Kaiser Aluminum & Chemical Corporation

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IN THE MATTER OF KAISER ALUMINUM & CHEMICAL CORPORATION Docket 9080. Interlocutory Order, May, 1984 ORDER DEFINING THE SCOPE OF PROCEEDINGS ON REMAND The Commission issued its complaint in this matter on April 27 1976, alleging that Kaiser s February 28, 1974, acquisition of the Lavino Division ofInternational Minerals and Chemicals Corporation was in violation of Section 7 of the Clayton Act, 15 U. C. 18, and Section 5 of'he FTC Act, 15 U. C. 45. An Initial Decision concluding that a violation had occurred issued October 12, 1978, and, on May 17 1979, the Commission issued its Opinion and Order affrming a violation and ordering divestiture of the acquired assets. In Kaiser Aluminum Chemical Corp. v. FTC, 652 F.2d 1324 (7th Cir. 1981), the United States Court of Appeals for the Seventh Circuit vacated and set aside the Commission s order and remanded the case to the Commission for further proceedings consistent with the Court' main conclusion that the Commission had improperly applied the doctrine of United States v. General Dynamics Corp. 415 U.S. 486 (1974) to the facts of this case.

On December 21, 1981, the Commission directed the parties to fie briefs as to what factual and legal issues should be determined and what further proceedings, if any, would be appropriate, following the remand of this matter to the Commission for further proceedings consistent with the Court of Appeals' opinion.! Complaint counsel take the position that only one issue need be addressed by the Commission on remand: whether upon the application of'he legal principles of United Statesv. General Dynamics Corp. supra, as interpreted by the Court of Appeals, the acquisition in question may substantially lessen competition in the relevant markets sustained upon judicial review. Complaint counsel argue that this single issue can be decided without reopening the record, and that the only further proceeding required is briefing of this issue. Respondent Kaiser agrees that the principal issue on remand is whether, under the rule of General Dynamics, complaint counsel met their burden of proving that the acquisition may substantially lessen competition in the relevant markets. Kaiser believes that the complaint should be dismissed now without further briefing. However, in 1 Briefs were fied by Kaiser Aluminum & Cherrc,,) Corporation ("Kaiser ) and complaint counsel on February 1982. Answering briefs by both parties were fled M..rch 19, 19R , Kaiscr moved to fie a reply briefoD March 1982, ..mi complaint counsel fied an opposition to this motion on April 7 , 1982 502 Interlocutory Order the event that such a dismissal is regarded by the Commission as inappropriate, Kaiser argues that certain additional issues should be addressed, and that the Commission should receive limited evidence in the form of stipulation or affdavit, about industry developments subsequent to the closing of the record in 1978. The Commission agrees that the principal issue to be determined on remand is whether, under the principles of General Dynamics the acquisition may substantially lessen competition in the relevant markets sustained by the Court of Appeals. Specifically, the issue is whether statistics establishing a prima facie case of violation based upon past market shares can be rebutted by other evidence casting doubt on the ability of the statistics accurately to predict future anticompetitive consequences. Among the factors to which such evidence might pertain are ease of entry into the market, the trend of the market either toward or away from concentration, and the extent of active price competition.2 The Commission agrees with Kaiser that given the time elapsed since the acquisition was consummated in 1974 and the closing of'he record in 1978 , it would be in the public interest to permit the parties to supplement the record with limited evidence concerning industry developments since the closing of the record, insofar as those developments pertain to the nonstatistical factors identified in General Dynamics. The evidence is to be submitted on an expedited schedule and in the form of stipulations and affdavits. See United Statesv. General Dynamics Corp. 415 U.s. 486, 504416 (1974); United Statesv. E.I. dupont deNemours Co. 353 U.S. 586, 597-598 (1957).

