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July 31, 1998


The opinion of the court was delivered by: SPORKIN


 The Plaintiff Federal Trade Commission ("FTC") seeks to enjoin the proposed mergers of Defendants Cardinal Health, Inc. ("Cardinal") with Bergen-Brunswig Corp. ("Bergen") and McKesson Corp. ("McKesson") with AmeriSource Health Corp. ("AmeriSource"). The Plaintiff moves for the injunction under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b) in order to stop the Defendant companies from merging before the FTC can hold a full administrative hearing on the whether the proposed transactions are in violation of Sections 7 and 11 of the Clayton Act, 15 U.S.C. §§ 18, 21, and Section 5 of the FTC Act, 15 U.S.C. § 45. From June 9, 1998 to July 17, 1998, this Court held an extensive evidentiary hearing in the matter. After careful consideration of all of the facts presented, this Court grants Plaintiff's motion for the reasons set forth below. *fn1"



 Plaintiff FTC is an administrative agency charged with the mission of enforcing the federal antitrust laws for the benefit of the American consumer. See Federal Trade Commission Act, 15 U.S.C. § 41 et seq. The Defendants are Fortune 500 corporations listed on the New York Stock Exchange whose principal business is the nationwide wholesale distribution of prescription drugs. *fn2" The four Defendants are the largest of the forty plus wholesale drug distributors in the United States.

 Defendant McKesson is a Delaware corporation headquartered in San Francisco, California. In both size and sales, McKesson is the largest wholesale distributor of prescription drugs in the United States. It currently operates 35 pharmaceutical distribution centers, 33 of which are in the contiguous United States. In the fiscal year ending March 1998, McKesson posted revenues of 20.8 billion dollars, approximately 12 billion dollars coming from prescription drug distribution alone. For the 1998 fiscal year, its after-tax net income was 154.9 million dollars. See DXC 48 at 24. McKesson's profit margins are widening. Excluding nonrecurring charges, for the quarter ending December 31, 1997, McKesson reported an 80% increase in operating profits over the same quarter a year ago, while revenues increased 34%. Based on sales from the fourth quarter of 1997, 32% of McKesson's sales were to hospitals and other institutions, 37% to independent pharmacies, and 31% to retail chain pharmacies. See PX 461 at 11.

 Defendant Bergen is a New Jersey corporation headquartered in Orange County, California. Bergen is the second largest wholesale distributor of prescription drugs in the United States. It currently operates 31 pharmaceutical distribution centers, as well as alternate site and depot facilities. For the fiscal year ending September 30, 1997, Bergen's net sales and other revenues were 11.6 billion dollars, with an after-tax net income of 81.6 million dollars. Bergen's 1997 net sales were 17% higher and after-tax earnings 20% higher than 1996. See PX 1205 II-2-3. To date, Bergen's 1998 revenues are approximately 12.5 billion dollars. Based upon 1995 data, 50% of Bergen's sales were to hospitals, 27% to independent drugstores, and 16% to chain pharmacies.

 Defendant Cardinal is an Ohio corporation headquartered in Dublin, Ohio. Cardinal is the third largest wholesale distributor of prescription drugs in the United States. It currently operates 26 pharmaceutical distribution centers, four specialty distribution centers, one medical/surgical distribution facility, six packaging facilities, and four specialty centers. For the fiscal year ending June 30, 1998, its revenues were approximately 12.7 billion dollars, with pharmaceutical distribution accounting for approximately 11.5 billion dollars. For the 1997 fiscal year, Cardinal's revenues were 10.97 billion dollars and its after-tax net income 184.6 million dollars. See DXC 45 at 20, DXC 419 at 70. Of that 184.6 million dollars, Cardinal's after-tax net earnings on pharmaceuticals alone were 140 million dollars, the highest in the industry. Cardinal's net earnings for the first quarter of 1998 were 34% higher than for the first quarter of 1997, even though revenues grew only 20%. According to 1996 sales figures, 52% of Cardinal's sales were to hospital and other institutional customers, 16% to independent drug stores, 29% to non-warehousing chain pharmacies, and 3% to self-warehousing chain pharmacies. See PX 1215 5(d).

