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HORIZONS INTL., INC. v. BALDRIDGE

January 3, 1986

HORIZONS INTERNATIONAL, INC., and KENCHEM, INC.,
v.
MALCOLM BALDRIDGE, SECRETARY, UNITED STATES DEPARTMENT OF COMMERCE; WILLIAM FRENCH SMITH, ATTORNEY GENERAL OF THE UNITED STATES; AND UNITED STATES DEPARTMENT OF JUSTICE



The opinion of the court was delivered by: KATZ

 KATZ, J.

 This is the first case to seek judicial review of a grant of immunity from antitrust law, by the Secretary of Commerce and the Attorney General, under The Export Trading Company Act of 1982, 15 U.S.C.A. §§ 4001-4021 (West Supp. 1985)("The Act"). The Act is designed to increase United States exports through efficient export trade cooperation, without anticompetitive conduct in the domestic market. To accomplish these goals, Congress gave the Secretary of Commerce the difficult task of certifying, with the concurrence of the Attorney General, that proposed export activities will not have anticompetitive effects in the domestic market. The purpose of certification is to give export trade associations and companies the comfort of certainty by providing an advance ruling of their immunity under the antitrust laws for the certified conduct. Congress gave the Secretary and the Attorney General ninety days to grant or deny requests for such certificates of review. *fn1"

 This case involves a challenge to the grant of a certificate of review to a joint venture called Chlor/Alkali Producers International ("Chlor/Alkali"). This joint venture is composed of four major producers of two industrial chemicals, chlorine and alkali. Plaintiffs -- Horizons International, Inc. and Kenchem, Inc. -- have presented evidence relevant to their claim that Chlor/Alkali is not eligible for a certificate of review. They point to the rather checkered past of antitrust violations in the chlor-alkali industry. In fact, outstanding consent decrees generated by past antitrust litigations may bar the very conduct permitted by the certificate. Moreover, an extensive F.T.C. proceeding regarding possible anticompetitive practices in the market for products that may be related to chlorine and alkali is presently pending against a member of the certified joint venture. The fact that exports of chlorine are minimal arguably evidences its inclusion in the certificate as a cover for domestic anticompetitive collusion. Finally, plaintiffs have offered evidence that the historical anticompetitive conduct of the chlor-alkali industry is continuing to this day. The plaintiffs therefore urge that issuance of the certificate, and the consequent grant of antitrust immunity, was improper because Chlor/Alkali cannot meet the Act's certification standards. Plaintiffs contend that the certificate will facilitate domestic anticompetitive practices, and that these practices will harm plaintiffs.

 The defendants -- the Secretary of Commerce, the Attorney General, and the Department of Justice -- have filed a Motion for Summary Judgment. They contend that there are no genuine issues of material fact and that they are entitled to summary judgment as a matter of law. Defendants have also filed a Motion to Dismiss. They contend that this Court lacks subject matter jurisdiction over the Department of Justice and the Attorney General and that those parties should be dismissed from this case.

 I find that the grant of a certificate of antitrust immunity to the Chlor/Alkali joint venture without the agencies' reasoned analysis of the issues identified in my order is arbitrary, capricious, and an abuse of discretion. I also find that the present administrative record is inadequate because it fails sufficiently to address important aspects of the problem. Therefore, I vacate the agencies' grant of a certificate to the joint venture and remand these proceedings to the Secretary and the Attorney General to consider the issues I have identified.

 The Export Trading Company Act of 1982 is designed to "increase United States exports of products and services by encouraging more efficient provision of export trade services to United States producers and suppliers. . . ." See 15 U.S.C.A. § 4001(b)(statement of purpose). These purposes are furthered by several measures, including establishment of "an office within the Department of Commerce to promote the formation of export trade associations and export trading companies, . . . [and] by modifying the application of antitrust laws to certain export trade." *fn2" See id.

 Sections 4012 and 4013 of the Act provide for application for, and issuance of, certificates of review. See id. at §§ 4012-13. These certificates confer significant benefits upon their holders, including immunization from antitrust liability for certified conduct. Specifically, no criminal or civil action may be brought

 
under the antitrust laws against a person to whom a certificate of review is issued which is based on conduct which is specified in, and complies with the terms of, a certificate issued under Section 4013 . . . which certificate was in effect when the conduct occurred.

