Full opinion text
POPE, Circuit Judge. In June, 1953, the petitioner Crown Zellerbach Corporation acquired the stock and assets of St. Helens Pulp and Paper Company. On February 15, 1954, the Federal Trade Commission filed a complaint against the petitioner charging that such acquisition of St. Helens by Crown Zellerbach was a violation of § 7 of the Clayton Act, (15 U.S.C.A. § 18) as amended and approved December 29,1950, in that “the effect of the aforesaid acquisition by respondent [Crown Zellerbach] of control of St. Helens may be substantially to lessen competition or to tend to create a monopoly in the lines of commerce, as ‘commerce’ is defined in the Clayton Act, in which respondent and St. Helens were engaged in the Western States and more particularly in the Pacific Coast States of the United States, and in each of them.” After answer was filed admitting the acquisition but denying that such acquisition violated § 7 of the Act, hearings were held before an Examiner from January 10, 1955 to November 20, 1956. The Examiner found that the allegations of the complaint had been sustained. Upon appeal the Commission made findings of its own modifying certain of the findings of the Examiner, but adopting the Examiner’s conclusions that the acquisition “had the effect of substantially lessening competition and tending to create a monopoly in the relevant line of commerce in violation of Section 7 of the Clayton Act, as amended.” A final order of divestment was issued December 26, 1957, and this petition for review followed. Both Crown Zellerbach Corporation, here called Crown, and St. Helens Pulp and Paper Company, here called St. Helens, were corporations engaged in the manufacture of pulp and paper and the sale of paper and paper products through much of the West. At the time of the acquisition of St. Helens, Crown was the largest pulp and paper company in that area and one of the largest in the nation, It carried on a fully integrated operation from timber lands and logging operations through the production and distribution of paper and paper products. It had timber holdings consisting of approximately 500,000 acres owned in fee in Washington and Oregon and cutting rights on approximately 20,000 acres, managing its timber lands on a sustained yield basis. Zellerbach Paper Company, a wholly owned subsidiary, was a large seller of paper products, the larger portion of which were bought from Crown. In 1953 Crown produced pulp and paper at its mills in Oregon and Washington. These were located at Camas, Washington; West Lynn, Oregon; Port Angeles, Washington; Lebanon, Oregon; and Port Townsend, Washington. During the time this case was under consideration before the Commission, it was preparing for production at another mill at Antioch, California. It owned 99 percent of Crown Zellerbach Canada, Limited, a fully integrated pulp and paper mill in Canada, and also had large timber holdings in Canada. It had facilities for converting portions of its paper production into paper products at some of the mills above listed, and also at Harlingen, Texas; North Portland, Oregon; and San Leandro and Los Angeles, California. While the case was pending before the Commission it acquired through another merger mills at Bogalusa, Louisiana; Baltimore, Ohio, and Dresden, Ohio. St. Helens was also a fully integrated pulp and paper mill having a capacity of 180 tons of paper a day. It had 117,000 acres of high quality timber land and important cutting rights. Its mill was located at St. Helens, Oregon. In making its inquiry as to whether the merger here accomplished fell within the prohibition of § 7, the Commission was confronted initially with the task of determining what was the relevant market, both as respects products and as concerns geographical area. This was a necessary step precedent to determining whether within that market there was a probability that the effect of the acquisition of St. Helens by Crown would be substantially to lessen competition or to tend to create a monopoly. The Commission held that “the coarse paper line relating generally to coarse wrapping papers, bag and sack papers and convertible papers is a sufficiently distinct product line to be a ‘line of commerce’ within the meaning of Section 7.” With respect to geographical market, it held that “the Eleven Western States, as found by the hearing examiner, is an appropriate section.” In order to review those determinations we must first inquire, after an examination of the record, as to the products with respect to which Crown and St. Helens competed, and the location and area of that competition. The question is just where these parties met in the paper and paper product market, jn general, grades of paper fall withjn three separate categories: namely, coarse, fine and newsprint. St. Helens was a coarse paper producer. Crown produced and sold a very complete line 0f paper and paper products, many of which were not produced or sold by St. Helens. Included in this line were newsprint, groundwood paper, machine-coated printing and converting paper, and fine paper. On the other hand, both Crown and St. Helens produced and sold, in competition with each other certain varieties of coarse papers including wrapping paper, shipping sack paper, bag paper, envelope paper, gumming paper, waxing paper, and other converting paper. Generally speaking, in the trade and in the classifications of paper listed by the Bureau of Census, all coarse papers known to the trade are listed in various groups. What these are are disclosed in the petitioner’s brief under Table VI which shows the production in the United States in. th.e year 1953 of all trade coarse paper. That table is as follows: “Table VI 1953 Trade Coarse Paper Production in the United States by Census Classifications and Principal Grades Thereof (Tons of 2,000 Pounds) , United States Total Trade Coarse Paper....................... 17,749,333 Census coarse paper.............................. 3,392,000 Wrapping paper ............................. 634,409 Shipping sack paper.......................... 749,443 Bag paper .................................. 895,949 Envelope paper .............................. 119,746 Gumming paper ............................. 94,541 Waxing paper ............................... 223,177- Other converting paper....................... 516,413 Other ...................................... 158,322 Census special industrial paper.................... 554,396 Tabulating card stock ........................ 118,653 File folder stock............................. 25,718 Log stock ................................... 104,507 Vulcanizing fibre stock ....................... 28,668 Resin impregnated stock...................... 38,862 Other ...................................... 237,988 Census sanitary tissue stock....................... 1,277,694 Toweling stock .............................. 296,952 Toilet tissue stock (regular and facial tissue types) .................................... 607,114 Napkin stock (regular and facial tissue types) ... 149,283 Facial tissue stock (other than napkin and toilet stock e. g. handkerchiefs)................... 180,284 Other ...................................... 44,061 Census tissue paper, except sanitary and thin........ 230,959 Wrapping tissue ............................. 51,877 Waxing tissue stock.......................... 103,647 Fruit and vegetable wraps .................... 