competition, have occurred or

are intended.

The Clayton Act was a remedial statute designed to

"reach anticompetitive practices in their incipiency. It

would. have been anomalous for Congress to have

sought to strengthen the antitrust laws by curing per-

ceived deficiencies in the Sherman Act and at the same

time to have restricted thé jurisdictional scope of those

remedial provisions. The Court of Appeals for the

Third Cireuit recognized this fact, in Transamerica

Corp. v. Board of Governors, 206 F. 2d 163, certiorari

denied, 346: U.S. 901, in holding that banking consti-

tuted “commerce” for purposes of the Clayton Act.

Thus, the court stated (206 F. 2d at 166):

We find nothing in the legislative history, how-

ever, ‘to indicate that Congress did not intend

- by Section 7 to exercise its power under the

commerce clause of the Constitution to the full-

est extent. The avowed purpose of the Clayton

Act was to supplement the Sherman Act, 15

US.C.A. §§ 1-7, 15 note, by arresting in their

incipiency those acts and practices which might

ripen into a violation of the latter act. Since

the general language of the Sherman Act was

tent of its Constitutional power in restraining

trust and monopoly agreements’’ the supple-

mentary general language of the Clayton Act

was undoubtedly intended to have the same all,

inclusive scope.

This conclusion is further supported by the 1950

amendments to the Clayton Act, which extended Sec-

tion 7 to cover the acqtisition of assets. Although the

legislative history of the 1950 amendments did not

deal directly with the ‘‘commerce’’ requirement, that

history reflects a continuing Congressional intent fully

to exercise its regulatory powers.

In Brown Shoe Co. vy. United States, 370 U.S. 294,

315-323, this Court reviewed the 1950 legislative his-

tory and found that “[t]he dominant theme pervading

cougressional consideration * * * was a fear of what

was considered to be a rising tide of economic concen-

tration in the American economy.”’ Id. at 315. In ad-

dition, the legislative history reflected congressional

concern over the “desirability of retaining ‘local con-

trol’ over industry and the protection of small busi-

nesses.”’ Id. at 315-316. Motivated by its conceris over

increasing concentration, Congress sought to give

“* * * courts the power to brake this force at its

outset and before it gathered momentum.” Id. at

317-318.

Acquisition of firms engaged in local activities may

violate Section 7 if the effect of their acquisition may

be substantially to lessen competition in relevant geo-

graphic and product markets. For example, a firm

such as American Building could obtain a virtual

monopoly of a service industry, with significant inter-

state consequences, by acquiring one local firm after

another across the country. Such a result would be

- contrary to the aim of Section 7, which was intended

to block all acquisitions likely to contribute to increas-

ing levels of concentration. As the House Report to

the 1950 amendment stated:

Acquisitions * * * have a cumulative effect,

and control of the market * * * may be

achieved not in a single acquisition but as the

result of a series of acquisitions. The bill is

intended to permit intervention in such a cumu-

lative process when the effect of an acquisition

may be a significant reduction in the vigor of

competition * * *. [H. Rep. No. 1191, 81st

Cong., 1st Sess., p. 8.]

C. THE LANGUAGE AND LEGISLATIVE HISTORY OF THE

CLAYTON ACT ARE CONSISTENT WITH A BROAD CON-

STRUCTION OF SECTION 7’S COMMERCE REQUIREMENT

The applicable provisions of the Clayton Act must

be read in light of the legislative purpose discussed

at pp. 14-18, supra. As we have shown, the Clayton

Act was a remedial statute and it would be anomalous

to hold that its jurisdictional scope is more resiricted

than the Sherman Act which it was designed to sup-

plement. The language and legislative history ot the

Clayton Act are consistent with that conclusion.

1. Section 7 of the Clayton Act prohibits mergers

or acquisitions which may have anticompetitive effects

where both the acquired and acquiring firms are

ee,

“engaged in commerce”. The meaning of the phrase

“engaged in commerce”’ is primarily derived from the

definition of “commerce” in the Clayton Act and its

legislative history.

Section 1 of the Clayton Act defines “commerce”

as follows:

‘““Commerce,”’ as used herein, means trade or

commerce among the several States and with

foreign nations, or between the District of Co-

lumbia or any Territory of the United States

and any State, Territory, or foreign nation, or

between any insular possessions or other places

under the jurisdiction of the United States, or

between any such possession or place and any

State or Territory of the United States or the

District of Columbia or any foreign nation, or

within the District of Columbia or any Terri-

tory or any insular possession or other place

under the jurisdiction of the United States.

This definition, which appeared in the original bill

reported by the House Judiciary Committee in 1914,*

used almost the precise words—“trade or commerce

among the several States and with foreign nations’”’—

which had been used in the Sherman Act.’ It also

®The Senate added a proviso, “That nothing in this Act

contained shall apply to the Philippine Islands.” S. Rep. No.

698, 63d Cong., 2d Sess., pp. 42-43. The definition section as

amended has remained intact as 15 U.S.C. 12.

