Defendants - inevitably - claim that, even if the court finds that there might be a distinct sub-market, other factors make the $ 50 to $ 400 market definition insupportable. Each of these objections, however, lacks merit. For instance, the claim that some sellers discount their wares to their customers does not preclude a definition based on suggested retail price. A second objection, that the market may start at $ 40 or $ 70 rather than $ 50 (and comparable imprecision at the upper end of the range) is similarly unhelpful to defendants. First, there is sufficient evidence to support each end point. In addition, defendants have failed to demonstrate that a minor modification up or down would have any effect on the market share statistics proffered by plaintiff. Based on the exhibits appended to the affidavit of defendants' expert witness, the court determines that these modifications would not have any material effect.
Therefore, the court finds that plaintiff has met its burden of demonstrating that a sub-market with a price range of $ 50 to $ 400 may be segregated out of the larger fountain pen market for Clayton Act purposes.
b. Determining Included Modes.
Defendants' second objection to plaintiff's proposed definition is that other writing modes - ballpoint pens, rollerball pens, and pencils - should also be included. In effect, defendants assert that the relevant product market should be all "highline" writing instruments (with a "highline" instrument being defined as one with an SRP of more than $ 10).
Plaintiff demonstrates that there is a subset of fountain pen consumers who are dedicated to premium fountain pens; these customers will not substitute another mode of writing (be it ballpoint pens, rollerball pens, or mechanical pencils) when faced with a non-trivial, non-transitory increase in price. For this group (and this group only), therefore, the relevant market definition would be the one proffered by plaintiff: refillable fountain pens with SRPs of $ 50 to $ 400. Plaintiff has demonstrated that this is a highly-concentrated market (both before and after Gillette acquires Parker); and, if this were the end of the discussion, plaintiff's assertions regarding anti-competitive effects (for instance, unilateral effects such as higher prices, reduced innovations, and fewer products) likely would prevail.
However, this is not the end of the discussion since this limited subset of fountain pen devotees does not encompass the entire universe of consumers; rather, a larger market must be defined. The record indicates that there is a much larger subset of fountain pen consumers who will substitute other modes of writing for fountain pens; for these customers, fountain pens therefore are in direct competition with these other modes. See Owens-Illinois (since captive end users of all-glass containers constituted only 25 % of all consumers, relevant product market was defined as "rigid-walled containers," not "all-glass containers"). This market is defined as all premium writing instruments (which the court will, for purposes of this discussion, define as mechanical pencils and refillable ballpoint, rollerball, and fountain pens with SPPs from $ 40
- $ 400). Plaintiff has not alleged that this market is highly concentrated either before or after the merger and has not demonstrated that the merger will have anti-competitive effects on this market.
The court therefore holds that the product market proposed by plaintiff is far too narrow. As discussed above, the court finds that the appropriate product market is significantly broader: all premium writing instruments. As to this market, plaintiff has failed to meet its prima facie case. Although plaintiff is correct in segregating out a "premium" sub-market from the larger fountain pen market, it has failed to demonstrate that premium fountain pens are not in competition with other premium writing instruments. Plaintiff has not made its prima facie case, therefore, and the court finds that plaintiff is not likely to succeed on the merits of the case as to this point should the case proceed to a full trial.
2. "Substantially to Lessen Competition."
In an abundance of caution, the court will also examine the second portion of plaintiff's prima facie case under Section 7: that the proposed merger is likely substantially to lessen competition. The court looks at both markets - the sub-market plaintiff wished the court to define as well as the market actually defined by the court - and finds that plaintiff has not met its burden as to this requirement, either.
In the second market, that of all premium writing instruments, plaintiff has not alleged that the Gillette/Parker merger will have anti-competitive effects. Nor has plaintiff demonstrated that the market is highly concentrated either before or after the merger. Rather, the evidence indicates that the market is awash with manufacturers and that the merger is unlikely to give the merged company the ability - unilaterally or collusively - to create anti-competitive effects. Therefore, plaintiff fails to make its prima facie case as to the relevant product market actually defined by the court.
Even if the court had adopted the proposed market definition proffered by plaintiff, however, the court still would have found that plaintiff had failed to meet its burden. In that market, plaintiff does demonstrate that there is a highly-concentrated market which will become even more concentrated should the proposed merger take place. The court will therefore assume that plaintiff enjoys the presumption that the merger will create anti-competitive results. United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 363, 10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963). Defendants, however, may - and in this case, do - rebut that presumption. Ibid. See also United States v. Baker Hughes Inc., 285 U.S. App. D.C. 222, 908 F.2d 981 (D.C. Cir. 1990).
The court finds that the evidence in this case, particularly the evidence derived from the larger market, clearly shows that the anti-competitive effects plaintiff fears are not likely to occur, even in plaintiff's sub-market. Plaintiff does not counter successfully defendants' evidence.
Several factors lead the court to this conclusion. First, there is ample evidence that the merged company will not be able to increase prices on premium fountain pens unilaterally:
. There is ample evidence that fountain pens compete with other modes of writing. Given the overlap of prices (several fountain pens are priced less than ballpoint pens and rollerball pens), an increase in one type of pen will make it relatively less attractive than other types of pen.
. In addition, many of the manufacturers create "families" of pens; each family may include a fountain pen, a rollerball pen, a mechanical pencil, and a ballpoint pen. If, as the government contends, much of the cachet of these premium instruments is their "image," at least some customers are going to view the fountain pen and the other modes within a family as in competition with each other. Therefore, if Gillette were to increase prices on its fountain pens, it would likely lose customers to its other pens in the same family (if not to other manufacturers).