22,282 Other ...................................... 53,153 Census container board........................... 6,616,889 Liners ...................................... 4,412,745 Corrugating material......................... 1,906,116 Other ...................................... 298,028 Census bending board ............................ 3,566,683 Folding boxboard stock....................... 2,429,143 Special food board ........................... 967,899 Other....................................... 169,641 Census nonbending board ......................... 950,293 Setup boxboard, unpasted..................... 763,341 Other ...................................... 186,952 Census special paperboard stock................... 1,085,204 Tube stock .................................. 229,260 Liner for gypsum and plaster board............ 459,572 Other...................................... . 396,372 Census cardboard ................................ 75,215” It will be noted that the first listed categories of coarse paper are grouped under the heading “Census coarse paper”, which includes the papers sold by St. Helens. Although the other groups listed, such as “special industrial paper” are also coarse papers, yet for classification in the Census statistics only the categories just named are called Census coarse papei. The Examiner found that in the year 1953, the year of the acquisition of St. Helens, about 84 percent, or 48,155 tons of St. Helens’ total production was made up of various of these listed grades of paper which the Census chose to designate as Census coarse paper. Finding that Crown produced 51.5 percent of the total of these so-called Census' coarse papers produced in the West, the Examiner concluded that “the line of commerce inyolved in this proceeding is the various papers falling within the Census category of coarse papers.” The Commission agreed. The petitioner attacks tMs detei.mina_ tion of these papers as constituting the relevant line of commerce, product-wise, and asserts that all trade coarse papers as listed in the table, supra, constitute the product dimension of the relevant market. Petitioner says that the papers designated as constituting a relevant market by the Commission, although they ■are listed under a single heading as “Census coarse paper” are not thereby proven to measure the product dimension of the relevant market in that they are grouped together by the Census merely for statistical reasons and that the Census grouping means nothing; that the grades selected by the Commission have little relation to each other and serve many diverse uses, while on the other hand, there is a greater degree of substitutability between the so-called Census coarse papers and other trade coarse papers than among ordinary Census coarse papers themselves; that all trade coarse papers are made from the same raw materials in the same mills on the same machines and this production flexibility requires that all trade coarse papers should be included in the relevant market. As for the argument that the Census classification does not settle what constitutes a relevant market, we agree. At the same time we must recognize that it is possible that this grouping has behind it some facts or circumstances relating to the paper industry which may have led to the grouping originally although it is not specifically named or designated in the Census report. Such circumstances may or may not have some bearing upon the question of what may be the relevant market here. Hereafter we shall have occasion to discuss specifically the other reasons given by petitioner for making all trade coarse papers as listed in the table above a part of the relevant market, such as the flexibility in production, the substitutability of use, etc. But at this point we think it plain that what is important as an aid to the determination of what is the relevant market is a consideration of what are the. facts concerning competition in the market place. To that we address our attention. We begin with what the record shows as to how St. Helens operated; what products it sold; where it sold those products; to what extent this constituted competition with the petitioner and others; what other producers were selling the same products in the same market; and, relative to all other suppliers of these products in the same area, how much of a competitive factor St. Helens was. Of course the patterns of trade carried on by St. Helens alone do not furnish the entire answer in our effort to discover the patterns of trade in the paper industry which were followed in practice, from which the Board must determine the relevant market; but what St. Helens produced and sold in competition with other paper manufacturers, and particularly in competition with the petitioner, furnishes the best place to begin; and it is manifest that generally speaking we must find the relevant market product-wise in those products in which St. Helens was a significant factor before the merger. Thus St. Helens produced no newsprint nor fine paper, and plainly enough, those types and grades do not figure here. We turn now to the statistics shown in the record for the answers to these'questions. Initially we inquire about volume of production of the paper categories mentioned, namely, those grouped under the heading Census coarse paper in table VI above. In the West, in the year 1953, the total production of these papers, that is to say, wrapping paper, shipping sack paper, etc., was 437,384 tons. Of this quantity Crown produced 225,276 tons, or 51.5 percent of the total, and St. Helens produced 48,155 tons, or 11 percent of the total. The combined total of these two producers was thus 62.5 percent of the whole. It is conceded that the production of these papers by these concerns was substantially the same in the preceding year, 1952. During the year 1953, St. Helens also produced papers within the other categories listed on table VI, i. e., special industrial paper, sanitary tissue, tissue paper except sanitary, thin container board, bending board and special paper board. These papers were produced by St. Helens in comparatively small amounts. The production figures show that in 1953, the 48,155 tons of the so-called Census coarse papers constituted approximately 84 percent of St. Helens’ production. Petitioner criticises the use of these figures by the Examiner and the Commission to demonstrate that St. Helens’ paper production fell predominantly and most significantly within the so-called coarse paper category, contending that production is not necessarily significant with respect to the amount or area of competition. It argues that the Commission’s findings based upon production statistics are misleading because what is meaningful in ascertaining the extent and amount of competition which would be affected by the merger would be the sales statistics. It notes that much of the production of both companies was sold outside of the West and be'yohd the area of the country which the Commission treated as relevant to its decision in this case. We think it is correct to say that the sales statistics rather than production figures are generally speaking more significant in arriving at the relevant market both as respects product and geographical area. However, as hereafter noted, the problem as to the meaningful competition prior to the merger is not so simple as to be resolved solely by reference to sales. While neither party here has