® Section 1 of the Sherman Act, 15 U.S.C. 1, declares that

every contract, combination or conspiracy “in restraint of trade

or commerce among the several States, or with foreign nations”

is illegal, and Section 2, 15 U.S.C. 2, declares that persons who

monopolize “any part of the trade or commerce among the sev-

eral States, or with foreign nations, shall be deemed guilty of a

misdemeanor * * *.”

broadened the definition to encompass commerce be-

tween insular possessions and territories. The legisla-

tive history of the Clayton Act confirms that by this

broad definition of ‘‘commerce” Congress intended

that the Clayton Act would reach all commerce to

which the Sherman Act was applicable. See pp. 30-31,

mfra. .

Indeed, the House Committee Report reveals that

the authors of the Clayton Act believed that they had

provided broader commerce coverage than that pro-

vided in the Sherman Act. This Report says (H. Rep.

No. 627, 63d Cong., 2d Sess., p. 7):

The definition of commerce, it will be observed,

is broadened so ‘as to include trade and com-

merce between any insular possessions or other

places under the jurisdiction of the United

States, which at present do not come within

the scope of the Sherman antitrust law or other

laws relating to trusts.

Since Congress wanted to describe all the commerce

covered by the Sherman Act, plus some that might

not be, the word ‘‘commerce’’ should be interpreted

in accordance with that stated purpose. The word

“commerce’’ in every Clayton Act provision should

be read to include all commerce covered by the Sher-

man Act unless the language or history of a particu-

lar Clayton Act provision demonstrates that the word

was used to describe something else.

2. This Court has concluded that the commerce

coverage of the Sherman Act is coextensive with all

ecommerce subject to federal regulation under the Con-

stitution. In Atlantic Cleaners '& Dyers v. United

States, supra, this Court observed (286 U.S. at 435):

A consideration of the history of the period

immediately preceding and accompanying the

passage of the Sherman Act and of the mis-

chief to be remedied, as well as the general

trend of debate in both houses, sanctions the

conclusion that Congress meant to deal compre-

hensively and effectively with the evils result-

ing from contracts, combinations, and conspira-

cies in restraint of trade, and to that end to

exercise all the power it possessed.

In United States v. South-Eastern Underwriters

Assn., supra, 322 U.S. at 558, this Court again con-

cluded that the Congress which enacted the Sherman

Act “wanted to go to the utmost extent of its Con-

stitutional power in restraining trust and monopoly

agreements * * *.” The Court has accordingly inter-

preted the Sherman Act to give effect to that Con-

gressional purpose. In United States v. Frankfort

~ Distilleries, 324 U.S. 293, 298, the Court said that

/ “Congress, in passing the Sherman Act, left no area

of -its constitutional power unoccupied; it ‘exercised

all the power it possessed.’ Apex Hosiery Co. Vv.

Leader, 310 U.S. 469, 495.”

Consistent with this approach, the Sherman Act has

been applied broadly to local activities which sub-

stantially affect interstate commerce. See e.g., Mande-

ville Island Farms, Inc. v. American Crystal Sugar

~~ Co., 334 U.S, 219 (agreement to fix price paid for

California-grown sugar beets) ; United States v. Em-

ploying Plasterers Assn., 347 U.S. 186 (combination

to suppress competition among Chicago plastering

contractors); Lorain Journal Co. v. United States,

342 U.S. 143 (local advertising agreements used to

injure competitor in interstate competition). As this

Court stated in United States v. Women’s Sports-

wear Assn., 336 U.S. 460, 464:

The source of the restraint may be intrastate,

as the making of a contract or combination

usually is; the application of the restraint may

be-intrastate, as it often is; but neither matters

if the necessary effect is to stifle or restrain

commerce among the states. If it is interstate

commerce that feels the pinch, it does not mat-

ter how local the operation which applies the

squeeze.”

° United States v. Yellow Cab Co., 332 U.S. 218, did not

limit the Sherman Act to purely interstate activities. In that

case this Court held that while a conspiracy among taxi cab

companies to control the transportation of passengers between

railroad stations in Chicago was within the reach of the Sher-

man Act (332 U.S. at 229), transportation of passengers to and

from the stations to homes, offices, and hotels had only a

“casual and incidental” relationship to interstate commerce

(332 U.S. at 230-232). The Court noted that a traveler has

complete freedom to arrange his transportation by several

means of conveyance, of which taxi cab service is only one.

The Court cautioned, however, that it was not “establish[ing]

any absolute rule that local taxicab service to and from rail-

road stations is completely beyond the reach of federal power

or even beyond the scope of the Sherman Act. * * * All that

we hold here is that when local taxicabs merely convey inter-

state train passengers between their homes and the railroad

station in the normal course of their independent local service,

that service is not an integral part of interstate transportation”

(332 U.S, at 232-233).

_ —

The phrase “engaged in commerce” in Section 7

should accordingly be interpreted to mean engaged in

activities which are subject to the federal Commerce

power. A more restrictive interpretation, confining

the statute to activities within the flow of interstate

ecommerce, would partially defeat the Clayton Act’s

central purpose of halting incipient anticompetitive

transactions before they develop into restraints and

monopolies prohibited by the Sherman Act.

