United States v. General Dynamics Corporation

Material Services Corporation (Material Services) (defendant) was coal-mining company and supplier of building materials. In 1954, Material Services began to buy stock in United Electric Coal Companies (United) (defendant), which operated strip mines. By 1959, Material Services owned a controlling share of United with 34 percent of United’s stock. General Dynamics Corporation (General Dynamics) (defendant) then acquired Material Services and became the fifth-largest coal producer in the United States. The United States (plaintiff) sued General Dynamics, arguing that Material Service’s takeover of United in 1959 violated § 7 of the Clayton Act. At trial, the United States relied on statistics showing that the coal industry was highly concentrated, and the market grew more concentrated when Material Services acquired United. The district court did not dispute the accuracy of the statistics. However, other facts about the coal industry indicated that the merger did not substantially lessen competition. Coal producers generally sold coal under long-term requirements contracts. Usually, most of a firm’s coal was committed to satisfying these requirements contracts. Competitive advantage was best gained through a firm’s ability to secure new requirements contracts, which required substantial excess coal reserves. The district court found that, in the 1950s, United did not have enough coal to compete with other firms for new requirements contracts. Therefore, United did not have the ability to compete and influence prices, and its acquisition by a competitor did not substantially reduce competition. Accordingly, the district court ruled there was no Clayton Act violation. The United States appealed directly to the United States Supreme Court, arguing the undisputed market concentration alone was sufficient to support a Clayton Act violation.