United States v. Falstaff Brewing Corp.

In 1964, regional brewer Falstaff Brewing Corp. (Falstaff) (defendant) was the fourth-largest beer producer in the United States. Unlike most other large producers, Falstaff did not sell beer in New England, the region with the highest consumption. Facing increasing competition from other large producers, all of which were selling nationally, including in New England, Falstaff determined that it needed to convert to national status, and thus enter New England, if it wanted to continue competing effectively. Falstaff management wanted to enter the New England market by acquisition, not by internal expansion. To that effect, it acquired Narragansett Brewing Co. (Narragansett) in 1965. At the time, Narragansett was the largest beer seller in the New England market, holding a 20 percent market share. The United States (government) (plaintiff) filed an antitrust suit against Falstaff, alleging that the acquisition violated § 7 of the Clayton Act because it substantially lessened potential competition in the New England market. The government claimed that Falstaff was a potential entrant to the New England market and that the acquisition eliminated the market competition that would arise if Falstaff entered the New England market directly or via the acquisition and subsequent growth of a smaller local brewer. The district court rejected the government’s argument, reasoning that the acquisition of Narragansett did not substantially lessen potential competition because Falstaff never intended to enter the New England market directly, but only ever by acquisition. The district court therefore dismissed the government’s complaint. The government appealed.