D. THIS COURT’S DECISIONS CONSTRUING THE COMMERCE

REQUIREMENTS OF THE ROBINSON-PATMAN ACT AND THE

FEDERAL TRADE COMMISSION ACT ARE NOT CONTROLLING

HERE

1. The Robinson-Patman Act

The factors which led the Court to conclude in

Copp that Section 2(a) of the Robinson-Patman Act

does not reach all discriminatory sales which are sub-

ject to the Commerce Power are not applicable to

Section 7 of the Clayton Act. Although the Clayton

Act commerce definition is applicable to Section 2 of

the Robinson-Patman Act, which replaced the original

Section 2 of the Clayton Act, the Court’s decision

with respect to the commerce reach of Section 2(a)

was based upon language and history which is peculiar

to that provision. '

Section 2 of the original Clayton Act prohibited

certain discriminatory commodity sales in the course

of “‘commerce”’ by sellers who are ‘engaged in com-

merce.’”? A third commerce requirement was added by

ERTS Oe

the 1936 amendments which limited the application

of the revised provision to transactions ‘‘where either

or any of the purchases involved in such discrimina-

tion are in commerce * * *” (49 Stat. 1526). A long

series of courts of appeals’ decisions interpreted that

1936 language to mean that “at least one of the two

transactions which, when compared, generate a dis-

crimination * * * cross a state line” (slip op. 13-14).

This Court concluded that it is logical to interpret

‘‘purchases * * * in commerce” in that context to

mean an interstate sale.

Moreover, this Court did not rely exclusively upon

the language of Section 2(a) and precedent construing

it. The Court also found that the 1936 Congress had

considered and rejected other language which would

have made Section 2(a) applicable to discriminatory

sales by “any person, whether in commerce or not”

and concluded that this Congressional action “strongly

militates against a judgment that Congress intended

a result that it expressly declined to enact” (slip

op. 13). :

There is no comparable evidence of a conscious

Congressional decision to reject arguably broader

commerce language with respect to Section 7. The

“engaged in commerce’”’ language was part of the

original bill proposed by the House Judiciary Com-

mittee under the leadership of Congressman ‘Clayton.

The 1914 Congress never considered adopting differ-

ent language such as “corporations engaged in or

affecting commerce.”’ In 1950, Congress did not con-

—

sider changing the wording of the commerce require-

ment when it amended Section 7.”

2. The Federal Trade Commission Act

Appellee claims that this Court should conclude that

the words “in commerce” necessarily mean in the flow

of interstate commerce because the Court concluded in

Federal Trade Commission v. Bunte Brothers, Inc.,

312 U.S. 349, that the words “in commerce”’ in Section

5 of the Federal Trade Commission Act, as amended,

15 U.S.C. 45, mean in the flow of interstate commerce.

The Bunte Bros. decision was based on two grounds:

(1) ‘a restrictive principle of statutory construction

derived from an examination of the commerce provi-

sions in legislation enacted between 1935 and 1940, and

(2) the Commission’s own restrictive construction of

the Act, reflected in its unsuccessful attempt in 1939

to obtain legislation extending the Act to local activi-

ties affecting commerce. Neither rationale may prop-

erly be applied to the Clayton Act.

A. The principle of statutory construction adopted

in Bunte Bros. is of doubtful validity in light of this

Court’s subsequent decision in South-Eastern Under-

writers, supra. The principle was based upon and re-

flected a method of legislative drafting which

embodied contemporaneous judicial decisions re-

Tt should be noted that the Section 7 commerce language

unlike the Robinson-Patman Act third test does not have a

long history of judicial interpretation. The 7ransamerica opin-

ion is the only previous opinion which has addressed the ques- _

tion presented in this case.

ae.

strictively construing the reach of the commerce

clause. It assumes that the Congress which wrote the

Clayton Act in 1914 intended to freeze the reach of

that Act ‘‘within the mold of then current judicial

decisions defining the commerce power.”’ South-East-

ern Underwriters, supra, 322 U.S. at 557. This propo-

sition was rejected in South-Eastern Underwriters

with respect to the 1890 Congress which adopted the

Sherman Act. It must also be rejected as applied to

the 1914 Congress which passed the Clayton Act—a

statute that was intended to broaden the earlier

legislation. 3

In Bunte Bros., this Court stated (312 U.S. at 351):

When in order to protect interstate com-

merce Congress has regulated activities which

in isolation are merely local, it has normally

conveyed its purpose explicitly. See for exam-

ple, National Labor Relations Act, §§2(7),

9(c), 10(a), 49 Stat. 450, 453, 29 U.S.C. $§ 152

(7), 159(¢), 160(a) ; Bituminous Coal Act, § 4-

A, 50 Stat. 83, 15 U.S.C. [1940 ed.] § 834;

Federal Employers’ Liability Act, § 11, 35 Stat.

65, as amended, 53 Stat. 1404, 45 U.S.C. § 51.

But, as the dissent in Bunte Bros. recognized, id.,

at 358, the three statutes cited by the majority as ex-

amples were enacted over 20 years after the Federal

Trade Commission Act became law. These statutes,

moreover, were enacted after Schechter Poultry Corp.

v. United States, 295 U.S. 495, decided in 1935, =

drew a sharp distinction between “flow of commerce’’

and ‘‘affecting commerce”’ jurisdiction.