compiled for us charts or tables showing their sales in the various geographical areas considered by the Commission, the information is nevertheless available in the record. These are shown for the year 1952 in tons and by states on the charts which we here attach. The charts include manufactured bags besides the listed papers shown under the heading of Census coarse paper in Table VI. The reason for the inclusion of bags we explain shortly. The first chart, Chart A, relates to Crown. The second chart, Chart B, relates to St. Helens. (Since these charts have been compiled by us from the record, an explanation of their sources is given in Appendices A and B. ) • During the years to which we have referred St. Helens produced and sold as a converted paper product a substantial quantity of bags. Its sales of other converted products were relatively insignificant. Chart B, showing St. Helens’ 1952 sales of Census coarse papers and manufactured bags by state, discloses precisely where St. Helens was a potential competitor. Thus it sold 12,292.97 tons of wrapping paper in that year in the three Pacific Coast states of California, Oregon and Washington. In the same period and area it sold 5,721.53 tons of shipping sack paper, 6,913.32 tons of manufactured bags, and 2,875.22 tons of envelope paper. In that period also it sold substantial, though lesser, quantities of the other categories of what the Examiner called Census coarse papers; and the record justifies the Commission’s conclusions that this was not only potential but actual competition. The direction and vigor of that competition we shall discuss hereafter. Obviously to begin an inquiry as to the relevant market involved here, the initial inquiry must be as to what products St. Helens sold in the competitive market and where those products were sold. All this of course is preliminary to the inquiry which we must reach later in this opinion as to what effect the absorption of St. Helens had upon, competition in that market. It was competent for the Commission in arriving at its conclusion as to the effect of the merger on competition, to confine its consideration of the relevant market, product-wise, to those products which were mainly and principally the products sold by the absorbed company. We know of no rule which would require that the Commission include in its designated relevant product market every item sold by St. Helens regardless of its size or importance. All that the Commission was required to do was to ascertain and find a product line which was sufficiently inclusive to be meaningful in terms of trade realities. If it were otherwise, it would be a practical impossibility to apply the prohibitions of § 7 in the case of an absorbed concern which produced a multitudinous number of inconsequential and minor products. In the statutory phrase “in any line of commerce”, the word entitled to emphasis is “any”. Any line of commerce does not mean the same as the entire line of commerce, or all lines of commerce engaged in or touched upon by the acquired concern. The line of commerce need not even be a large part of the business of any of the corporations involved. For example, if in the case involving an acquisition of a company manufacturing prosthetic devices it appeared that the company also manufactured and sold ■ a limited quantity of shoes, it could hardly be argued that the relevant market must include or take into consideration all shoe manufacturers. What we must ultimately get at here is the question whether the effect of the acquisition “may be substantially to lessen competition”. In reaching that point the Commission was required to find that the market affected was a distinct and a substantial one. United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 593, 77 S.Ct. 872, 1 L.Ed.2d 1057. We cannot say that the product market here, whether it includes or excludes manufactured bags, did not meet that test. In arguing that production flexibility creates a market including all coarse papers petitioner asserts that a single paper-making machine, particularly the Fourdrinier machine which is commonly used in all paper mills including St. Helens’, is readily adapted or changed to produce other types of paper than the categories we have been here discussing, so that by simple adjustment in the machine it can be made to produce any type of trade coarse paper whether within or without the group selected by the Commission. It is said that a machine one day producing wrapping paper by such an adjustment may the next day be producing bleached paper board and food board. There is a question whether this statement is altogether accurate since it would appear that some such changes would depend upon alterations of or additions to the pulp before it ever enters the machine, but aside from that, we think that this so-called production flexibility upon which petitioner places such importance, is not persuasive here. The facts of the case show that St. Helens had been in business for a long time, with many established customers and selling through brokerage channels. What was turned out of the Fourdrinier machines depended altogether on what orders St. Helens had and what it knew it could sell. What those orders were and what it found a market for were presumably the products which it did sell. A similar contention made by the defendants in United States v. Bethlehem Steel Corporation, supra, was dealt with by Judge Weinfeld as follows: (168 F.Supp. at page 592) “The evidence establishes that the defendants’ production flexibility or mill product line theory is indeed pure theory. In practice steel producers have not been quick to shift from product to product in response to demand. Moreover, the evidence establishes that the continuing relationships between buyers and sellers in the steel industry make such shifts unlikely.” And in a footnote the Judge continued: “While the steel producers may be able to shift their production from one product to another, the buyers obviously cannot so shift their purchases. A user of steel sheets cannot make do with bars, rods, pipe or plates. The only flexibility the buyer has is in the choice of the company from which he buys the product he needs. It is just such freedom of choice that § 7 is designed to protect and for that reason line of commerce must take into account buyers and uses.” Such is the situation here.. Another contention made in support of petitioner’s assertion that the relevant market here should include all trade coarse papers without any such limitation as that made by the Commission is that there is a large degree of substitutability in end use between Census coarse paper and other trade coarse papers. Says petitioner: “Uses do not distinguish papers classified within Census coarse paper from other trade coarse papers.” We have great difficulty in following this argument. In the first place, as we have indicated above, if the Commission found that St. Helens produced and marketed within a relevant area large amounts of wrapping paper but comparatively minor amounts of paperboard, it could properly exclude the latter items from the relevant market. The absorption of St. Helens would be unlikely to have an important effect upon competition in respect to a comparatively minor product. However, beyond that, the Commission found that the papers listed by it as a part of its relevant market served different purposes, had different physical