advertising, rebates and promotional allowances. Sales of latex condoms
to USAID, on the other hand, are made pursuant to the receipt of an
annual GSA contract awarded on a competitive bidding basis. Mr. Fernas
testified that the selling and marketing expenses for the GSA sales are
far less than the selling and marketing expenses involved in selling to
U.S. retailers. The annual contract is apparently awarded to the
manufacturer submitting the lowest bid.
e) Distinct prices.
The prices of latex condoms sold to retail distributors range from $20
to $30 per gross, while the prices to USAID are in the $6 per gross
range. This price discrepancy is sufficient to support a finding of
f) Sensitivity to price changes.
The factors that affect the prices of condoms sold to retail
distributors are not the same as the factors that affect the winning bids
on the sale of condoms to USAID. The evidence presented to the Court
shows that the prices of latex condoms sold to USAID are not sensitive to
the prices of latex condoms sold to the retail trade. Plaintiff submits
that there is no correlation between the prices of the winning bids to
USAID as compared with Lifestyles or between inflation adjusted, or
real, USAID prices and the U.S. prices of Lifestyles. Defendants contest
plaintiff's analysis arguing that even plaintiff's expert conceded that
his price correlation analysis failed to meet any statistical standards.
Despite the lack of statistical significance, the Court finds that the
evidence presented on the issue of price correlation between sales of
condoms to the retail trade and sales to USAID is persuasive. It belies
common sense to believe that prices set by a process of competitive
bidding and prices determined by market considerations would be sensitive
to the same market forces.
g) Specialized Vendors.
The last factor mentioned by the Supreme Court in Brown Shoe is the
existence of specialized vendors. There does not appear to be a need for
specialized vendors in the latex condom industry. Manufacturers and/or
packagers can and will sell to the various channels of distribution. In
this case, Ansell is a vendor who sells both to U.S. retailers and to
USAID, and the other manufacturers have put in bids for the USAID
business in the past. The fact that each company may have a distinct
sales force for each channel of distribution is non-dispositive.
h) Barriers to Entry.
Although not a factor mentioned by the Supreme Court in Brown Shoe, at
least one court has cited the presence of entry barriers as an additional
factor to consider when defining an economically significant submarket.
See Mrs. Smith's Pie Co., 440 F. Supp. at 229. The Court finds that there
has been no significant entry into the retail market for latex condoms
for the past several years. Plaintiff cites the critical role that brand
names play in this market and the difficulty in developing successful
brand name recognition and loyalty.
Plaintiff submits that the primary barrier to entry in the U.S. retail
market has resulted from the difficulty in developing successful brand
name recognition and loyalty to compete with the long-recognized and
dominant brands. Plaintiff asserts that Ansell and NSL were able to
increase their market shares during an expanding market by finding new
niche markets which opened up as sales increased and which were ignored
by the established market leaders. Plaintiff argues that any similar
increase in sales is unlikely during a stagnant market and even less
likely that a new market entry will occur.
Plaintiff has documented the attempts by two pharmaceutical and
consumer products giants to acquire and expand the sales of branded
condoms. In 1987-1988 American Home Products acquired and attempted to
expand the sales of Today Brand condoms. Despite its continued presence
in the retail markets, Today's market presence is quite minimal
registering only .80% of the market using Schmid's sales estimates for
the U.S. retail market. Similarly, Johnson & Johnson was unable to
develop brand recognition for its Conceptrol Shields brand of
condoms and dropped it from the market in the early 1980's.
Defendants submit that entry is generally possible, but concede that it
has been difficult for new entrants to establish major positions for
their branded products due to the degree of consumer loyalty and brand
recognition. The submitted evidence proves that entry into the condom
production industry is much easier than entry into the retail market.
Dippers like Fuji, Okamoto, Killian and Aladan have been able to enter
and survive in the condom industry, yet their presence in the retail
market is insignificant. This evidence supports the definition of the
U.S. retail market as an economically significant submarket.
3. The Effect of the 1984 Merger Guidelines.
The Department of Justice ("DOJ") has promulgated its 1984 Merger
Guidelines, 49 Fed.Reg. 26, 823 (1984), which are used by DOJ attorneys
in the Antitrust Division in deciding whether particular mergers violate
Section 7 of the Clayton Act as well as used by businesses to assist them
in complying with the applicable antitrust laws. The Court views the
Product Market Definition position of the DOJ in the Merger Guidelines as
an advisory aid in determining the relevant product market. The
Guidelines state that DOJ "will include in the product market a group of
products such that a hypothetical firm that was the only present and
future seller of those products ("monopolist") could profitably impose a
"small but significant and non-transitory' increase in price." DOJ Merger
Guidelines § 2.11.*fn4
The DOJ will give particular weight to the following factors:
(1) Evidence of buyers' perceptions that the products
are or are not substitutes, particularly if those
buyers have actually considered shifting purchases
between the products in response to changes in
relative price or other competitive variables;
(2) Differences in the price movements of the products
or similarities in price movements over a period of
years that are not explainable by common or parallel
changes in factors such as costs of inputs, income, or
(3) Similarities or differences between the products
in customary usage, design, physical composition, and
other technical characteristics; and
(4) Evidence of a seller's perceptions that the
products are or are not substitutes, particularly if
business decisions have been based on those
DOJ Merger Guidelines § 2.12.