——

“The meaning of each [statutory] phrase must be

closely related to the time and circumstance of its

use.’’ United States v. Stewart, 311 U.S. 60, 69. Subse-

quent “statutes dealing with other fields * * * are of

little aid in interpreting an earlier act in its own leg-

islative setting.” Federal Trade Commission v. Bunte

Bros., supra, 312 U.S. at 358 (dissenting opinion).

Judicial decisions of the 1914 era do not draw a

sharp distinction between activities in the flow of in-

terstate commerce and local activities which affect that

commerce. Judges of that period tended to equate

“commerce among the States” with all commerce

which is subject to federal regulation.

In Gibbons v. Ogden, 9 Wheat. 1, 194, Chief

Justice Marshall commented: ‘‘Comprehensive as

the word ‘among’ is, it may very properly be re-

stricted to that commerce which concerns more States

than one.” The commerce ‘‘which concerns more States

than one’’ includes all commerce within a state which

affects interstate commerce.

Two years before the enactment of the Clayton Act,

in the Second Employers’ Liability Cases, 223.U.S. 1,

46-47, this Court said:

The phrase “among the several States” marks

the distinction, for the purpose of governmental

- regulation, between commerce which concerns

two or more States and commerce which is con-

fined to a single State and does not affect other

States, the power to regulate the former being

conferred upon Congress and the regulation of

the latter remaining with the States severally. ’

The following year, this Court observed in the Min-

nesota Rate Cases, 230 U.S. 352, 398:

The words “among the several States’’ dis-

tinguish between the commerce which concerns

more States than one and that.commerce which

is confined within one State and does 1 not affect

other States.

The draftsmen of the Clayton Act were ates

aware of those decisions. Using the phrase “among

the several States” in the Clayton Act’s definition

of “commerce”’, they must have assumed, would claim

the full sweep of Congressional power to’ regulate

commerce, 1 )

Therefore, the Bunte Bros, decision is erroneous to

the extent that it is based ‘on the assumption that 3

Congress has always employed words such as “affect-_

ing commerce’’ when it wished to cover both activities

in the flow of interstate commerce and intrastate com-

merce which affects the flow of interstate commerce.”

That assumption fails to take account of the fact that

styles of draftsmanship change over time.

The majority opinion in Copp suggests another |

reason for concluding that the 1914 Congress may have

meant ‘‘engaged in the flow of interstate commerce”’

when it used the words ‘‘engaged in commerce.’’ That

opinion observed (slip op. 15): “When these sec-

12 Congress subsequently revised Section 5 of the Federal Trade

Commission Act to insert “in or affecting commerce” in lieu

of “in commerce.” See Section 201(a) of the Magnuson-Moss |

Warranty—Federal Trade Commission Improvement Act, Pub.

L. 93-637, 88 Stat. 2183,2193.

tions were originally enacted, it was thought that

Congress’ Commerce Clause power reached only those

subjects within the flow of commerce, then defined

rather narrowly by the Court.”’

But our discussion of the judicial opinions preced-

ing passage of the Act and the Congressional debates

concerning the Clayton bill (see pp. 27-28, supra; pp.

30-31, infra) demonstrates that neither the courts nor

a majority of the members of Congress equated the

Commerce Clause power with the flow of commerce.

» As previously noted, this Court’s opinions in the Sec-

ond Employers’ , Liability Cases and the, Minnesota

Rate Casés stated that Congress had power to regulate

all commerce except that commerce which is confined

within one state and does not affect other states. That

definition of the Commerce Power does not exclude’

intrastate commerce which does affect other states.

This Court issued an opinion in the midst of the ©

congressional debate on the Clayton Act which did

focus directly upon the question of federal power to

regulate local activities affecting interstate commerce. '

_In the Shreveport Rate Cases, 234 U.S. 342, this Court

held that the Interstate Commerce Commission may

_ regulate intrastate railroad rates which affect inter-

state commerce. Although that decision did not finally

determine the precise scope of congressional power

to regulate intrastate commercial activities, it at least

established that congressional power to regulate com-

merce among the several states includes power to reg-

ulate some activities which are not part of the “flow of

commerce.” * Thus, at the time the Clayton Act was

enacted, this Court did not confine Congress’ Com-

merce Clause — to only those subjects within the

“flow of commerce.”

The Clayton Act debates do not reveal any consen-

sus with respect to the precise scope of the Commerce

Power. A majority‘of the members did not participate

in this aspect of the debates. Many members did ex-

press opinions on that subject, but their views were

widely divergent. See, e.g., 51 Cong. Rec. 14035-

14042. Some believed that Congress had no power to

regulate intrastate transactions. See, ¢.g., 51 Cong.

Rec. 9411 (remarks of Rep. Towner), 51 Cong. Ree.

16115 (remarks of Sen. Walsh). Some believed that

Congress did have power to regulate some intrastate

sales. See, €.g., 51 Cong. Rec. 9159 (remarks of Rep.