characteristics, were composed of different quality paper, and had different end uses than those which petitioner would have included within the relevant market. It seems obvious to us that there are essential and notable differences between flexible wrapping paper on the one hand and paperboard used for shipping containers on the other. The finding of the Commission just referred to was based upon a substantial amount of evidence in the record which supports these conclusions. Flexible wrapping paper, familiar to shoppers who observe the storekeeper wrap up merchandise for delivery to customers, could very properly be found to have different characteristics, uses and markets than paperboard used for boxes and cartons sold in the crate type container market. Certainly it is not within our competence to undertake to correct the finding of the Commission on this point simply because all these products are made from paper, or because both wrapping paper and paper cartons are used to enclose merchandise. For example, it does not follow that because shirts and sweaters are both made of cloth and used as clothing, shirts alone could not in a proper case be treated as constituting a separate but relevant market. Perhaps the most persuasive fact in support of the Commission’s classification and its treatment of these Census coarse papers as distinguishable and something different from other coarse papers is the fact that as a practical matter no one in the industry or interested in it or having anything to do with it has any difficulty in distinguishing one type of paper from the other. For instance, no one questions the types or categories of papers produced by St. Helens as shown in the above Chart B relating to St. Helens’ 1952 sales by states. The same is true of the types of paper in the similar chart relating to Crown’s sales. The Census classification cannot be meaningless — there must be factual differences on which that classification is made; and in respondent’s Exhibit 92A, a report by the Stanford Research Institute on “The Future of Paper in the United States”, there is a discussion of these Census coarse papers dealing with each item of this category and outlining the production, increase or decrease of production, uses, and demands of each. Thus it notes a decline from 1940 to 1953 of the consumption of wrapping paper; a major increase during the same period in the production of bag paper; and very large increases in use of both shipping sack paper and converting coarse paper. In discussing the increased consumption of shipping sack paper, the study notes how shipping sacks produced therefrom are used mainly for shipment of such materials as fertilizers, cement, lime, salt, plaster, sand, and commercial feeds, flour, sugar, rice and potatoes. Obviously the producers of this study had no reason to assume that these sacks made from shipping sack paper were indistinguishable from corrugated or paperboard cartons. And the authors of the survey obviously considered they were discussing plainly distinguishable and identifiable items. The effort to establish that all trade coarse papers should be included within the relevant market on the basis of their being substitutable or interchangeable in end use with the products listed under Census coarse paper is, we think, put forward in an effort to apply such cases as United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264, and United States v. Columbia Steel Company, 334 U.S. 495, 68 S.Ct. 1107, 92 L.Ed. 1533. We think that those cases are not relevant here. • The problem which arises in a case involving § 7 of the Clayton Act is a very different one. There the Commission must determine “in any line of commerce in any section of the country” what merger may substantially lessen competition, or tend to create a monopoly. As suggested in United States v. Bethlehem Steel Corporation, supra, (note 36, 168 F.Supp. at page 593), “ * * * when the question is power over price, substitute products may be relevant because they can limit that power. The issue under § 7 of the Clayton Act is not whether a merger may result in a company having power over price or the power to exclude competition. The issue under § 7 is whether there is a reasonable probability of substantial lessening of competition. There can be a substantial lessening of competition with respect to a product whether or not there are reasonably interchangeable substitutes.” In addition, the contention of interchangeable or substitutable products here is simply not borne out by the facts. In any event the issue under the Act here involved is quite different from that arising under § 2 of the Sherman Act. As for the Columbia Steel Company case, supra, that case involved an attack upon an acquisition under § 1 of the Sherman Act, 15 U.S.C.A. § 1, and the case represents an application of tests of liability under the standards set by the Sherman Act. The legislative history of § 7, both as originally enacted and as amended, discloses that § 7 was intended to cover more than was prohibited by the Sherman Act and to cope with monopolistic tendencies in their incipiency and well before they have attained effects which would justify a Sherman Act proceeding. In substance, the purpose of § 7 was to get away from the use of the standards applied in the Columbia Steel Company case itself. We are in agreement with the comments of Judge Weinfeld in United States v. Bethlehem Steel Corporation, supra, as to the inapplicability of the reasoning of the Columbia Steel Company case in a case arising under § 7 of the Clayton Act. (Footnote 34, 168 F.Supp. at page 592.) Nothing illustrates this better than United States v. E. I. du Pont de Nemours Co., 353 U.S. 586, 593, 77 S.Ct. 872, 1 L.Ed.2d 1057. There coneededly du Pont produced many finishes and many fabrics of which those sold to General Motors, the customer, represented but a small percent. Thus it is stated the fabric sales to General Motors comprised 1.6 percent of the total market for the type of fabric used by the automobile industry; yet the relevant market was determined to be not coextensive with the total market for finishes and fabrics but coextensive with the automobile industry, the relevant market for automotive finishes and fabrics. Unquestionably the fact that General Motors, the customer, chose to buy these particular finishes and fabrics, sufficiently distinguished them so that they constituted by themselves the relevant market. Here, as the record and the statistics show, the customers of St. Helens, and the customers of Crown, in ordering and purchasing papers designated as wrapping paper, shipping sack paper, bag paper, envelope paper, etc., by that very fact, demonstrate and create a market for those specific products so that they collectively may properly identify the relevant market here involved. Without here delineating or outlining the very extensive testimony and the numerous exhibits in the record tending to show that these items of Census coarse paper differed in end use and in physical characteristics in the available markets from the other coarse papers, it is sufficient to say and hold that the findings of the Commission to the effect that they constituted a distinct line of commerce are not clearly erroneous. In noting that the extent of the relevant market is determined by the products in which the parties actually competed, we are drawn to the conclusion that