The Potential Competition Doctrine: The Justice Department's Antitrust Weapon under Section 7 of the Clayton Act, 8 J. Marshall J. Prac. & Proc. 415 (1975)

The John Marshall Law Review Volume 8 | Issue 3 Article 4 Spring 1975 The Potential Competition Doctrine: The Justice Department's Antitrust Weapon under Section 7 of the Clayton Act, 8 J. Marshall J. Prac. & Proc. 415 (1975) William E. Dorigan Follow this and additional works at: http://repository.jmls.edu/lawreview Part of the Law Commons Recommended Citation William E. Dorigan, The Potential Competition Doctrine: The Justice Department's Antitrust Weapon under Section 7 of the Clayton Act, 8 J. Marshall J. Prac. & Proc. 415 (1975) http://repository.jmls.edu/lawreview/vol8/iss3/4 This Comments is brought to you for free and open access by The John Marshall Institutional Repository. It has been accepted for inclusion in The John Marshall Law Review by an authorized administrator of The John Marshall Institutional Repository. THE POTENTIAL COMPETITION DOCTRINE: THE JUSTICE DEPARTMENT'S ANTITRUST WEAPON UNDER SECTION 7 OF THE CLAYTON ACT INTRODUCTION* Monopolistic practices such as the Whiskey Trust, the Standard Oil Trust and the Sugar Trust led to the enactment in 1890 of the Sherman Antitrust Act.1 However it soon became apparent that the thrust of this Act, prohibiting present unreasonable restraints of trade, was not broad enough. 2 The demand for more comprehensive antitrust legislation was met by the passage of the Clayton Act in 1914.3 This Act was intended to supplement the Sherman Antitrust Act by " . . .cop[ing] with monopolistic tendencies in their incipiency and well before they have attained such effects as justify a Sherman Act proceeding. "4 Throughout the struggle between the Government and big business, the number of different theories used by business to avoid conviction under the antitrust laws have been limited only by the imaginations of corporate legal departments. As a result, the Justice Department has had to remain flexible in its pursuit of antitrust violators. One of the more successful weapons in the Justice Depart* This comment was written and accepted for publication while the author was still a student at John Marshall Law School. Mr. Dorigan graduated with honors in February 1975. He isa member of the Minnesota Bar and is now an associate with a law firm in Minneapolis, Minnesota. 1. 15 U.S.C. §§ 1-8 (1973). 2. Standard Oil Co. v. United States, 221 U.S. 1 (1911). ally KINTER PRIMER IN THE LAW OF MERGERS 147-51 (1973). See gener- 3. 15 Ui.S.C. §§ 12-27 (1973) [hereinafter cited as the Clayton Act]. The potential competition doctrine is derived from section seven of the Clayton Act and as set forth in 15 U.S.C. § 18 (1958) provides in relevant part: No corporation engaged in commerce shall acquire, 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 corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly. No corporation shall acquire, 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 one or more corporations engaged in commerce, where in any line of commerce in any section of the country, the effect of such acquisition, of such stock or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly. 4. S.Rep. No. 1775, 81st Cong., 2d Sess. 4-5 (1950). 416 The John Marshall Journal of Practice and Procedure [Vol. 8:415 ment's arsenal has been the potential competition doctrine. The underlying rationale upon which this theory is based is that certain corporate acquisitions or mergers, if allowed, will have such an inhibiting effect on potential market entrants that the market will eventually be devoid of all competition. Therefore, to preserve competition, the acquisition or merger is challenged. This doctrine first made its appearance in United States v. El Paso Natural Gas Co.5 and has been relied upon by the federal government in several key subsequent cases. 6 Only in the area of banking has the potential competition argument met with resistance. 7 The United States Supreme Court, in United States v. Marine Bancorporation, Inc.8 recognized that the potential competition doctrine applies to banking as well. Notwithstanding this acceptance, the Court went on to limit the doctrine as applicable to bank merger and acquisition cases. Marine Bancorporationis the first significant Supreme Court limitation of the doctrine. It is also the first banking case in which the potential competition doctrine has been treated by the Supreme Court.9 The ultimate function of this discussion will be to suggest the possible directions that the potential competition theory might take within the overall antitrust scheme. THE DOCTRINE OF POTENTIAL COMPETITION The potential competition doctrine basically holds that an acquisition or merger can be violative of the antitrust laws, speci5. 376 U.S. 651, 659 (1964). This action was brought as a civil suit charging a violation of § 7 of the Clayton Act due to the acquisition by El Paso Natural Gas Company of the stock and assets of Pacific Northwest Pipeline Corp. The United States Supreme Court ruled that the acquisition substantially lessened competition in the sale of natural gas in Calfornia. Mr. Justice Douglas, in his majority opinion, seemed only to flirt with the doctrine of potential competition. However, the seeds of the doctrine were implanted in this case for later harvest by the Justice Department. 6. United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973); Ford Motor Co. v. United States, 405 U.S. 562 (1972); FTC v. Procter & Gamble Co., 386 U.S. 568 (1967); United States v. Continental Can Co., 378 U.S. 441 (1964); and United States v. Penn-Olin Chemical Co., 378 U.S. 158 (1964). 7. See United States v. First National Bancorporation, Inc., 329 F. Supp. 1003 (Colo. 1971); United States v. Idaho First National Bank, 315 F. Supp. 261 (Idaho 1970); United States v. First National Bank, 310 F. Supp. 157 (Md. 1970); United States v. First National Bank, 301 F. Supp. 1161 (S.D. Miss. 1969); United States v. Crocker-Anglo National Bank, 277 F. Supp. 133 (N.D. Cal. 1967). 8. 418 U.S. 602 (1974). 9. The First National Bancorporation,Inc. case, note 7 supra, was affirmed on appeal by the Supreme Court in a four to four, one-line decision. As a result, one can only speculate as to what treatment was bestowed upon the potential competition doctrine by the Court. Thus, Marine Bancorporationis the first opinion issued by the Court concerning the theory. 19751 The Potential Competition Doctrine fically § 7 of the Clayto (...truncated)