. And, there is ample evidence that the mechanics of fountain pen design are readily available, thus leaving no technological barriers to entry into the market. There are also no legal or regulatory barriers which would preclude competitors from designing and selling premium fountain pens. Compare Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986), cert. den'd, 481 U.S. 1038 (1987). Although it may take a significant investment of time and money to build market share, the record demonstrates that there are new entrants into the fountain pen market which are able to check increases in price.
In addition, given the competition between fountain pens and other modes of writing and the ease with which manufacturers may enter this wider market, Gillette will not be able to raise prices unilaterally on its premium fountain pens.
Second, there is ample evidence to indicate that the merger will not create a decrease in available or new products and innovations:
. The evidence demonstrates that innovation (particularly in design) is crucial to maintaining market share; therefore, if Gillette desires to remain competitive in the fountain pen market, it must compete with other companies' innovations in fountain pens and in other modes of writing.
. Again, other companies are free to enter the market as well (and there is much evidence that companies large and small have introduced a multitude of new products over the past few years; there is also evidence that many companies plan on introducing new models in the next few years).
Third, there is no evidence that there will be any collusion in this market between Gillette and Richemont (Montblanc), the current top seller of premium fountain pens.
Plaintiff need not show that there is a certainty that the merger will create anti-competitive effects; it must merely show that it is probable. Hospital Corp. of America, 807 F.2d at 1389 (citing United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 362, 10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963)). However, defendants' evidence (as well as much of the record provided by plaintiff) demonstrates that there is great competition between premium fountain pens and other modes of writing. Therefore, even though some customers would be captive to price increases in the premium fountain pen industry, the significant competition in the premium writing instrument market renders premium fountain pen price increases unprofitable.
In sum, the court finds that the merger of Gillette and Parker is not likely substantially to lessen competition and that plaintiff has not demonstrated that it is likely to prevail on the merits should this case proceed to trial.
C. Irreparable Injury.
Plaintiff has represented that, should the court fail to enter a preliminary injunction, the court probably will be left powerless to fashion relief even if it were to find a Clayton Act violation after a full trial. Plaintiff alleges that under the United Kingdom's Protection of Trading Interests Act 1980, the government of the United Kingdom could preclude any divestiture of Parker by Gillette.
The court takes plaintiff's representations at full value and assumes that denying plaintiff's motion would effectively render this transaction final and irreversible. Therefore, plaintiff meets its burden on this point.
D. Substantial Harm to Other Interested Parties.
Parker and Gillette have also claimed that a decision adverse to them will create irreparable injury. Both parties have asserted that Gillette's agreement to acquire Parker must be consummated by May 6, 1993; otherwise, the agreement is void. Moreover, Parker has represented that its board has decided that it will not negotiate further with Gillette should this agreement fall through. These statements, of course, cannot be given full value. Because the decision whether to negotiate further is solely within the control of the defendants, any claimed injury is also within the control of the defendants as well. In other words, the irreparable injury defendants claim can only exist if the defendants allow it to exist.
Nonetheless, the court cannot ignore that a transaction valued at in excess of $ 400 million would be forestalled because each party sells approximately $ 5 million (at wholesale) in premium fountain pens. Given the magnitude of the transaction, the size of the companies, and the potential overall benefits to the public from this transaction, defendants have a valid claim that they will be injured by the entry of a preliminary injunction, the effect of which may well be to preclude the merger.
E. The Interests of the Public.
The interests of the public are not necessarily coextensive with the irreparable injury criterion discussed in Part D., above, even though the case is brought by the United States to enforce federal anti-trust laws. However, for purposes of this decision, given that any merger likely will not be reversible, the court will assume that the interests of the public weigh in favor of an injunction.
Given the potential permanent and unalterable nature of this merger, the court has given plaintiff's evidence the most sympathetic reading possible and has resolved all ambiguities and conflicts in favor of plaintiff. In balancing the four factors for a preliminary injunction, the court has given plaintiff full credit for irreparable injury (the second criterion) and the interests of the public (the fourth criterion) and has afforded defendants no weight on the injury to other parties standard (the third criterion). The court also recognizes that, given the strength of plaintiff's irreparable injury argument, plaintiff need only make a lesser showing on likelihood of success.
However, plaintiff has failed absolutely to meet its burden on both aspects of its prima facie case - the definition of a relevant product market and a demonstration of a likelihood of substantially reduced competition. Therefore, plaintiff has failed to meet even the lesser standard on the first criterion, likelihood of success; the criterion weighs completely in favor of defendants. As plaintiff has failed to demonstrate any likelihood of success, the court may not enter a preliminary injunction on this balance.
While some users are devoted to fountain pens to such a degree that they are captive to non-trivial, non-transitory price increases, a broader market enjoys active competition among all modes of premium writing instruments. This market is the relevant product market to be addressed in this case. The competition in this market serves to prevent any anti-competitive effects from arising - both in plaintiff's narrow market and in the premium writing instruments market as a whole - after this transaction is consummated. As such, plaintiff has failed to demonstrate that it is likely to succeed on the merits should this case go to trial. A balancing of the four preliminary injunction criteria, even when the latter three are viewed in the light most favorable to plaintiff, indicates that the court may not enter a preliminary injunction on this record.
Plaintiff's motion for a preliminary injunction therefore is denied.
Royce C. Lamberth
United States District Judge
EDITOR'S NOTE: The following court-provided
ORDER -- May 5, 1993, Filed
This case comes before the court on plaintiff's motion for a preliminary injunction. Upon consideration of the plaintiff's memorandum, supplemental memorandum, and reply memorandum, as well as of defendants' memorandum in opposition, and for the reasons stated in the accompanying memorandum opinion, it is hereby ORDERED that plaintiff's motion is DENIED.
Royce C. Lamberth
United States District Judge
DATE: MAY 5 1993