Floyd). Still others described’ the Commerce Power

in terms which are as expansive as any of the subse-

_ quent decisions of the Court. For example, Senator

Reed declared (51 Cong. Rec. 14458) :

' .I hold tothe view that the right of Congress

the power to do all that is necessary to protect

that interstate commerce and see that it flows

freely and openly and without obstruction, and

that therefore Congress has the power within

its discretion to condemn certain acts which are

in the natuce of consolidations, the reasonable

43 There is no,suggestion in the Shreveport Rate Cases or any

other decision of the time that particular statutory language was

— to claim that power.

effect of which may be to restrain trade, and

that if Congress exercises that power it will

not, in my humble judgment, be disturbed by

the court.

We submit that while it is not possible to recon-

struct a majority consensus with respect to the precise

limits of the Commerce Power, the legislative history

does provide clear evidence that a majority of the

1914 Congress did not equate the Commerce Power

with the flow of interstate commerce.

Notwithstanding the absence of a consensus concern-

ing the precise scope of the commerce power, the

choice of language in the Section 1 defiriition of “com-

merce” indicates that the 1914 Congress intended to

exercise all the power it had. The draftsman did not

use words such as “affecting commerce,’’ “the flow

of commerce,” “interstate commerce,’ or “intrastate

commerce.” They used the words trade or “Commerce

* * * among the several States * * *.” These are the

precise words used in Article I, Section 8, clause 3 of

the Constitution to describe the scope of Congressional

power to regulate domestic ecommerce. A draftsman

who wanted to describe all commerce which is sub-

ject to federal jurisdiction would reasonably assume

that using the precise words of the Constitution would

accomplish that purpose.”

* The contemporaneous history of the Federal Trade Com-

mission Act provides further evidence that the 1914 Congress

equated the commerce described in Section 1 of the Clayton Act

with that commerce which Congress has power to regulate. The

two bills were considered at the same time. The Federal Trade

Commission Act was finally enacted on September 26, 1914, and

32 I je vik Ey ES!

B. The second ground underlying Bunte Bros.—

the. agency’s own restrictive interpretation of the

statute and its unsuccessful legislative attempt to

ee eae oe

the--Glayton”- Act~was enacted on October 15, 1914. Both the

House and Senate versions of the Trade Commission Bill de-

fined “commerce” as “such commerce as Congress has the power to

regulate under the Constitution.” H. Rep. No. 1142, 63d Cong.,

2d Sess., pp. 11, 13. The Conference Committee changed the de-

finition to “commerce among the several States or with foreign

‘nations, or in any Territory of the United States or in the Dis-

trict of Columbia, or between any such Territory and another,

or between any such Territory and any State or foreign na-

tion, or between the District of Columbia and any State or

Territory or foreign nation.” /d. at 2-3. The Conference Report

did not explain the changn apart from a general observation

" that “[t]he definitions respecting ‘commerce,’ etc., remain sub-

stantially as in section 4 of the House bill.” /d. at 18.

ees Reet

Congressmen Covington and Stevens acknowledged that the

revised definition excludes commerce with possessions such as

Puerto Rico, Guam, the Canal Zone and the Philippine Islands.

51 Cong. Rec. 14927, 14935. Congressman Stevens stated that

foreign possessions were excluded because “conditions there are

so different than here that they could be handled by local au-

thorities better than by a commission 7,000 miles away in the

city of Washington.” Jd. at 14935.

No one suggested that the change in language reduced the

scope of the Commission’s authority with respect to any com-

merce other than commerce with and within foreign possessions.

Therefore, they must have assumed that the words “commerce

among the several States” described all of the commerce “Con-

gress has power to regulate under the Constitution,” except

foreign commerce and commerce with and within territories,

possessions, and the District of Columbia.

The Bunte Bros. opinion did not discuss this legislative his-

tory. We are not suggesting, however, that Bunte Bros. should

be overruled. As shown in the text (pp. 32-33, supra), Bunte Bros.

was not based solely on the absence of “affecting commerce” Jan-

guage in the Federal Trade Commission Act, and in any event, the

statutory interpretation question in Bunte Bros. is now moot.

See Pub. L. 93-637, 88 Stat. 2183, 2193 ; n. 12, supra.

| ~

33 Ps

broaden the Act—is inapplicable to the Clayton Act.

Neither the Department of Justice nor the Federal

Trade Commission has interpreted the Clayton Act as

inapplicable to local transactions affecting commerce,

and neither has sought amendatory or clarifying leg-

islation dealing with the problem.* The 1950 amend-

ments, which dealt only with Section 7, did not focus

on the commerce definition. Thus, those amendments

cannot be read as reflecting « congressional intent that

Section 7 be limited to interstate transactions.

Indeed, although the legislative history of the 1950

amendments contains no reference to the “engaged

in commerce” phrase of Section 7, .the discussion of

the “any section of the country’’ language of that sec-

tion is inconsistent with any suggestion that Congress

5 In any event, this Court’s decision in United States v. Phal-

adelphia National Bank, 374 U.S. 321, casts considerable doubt

on the continued validity of these factors in statutory construc-*

tion. There this Court, in holding Section 7 of the Clayton

Act applicable to bank mergers, rejected the argument that

the passage of the Bank Merger Act of 1960 and enforcement

policies of the Justice Department indicated that Section 7 did

not reach bank mergers. With respect to the passage of the

Bank Merger Act, this Court observed that (374 U.S. at 348-

349) “[T]he views of a subsequent Congress form a hazardous

basis for inferring the intent of an earlier one.” Although the

Justice Department had at one time held the view that Section

7 did not reach bank mergers, this Court found that view to be

a misunderstanding of the scope of Section 7, and as such not

binding on the Court (374 U.S. at 349). See also United States

v. DuPont Co., 353 U.S. 586, where this Court rejected the Fed-

eral Trade Commission’s view that Section 7 of the Clayton Act

did not apply to vertical acquisitions.

intended to confine Section 7 to the flow of interstate

commerce. The Senate Report observed (S. Rep. No.