 Defendant AmeriSource is a Delaware corporation headquartered in Malvern, Pennsylvania. AmeriSource is the fourth largest wholesale distributor of prescription drugs in the United States. It currently operates 19 drug distribution centers and three specialty products distribution facilities. For the fiscal year ending September 30, 1997, its revenues were 7.8 billion dollars, with an after-tax net income of 45.5 million dollars. See PX 1212 part II.6. Based on 1997 sales data, 47% of the company's total sales were to hospitals and managed care facilities, 33% to independent drug stores, and 20% to chain pharmacies. See PX 1212 at 1.

 Over the last twenty years, there has both substantial growth and rapid consolidation in the wholesale industry. For the most part, the four Defendants have been the ones leading the trend. As a result of their acquisitions over the years, the four Defendants are the only wholesalers that are able to provide national coverage through a network of distribution centers across the entire United States. *fn3" Most recently, the four Defendants have also begun to integrate vertically by acquiring businesses related to the distribution of drugs and related health care products.

 Founded in 1833, McKesson became the first national drug wholesaler. It achieved its nationwide scope during the Great Depression when it acquired many of the failing drug wholesalers. It remained the sole national drug wholesaler until 1992, when Bergen expanded its coverage to the entire nation. In 1988, McKesson attempted to acquire AmeriSource, then known as Alco Health Services Corp. ("Alco"), but abandoned its efforts after the FTC challenged the merger. In November 1996, McKesson successfully acquired the business and principal assets of the bankrupt FoxMeyer Corp. ("FoxMeyer"), which at the time of the purchase, was the fourth largest wholesale distributor of prescription drugs. Immediately after the purchase, McKesson had approximately 57 pharmaceutical distribution centers. In the following two years, it closed 15 and sold 3 of them. As of February 5, 1998, McKesson's plans included closing three more of the centers as a result of the FoxMeyer merger.

 Recently, McKesson began to integrate vertically by acquiring several businesses related to the distribution of pharmaceutical products and health care supplies: In December 1995, McKesson acquired BioServices Corporation, a business that provides product marketing and support services for the pharmaceutical industry; in April 1996, McKesson acquired Automated Healthcare, Inc., which specializes in automated pharmaceutical dispensing systems; and in February 1997, McKesson acquired General Medical, Inc., a multi-market distributor of medical/surgical supplies.

 Bergen-Brunswig was created by the 1969 merger of Bergen, an East Coast company, and Brunswig Drug Co., a West Coast operation. Since 1978, Bergen expanded by acquiring eleven other drug wholesalers, including Durr Drug Company, Owens and Minor, South Bend Drug, and Dr. T. C. Smith. Bergen became the second national drug wholesaler in 1992 after it acquired Dirrfilauer in the southeastern part of the United States. Of the 38 drug distribution centers acquired by Bergen in the last fifteen years, 34 have been closed. In 1996, Bergen briefly explored the idea of vertical integration with a proposed acquisition of Ivax, which at the time was the largest generic drug manufacturer in the United States. The proposed transaction was abandoned shortly thereafter.

 Cardinal was established in 1971 as a food wholesaling company that distributed food products to independent supermarkets. In 1979, Cardinal entered the drug wholesaling industry by purchasing Bailey Drug, an existing drug wholesaler. After going public in 1983, Cardinal continued to expand by acquisition: In 1984, it acquired Ellicott Drug; in 1986, Daly Drug and John L. Thompson; in 1988, Marmac Distributors; in 1990, Ohio Valley Drug; in 1991, Chapman Drug; in 1993, Solomons.; and in 1994, Baherns, and Humiston-Keeling.

 Cardinal became a national drug wholesaler in 1994 when it acquired and merged with Whitmire Distribution Co., a California based drug wholesaler with 3 billion dollars in annual revenues and distribution centers located throughout the western and central United States.

 Aside from acquiring other drug wholesalers, Cardinal has also diversified by acquiring related businesses in the pharmaceutical industry. In May 1996, Cardinal acquired Pyxis Corp. ("Pyxis"), the pioneer manufacturer of automated vending machines which dispense pharmaceuticals and hospital supplies to the staff of medical institutions. To date, Pyxis has 51,000 systems installed in 1,600 hospitals throughout the United States and Canada. See PX 459 at 3. As part of the Pyxis merger, Cardinal also acquired Allied Pharmacy Service, Inc., one of the largest hospital pharmacy management companies in the United States. In November 1995, Cardinal acquired Medicine Shoppe International, Inc., the nation's largest franchiser of independent retail pharmacies with 1030 franchisees in the United States and an additional 142 in five foreign countries. See PX 459 at 3. In addition, Cardinal acquired Owen Healthcare, a hospital pharmacy management company, and PCI, a pharmaceutical packaging company.