we should include within that market sales of manufactured bags because, as previously suggested, that was a product which St. Helens produced and sold in substantial amounts. In tonnage it exceeded all other products of St. Helens with the exception of wrapping paper. Thus in the Pacific states alone St. Helens’ sales of wrapping paper were 12,-292.97 tons; its sales of manufactured bags were 6,913.32 tons; and next in order of tonnage was shipping sack paper, 5,721.53 tons. Ultimately we must arrive at a conclusion as to whether the taking over of St. Helens might have a substantial effect upon competition in the relevant market and that necessitates, as we have indicated, an ascertainment of just what part St. Helens had in the market — just how much a factor it was in competition. After we have evaluated St. Helens’ place in the whole market, that is to say, what part it had as respects other producers including Crown, we shall deal with the question whether our view that manufactured bags should be deemed a portion of the relevant product market calls for a different conclusion than that reached by the Commission on the basis of its assumption of a relevant market which did not include manufactured bags. Before moving to another problem in this case, we think some reference should be made to Chart A, above, which sets forth Crown’s 1952 sales in tons by state. When the sales of Crown are compared with sales by St. Helens for similar products, it will be noted in some cases that Crown’s sales in relation to those of St. Helens do not disclose the same relative proportions as indicated by the statistics of production. As earlier noted, Crown produced 51.5 percent of all Census coarse papers manufactured in the West while St. Helens’ share was only 11 percent, slightly more than one-fifth that of Crown. On the other hand, in sales of envelope paper Crown sold in the Pacific states 3,851.6 tons as against 2,857.22 tons for St. Helens. This is far from a five to one ratio. The reason for this is that Crown converted a substantial portion of its production of such papers; thus, as shown on Chart A, most of its shipping sack paper was converted into sacks. We find no available figures as to sales of shipping sack paper by Crown in the Pacific coast states. This situation with respect to conversion of these products by Crown does not in any manner minimize the fact of competition between these two companies.* The facts were that St. Helens sold these papers to independent converters while Crown converted a larger percentage of its production of these same papers. The result was that Crown, or its wholly owned subsidiary, Zellerbach Paper Company, in selling the converted product was in competition both with St. Helens and the latter’s purchasing converters. This is one reason for our previous suggestion that the figures on production were not altogether irrelevant to the question of what competition existed prior to merger. This brings us to a consideration of what the record shows as to the geographical area of the relevant market. Three possible areas are suggested by the parties or by the Commission in the process of their discussion of this problem. One such “section of the country” might be the Pacific states of California, Oregon and Washington; the Commission adopted the hearing examiner’s finding that the eleven western states which we have heretofore called the West constitute a section of the country appropriate for ascertainment of the ultimate question of whether the acquisition of St. Helens might result in a substantial lessening of competition. This was the geographic relevant market selected by the Commission. The Commission did however say “the evidence is likewise sufficient to show that the three Pacific Coast States, California, Oregon and Washington, constitute a section of the country, within the meaning of Section 7, for much the same reasons. This is where the great bulk of the domestic sales, of the papers involved, by Crown and St. Helens were concentrated. For the purpose of this decision, however, the Eleven Western States will be regarded as the appropriate section.” Petitioner rejects both of these suggested areas, asserting that the relevant market embraces a substantially larger area and that it includes all states west of the Mississippi River. We find great difficulty in going along with either party. It is true that two witnesses for respondent testified that Crown’s principal markets were in the area west of the Mississippi River. We think that the statistical record of sales fails to demonstrate any convincing factual situation which would require the Commission to accept all states west of the Mississippi River as the relevant market. The only item in the statistics which might point in the direction of petitioner’s claim is the fact that Crown sold a very substantial quantity of Census coarse papers in the state of Texas. St. Helens also sold the same papers to the extent of 1223 tons in Texas in 1952. rnn A ,, , . ., , On the basis of the evidence as to where these products were sold we are of the opinion that the relevant market was m the three Pacific coast states. The statistical record shows that it was ,, , , , „ m those states that as between these two corporations the most active and extensive competition occurred. In view of the location of the mills of these parties, the three Pacific coast states represent the area which could be best served and supplied by these producers. This advantageous situation to supply the Pacific coast states necessarily operated in a number of ways. All points from Seattle to San Diego could be served more quickly from these mills than from elsewhere. A promptness in supplying orders is a well known factor in advantageous competition. Moreover this three-state market is one which, in the language of the Court of Appeals in American Crystal Sugar Co., supra, was subject to common economic forces; it is an area of extraordinarily rapid population growth, with large and growing cities, increasing industrial activities and other growth factors which set it apart from other areas in the west. The availability of alternative water transportation, while little availed of, has operated to furnish peculiarly favorable land carrier rates. The charts show that St. Helens’ sales in thoge padfic coagt gtateg of Census coarse paper pJug maimfactured bags ag. gregated 32,145.42 tons. As previously indicated> (footnote 6, supra,) petitioner computes st. HeienS’ total sales of Census coarse paper at 35,502 tons and its galeg of b at 9 3S3 to or a total of 44j835 tong_ The 32 )145.42 tong sold in ^ Padfic coast gtateg wag thus 71.7 percent of all its sales in those categories. mr , ,, , , •, This means that the predominant and outstanding market for st> Helens was ^ thig three_state area Agam we note that the market in which St. Helens competed is of primary significance here because ultimately we are going to have to in<*uire what was the effect of withdrawing St. Helens as a market factor- A11 of this means that there is substantial reason for a conclusion that the three Pacific coast states would be properly treated as the area or sec^on c°untey ln respect to which we are ultimately to inquire as ^ie tendency to lessen competition, A further reference to Chart B showing St. Helens’ 1952 sales in tons by state will indicate why we have difficulty in following the Commission’s determination