An Anchor in the Past

Of Washington's powerful hierarchies, none rouses more anxiety among corporate officers than the U.S. Supreme Court. Case by case, the court has been making life tougher for companies that wish to merge. In the past eleven years, the high court has decided in favor of the Justice Department in 45 out of 50 antitrust cases; for seven years, it has not ruled once against the Government's other arm of antimerger enforcement, the Federal Trade Com mission. In that record, remarked Jus tice Potter Stewart recently, one consistency stands out: "The Government always wins."

Last week the trustbusters triumphed again in three decisions that not only broadened the Government's powers but also raised some serious questions about the trend of antitrust enforce ment. The Supreme Court held that:

>The FTC may ask for, and lower courts may grant, temporary injunctions banning FTC-challenged mergers even before the FTC holds an administrative hearing on a case. The commission has long but unsuccessfully sought such authority from Congress on the ground that it is often "impossible" to unscramble assets after a merger has taken place.

> A lower court was "too lenient" in merely ordering Providence's Grinnell Corp. to sell three subsidiaries after it was found guilty under the Sherman Act of monopolizing a segment of the burglar-alarm industry. In such cases, the court suggested, the remedy should include continuing Government surveillance of the companies to police compliance with the decree.

>-Pabst Brewing Co.'s 1958 acquisition of rival Blatz violated antitrust law even though the two firms accounted for only 4.49% of national beer sales. Never before has the Supreme Court construed a share of a U.S. market quite that small as infringing antitrust statutes, and Justice Hugo Black's opinion surprised and disturbed even some top Justice Department officials. Said one: "That's getting down pretty low."

In addition, the court last month broke up the merger of two local Los Angeles supermarket chains, though they controlled only 7 1/2% of grocery sales in the area. Two weeks ago, the court struck down a franchise system under which Brown Shoe Co. gave architectural plans, group-rate insurance, and sales aids to the 3% of U.S. shoe retailers who concentrated on selling its lines. In that decision, which could upset scores of franchising deals across the nation, Black held that the complaining FTC did not even need to show that the setup reduced competition.

Going Conglomerate. What can merger-minded businesses still legally do? With this year's decisions, the Supreme Court has ruled out more firmly than ever practically all so-called "horizontal" mergers (between two competing firms), even those that are small-scale in local markets. It has cast new doubt on whether "vertical" combines (with a supplier or customer) will survive a court test. Only for "conglomerate" mergers (between companies in unrelated lines of business) does the legal path remain relatively unblocked. That is the path that businessmen are now following. About 70% of last year's 2,100 mergers were conglomerates; less than 1% drew a federal challenge.

Many experts contend that antitrust has become so anchored in the past that it inhibits competition instead of fostering it. Businessmen are particularly irked by the fuzzy ground rules of the FTC, whose cease-and-desist cases can drag on for a decade, damaging the reputation of an accused firm without giving it the right to a speedy court trial. That was hardly what Ohio Senator John Sherman, a conservative Whig-Republican, had in mind when he formulated the nation's first antimonopoly law in 1890. Sherman, a onetime Secretary of both Treasury (under Hayes) and State (under McKinley), aimed at the notorious conspiracies of a wholly different business world. Today's economy, critics insist, has come to depend on large-scale companies for much of its progress through scientific research, which many little firms cannot afford. Yet courts instead equate bigness with badness and, says Manhattan Antitrust Lawyer Frank Dierson, "freeze institutional rigidities into the whole business structure."

A Relative Concern. Some uneasiness about antitrust policy is felt by Attorney General Nicholas Katzenbach and his old friend Assistant Attorney General Donald F. Turner, the meticulous Harvard law professor who heads Justice's antitrust division. "We will not attack a merger simply because the companies involved are large," says Turner. "My concern is with relative size in a market. Antitrust has been made to cope with a lot of problems that it is not adequate to deal with. It should not be used to protect small business. It should stick to competition and monopoly."

Businessmen will be delighted to hear that. Katzenbach and Turner expect to clarify Justice's antitrust policy by issuing a set of "guidelines" next fall. The 76-year-old law reflecting the fears of a bygone era could stand considerable updating.

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