 AmeriSource is the descendent of the Kauffman Company, founded in 1881. Kauffman was one of the pioneers in developing the hospital business for drug wholesalers. In 1977, Kauffman was sold to Alco Standard Co., the predecessor of AmeriSource. Before buying Kaufmann, Alco had primarily been in the fine paper business. With the acquisition of Kaufmann and The Drug House, a family run business in Philadelphia, Alco entered the drug distribution market. Since 1978, Alco continued to expand by acquiring seventeen drug wholesalers. After management bought the company in 1988, it changed the company's name to AmeriSource (1994), and in 1995, it took the company public. AmeriSource attained national status in 1996, the last of the four Defendants to do so. Most recently, it acquired Gulf Distribution in February 1996, and the Walker Drug Company in March 1997.

 As the history of the four Defendants indicates, over the years, they have acquired other drug wholesale companies and consolidated operations to achieve greater economies of scale. While the size and scope of the four Defendants are significant, three of the Defendants attained their national status relatively recently--namely within the past six years.


 In the United States, the pharmaceutical industry is one of the most dynamic and important segments of the national economy. Due to the advances in medical science, there are a staggering number of prescription drugs for nearly every kind of health condition. Prescription drugs have become an essential elemental of modern health care. In 1997 alone, 94 billion dollars worth of prescription drugs were dispensed in the United States. Today, an individual can fill a prescription almost immediately, for there is a pharmacy around the corner in nearly every neighborhood in the United States. Most pharmacies can fill a prescription on the spot, or at least guarantee next day delivery. The ease with which people can obtain their prescriptions requires an industry capable of delivering the needed drugs from the national manufacturers to the local dispensers. The dispensers of prescription drugs include the neighborhood independent pharmacies; chain pharmacies such as CVS, Rite-Aid, and Walgreens; hospitals; nursing homes; and alternate care sites.

 The distribution and delivery of prescription drugs from the manufacturer to the dispenser is not an easy task. It involves not only the quick and efficient transportation of drugs on a daily basis, but also large facilities to keep a constant inventory of over 18,000 different brands of drugs in stock. Most of the retail outlets and institutions that dispense prescription drugs do not have the ability to store the large number and variety of drugs that they sell. In order to fill prescriptions on the spot each and every day, dispensers must be able to obtain the requested drugs on a continuous basis from the manufacturers as quickly as possible. Thus, the fast and efficient distribution of prescription drugs is a critical component of the pharmaceutical industry.

 For the most part, the distribution end of the pharmaceutical industry consists of four segments: (1) wholesalers; (2) manufacturer direct; (3) mail order; and (4) self warehousing by retailers.

 1. Wholesalers : Wholesalers, such as Defendants, are the "middle-men" between manufacturers and dispensers. They provide an expeditious and cost-effective means for the purchase, delivery, and sale of prescription pharmaceuticals. In short, they purchase and obtain drugs from the manufacturers, store the drugs in anticipation of customer demand, and then sell and deliver the desired quantities to the individual dispenser. At present, there are 40-plus full-line pharmaceutical wholesalers in the United States; the four Defendants control close to 80% of this wholesale pharmaceutical distribution business.

 2. Manufacturer Direct : When a manufacturer sells directly to the dispenser, the drugs are shipped straight from the manufacturer to the dispenser. This form of distribution, known as "manufacturer direct," completely bypasses the need for any intermediary distributor. In the past decade, institutional consumers of pharmaceutical drugs ( hospitals and retail pharmacy chains), as well as independent retail pharmacies, have significantly decreased the percentage of pharmaceuticals purchased directly from the manufacturer in terms of the total dollar volume of drugs purchased. See Stipulation 2. During the same decade, mail order pharmacies have increased the amount and percentage of pharmaceuticals they purchase direct from manufacturers.