that the eleven Western states should be included in the geographical relevant market. Those charts show that in that year St. Helens sold no shipping sack paper, bag paper, gumming paper, waxing paper, or other converting papers in Idaho, Montana, Nevada, Wyoming, Colorado, Utah, Arizona or New Mexico. It sold no paper products of any kind in that year in Nevada; it sold minimal quantities of manufactured bags in those same states, and no envelope paper in those Mountain states except in Colorado and Utah. In the light of that sort of record it seems to us that we are confronted with great difficulty in understanding how the acquisition of St. Helens could operate substantially to lessen competition in those areas where it apparently did no business before the acquisition. It would seem that there could not possibly be a lessening of a competition that was non-existent in those areas. What effect our differing view as to the relevant geographic area has upon the final disposition of this case is something we shall discuss later. We now come to the question whether, on the assumptions we have here made, it could be said by the Commission that “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” To answer it we must necessarily consider what the record shows as to the total competitive picture in this relevant area with respect to these products prior to the acquisition. If the acquisition took out of the market a concern whose total sales and competitive impact was so small relative to all sales and all competition in the market that it lacked real importance, then the acquisition cannot be said to affect competition in a substantial manner. Our purpose therefore is to ascertain what other local or Western producers and competitors there were and what part they had in this market and to what extent producers outside the West, — from the East, the North and the South, similarly operated and competed in this relevant market. First as to the Western producers; in 1952 there were ten concerns which produced the papers here referred to, but an examination of the total production of the relevant products by these various companies will disclose that only four such concerns could possibly have a substantial part in the competition for sales. The 1952 production of these companies of the papers listed was as follows: 1952 “Company Tons Percent Crown ......... . 226,430 51.1 St. Helens...... . 53,821 12.1 Longview....... . 77,749 17.6 St. Regis ....... . 59,851 13.5 Columbia River .. . 14,700 3.3 Publishers ...... . 7,471 1.7 Potlatch ........ 1,400 0.3 Inland Empire .. 1,008 0.2 Fibreboard ..... 435 0.1 Simpson........ 287 0.1 Total....... 443,152 100” It will be noted that the total production, wholly apart from sales, by all except the first four listed, namely, Crown, St. Helens, Longview, and St. Regis, is relatively small in amount and percentage. Columbia River, the largest of these so-called minor producers, manufactured in two mills, but the record as to what was sold and where is very unsatisfactory. But even if this firm’s total production were assumed to represent sales of the relevant products in the market, the whole amount would not be enough to be an important factor in arriving at the conclusions toward which we are directing ourselves. We now attach Chart C showing 1952 sales in the Pacific states and in the West of the seven Census coarse papers plus manufactured bags by the four larger producers mentioned. A portion of the figures are taken from Charts A and B, supra. • The others are explained in Appendix C. A study of Chart C shows totals for the Pacific states would be as follows (in tons): Crown 150,207.48, St. Helens 32,-145.42, Longview 51,054.83, and St. Regis 18,894. We note again that some amounts beyond these figures would represent sales by the minor producers mentioned above, but for the reasons indicated we disregard them for the time being as representing no quantity that would be substantially significant. With respect to the question of the quantity of sales of the relevant products made in the Pacific coast states from mills in other parts of the country, the record is most unsatisfactory and quite fragmentary, but apparently it is necessarily so. We think, however, that for the purposes of this opinion we can arrive at a figure which is a maximum overall figure for these so-called imports. The record contains a railway waybill analysis made by the Interstate Commerce Commission designed to show the quantities of shipments- into this area of two of these products, namely, wrapping paper and bags, and the sources from which those products were shipped. The waybills examined cover a period of five years, from 1949 to 1953, inclusive. The analysis was a sampling one only, in that but one percent of the waybills of this character were examined and analyzed. That analysis disclosed that if the samples were fairly representative of the total, then during this five year period 89.1 percent of all shipments of wrapping paper to the Pacific coast states and 88 percent of all shipments of bags to the Pacific coast states originated with the Pacific coast mills; 10.9 percent of the wrapping paper shipments, and 12 percent of the bags, came from other sources. Of course these figures were taken from rail shipments only; they do not include shipments by water, nor do they include shipments by truck. Because the outside mills are located mostly in the eastern and southern states it is not probable that the shipments from these sources, which we shall call “imports” were transported to any considerable extent by truck. On the other hand, more than offsetting any shipments of imports by water, is the fact that 50 percent of St. Helens’ shipments were by truck and therefore not included in the waybill analysis. In addition to this fact, both Crown and Longview made substantial shipments by truck throughout the coast states. As noted, this sampling related only to the shipments of wrapping paper and paper bags. There is some evidence that a few of these importers specialized in bags. Thus Hudson Paper Company, one of the largest, shipped far more bags than wrapping paper. But if it be assumed that the percentages for wrapping paper, approximately 11 percent, would be fairly representative of the percentages of other of these coarse papers, then we might have an indication that 11 percent of all the relevant paper products sold in the Pacific coast states were from imports. A substantial number of witnesses whom the Commissioner had the right to believe and who were apparently qualified to testify on the matter, did testify that there were not substantial amounts of these relevant paper products imported into the Pacific states during the period here in question. According to their testimony the only firms which in any significant way competed in these products in the Pacific coast states were International Paper Co. and Hudson Pulp and Paper Corp. There was testimony that only International and Hudson shipped kraft paper to the coast. These witnesses explained the reason for this limited competition from outside the area as being due to freight disadvantages in the long haul of these imports. The Commission found that the Western paper mills sold paper F.O.B. mill and absorbed the freight, which of course varied with the distance shipped. Witnesses doing business in the Pacific coast states and buying paper testified that they