alcoa

Alcoa and beyond: Toward a "structural" approach to section 2

The Alcoa decision [U.S. v. Aluminum Co. of America, 148 F.2d 416 (2^nd Cir.1945)] marked a major shift in the position of the Court on section 2. Specifically, the Court dispensed with the "abuse theory"--i.e., evident purpose or intent to monopolize must be established based on "abusive" business practices.

Facts about the case

	Prior to 1940, Alcoa was a near "pure" monopolist in the production of primary aluminum ingot. Its dominance was explained by several factors including:(1) control of patents; and (2) barriers to entry due to absolute cost advantages (bauxite ore and hydroelectric power).
	Alcoa had successfully negotiated restrictive covenants in contracts signed with hydroelectric suppliers in the Pacific NW that made power available to (potential) rivals at entry-forestalling prices. This practice ceased under the terms of a 1912 consent decree.
	Alcoa was acquitted in Federal District Court, which relied heavily on the U.S. Steel decision. The government appealed, and the Supreme Court agreed to hear the case. Several Justices were forced to disqualify themselves as Alcoa shareholders; hence, the case was adjudicated by the New York Circuit Court of Appeals, led by celebrated jurist Learned Hand.
	Market definition was a key aspect of the case. Hand reviewed three possible definitions. Click here to view the alternative market definitions. The issue was crucial since Judge Hand stated that "90 percent is enough to constitute a monopoly; it is doubtful whether 60 to 64 percent would be enough; and certainly 33 percent is not."

Having selected market definition number 3, the Court moved to the issue of evident purpose--as indicated under a rule of reason approach. Did Alcoa behave unreasonably is the pursuit, acquisition, or maintenance of its dominant position? Click here to read the opinion of Judge Hand.

	Hence it was not a matter of judging Alcoa a "good" monopolist (like U.S. Steel) or a "bad" monopolist (American Tobacco) as Congress, in Hand's view "did not condone 'good' trusts and condemn 'bad' trusts; it forbade all."
	The implication of the Alcoa decision seems to be that if the Court is convinced that the structural condition of monopoly exists, there are two possible defenses available: (1) the defendant must show "superior skill, foresight, and industry; or (2) the defendant must prove that its monopoly position was "thrust upon it."

Alcoa postscript

The case gives an example of subsidized entry as an antitrust remedy--government aluminum processing facilities sold to fabricators Kaiser and Reynolds.

Robert Bork and others cite that Alcoa decision as an example of judicial activism in the realm of antitrust. Bork claims that Congress did not intend to proscribe the structural condition of monopoly. Rather, Congress wanted to "promote consumer welfare," though Bork acknowledges that legislators were also concerned with protecting small businessman and farmers. See Bork, The Antitrust Paradox.

The United Shoe Machinery case [U.S. v. United Shoe Machinery, 110 F. Supp. 295 (D.Mass. 1953)].

	United Shoe Machinery had a 75 percent share in the relevant market, defined as 1,460 shoe manufactures which either purchased or leased shoe manufacturing equipment.
	United's dominance was explained by patents as well as the superiority of its equipment. Based on the pre-Alcoa standard, it would have qualified as a "good" monopolist.
	The most important aspect of the case was the United's lease-only policy. Under this policy, customers were required to sign a minimum 10-year lease and did not have the option to purchase equipment. The lease included a service tie-in. Most importantly, breaking the lease meant paying a return charge equal to the remaining payments on the lease. District Court Judge Wyzanski: "United's leases, in the context of the present shoe machinery market, have created barriers to entry into the shoe machinery field."
	Judge Wyzanksi noted the service tie-in hindered the development of independent service organizations.
	United Shoe Machinery was convicted. The case is consistent with the interpretation of section 2 conveyed in the Alcoa decision. United was ordered to purge it leases of restrictive conditions and to sell, as well as lease, shoe manufacturing machinery.

Other noteworthy section 2 cases

	FTC v. Xerox (1973) --settled by consent decree.
	FTC v. General Mills, Kellogs, et al. (1972)--the "shared monopoly" doctrine fails key test.
	U.S. v. IBM (13 year case dropped by DOJ in 1982).

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