 3. Self-warehousing : Self-warehousing occurs when retail or institutional dispensers take on the task of distribution themselves. Instead of relying upon an outside distributor, the retailer or health care institution buys direct from the manufacturer; stores the drugs in one or more of its own warehouses; and then delivers the drugs to its retail stores and hospitals as needed. In short, they act as their own wholesaler. Retail chain pharmacies are the only dispensers of pharmaceutical drugs that self-warehouse to any significant extent. As a group, in the last decade, retail chains with four or more stores (including drug stores, mass merchandisers, and food stores) have increased the amount and percentage of pharmaceuticals that they self-warehouse in terms of the total dollar volume of pharmaceuticals purchased from 60.9% to 66.1%. See Stipulation 1.

 4. Mail Order: Individuals today can fill their prescription drugs by mail without going to a retail store or hospital. The dispensing of pharmaceuticals by mail order is the fastest growing segment of the industry. From 1990 to 1997, the sale of pharmaceuticals by mail order increased from 5.1% to 9.7% of the total sales. See Stipulation 3. Mail order pharmacies receive prescriptions by fax or through the mail and dispense the drugs directly to consumers anywhere in the United States. Mail order is often used to dispense "maintenance" drugs regularly used by patients over an extended period of time. Yet unlike other forms of distribution, mail order operations do not buy all of the prescription drugs they warehouse in inventory direct from the manufacturer. In fact, mail order companies often use the services of another distributor, most often a wholesaler, to buy their inventory. In that sense, mail order operations are a hybrid between the distribution and retail ends of the pharmaceutical industry.

 Of the 94 billion dollars in prescription drugs dispensed in 1997, 55 billion dollars (58.5% of the total) was distributed by wholesalers including the four Defendants. The other 39 billion dollars (41.5% of the total) was distributed through the other three channels, principally by direct delivery from the manufacturer. See DXM 535. In the drug industry, distributors receive the smallest share of the gross profits: In 1997, for every dollar of prescription drugs sold, 76 cents went to the manufacturer, 20 cents to the dispenser, and only 4 cents to the wholesale distributor. See DXC 154C. Typically, a drug manufacturer establishes a wholesale list price, or "wholesaler acquisition cost" ("WAC"), for its prescription drugs. For brand-name, or "branded," prescription drugs on which they have an exclusive patent, the manufacturers set the WAC unilaterally or negotiate directly with the dispenser, in most instances leaving the wholesaler out of the price setting aspect of the transaction. *fn4" For generic drugs typically, the WAC is negotiable between the manufacturer and the wholesaler. In 1997, branded pharmaceuticals accounted for approximately 90% of the dollar volume of pharmaceuticals dispensed in the United States. Generic drugs accounted for the remaining 10% or so.

 Manufacturers often offer distributors discounts, such as cash rebates, for prompt payment and volume purchases. As a result of manufacturers' incentive, wholesalers can often acquire the drugs for prices less than the listed WAC. When retail dispensers purchase their prescription drugs from wholesalers, the price of the drugs is either the WAC or a base price negotiated between them and the manufacturer. In addition, the dispenser pays the wholesaler a certain percentage fee, or "upcharge," that has been negotiated for the cost of the distribution. At times, wholesalers sell drugs to dispensers for a price that appears to be at a loss. Valued customers can often buy drugs from wholesalers for the WAC minus a certain negotiated percent. The wholesaler still profits from these "cost minus" transactions by taking advantage of manufacturer rebates and discounts, which allow them to purchase the drugs for a cost below the WAC.

 The revenues generated from the upcharge and other brokered fees are termed "sell-side margins." "Buy-side margins" result from the prompt and early payment discounts from manufacturers, earned rebates and discounts, and increases in the value of inventories as manufacturers' prices rise. Revenues are generated through the "float," or the time differential between when the wholesaler receives payment from the retail dispenser and when the payment to the manufacturer is due. In instances where the wholesaler gets paid by the dispenser before the wholesaler's payment is due to the manufacturer, the wholesaler, through the investment of the float, is able to earn additional income.

 Traditionally, wholesalers bought the drugs from manufacturers, took ownership of the drugs in their own warehouses, and then in turn, resold them to the dispensers and delivered the goods direct to their individual stores and institutions. This traditional service is called "direct store delivery." In light the growing trend in the industry to self-warehouse, wholesalers have included in addition to this traditional delivery system "dock-to-dock" delivery and "drop shipment" charging. "Dock-to-dock" involves the wholesaler obtaining drugs in bulk from the manufacturer for direct delivery to a dispenser's own warehouse without taking the drugs into its own inventory. "Drop shipments" refer to when the manufacturer delivers the product directly to the customer, but the order and payment is made through the wholesaler. The combination of "drop ship" and "dock-to-dock" is known in the wholesaling industry as "brokerage."