 See id. at § 4016. Such benefits are meant to minimize uncertainty regarding antitrust liability for joint export activities, and thereby promote such activities. See H.R. Rep. No. 637(II), 97th Cong., 2d Sess. 7, reprinted in 1982 U.S. Code Cong. & Ad. News 2444, 2444.

 Commerce Department Guidelines provide an extensive description of the benefits of a certificate of review. According to the guidelines,

 
the two most significant benefits of a certificate of review are virtual immunity from government antitrust suits and procedural advantages in private suits. The certificate holder and the members identified in the certificate, have virtual immunity from federal and state government civil and criminal antitrust or unfair competition suits. . . . This virtual immunity extends to the export conduct specified in the certificate and carried out during the effective period of the certificate in compliance with its terms and conditions. The procedural advantages that a certificate of review provides to the certificate holder and its members in private actions by persons who claim to have been injured by the certified conduct are: (1) a reduction in liability from treble to single damages, (2) a shorter statute of limitations for bringing an action, (3) a rebuttable presumption that the certified conduct is permissible, and (4) the recovery by a prevailing certificate holder of the costs of defending the suit, including a reasonable attorney's fee.
 
This virtual immunity and the procedural advantages . . . can reduce antitrust risks and uncertainty by deterring lawsuits of dubious merit. Moreover, a certificate of review can remove the uncertainty and risks associated with "gray-area" conduct by giving an exporter an opportunity to confirm the often qualified conclusions of counsel that particular export conduct is not likely to violate the antitrust laws. . . . Protections can apply not only to the actual operation of an export entity but also to its planning activities.

 See Revised Guidelines, 50 Fed. Reg. 1786, 1787 (1985). *fn3"

 Certificates are obtained by written application to the Secretary of Commerce. Applications must specify the export trade conduct to be certified, and must also supply information about the applicant and its proposed conduct. See 15 U.S.C.A. § 4012; 15 C.F.R. § 325.3 (1985). Within ten days after an application is submitted, the Secretary must publish in the Federal Register an announcement of the application. See 15 U.S.C.A. § 4012(b). The announcement must identify the applicant and describe the conduct to be certified. Id. These publication procedures are intended to provide opportunities for notice and comment by parties interested in, or affected by, the proposed certification. See 15 C.F.R. § 325.6 (1985). Because issuance of a certificate requires the concurrence of the Attorney General, the Secretary must provide the Attorney General with a copy of the application, any information submitted to the Secretary in connection with the application, and any other information the Secretary deems relevant, including information regarding the applicant's market share in the line of commerce embraced by the proposed export conduct. See 15 U.S.C.A. § 4012(b)(2). This information must be provided to the Attorney General within seven days after the application is submitted. See id. The Secretary must also pass along any comments received through the notice and comment procedures. See 15 C.F.R. § 325.6 (1985).

 Issuance of a certificate rests upon an applicant's ability to establish that it meets the Act's certification standards. These standards require that the applicant's proposed export conduct will

 
(1) result in neither a substantial lessening of competition or restraint of trade within the United States nor a substantial restraint of the export trade of any competitor of the applicant,
 
(2) not unreasonably enhance, stabilize, or depress prices within the United States of the goods, wares, merchandise, or services of the class exported by the applicant,
 
(3) not constitute unfair methods of competition against competitors engaged in the export of goods, wares, merchandise, or services of the class exported by the applicant, and
 
(4) not include any act that may reasonably be expected to result in the sale for consumption or resale within the United States of the goods, wares, merchandise, or services exported by the applicant.

 15 U.S.C.A. § 4013(a). These standards "encompass the full range of the antitrust laws," see H.R. Rep. No. 924, 97th Cong., 2d Sess. 26, reprinted in 1982 U.S. Code Cong. & Ad. News 2501, 2510; see also 50 Fed. Reg., supra, 1790 (citing legislative history). They are intended to "ensure that conduct that is likely to have substantial anticompetitive effects within the United States will not be certified." See 50 Fed. Reg., supra, at 1790.

