UNITED STATES v. E. I. DUPONT NEMOURS & CO.

351 U.S. 377 (1956)

 

 

JUSTICE REED delivered the opinion of the Court.

The United States . . . charged du Pont with monopolizing, attempting to monopolize and conspiracy to monopolize interstate commerce in cellophane . . . in violation of Section 2 of the Sherman Act.

 

During the period that is relevant to this action, du Pont produced almost 75 percent of the cellophane sold in the United States, and cellophane constituted less than 20 percent of all "flexible packaging material" sales. This was the designation accepted at the trial. . . .

The Government contends that, by so dominating cellophane production, du Pont monopolized a "part of the trade or commerce" in violation of Section 2. Respondent agrees that cellophane is a product which constitutes "a ‘part' of commerce within the meaning of Section 2." But it contends that the prohibition of Section 2 against monopolization is not violated because it does not have the power to control the price of cellophane or to exclude competitors from the market in which cellophane is sold. The court below found that the “relevant market for determining the extent of du Pont’s market control is the market for flexible packaging materials” and that competition on that market prevented du Pont from possessing monopoly powers in its sales of cellophane.

 

The Government asserts that cellophane and other wrapping materials are neither substantially fungible nor like priced. For these reasons, it argues that the market for other wrappings is distinct from the market for cellophane and that the competition afforded cellophane by other wrappings is not strong enough to be considered in determining whether du Pont has monopoly powers. Market delimitation is necessary under du Pont's theory to determine whether an alleged monopolist violates Section 2. The ultimate consideration in such a determination is whether the defendants control the price and competition in the market for such part of trade or commerce as
they are charged with monopolizing. Every manufacturer is the sole producer of the particular commodity it makes but its control in the above sense of the relevant market depends upon the availability of alternative commodities for buyers: i.e., whether there is a cross-elasticity of demand between cellophane and the other wrappings. This interchangeability is largely gauged by the purchase of competing products for similar uses considering the price, characteristics and adaptability of the competing commodities. The court below found that the flexible wrappings afforded such alternatives. This Court must determine whether the trial court erred in its estimate of the competition afforded cellophane by other materials. . . .

 

If cellophane is the "market" that du Pont is found to dominate, it may be assumed it does have monopoly power over that "market." Monopoly power is the power to control prices or exclude competition. It seems apparent that du Pont's power to set the price of cellophane has been limited only by the competition afforded by other flexible packaging materials. Moreover it may be practically impossible for anyone to commence manufacturing cellophane without full access to du Pont's technique. However, du Pont has no power to prevent competition from other wrapping materials. The trial court consequently had to determine whether competition from the other wrappings prevented du Pont from possessing monopoly power in violation of Section 2. Price and competition are so intimately entwined that any discussion of theory must treat them as one. It is inconceivable that price could be controlled without power over competition or vice versa. This approach to the determination of monopoly power is strengthened by this Court's conclusion in prior cases, that, when an alleged monopolist has power over price and competition, an intention to monopolize in a proper case may be assumed.

 

 

Determination of the competitive market for commodities depends on how different from one another are the offered commodities in character for use, how far buyers will go to substitute one commodity for another. For example, one can think of building materials as in commodity competition but one could hardly say that brick competed with steel or wood or cement or stone in the meaning of Sherman Act litigation; the products are too different. This is the interindustry competition emphasized by some economists. On the other hand, there are certain differences in the formulae for soft drinks but one can hardly say that each one is an illegal monopoly. Whatever the market may be, we hold that control of price or competition established the existence of monopoly power under Section 2.

 

The Government argues:

 

We do here urge that in no circumstances may competition substitute negative possession of monopolistic power over trade in a product. The decisions make it clear at the least that the courts will not consider substitutes other than those which are substantially fungible with the monopolized product and sell at substantially the same price.

 

But where there are market alternatives that buyers may readily use for their purposes, illegal monopoly does not exist merely because the product said to be monopolized differs from others. If it were not so, only physically identical products would be a part of the market. To accept the Government's argument, we would have to conclude that the manufacturers of plain as well as moisture-proof cellophane were monopolists, and so with films such as Pliofilm, foil, glassine, polyethylene, and Saran, for each of these wrapping materials is distinguishable. These were all exhibits in the case. New wrappings appear, generally similar to cellophane; is each a monopoly? What is called for is an appraisal of the "cross-elasticity" of demand in the trade. . . The varying circumstances of each case determine the result. In considering what is the relevant market for determining the control of price and competition, no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up that "part of the trade or commerce," monopolization of which may be illegal. As respects flexible packaging materials, the market geographically is nationwide.

 

Cellophane differs from other flexible packaging materials. From some it differs more than from others. The basic materials from which the wrappings are made . . . are aluminum, cellulose, acetate, chlorides, wood pulp, rubber hydrochloride, and ethylene gas. . . .

It may be admitted that cellophane combines the desirable elements of transparency, strength and cheapness more definitely than any of the others. . . .

But despite cellophane's advantages, it has to meet competition from other materials in every one of its uses. . . . Food products are the chief outlet, with cigarettes next. The Government makes no challenge to Finding 283that cellophane furnishes less than 7 percent of wrappings for bakery products, 25 percent for candy, 32 percent for snacks, 35 percent for meats and poultry, 27 percent for crackers and biscuits, 47 percent for fresh produce, and 34 percent for frozen foods. Seventy-five to eighty percent of cigarettes
are wrapped in cellophane. . . . Thus cellophane shares the packaging market with others. The over-all result is that cellophane accounts for 17.9 percent of flexible wrapping materials, measured by the wrapping surface. . . .

Moreover a very considerable degree of functional interchangeability exists between these products . . . It will be noted, . . .,that except as to permeability to gases, cellophane has no qualities that are not possessed by a number of other materials. Meat will do as an example of interchangeability. . . .Although du Pont's sales to the meat industry have reached 19,000,000 pounds annually, nearly 35 percent, this volume is attributed "to the rise of self-service retailing of fresh meat." . . . In fact, since the popularity of self-service meats, du Pont has lost "a considerable proportion" of this packaging business to Pliofilm. . . . Pliofilm is more expensive than cellophane, but its superior physical characteristics apparently offset cellophane's price advantage. While retailers shift continually between the two, the trial court found that Pliofilm is increasing its share of the business. . . .

An element for consideration as to cross-elasticity of demand between products is the responsiveness of the sales of one product to price changes of the other. If a slight decrease in the price of cellophane causes a considerable number of customers of other flexible wrappings to switch to cellophane, it would be an indication that a high cross-elasticity of demand exists between them; that the products compete in the same market. The court below held that the "[g]reat sensitivity of customers in the flexible packaging markets to price or quality changes" prevented du Pont from possessing monopoly control over price. . . . The record sustains these findings. . . .

We conclude that cellophane's interchangeability with the other materials mentioned suffices to make it a part of this flexible packaging market.

 

The "market" which one must study to determine when a producer has monopoly power will vary with the part of commerce under consideration. The tests are constant. That market is composed of products that have reasonable interchangeability for the purposes for which they are produced-price, use and qualities considered. While the application of the tests remains uncertain, it seems to us that du Pont should not be found to monopolize cellophane when that product has the competition and interchangeability with other wrappings that this record shows.

 

On the findings of the District Court, its judgment is affirmed.