 Along with the delivery of pharmaceuticals, the wholesalers have a broad range of value-added services that they can provide to their dispensing customers. These services are often not provided by the manufacturer and would be difficult and costly for the dispenser to reproduce them. Wholesalers have sophisticated ordering systems that allow customers to electronically order and confirm their purchases, as well as to confirm the availability and prices of wholesalers' stock. Wholesalers' inventory management systems help customers minimize inventory, customers can reduce inventory carrying costs while maintaining adequate inventory to meet patients' needs. Generic source programs enable wholesalers to combine the purchase volumes of customers and negotiate the cost of goods with generic manufacturers. Other services available from wholesalers include marketing and advertising programs, pharmacy networks for managed care plans, and software to assist with manufacturer bidding. Despite all of the services one wholesaler can provide to a customer, most customers have both a "primary" wholesaler and a "secondary" wholesaler. Given the customers' immediate needs for prescription drugs, the secondary wholesaler acts as a backup to the primary wholesaler for the times the primary cannot fill the order.

 Wholesalers primarily service three main classes of dispensers: (1) independent drug stores; (2) health care institutions; and (3) retail chains. In 1997, independents accounted for 27% of the wholesalers' total net sales; institutional dispensers 45%; and retail chains 24%.

 1. Independent Pharmacies : Independent retail pharmacies, defined as having three or fewer stores, are commonly known as the "mom and pop" stores. There are currently 27,000 independent pharmacies in the United States. As a group, independent drugstores purchased 95.4% of their prescription drugs through wholesalers in the year ending December 31, 1997. See DXM 535. Independents bought the small remaining percentage of drugs directly from the manufacturers. Over the years, independents have increasingly joined group purchasing organizations ("GPOs") to gain greater leveraging power with wholesalers and manufacturers. While the GPOs do not purchase pharmaceuticals themselves or provide pharmaceutical distribution services, they use the aggregated purchasing power of their individual members to negotiate favorable contracts with manufacturers and wholesalers on behalf of their members.

 2. Institutions : Institutional dispensers include hospitals, clinics, nursing homes, home health care providers, managed care providers, government agencies, and various alternate care providers. Institutional dispensers collectively purchase around 30 billion dollars per year in prescription drugs. See DXM 535. In 1987, health care institutions bought over 37% of their prescription drugs directly from the manufacturer. Today, they purchase only 20% directly from the manufacturer. The remaining 24 billion dollars of pharmaceuticals is distributed by the wholesalers. In particular, hospitals relied on wholesalers to deliver 85.3% of all of their prescription drug needs for the year ending December 31, 1997. See DXM 535. Of the 18 billion dollars of prescription drugs purchased by hospitals in the United States, more than 15 billion dollars was supplied by wholesalers. See DXM 535. Health care facilities generally demand a greater quantity of prescription drugs per location and a narrower range of items as compared to retail stores. Over the years, they have consolidated to form integrated delivery networks ("IDNs"), which are groups of hospitals, clinics, alternative care sites, and/or physician practices, usually located in the same metropolitan area. In 1997, the 35 largest IDNs posted gross revenues in excess of one billion dollars. Like independent pharmacies, institutions of all types -- including individual hospitals, chains, and IDNs -- have joined together to form GPOs. More recently, a number of institutional GPOs have combined to increase their purchasing power even further. *fn5"

 3. Retail Chains : Retail chains, defined as having four or more stores, include drug stores, mass merchandisers, and food stores. The largest of the retail chains -- Walgreens, Eckerd, CVS, and Rite-Aid -- have annual sales of more than 12 billion dollars. See Roath Tr. 6/25/98, at 6. While they all rely on wholesalers to deliver a certain percentage of their pharmaceutical needs, the largest retail chains also maintain their own warehouses to supply drugs to their individual stores. Like wholesalers, self-warehousing chains receive the drugs in bulk from manufacturers, store the drugs in their own warehouses, and deliver the drugs to their retail outlets through their own distribution systems. Retail chains are the only dispensers of pharmaceuticals that self-warehouse to any significant extent. Large chains such as Rite-Aid and Eckerd have the capacity to self-warehouse up to 90% or so of the prescription drugs that are sold in their stores. *fn6" In general, retail chains have decreased their reliance on wholesalers. Manufacturers, that used to sell exclusively or principally to wholesalers, have increasingly agreed to sell more directly to the chains. From 1987 to 1997, retail chains increased the amount and percentage of pharmaceuticals they self-warehoused from 60.9% to 66.1% of their total purchases. During the same period of time, the amount and percentage purchased from wholesalers decreased from 39.1% to 33.9%. See Stipulation 1.