Kaiser argues that, in addition to the General Dynamics issue, the Commission should also consider: (1) whether complaint counsel's market shares established a prima facie case of violation in the markets sustained by the Court of Appeals; (2) whether the acquisition resulted in effciencies and other benefits that made it on balance pro-competitive; and (3) whether ordering divestiture would offer a reasonable prospect of significantly increasing competition in the in- 2 Although these factors are specifically mentioned by the Court of Appeals, they are !Jot IJeces.sarily the unJy relevant ones. Other f"clots that may apply here could be any ofthase mentioned in Parts IIl. B and IILC of the 1982 Justice Department Merg"'T Guidelines and Part HI of the 1982 FTC Statement on Horizontal Mergen;. J The Commission retains the option to order evidentiary hearings ifnecessary to resolve disputed issues offac! arising from tl1P affdavits of the parties 4 Evidence of industry developments subsequent to the closing oft,he record will be accepted on remand in this case because nearly six years have passed since the record was closed and hecauseuch evidence may he relevant to the General Dynamics issue remanded hy the Court of Appeal for detennination by the Commission. Although post-acquisition evidence should not be given "too much weight, FTCv. Consolidated FnnrL Corp. 380 S 592 59A (1965), there is OIuthority for relying on "the best information available" in assessing a merger as old as this one. See Consolidated Foo(L C"rp. 380 U.S. at 605 06 (Stewart, J. , concurring in the judgment). Moreover, aR the Supreme Court noted in United Statesv. r;enera/Dynamics 415 U.S. at 504-506, the preference to avoid postacqui ition evidence iR based on the recognition that. merger partners might temper their competitive conduct in the face of antitrust litigation, In this case, the passage of time and the emphasis that has been placed throughout this lit.igation on the iRsU!" of industry conditions rather than the post-merger conduct of the parties, justify the receipt of some form of post. acquisition evidence Interlocutory Order 103 F. dustry and be in the public interest. In this regard, the Commission has a particular concern regarding the effect on all the issues in this proceeding of the reported termination of production, on August 31 1982, of refractory brick at the Plymouth Meeting, Pennsylvania, and on suspension of operations at Gary, Indiana, at the end of 1983. Further, Kaiser has stated that it is seeking to sell both of these facilities, which may bear on relief issues in this proceeding. The Commission wil permit the parties to address all the issues raised by Kaiser in their briefs, and to submit the evidence relating to those issues as discussed in the briefs.- Submission of such evidence shall be limited to each party s initial fiing. The parties may direct challenge to the acceptance by the Commission of any such evidence submitted, consistent with the definition of the scope of remand set out in this order and in the opinion of the Court of Appeals. The Commission reserves the power to accept or reject any such additional evidence.

Kaiser proposes a procedure whereby the parties would fie briefs together with limited evidence about industry developments since the record was closed, in the form of affdavits and stipulations, to be followed by oral argument. With some modification, the Commission accepts Kaiser s basic suggestion, and directs the parties to fie briefs together with any stipulations and affdavits, as set forth below. Accordingly, It is hereby ordered That within 40 days of Kaiser s receipt of this Order, Kaiser shall fie with the Commission and serve upon complaint counsel a brief, not to exceed 60 pages, together with any stipulations or affdavits regarding industry developments occurring after the close of the record;

It is further ordered That within 40 days of complaint counsel's receipt of Kaiser s brief and any evidentiary submissions, complaint counsel shall fie with the Commission and serve upon Kaiser a brief not to exceed 60 pages, together with any stipulations or affdavits regarding industry developments occurring after the close of the record; and It is further ordered That within 20 days of Kaiser s receipt of complaint counsel' s brief and any evidentiary submissions, Kaiser may fie with the Commission and serve on complaint counsel a reply brief, not to exceed 30 pages, limited to matters discussed in complaint 5 Letters of Kaiser s counsel to the Commission, dated July 26, 1982, January 11, 1983, and October 11 , 198. 6 Kai:or states that it would nut now plan to brief whether the two ftJlevant markets sustained by the Court of Appeals were supported by substantial evidence, although it would expect to raise this issue in any future review petition it might fie in the Court of Appeals. Accordingly, the Commission will not receive evidentiary submissions on that i8. ue. However, the Commission wil permit thp. part.ies to brief the issue of whether recellt developments in legal and economic theory, as reflected in Part II, B.l of tile 1982 Justice Department Merger Guidelines, make it appropriate for the Commission to consider production substitution in identifying the relevant market(s) in this case.

502 Interlocutory Order counsel's brief' No further briefs or evidentiary submissions may be fied by either party, and oral argument is not contemplated as necessary to supplement the briefs.

Complaint 103 F.