defendants' violations of the antitrust laws. By contrast, although defendants did submit some evidence, they did not submit much; as conceded in Defendants' Post-Hearing Reply Memorandum, at 9, they "'haven't yet begun to fight' . . . the antitrust merits of the case." The relative lack of defendants' factual submission cannot be excused by the preliminary nature of the proceedings -- over a month elapsed between the lawsuit's initiation and the hearing, plaintiffs conducted all their discovery during this period, and defendants did not seek a postponement of the hearing. In all, the record includes plaintiffs' exhibits (PXs), defendants' exhibits (DXs), parts of individual depositions (Dep.s), the various briefs, trial testimony recorded in a consecutively paginated hearing transcript (Tr.), and a transcript of the oral argument (ATr.).
To obtain relief under the Clayton Act § 16, plaintiffs must prove a probability of success on the merits of their claims under the Clayton Act § 7 or the Sherman Act § 2. The Clayton Act § 7, designed "primarily to arrest apprehended consequences of intercorporate relationships before those relationships could work their evil," U.S. v. E.I. Du Pont de Nemours & Co., 353 U.S. 586, 597, 77 S. Ct. 872, 1 L. Ed. 2d 1057 (1957), broadly prohibits any acquisition with an effect that " may be substantially to lessen competition, or to tend to create a monopoly." Brunswick, 429 U.S. at 485 (emphasis supplied in the quoted statute by the Supreme Court). The Sherman Act § 2, in addition to punishing actual monopolization, forbids attempts, as well as combinations or conspiracies, where defendants have a specific intent to obtain monopoly power, although monopoly power is not yet obtained. 16B Business Organizations, von Kalinowski, Antitrust Laws and Trade Regulations § 7.01, at 7-16 to 17. Both statutes focus attention on the facts to define the relevant market, with the Clayton Act § 7 then focusing on facts to determine if the acquisition is proscribed because it creates a "probable anticompetitive effect," Brown Shoe Co. v. U.S., 370 U.S. 294, 323, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962). and with the Sherman Act § 2 then focusing on facts to determine if the acquisition effects a forbidden intentional plan to achieve monopoly power, see U.S. v. Griffith, 334 U.S. 100, 105-06, 92 L. Ed. 1236, 68 S. Ct. 941 (1948).
Market definition is a central issue in this case. Count I of the Complaint raises claims under the Clayton Act § 7. "Determination of the relevant product and geographic markets is 'a necessary predicate' to deciding whether a[n acquisition] contravenes the Clayton Act." U.S. v. Marine Bancorporation, Inc., 418 U.S. 602, 618, 41 L. Ed. 2d 978, 94 S. Ct. 2856 (1974) (citations omitted). Count II of the Complaint raises claims of actual and attempted monopolization under the Sherman Act § 2. Actual monopolization always requires proof of the relevant market, U.S. v. Grinnell Corp., 384 U.S. 563, 570, 16 L. Ed. 2d 778, 86 S. Ct. 1698 (1966), and the same is required to prove plaintiffs' theory of attempted monopolization, see American Bearing Co., Inc. v. Litton Industries, Inc., 729 F.2d 943, 949 (3d Cir.), cert. denied, 469 U.S. 854, 83 L. Ed. 2d 112, 105 S. Ct. 178 (1984); Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 117 (3d Cir. 1980), cert. denied, 451 U.S. 911, 68 L. Ed. 2d 300, 101 S. Ct. 1981 (1981); Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1348 & n.17 (3d Cir. 1975). For present purposes, a consolidated, fact-oriented market analysis is appropriate.
The relevant product market is some sub-category of the snack food market. In their Complaint, paras. 14-20, plaintiffs initially identified a market in snack cakes and pies. Later, plaintiffs argued that the relevant market is premium snack cakes and pies. Defendants apparently prefer not yet to address this issue directly, although they have suggested that the relevant products may be sweet snacks, or even all snack foods. At oral argument, defendants' attorney conceded that defendants "haven't yet begun to fight on this aspect of the market. . . ." ATr. 53. On the evidence presented, I find the following:
Snack cakes and pies constitute a recognized market segment of the baking industry. This conclusion reflects testimony of plaintiff's employees, e.g., Tr. 86 (Nagle, Tasty's director of national sales), of non-party witnesses called by plaintiffs, e.g., Tr. 5 (Ratliff, Interstate Brands Corporation's executive vice-president, Dolly Madison Cake Division); Vance (American Bakeries Company, senior vice-president; formerly a vice-president of Continental) Dep. 8, and of one of the highest ranking employees transferred from Borden to Continental as part of the acquisition, e.g., Christodoulou (Continental's vice-president and general manager, Drake Bakeries Division) Dep. 148-49. Most significantly, however, it reflects positions taken in documents prepared by Ralston, Continental, and Borden's Drake division before this litigation began. E.g., PX 51, at 3 (Ralston's 1985 Annual Report to Shareholders states "Continental Baking is regarded as the leader in both bread and snack cakes."); PX 2, at 5 (Continental's 1986-88 Operating Plan includes "snack cakes" and "snack pies" as "markets"); PX 84, at 5 (1985 marketing plan, for Drake products, identifies a "U.S. market for Snack Cakes and Pies"). In this litigation, defendants appear to have adopted a different approach -- they "tend not to define" a line of snack cakes and pies, but still they admit that "many people in the industry [including defendants in the past], call [certain Hostess and Drake products] snack cakes and pies. . . ." Pearce (Ralston's vice-president for consumer products business development) Dep. 66-68. Ultimately, however, defendants cannot deny the existence of a snack cake and pie market segment, a segment that, they recognize, generates between $1.0 and $1.4 billion in annual sales. See, e.g., PX 2, at 2 ($1.0 billion); PX 16, at 3 (1986 Marketing Plan for Drake reports: $1.40 billion retail sales, $1.08 billion manufacturer's sales).
Snack cakes and pies include Tastykake Krimpets, Hostess Twinkies, and Drake Ring Dings. Generally, according to Tasty's attorneys, this market segment includes products that
are fresh, moist, baked (for cakes), baked or fried (for pies) products, generally no larger than approximately five ounces for a (one or more piece) serving, individually wrapped for use on a snack occasion or for the lunch pail or school bag, have a short shelf life, and in most cases are delivered directly to the retail stores, usually daily.