CHEMICAL & ENGINEERING
NEWS
DECEMBER
7,
1964
Antitrust Policy Called "Nonsense" MCA's New York meeting hears sharp exchanges between economics professor and Justice Department lawyer "Nonsense" is how New York University's Dr. Jules Backman describes Justice Department's Lewis Bernstein's comments on the anticompetitive effects of joint ventures versus mergers. Dr. Backman says, "There is a clearcut distinction between a merger and a joint venture: A merger reduces the number of competitors by one or more; a joint venture increases the number of competitors. A merger reduces the number of customers available to suppliers, while a joint venture increases the number of customers." Dr. Backman and Mr. Bernstein took verbal shots at each other during the Manufacturing Chemists' Association's panel discussion of joint ventures at the midyear conference of the MCA in New York City. Dr. Backman is a research professor of economics at NYU; Mr. Bernstein is chief of the special litigation section, Antitrust Division, U.S. Department of Justice. The third member of the three-man panel, Gerhard A. Gesell, member of the Washington, D.C., law firm Covington and Burling, is a veteran of many antitrust court battles. Mr. Gesell says, "There is no reasonable prospect that the joint-venture problem will be rationally solved either by litigation or legislation." Attack. The Government's attitude toward joint ventures worries the chemical industry. Not only are chemical companies concerned about the status of their existing jointly held companies, but they find it difficult to know what they can and cannot do about forming new ones. Mr. Bernstein says the Antitrust Division "seeks to implement the Congressional policy to preserve and promote a free competitive economy. This policy, the Supreme Court has declared, resulted in the 1950 CellerKefauver Amendment to Section 7 of
the Clayton Act, which was designed to arrest incipient threats to competition." Although not all joint ventures threaten to lessen competition, some of them do, according to Mr. Bernstein. It is sometimes said that a joint venture creates a new competitive force in the market and is unlike a merger (where one of the participating corporations has been eliminated from the market). This is not always true, says Mr. Bernstein. Even where a new competitive force is created, its creation by a combination of parents rather than by one alone may seriously restrict the effect of its competitive force on active competition between parents and between them and others. "To determine whether there is any reasonable probability of a lessening of competition (a) between the two parents in any market or (b) between actual or potential competitors of either of the parents in any or all of its activities, or (c) between actual or potential competitors of the new joint venture, we must examine the activities of the joint venturers and the markets in which they are all engaged," says Mr. Bernstein. "In addition, where neither of the parents is in competition, we inquire into the likelihood of whether they would have the resources, capabilities, and interest, and what, if anything, they did in an attempt to enter alone, or with some other partner which could not have entered alone." Mr. Bernstein points out that economic systems other than our own rely upon governments, bureaus, or industry cartels to regulate and control production, marketing, or pricing. The U.S., however, depends upon competition for its economic progress. "To preserve our free enterprise system, industry must carefully appraise the anticompetitive effects of an acquisition or joint venture proposed for
Dr. Jules Backman No lack of competition
Lewis Bernstein Joint ventures may cut competition
Gerhard A. Gesell Asks for coherent enforcement
producing a new product, entering a new market, or developing a new process, before adopting this easier method Backman's Blast. To these comments Dr. Backman fired back his answer: "Nonsense." He went on to say that although the joint venture increases the number of actual competitors it may decrease the number of potential competitors by one or more. DEC.