1775, 81st Cong., 2d Sess., p. 4):

As the bill originally stood it was to be vio-

lated if, among other things, competition was

substantially lessened ‘‘* * * in any community

* * *” of the country. The use of this word

raised a storm of controversy, centering around

the possibility that the act, so worded, might

go so far as to prevent any local enterprise in

a small town from buying up another local

enterprise in the same town. As a consequence,

the word “community” was dropped from the

subsequent versions of the bill.

Implicit in this analysis is the assumption that as

originally drafted the bill covered such local mergers.

If Congress had thought that the “engaged in com-

merce’’ language excluded mergers of local firms, there

would have been no need to adopt the “section of the

. country’’ language in order to exclude mergers of

minor impact. Therefore, to the extent that the 1950

Congress considered the “engaged in commerce’’ lan-

guage, it must have assumed that it covered firms

engaged in local activities which substantially affect

interstate commerce. Any other assumption would

have conflicted with the basic purposes of the 1950

amendments, which were designed to make Section 7

a more effective instrument for preventing anticom-

petitive mergers.

Finally, even assuming the validity of the explicit

language principle of construction, Bunte Bros. recog-

nizes that it is not an absolute requirement and that

it should not be followed where ‘‘* * * the purpose

of the Act would be defeated.” 312 U.S. at 351. A

restrictive interpretation of the Clayton Act “com-

merce” requirement would, as shown earlier (pp. 17-

18, supra), frustrate the statutory purposes of the

Act. Moreover, unlike Section 5 of the Federal Trade

Commission Act, Section 7 of the Clayton Act em-

bodies a “relatively precise” (312 U.S. at 353) pro-

hibition and its enforcement is qualified by the re-

quirement that the effect of transactions encompassed

by that section ‘‘may be to substantially lessen com-

petition, or to tend to create a monopoly.” Thus, the

application of Section 7 to local transactions substan-

tially affecting commerce would not give a “* * * fed-

eral agency pervasive control over myriads of local

businesses in matters heretofore traditionally left to

local custom or local laws” (id. at 354).

In Gulf Oil Corp. v. Copp Paving, Inc., supra, this

Court recognized that our submission concerning the

proper construction of the commerce requirement of

- the Clayton Act “is neither without force nor at least

a measure of support” (slip op. 15). But the Court

expressed doubt whether it would justify “‘radical

expansion of the Clayton Act’s scope beyond that

which the statutory language defines * * *”’ (#bid.).

As we have shown, however, if the language of the

Act is read in the proper historical and linguistic con-

text, it defines ‘“commerce” as any commerce affecting

more states than one.

Moreover, as we have pointed out, the Clayton Act,

unlike the Federal Trade Commission Act, was never

accorded a restrictive construction by those charged

with its enforcement. It is true that previous Section 7

cases have involved both acquiring and acquired firms

engaged in the flow of commerce. But that past en-

forcement pattern simply reflects the fact that the

government has devoted its limited enforcement re-

sources to areas where the need was most pressing.

The rapid growth of the service sector of the national

economy is of relatively recent origin and this case is

a response to what the record shows is an increasing

trend toward concentration in that sector. This case

does not represent an attempt to effect a ‘“‘radical ex-

pansion” of the scope of the Clayton Act, but is simply

an application of the statute that is warranted by

changing economic conditions.

The history and purpose of the Clayton Act as a

whole, and Section 7 in particular, demonstrate that

“engaged in commerce’? means engaged in activities

subject to federal commerce power, i.e., activities in

the flow of commerce as well as local activities that

substantially affect interstate commerce. The govern-

ment satisfied the commerce requirement in this case

by establishing that the Benton companies were en-

gaged in such activities at the time of the merger and

acquisition.

II. THE BENTON COMPANIES WERE “ENGAGED IN COM-

MERCE’’ FOR PURPOSES OF SECTION 7 OF THE CLAYTON

ice *

For the reasons set forth earlier, we submit

that Section 7 of the Clayton Act, like the Sher-

man Act, applies to intrastate activities that. substan-

tially affect interstate commerce. In our view, it is un-

necessary to determine whether Benton’s activities were

in the flow of commerce. ‘‘[T]he vital question be-

comes whether the effect [of the activities on inter-

state commerce] is sufficiently substantial * * *”

(Mandeville Island Farms, Inc, v. American Crystal

Sugar Co., supra, 334 U.S. at 234) and “it is enough

if some appreciable part of interstate commerce” is

involved. United States v. Yellow Cab Co., 332 US.

218, 225.