were deterred from purchasing paper in the East by these higher freight costs. Witnesses also testified to other disadvantages in purchasing paper from the East; one was the time factor required in obtaining deliveries. There was testimony that even if the Pacific coast jobber warehoused his supplies from the East he was still at a disadvantage because when he ran out of some size or type of paper on which quick delivery to a customer was required, there was delay in getting delivery from Gulf or Eastern mills, whereas St. Helens could make delivery much more quickly, and so could the other Pacific coast suppliers. There was testimony that the Pacific coast paper jobber was at a disadvantage unless he could obtain a dependable source which provided a complete line of product papers, and the witnesses had difficulty in obtaining that sort of thing from Eastern or Southern mills. With respect to International and Hudson, the evidence was more specific. The sales agent for Hudson estimated that it sold in this area in 1952 approximately 7,000 tons of bags but only approximately 500 tons of wrapping paper. In that year International sold no wrapping paper in the area. Hudson’s shipments were by water. Mr. Ticoulat, vice-president of Crown, listed some non-Western firms which he stated had sold paper in these categories on the Pacific coast. His testimony is so uncertain and unsatisfactory that it is devoid of useful information. The Commission found that “sales of paper included in this proceeding in the 11 Western states from producers outside of this area were relatively insignificant.” This followed a similar finding by the Examiner. We are not sure what is meant by the word “relatively” in that finding. For our purposes, and only to make up the chart which we shall presently include in this opinion, we shall make an estimate based in part upon the 11 percent figure produced by the waybill analysis. The other figures on this chart as to sales by other producers furnish a basis upon which we can compute that 11 percent. This would give us a figure for imports of 32,000 tons. Since this amount is not vital or controlling in our decision, we shall go one step further and make this estimated amount 33,000 tons. As above noted, Crown claims that the amounts of paper sold by producers outside this area “exceeded the sales of St. Helens.” We are assuming for the purpose of the chart mentioned, therefore, this 33,000 ton figure. This, it will be noted by comparison with Chart C, supra, exceeds the sales of St. Helens. Actually there is nothing in the record to support so high a figure. To complete our promised chart we must make one further estimate which is as to the total amount of sales of the relevant products in the Pacific coast states by the lesser producing firms, that is to say, by firms other than Crown, St. Helens, Longview and St. Regis. The ten mills producing some of these papers have been listed previously. Of the six lesser producers Columbia River was the largest. Its total production was 14,700 tons. As the previous table shows, the production of the other companies drops off rapidly. The sales of these concerns from Columbia River down, in 1952, cannot be accurately ascertained from the record. For instance, an officer of Columbia River testified that the 537 tons of wrapping paper included in its total for 1952 were mostly screenings dumped on the market as carliners and not sold as wrapping paper. Some of its vegetable parchment included in other converting paper was sold in the Imperial Valley of California. Some of its product was exported. Publishers, the next in line, was mostly a newsprint producer selling a comparatively small amount of wrapping paper. The others produced minimal .quantities. The total production of ail these six lesser producing concerns aggregated 23,900 tons of Census coarse paper. We think it would be a fair estimate to say that half of this or 11,950 tons was sold in the Pacific coast states, and this estimate we carry forward to the forthcoming chart. We are now prepared to disclose on the chart the statistics for 1952 sales in the Pacific coast states from all competing sources. These are arrived at in the manner previously described. “Chart D 1952 Sales of Census Coarse Papers, plus Manufactured Bags in Three Pacific Coast States, in Tons. Percent Company Tons of Total Crown ......... 150,207 50.53 St. Helens...... 32,145 10.81 Longview....... 51,054 17.17 St. Regis....... 18,894 6.35 Other Western Producers .... 11,950 4.02 Imports from East and South .... 33,000 11.10 Total .... 297,250 99.98” • 'While this chart shows the already dominant position of Crown prior to the merger, and also shows, percentage-wise, a substantial share of the market in St. Helens, it does not alone tell the whole story. The apparently larger share of Longview must be understood in the light of that company’s policy of closed outlets. As noted hereafter, so far as paper jobbers were concerned, Longview limited its sales to one single, jobber, Blake, Moffit & Towne, which operated throughout the three Pacific states, as well as Arizona, Nevada and parts of Idaho and Montana. Eighty-five percent of all Longview’s paper sold to jobbers went to this firm. The remaining 15 percent was confined to two other jobbers who operated in the Intermountain and Rocky Mountain area, and outside of Blake, Moffit & Towne’s district. This meant that so far as independent jobbers were concerned/ Longview was not a source -of supply. The record shows that one of the most important groups of buyers of these papers were these jobbers. Their number in this area is not precisely given, but it approached 300. There were “some hundred” paper jobbers at Los Angeles alone. Later we shall have occasion to comment upon some of the other results of the merger on these jobbers; but in viewing Chart D, we must bear in mind that while Longview’s product was generally unavailable to them, St. Helens produced a broad line of all these relevant papers, and was an available source of all of them for these jobbers. Congress by the use of the words “may be” made it plain that the purpose of the amended statute was to arrest restraints of trade “in their incipiency and before they developed full fledged restraints violative of the Sherman Act.” This is further made plain in the legislative history of the enactment where these words are carefully explained. And to accomplish this end it is plain that Congress had to see to it that no dominant operator in any industry should be permitted to frustrate the purposes of the Act by absorbing its rivals bit by bit. Thus the Senate Report noted that acquisitions which substantially lessened competition would be unlawful if they had the specific effect in any line of commerce “whether or not that line of commerce is a large part of the business of any of the corporations involved in the acquisition.” In other words, a substantial lessening of competition was to be prohibited whether the acquiring corporation accomplished these results by one immense gobble of another large producer or whether it set out to produce the same results by nibbling away at small producers. The Senate Report could not have made this plainer than it did when it defined the problem to which the bill was addressed by quotation of a report of the Federal Trade Commission as follows: “Under the Sherman Act, an acquisition is unlawful if it creates a