 In the past few decades, a number of other significant trends aside from self-warehousing have occurred in the drug wholesale industry. As discussed previously, there has been substantial growth and rapid consolidation among the drug wholesalers. From 1978 to 1995, there was a 64% decline in the number of drug wholesalers operating in the United States. Of those disappearing companies, 85% left the market because they were acquired by another drug wholesaler. No new full-line wholesaler has entered the market since 1989. See Pulido Tr. 6/22/98, at 89-90; cf. P.'s Brief at 40 (alleging that there has been no new entry since 1981).

 The pressure to reduce cost in the pharmaceutical industry as a whole has led both wholesalers and customers to seek economies of scale. Customers have consolidated as well. Over the past two decades, retail drug store chains have expanded exponentially through the acquisition of independent pharmacies and smaller chains. Hospitals have also merged to form chains. Both hospitals and retailers have organized GPOs that have merged with other GPOs.

 Over the last two decades, wholesalers have increasingly lowered their prices and profit margins in order to compete. From 1980 to 1998, wholesale distributors' sell-side margins declined from 5.5% to 0.35%. In contrast, the wholesalers' buy-side margins only decreased from 5.5% in 1980 to 5.35% today. With such declining upcharges, any further decreases would seem to have to come principally from the buy-side margin and not the sell-side. The ratio of sell-side to buy-side profits has shifted dramatically over time, reflecting the increasing negotiating power of customers. In 1980, the wholesalers' gross margins were 50% buy-side and 50% sell-side. Today they are 94% buy-side and 6% sell-side. See DXC 420.


 Defendants contend that the proposed mergers are the necessary reaction to the industry trends discussed above. They argue that the proposed mergers are their response to the mounting pressures to reduce cost, increase efficiency, and lower prices. After the mergers, the Defendants intend to begin an immediate plan of reorganization to lower cost and increase efficiency. Cardinal and Bergen announced that they plan to shut down and consolidate their combined 54 distribution centers into 29. This would include the opening of a few new facilities. Similarly, McKesson and AmeriSource publicly announced that they intend to consolidate their 54 distribution centers into 33, primarily by closing most of AmeriSource's existing facilities.

 Cardinal initially approached Bergen about a merger in 1995. Bergen first rejected Cardinal's offer in 1995 and instead pursued a vertical integration program with its 1996 attempt to acquire Ivax, a generic manufacturer of drugs. When that acquisition fell through, Bergen began discussions with both AmeriSource and McKesson about a possible merger before being approached by Cardinal again in 1997. Pursuant to an Agreement and Plan of Merger dated August 23, 1997, Cardinal proposed to acquire all of the voting shares of Bergen for approximately 3.5 billion dollars in a stock-for-stock merger.

 Once Cardinal announced its merger with Bergen, discussions between McKesson and AmeriSource quickly ensued. McKesson determined that a merger was necessary in order to compete with the Cardinal/Bergen merger. On September 22, 1997, McKesson announced its Agreement and Plan of Merger to acquire all of the voting shares of AmeriSource for approximately 2.5 billion dollars in a stock-for-stock merger.

 The FTC on March 3, 1998 authorized the commencement of two separate actions against the proposed mergers under Section 13(b) of the FTC Act to seek preliminary injunctions barring the completion of the mergers during the pendency of administrative proceedings. The FTC filed two separate complaints on March 9, 1998 for each transaction. On the motion of the Government with the consent of the parties, the Court consolidated the two cases.