The record in this case shows that the Benton com-

panies engaged in activities that affect appreciable

parts of interstate commerce. But even if it, is as-

sumed, contrary to our submission, that Section 7 is

confined to firms engaged in the flow of commerce, the

Benton companies’ aetivities placed them in the flow of

commerce.

1. The record establishes that the Benton companies’

activities affected an appreciable part of interstate

commerce. The services that Benton performed for

its customers had a significant effect upon the flow of

commerce. Benton derived 80 to 90 percent of its rev-

enues from customers who are engaged in selling

goods in interstate and foreign commerce or in pro-

viding interstate communications (App. 146). It pro-

%° This case thus differs from Gulf Oil Corp. v. Copp Paving

0o., Inc., supra, where no evidence of effect on commerce was of-

fered (slip op. 16). In Copp, the plaintiff relied solely on the

fact that work was performed on interstate highways. This

court held that such a purely formal nexus to interstate com-

merce was insufficient to satisfy the commerce requirement of

the Clayton Act (ibid.).

vided essential services for many of the country’s

Ieading corporations including Mobil Oil, Texaco,

Union Oil, Rockwell International, TRW, and Carna-

‘tion. The price and quality of the janitorial services

those companies purchase necessarily have an impact

on their operations. Indeed, we submit that the char-

acter of these services placed Benton in the flow of

commerce (see pp. 39-43, infra).

In order to provide services to its customers, Benton

paid more than $150,000 per year to purchase or lease

goods manufactured in other states (App. 145). Pur-

chases of goods originating in other states have fre-

- quently been recognized in Sherman Act cases as suf-

ficient to establish the requisite effect upon interstate

commerce. See, ¢.g., Burke v. Ford, 389 U.S. 320;

United States v. Employing Plasterers Assn., 347

U.S. 186. Benton’s purchases represent a substantial

amount of interstate commerce. In Katzenbach v. Mc-

Clung, 379 U.S. 294, this Court upheld the application

of the Civil Rights Act of 1964 to a restaurant which

purchased $70,000 worth of meat per year which had

originated in other states. All of the restaurant’s meat

purchases were made through a local supplier. The

Court concluded in Fortner Enterprises v. U.S. Steel,

394 U.S. 495, that a tying arrangement involving an-

nual sales of $190,000 represented a substantial vol-

ume of commerce in the tied product. The Court said:

“W]e cannot agree with respondents that a sum of

almost $200,000 is paltry or ‘insubstantial.’” Jd. at

502.

—

9, Assuming Section 7 requires a showing that an

acquired company is engaged in the flow of com-

merce, the Benton companies’ activities satisfy that

standard.

The ‘‘flow of commerce’’ concept was developed in

eases involving tangible commodities such as poultry,

livestock, and grain for purposes of ascertaining when

interstate commerce begins and ends. The actual per-

formance of services is unlikely to involve a move-

ment across state lines even though the services may

be intimately related to interstate commerce. This

Court’s opinion in Gulf Oil Corp. v. Copp Paving Co.,

Inc., supra, implicitly recognizes that a mechanical

formulation of “flow of commerce” is unsound. Thus,

this Court described (slip op. 8) “flow of interstate

commerce” as “the practical, esonomic continuity

in the generation of goods and services for interstate

markets and their transport and distribution to the

eonsumer.’’ This Court’s formulation encompasses,

we submit, firms, such as the Benton companies, that

perform a substantial amount of services for enter-

prises which are themselves engaged in interstate and

international sales of tangible commodities and inter-

state communications.

Benton’s involvement in the operations of its clients

was more direct and significant than that of a sup-

plier of goods. Companies such as TRW (App. 54-

58) and Rockwell (App. 62-70) in effect “contracted

out” to Benton part of their operations performed on

their premises and vital to their interstate operations.”

Thus, Benton was directly engaged in the operations

of interstate and international enterprises. Benton’s

services were an essential and important part of those

operations.”

This Court has previously determined that persons

who maintain buildings in which goods are produced

are covered by Fair Labor Standards Act provisions

applicable to employees ‘‘engaged * * * in the * * *

production of goods for commerce.” In Kirschbaum

Co. VY. Walling, supra, 316 U.S. at 524, the Court

decided that firemen, engineers, watchmen, porters,

carpenters and elevator operators employed by the

owner of a loft building occupied by tenants who were

engaged in garment manufacture were covered. The

Court reasoned: “Without light and heat and power

the tenants could not engage, as they do, in the pro-

duction of goods for interstate commerce. The mainte-

nance of a safe, habitable building is indispensable to

that activity.” Ibid.

The Kirschbaum rule has subsequently been extended

* As noted at p. 6, supra, Benton's aerospace customers required

exceptionally high maintenance quality as an integral part of

production operations.

%* See Affidavits of Charles V. Engle (TRW) (App. 54-58) ;

Raymond Hernandez (Jet Propulsion Laboratory) (App. 59-

61); Charles W. Moxley and John Blain (Rockwell) (App.

62-70) ; Donald E. Del Dosso (General Telephone) (App. 75-

76) ; George G. Guest (Pacific Telephone) (App. 77-78) ; John

Stover (Mobil) (App. 79-81) ; L. B. Higbee (Union Oil) (App.