 The agencies' assessment of an applicant's conformance with these standards is based upon analysis of materials submitted by the applicant. Applicants are required to submit annual reports, a description of domestic and export operations, identities and affiliations of the applicant's members and personnel, a description of the goods or services the applicant exports or proposes to export, market share information, a description of the export conduct to be certified together with a statement of antitrust concerns related to the proposed conduct, specifications of the nature of any agreements or exchanges of information involved in the proposed conduct, and "any other information that the applicant believes will be necessary or helpful to a determination of whether to issue a certificate under the standards of the Act." *fn4" See 15 C.F.R. § 325.3 (1985).

 This information, together with any other information the agencies obtain, is analyzed to determine whether the applicant's proposed conduct is likely to "violate an antitrust law otherwise applicable to export trade for which damages may be recovered as a remedy." See 50 Fed. Reg., supra, at 1790. This determination is made by reference to the Act's four standards, see id. at 1789-92; see also 15 U.S.C.A. § 4013(a). Under the first standard, which looks for substantial lessening of competition or restraint of trade, "the analysis will in most instances look to the overall purpose and effect of the activities the domestic market." *fn5" See id. at 1791. The second standard, which looks for unreasonable price effects, focuses upon the "purpose and likely effect upon domestic prices of the proposed export conduct . . . . An increase in domestic prices that results from anticompetitive behavior directed at the domestic market will be unreasonable." See id. Under the third standard, which looks for unfair methods of competition, the agencies check for "proposed conduct that is anticompetitive and likely to substantially restrict the exports of U.S. export competitors . . . ." See id. Under the fourth standard, which looks for resales in the United States, the agencies "look at whether the applicant reasonably expects the exported goods or services to reenter the United States for sale or consumption within the United States, and if so, whether such sale or consumption within the U.S. may have a substantial domestic impact in the relevant product markets." See id. at 1792.

 In cases involving an application for "joint export activity among [domestic] competitors," the agencies apply a two-part test to determine "whether the conduct is likely to have a substantial anticompetitive effect in a U.S. market." *fn6" See id. at 1794. First, the agencies analyze "whether the joint activity is likely to have any anticompetitive effect on U.S. commerce." Id. Conduct that is free of such effects is certified. Id. Second, if "there is potential for anticompetitive spillover affecting U.S. markets," *fn7" the agencies determine "whether the formation or contemplated operation of the joint entity is likely to substantially restrain or lessen competition within U.S. commerce." Id. This determination is similar to the Justice Department's antitrust scrutiny of proposed joint ventures and mergers. Id. Thus, "the agencies will evaluate the economic characteristics of the domestic market in order to assess whether a market is likely to be conducive to domestic price or output coordination." Id.

 Evaluation of the domestic market structure involves several steps. First, the relevant product and geographic market is identified. Next, the structure of the relevant market is examined "in order to assess whether its economic characteristics are conducive to developing and maintaining a consensus on domestic price levels and output rates." See id. at 1795. To assess the market structure, the agencies begin with a "threshold test." This test treats the joint entity as a horizontal merger. It therefore assumes that the members of the entity merged. It then examines the post-merger market concentration, which is "a function of the number of firms in a market and their respective market shares," *fn8" id. The agencies believe that the threshold test sufficiently determines whether or not the joint venture poses a substantial threat to domestic competition in cases involving "joint ventures with small market shares in markets with a low degree of market concentration." Id. In other cases, the agencies will go on to examine other economic characteristics of the relevant market. *fn9"

 Certification of Chlor/Alkali Producers International

 Chlor/Alkali sought a certificate of review for activities related to the export of caustic soda and chlorine. Caustic soda and chlorine belong to a chemical family known as chlor-alkalis. Manufacturers of these products therefore are known collectively as the chlor-alkali industry. Caustic soda and chlorine generally are produced simultaneously through the electrolysis of salt. This process yields 1.1 tons of caustic soda for every ton of chlorine. Thus, amounts of chlorine and caustic soda are measured in electrochemical units ("ECUs"), with one ton of chlorine and 1.1 tons of caustic soda comprising one ECU. See A.R. at 428. *fn10" Chlorine is used in the manufacture of chemicals, pulp and paper, and polyvinyl chloride. It is also used in water treatment processes. Caustic soda is used in the production of chemicals, textiles, and pulp and paper. A.R. at 515-19, 561. The products ordinarily are purchased by manufacturers for use as intermediate or raw materials.