monopoly or constitutes an attempt to monopolize. Imminent monopoly may appear when one large concern acquires another, but it is unlikely to be perceived in a small acquisition by a large enterprise. As a large concern grows through a series of such small acquisitions, its accretions of power are individually so minute as to make it difficult to use the Sherman Act test against them * * * “Where several large enterprises are extending there [sic] power by successive small acquisitions, the cumulative effect of their purchases may be to convert an industry from one of intense competition among many enterprises to one in which three or four large concerns produce the entire supply. This latter pattern (which economists call oligopoly) is likely to be characterized by avoidance of price competition and by respect on the part of each concern for the vested interest of its rival * * * ” (Senate Report No. 1775, June 2, 1950, Vol. 2 U.S.Code Cong.Serv. 81st Cong., 2nd Sess., • 1950, p. 4297.) It is most important that we understand just what must be proven in •order to warrant the Commission’s finding that “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” As we have previously indicated, the key words here quoted are “may be”; in other words, we are dealing with a question of the reasonably probable results of the merger so far as competition in the market is concerned. As stated in United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 607, 77 S.Ct. 872, 884, 1 L.Ed.2d 1057 “ * * * the test of a violation of § 7 is whether, at the time of suit, there is a reasonable probability that the acquisition is likely to result in the condemned restraints.” (Emphasis added) As the Court,stated, the question was whether there was “likelihood” of such result. In American Crystal Sugar Co. v. Cuban-American Sugar Co., 2 Cir., 259 F.2d 524, 529, the court was affirming a decision in which the district court “made findings bearing on the effect which a merger or a common control of the two companies involved would probably have on competition in that line in that market.” When we recall that we are dealing with the question of what is likely to be the result and whether or not there is a reasonable probability of a substantial lessening of competition, some other considerations become important and relevant. As previously suggested, much of the Government’s evidence with respect to various paper companies had to do with the volume of their production. A:s we have noted, Crown took strong exception to the Government’s approach on the basis of production statistics, arguing that the significant question was the volume and place of sales rather than production. Up to this point we have endeavored to ascertain the relevant market both produetwise and with respect to the area of the market on the basis of sales of the various competing companies; and as we have indicated, in that connection statistics of sales are more significant than statistics of production. However, there is one point which the Commission has made in connection with its production statistics which is not without, significance when we come to consider the present problem of reasonable probability and reasonable likelihood of a resultant lessening of competition. It seems to us to be manifest that if the merger here in question materially tends to limit the total productive capacity of the companies remaining in the business as competitors of the absorbing company, that would have a substantial bearing upon the question of likelihood of a lessening of competition or tendency to monopoly. The Commission noted with respect to each product here involved just what the merger, did to production capacity in the relevant area. Thus it is disclosed that in 1952, before the merger, Crown’s production of wrapping paper was 57.2 percent of the total tonnage of all companies producing that paper in the West; at the same time St. Helens’ production was 21.3 percent. In 1954, after the merger, Crown, with St. Helens now a part of it, had 77.6 percent of the total production for that year while all other companies in the area had a total of 22.4 percent. Such a predominance of production would appear not only to be a threat to possible competition but to approach a monopoly situation. A substantially similar situation resulted with respect to bag paper. Indeed, by 1954, aside from a minimal production by other companies, Crown’s production of 78.9 percent and Longview’s production of 17.1 percent made it substantially a two company industry in that field. The record shows that, in respect to shipping sack paper, whereas other companies including St. Helens produced substantial quantities in 1952, by 1954 the shipping sack paper industry had become a three company affair. The same thing resulted in respect to envelope paper. In 1952 Crown produced almost 89 percent of waxing paper, St. Helens 5.7 percent, and four other companies less than 2 percent each. In short, even before the merger Crown was most decisively dominant, and the merger made it even more so. The particular significance of the figures as to production capacities of various companies in the relevant area is that although those production figures are not statistics as to actual sales, yet plainly a company that has no production or very limited production cannot be said to be a potential seller of size. The test as to whether the merger produced a “reasonable probability” that it would lessen competition or tend toward monopoly is not an easy one to apply because obviously it involves in a degree the forecasting of the future. The wording of the statute and its legislative history demonstrate that not every merger was intended to be prohibited; in fact, in drafting the amended statute in 1950, Congress made some changes designed to prevent any such conclusion. A mere possibility of a lessening of competition would not suffice; on the other hand, actual proof of injury to or restraint of competition was not contemplated because the enactment was designed to go beyond the Sherman Act’s requirements of such proof and to furnish remedies more readily available. As was noted in United States v. E. I. du Pont de Nemours & Co., 353 U.S. at page 607, 77 S.Ct. at page 884, ■often the participants in a merger take such action with the best of motives and with no thought or intention of restraint of trade or monopoly. The Court there said: “It is not requisite to the proof of a violation of § 7 to show that restraint or monopoly was intended.” In the instant case, Crown may have seen in the acquisition of St. Helens an opportunity to provide itself with a more efficient, more useful set of production facilities. Thus St. Helens was developing a new bleaching plant. Acquiring that plant could save Crown from building a similar plant elsewhere. When a large company increases its size, it has an opportunity to lower its costs of operation; it may by acquiring plants near certain markets save transportation costs. As a concern grows it may accomplish other economies: in purchases, in setting up research and legal staffs, and in increasing its advertising and promotion budgets. Such growth may well result in enabling it to offer its goods at lower prices. That might well be a positive benefit to ultimate consumers. It is plain however from the Act and its legislative history that concern with such considerations was no part of the Congressional thought.