82-83); Edward H. Patotzka (Texaco) (App. 84-85); May-

nard Heider (Carnation) (App. 86-88}; and Edmund Sako-

wicz (Teledyne) (App. 89-90). See also-Adfidavit of Dr. Philip

Neff, the government’s expert (App. 127, 133-137).

_>- aieeaie

to maintenance workers at Borden Co.’s corporate

headquarters (Bordon Co. v. Borella, 325 U.S. 679)

and window washers employed by an independent

contractor who supplies such services to manufactur-

ing plants (Martino v. Michigan Window Cleaning

Co., 327 U.S. 173).

Similarly, in the present case, Benton’s janitorial

services were so essential to and intimately connected

with the operations of its customers as to be ‘‘an in-

separable part of the flow of the interstate commerce

involved.” Lorain Journal Co. v. United States, supra,

342 U.S. at 152.

The conduct of Benton’s business also involves other

forms of interstate activity which can be appropriately

viewed as engaging in the flow of commerce. In United

States v. International Boxing Club, Inc., 348 U.S.

236, this Court rejected claims that boxing cannot be

interstate commerce because all the blows are struck

within a particular state. The Court said: “A boxing

match—like the showing of a motion picture * * * or

the performance of a vaudeville act * * * or the per-

formance of a legitimate stage attraction * * *—‘is of

course a local affair.’ But that fact alone does not bar

application of the Sherman Act to a business based

on the promotion of such matches * * *”’ (Id. at 241;

citations omitted). The Court explained that the

“eontrolling consideration * * * [is] a very practical

one—the degree of interstate activity involved in

the particular business under review.”’ Id. at 243." The

2° See Swift and Company v. United States, 196 U.S. 375,

398: “[C]ommerce among the States is not a technical legal

conception, but a practical one, drawn from the course of

__business.”_ (Emphasis added.)

interstate activities involved in the promotion of. box-

ing matches included the negotiations of contracts

“with boxers, advertising agencies, seconds, referees,

judges, announcers, and other personnel living in

states other than the state in which the promoters

reside” (id. at 238); leasing arenas in states other

than the promoter’s residence, selling tickets across

state lines, etc. (td. at 239).

The sale of building maintenance and building man-

agement services can involve similar interstate activ-

ity even if all of the services are performed in connec-

tion with buildings located within a single state. Many

buildings in the Los Angeles area are owned by in-

dividuals who reside elsewhere or by corporations

headquartered elsewhere. Therefore, the sale of the

janitorial and property management services provided

by. Benton necessarily, involves interstate communica-

tions, solicitations and negotiations (see App. 72’.

Such interstate activity should be viewed as part of

the flow of interstate commerce.

In United States v. South-Eastern Underwriters

Assn., supra, 322 U.S. at 541, this Court found a fire

insurance company engaged in “commerce among the

several States,” noting:

Premiums collected from policyholders in

every part of the United States flow into these

companies [located, for the most part, in the

financial centers of the East] for investment.

As policies become payable, checks and drafts

flow back to the many states where the policy-

holders reside. The result is a continuous and

indivisible stream of intercourse among the

states composed of collections of premiums,

payments of policy obligations, and the count-

less documents and communications whieh are

essential to the negotiation ,and execution of

. policy contracts.

Appellee contends that Benton’s participation in

such a “‘stream of intercourse among the states” is too

insubstantial to place it “in’’ the flow of commerce. :

Appellee asserts that this is the case because the cost

of Benton’s interstate telephone calls during the eight-

een months preceding the acquisition was $19.78 and

the cost of 203 interstate mail items during that period

was $22.33 (Motion to Affirm, p. 18). Appellee also

states that“only-a few of-[the interstate mail items]

* * * related to the solicitation or negotiation of ‘con-

tracts.” Ibid.

The significance of interstate solicitations and inter-

state negotiations cannot be measured by the cost of

the interstate communications, The value of the con-

‘tracts which Benton sought or obtained represent’ a

more meaningful measure of the substantiality of this

interstate activity. The Tishman Plaza and the New

York Life Insurance contracts, which were the product:

of negotiations with company executives based outside

California, made a significant contribution to Benton’s

total revenues.”

*” The data with respect to these contracts are contained in |

exhibits covered by the district court’s protective order of June

z, 1971. The Tishman Plaza contract was executed by Tishman

executives based in New York (Aff. of Alan D. Levy, App. 72).

Benton personnel conducted extensive correspondence with New

York Life personnel in New York in connection with the New

York Life contract (Aff. of John D. Gaffey, App. 147-160).

/ i 44

Thus, Benton was “engaged in commerce” even if”

that phrase is interpreted to mean engaged in the flow

of commerce rather than engaged in activities affecting —

interstate commerce.

CONCLUSION

_ The summary judgment of dismissal by the distriet

court should be reversed and the case should be re-

manded for a trial on the merits.

Respectfully submitted.

; ' Roserr H. Bork,

' Solicitor General.

THomAS E. KavuPer,

Assistant Attorney General.

Wuuiam L. Parton,

} Assistant to the Solicitor General.

: ‘Cart D. Lawson,

Lee I, WEINTRAUB,

Attorneys.

Fepruary 1975.

0.8, GOVERNMENT PRINTING OFFICE: 1975

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