 Approximately thirty firms manufacture chlorine and caustic soda from salt. A.R. at 428. In 1983, industry sales of caustic soda, both export and import, totalled $1,690 million. Exports comprised nine percent, or $144 million of that total. In the same year, industry sales of chlorine totalled $1,009 million. Exports comprised one percent, or $12 million, of that total. A.R. at 431.

 Chlor/Alkali Producers International is a joint venture formed solely to facilitate its members' exports of caustic soda, chlorine, and related products. A.R. at 10. The members plan to use the entity as a clearinghouse for export sales and marketing information, and as the exclusive sales agent for dedicated quantities of caustic soda, chlorine, and related products, to be sold exclusively in export markets. A.R. at 10. The entity will be managed by a board composed of representatives from each coventurer. A.R. at 415.

 Chlor/Alkali is composed of four companies. They are B.F. Goodrich Company, Kaiser Aluminum and Chemical Corporation, Occidental Chemical Corporation, and Vulcan Materials Company. A.R. at 8. Each of these companies is a major petrochemicals producer. A.R. at 415. B.F. Goodrich Company manufactures chemical and plastic products. It is also the world's largest producer of polyvinyl chloride, which is a chlorine-related product. A.R. at 415. In 1983, B. F. Goodrich had net sales of $3,191.7 million dollars. The company's chemical division generated $1,133.1 million of these sales. Id. Kaiser Aluminum and Chemical Corporation has divisions in aluminum, industrial chemicals, international trading, real estate, agricultural chemicals, and refractories. In 1983, Kaiser's net sales totalled $2,857.6 million. Industrial chemicals sales accounted for $323,600.00 of that total. Id. Occidental Chemical Corporation is a subsidiary of Occidental Petroleum Corporation. The parent company is involved in oil, gas, coal, agribusiness, and chemicals. A.R. at 416. Occidental Chemical's products include caustic soda, chlorine, sodium chlorate, and sodium phosphate. Occidental Chemical is the fourth largest producer of caustic soda and chlorine; it is also a larger producer of polyvinyl chloride. In 1983, its sales totaled $1.1 billion. Id. Vulcan Materials Company produces various industrial chemicals, including chlorinated solvents, as well as construction aggregates, secondary aluminum, detinned steel scrap, and tin chemicals. It is also involved in domestic oil and gas exploration and production. Id. In 1983, Vulcan's net sales were $820,519,000. Id. Although Vulcan is the smallest of the coventurers, its chemicals division is one of the world's major producers of chlorinated solvents, and it is a substantial producer of caustic soda and chlorine. A.R. at 125. The division's 1983 sales totaled $255.7 million. Id. All four of the coventurers have major caustic/chlorine plants in the Gulf region; Goodrich, Vulcan and Occidental also have plants elsewhere in the south. Occidental has an additional plant in Washington state. A.R. at 431.

 Chlor/Alkali requested expedited review because it wanted to bid on multi-year contracts for supply of caustic soda and chlorine in Australia. Chlor/Alkali stated that these contracts are customarily negotiated and consummated between September and the end of December or early January. A.R. at 1. Chlor/Alkali also noted, in discussions with the Justice Department, that it desired expedited review because Saudi Arabian facilities for the production of caustic soda and chlorine would be completed by March or April of 1985, and the Saudis were likely to sell on world markets. A.R. at 347. *fn12"

 The Commerce Department approved the request for expedited review and sought the concurrence of the Justice Department. A.R. at 417. The Justice Department was willing to grant expedited review of export activities that would occur before March 1, 1985; however, the Justice Department subsequently determined that review could not be completed in the time allotted for expedited review. On November 28, 1984, Chlor/Alkali was informed of this situation; at the agencies' behest, it withdrew its request for expedited ...


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