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In terms of the impact on competition o»e actual competitor may replace two more more potential competitors. The difficult question posed is whether one added competitor increases competition as much as or less than the elimination of two potential competitors. "Since potentiality may not readily reach the threshold of actuality, I would give more weight to the bird in the hand than to two in the bush," says Dr. Backman. All in all, Dr. Backman believes that "The positive contributions of joint ventures to more effective competition have been minimized while their anti-competitive effects appear to have been considerably exaggerated." Rational Solution. Going further with his comments on a rational solution to the problem, panel member Gerhard Gesell says, "Supreme Court decisions on mergers and joint ventures under the Sherman Act leave no doubt that whenever the occasion arises the court is likely to deal strictly with capital combinations in any form." Whatever the ultimate outcome of the Penn-Olin litigation, past decisions give Justice's Antitrust Division several adequate weapons for attacking many joint ventures of long standing and preventing consummation of many proposed joint ventures. "When the prosecutor chooses to proceed against joint ventures he will be very likely to succeed if the joint venturers are actual or probable competitors. No matter how beneficial the over-all undertaking may be to the economy, a restraint, even if a narrow insignificant phase of the combined enterprise, has been sufficient to vitiate the entire project in the cases of mergers challenged by the Antitrust Division. The same reasoning will probably apply to joint ventures," says Mr. Gesell. That antitrust laws will be clarified and made more specific by new legislation is a forlorn hope, he claims. The statute which provides the principal basis for prosecution of joint ventures is very recent. It seems more likely that antitrust laws will, if anything, be strengthened in the next few years. "How then, can the legitimate interest of business and the public be accommodated?" he asks. "The solution, if any, probably lies with the executive branch of the government." No Policy. "Unfortunately, there is 24
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today no coherent enforcement policy at the Antitrust Division which can be discerned by the outside observer. Businessmen interested in combinations, either mergers or joint ventures, must engage in what is little more than a lottery," according to Mr. Gesell. The Antitrust Division does not have sufficient funds or personnel to apply the laws equally to all combinations of this kind, he claims. It has actually proceeded against only 49 mergers out of 4960 recorded in the past four fiscal years. Many mergers, similar to those attacked, went scotfree. Therefore, Mr. Gesell believes a similar condition will exist as to joint ventures. The Antitrust Division cannot hope to prevent by litigation alone all the projected combinations which appear to .offend the statutes as broadly interpreted by the court. This has led the division to assume a role for which it was never intended, and for which it is singularly unsuited, according to Mr. Gesell. The division has sought to encourage business interests to bring their problems to the division for advance review and consideration. Resort to this "railroad release" procedure in the past has not been very successful from the businessman's viewpoint. The division frankly states it reserves the right to decline to give an opinion, and emphasizes that if it does give its approval, it does so only as of the date of its letter, and the division remains completely free to bring a civil action later. The whole process is time consuming and expensive, and without legal authority, Mr. Gesell says. The Justice Department should give the business community a better feeling for its underlying objectives in concrete terms. It should be more willing to pinpoint those particular areas of the economy and types of joint ventures which create major governmental concern, according to Mr. Gesell. He also believes that there has been a steadily growing misuse of the Civil Investigative Demand, under which the division fires out, at slight provocation, ill-conceived and extensive inquiries into various fields of business activity. The division is becoming encumbered by masses of documents which it cannot analyze adequately, and its attorneys who, after all, are not business consultants, are spending less and less time in court where they properly belong.
Dr. Harold C. Urey
Chemists Chemists have walked away with four of the 11 National Medal of Science Awards for 1964—the largest number awarded to date in any single scientific discipline. Carrying off the laurels for chemistry this year are Dr. Roger Adams, Dr. Marshall W. Nirenberg, Dr. Harold C. Urey, and Dr. Robert B. Woodward. The medalists were selected by President Johnson based on recommendations of his 12-member advisory committee on the award. The medal is awarded to those individuals who, in the judgment of the President, "are deserving of special recognition by reason of their outstanding contributions to knowledge in the physical, biological, mathematical, or engineering sciences." The President will present the awards at a ceremony to be held early next year. Rounding out the list of 1964 medalists are mathematicians Dr. Solomon Lefschetz and Dr. Marston Morse; Dr. Julian Schwinger of particle physics fame; Dr. Theodosius Dobzhansky, a zoologist-biologist and probably the world's leading authority on genetics and evolution; engineering wizard, Dr. Charles S. Draper; and bridge builder, Dr. Othmar H. Ammann. Dr. Adams, "dean of American academic chemists," was cited not only for his many and distinguished contributions to organic chemistry but also for his "devotion to science and scientists active in the field." In his long and almost incredible career as a chemist and educator, Dr. Adams has written more than 400 scientific pa-