 At the initial status, Defendants represented that the transactions could not be held together for any substantial period of time. In light of this representation, the Court expedited discovery and held a seven week evidentiary trial commencing on June 10, 1998 and concluding on July 24, 1998. The FTC called nine witnesses, read the depositions of two other witnesses, offered the proffers of at least six witnesses, and presented the opinions of two economic experts on the likely market consequences and efficiencies of the proposed transactions. In addition to calling eighteen witnesses, the Defendants read the depositions of a number of witnesses, offered the proffers of at least eighteen more witnesses, and presented four of their own experts, who testified as to the anticipated efficiencies and likely market consequences of the proposed mergers. Combined, the parties submitted well over 2,000 exhibits for the Court's consideration. In addition to the submissions by the parties, 30 states *fn7" joined in an amicus brief filed in support of the FTC's request for an injunction.

 In short, an extraordinary amount of documentation, testimony, and information was presented before this Court over the span of seven weeks. This was a profoundly professional job by all parties. They laid bare this industry in all of its sophisticated detail and business intricacy. What was revealed at trial was a well-run, efficient industry that exemplifies the best of a free-market system.



 Under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), this Court may grant preliminary injunctive relief to the FTC if it finds, upon "weighing the equities and considering the Commission's likelihood of ultimate success," that the injunction would be in the public interest. See also FTC v. Weyerhaeuser Co., 214 U.S. App. D.C. 254, 665 F.2d 1072, 1074 (D.C. Cir. 1981). Accordingly, to prevail under Section 13(b), the FTC must demonstrate: (1) a likelihood of success on the merits in its case under Section 7 of the Clayton Act; and (2) that the equities tip in favor of injunctive relief. See, e.g., FTC v. Staples, Inc., 970 F. Supp. 1066, 1071 (D.D.C. 1997). Where the FTC has not established a likelihood of success on the merits, the Court cannot rely on the equities alone to justify the issuance of a preliminary injunction. See FTC v. Owens-Illinois, Inc., 681 F. Supp. 27, 52 (D.D.C. 1988), vacated as moot, 850 F.2d 690 (D.C. Cir. 1988).


 Section 7 of the Clayton Act, 15 U.S.C. § 18, prohibits a corporation from acquiring "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." It is conceded by the parties that the Defendants in this case are engaged in "commerce" as defined by Section 4 of the FTC Act, 15 U.S.C. § 44, and Section 1 of the Clayton Act, 15 U.S.C. § 12.

 Pursuant to its statutory authority, when the FTC believes that a proposed merger may be in violation of the anti-trust provisions of the Clayton Act, it has the right to seek a preliminary injunction to block the merger pending a full administrative proceeding. See 15 U.S.C. § 53(b). To be awarded preliminary injunctive relief, the Commission need not prove that the proposed merger would in fact violate Section 7 of the Clayton Act. See FTC v. Staples, Inc., 970 F. Supp. 1066, 1070 (D.D.C. 1997); FTC v. Alliant Techsystems Inc., 808 F. Supp. 9, 19 (D.D.C. 1992). "The determination of whether the acquisition actually violates the antitrust laws is reserved for the Commission and is, therefore, not before this Court." FTC v. Staples, 970 F. Supp. at 1071; see also FTC v. Alliant, 808 F. Supp. at 19. To prevail, the FTC needs to prove only that it is likely to succeed on the merits of its case in a full administrative proceeding. The Commission meets this burden if it can raise "questions going to the merits so serious, substantial, difficult, and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the Commission in the first instance and ultimately by the Court of Appeals." FTC v. University Health, Inc., 938 F.2d 1206, 1218 (11th Cir. 1991); see also FTC v. Warner Communications, Inc., 742 F.2d 1156, 1162 (9th Cir. 1984); FTC v. National Tea Co., 603 F.2d 694, 698 (8th Cir. 1979); FTC v. Staples, 970 F. Supp. at 1071; FTC v. Alliant, 808 F. Supp. at 19. While some would dispute what this standard means, it is well settled in the case law that for the government to succeed, it "must show a reasonable probability that the proposed transaction would substantially lessen competition in the future." FTC v. University Health, 938 F.2d at 1218; see also FTC v. Staples, 970 F. Supp. at 1072.

 For this Court to consider the likely competitive effects of the transactions, it must first define the relevant product and geographic boundaries of the markets in question. As the Supreme Court stated in United States v. Marine Bancorporation, 418 U.S. 602, 618, 41 L. Ed. 2d 978, 94 S. Ct. 2856 (1974), "determination of the relevant product and geographic markets is 'a necessary predicate' to deciding whether a merger contravenes the Clayton Act." (quoting United States v. E.I. du ...

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