Analyzing the instant evidence with respect to the Merger Guidelines,
whose relevant factors are not substantially dissimilar from the factors
enunciated in Brown Shoe, also leads the Court to believe that sales of
latex condoms in the U.S. retail market constitutes the relevant product
market. The evidence shows that retailers would not view the condoms
produced and sold to USAID as substitutes, nor does it seem likely that
they would switch to the condoms produced by USAID in response to a small
but significant and non-transitory increase in price. As we have
explained above, the prices of condoms sold at retail and those sold to
GSA move differently. We have also amply discussed the similarities and
differences with respect to the products' usage, design and
characteristics as well as the sellers' perceptions that the products are
or are not substitutes.
What this Court finds most persuasive about the Merger Guidelines is
their position on Production Substitution. Defendants argue that Ansell
has in fact diverted supplies of condom sheaths to NSL so that Ansell
would have sufficient product to fulfill its contract with USAID. Thus,
defendants argue that Ansell's ability to divert part of its production
capacity to USAID is evidence that condoms sold in the various channels
of the wholesale market are virtually perfect substitutes for each
other. Plaintiff argues, on the other hand, that it has not, would not
and could not divert sales from USAID to the U.S. retail market.
Ansell first explains that even if it were possible for it to increase
significantly the retail demand for its condoms in the United States,
they would not supply this increase demand by diverting USAID
production. During fiscal 1990, Ansell earned a USAID marketing profit
equal to 19% of its sales, and a 3% marketing profit on its U.S. retail
sales. The parties stipulated that marketing profit is defined as sales
minus cost of sales and expenses. If general overhead is accounted for as
well, including research and development, factory variances, and
marketing administration and central administration costs, Ansell's
profits (or losses) were 12% profit in fiscal 1990 on sales to USAID and a
loss of 4% on U.S. retail sales. Thus, Ansell argues that it would not be
profitable for it to switch current production from its USAID sales to
U.S. retail sales.
The Guidelines state, "[i]n many cases, a firm that could readily
convert its facilities from the production of one product to another
would have significant difficulty distributing or marketing the new
product or for some other reason would find the substitution
unprofitable." DOJ Merger Guidelines § 2.21. The instant case is the
prototype situation wherein Ansell would find it both unprofitable to
substitute its production of USAID condoms and difficult to market and
distribute those condoms in the retail market.
As Judge Debevoise noted in United States v. Calmar, 612 F. Supp. 1298,
1304 (D.N.J. 1985), a market cannot be defined with absolute certainty.
After analyzing the parties claims, the various practical indicia
developed by Brown Shoe and its progeny, and the position taken by the
Department of Justice in its Merger Guidelines, however, this Court is
convinced that the sale of latex condoms through U.S. retail outlets is
sufficiently well defined to be considered a "line of commerce" for
B. Defining the Relevant Geographic Market.
In addition to determining the appropriate line of commerce in which to
analyze the effects of the acquisition, the Court must also define the
relevant geographic market. In this case, the entire United States is the
proper geographic market. Where products, are distributed throughout the
United States and purchasers of such products, as well as competitors,
are located throughout the country, the appropriate "section of the
country," as contemplated by 15 U.S.C. § 18, includes the entire
United States and not merely a single region. A. G. Spalding & Bros.,
Inc. v. Federal Trade Comm'n, 301 F.2d 585, 607 (3d Cir. 1962). Although
the parties agree that the United States is the relevant geographic
market, the defendants claim that there are substantial international and
regional components to the market. The Court, however, cannot find any
significant international or regional components to the market that
consists of sales of latex condoms to U.S. retailers.
C. Analyzing the Probable Anticompetitive Effects of the Acquisition
Defining the relevant product and geographic market would normally
provide the setting within which to assess the effect of Schmid's
acquisition on competition in that market. It becomes unnecessary,
however, for this Court to reach the question of whether the transaction
at issue is violative of Section 7 in light of our holding, infra, that
plaintiff has neither demonstrated "antitrust injury" nor established
standing to seek its requested relief. To provide the appropriate setting
for the discussion of antitrust injury a further examination of the
competitive structure of the particular market would be helpful.
The parties have each submitted market share estimates for U.S. sales
of latex condoms to retail distributors. In addition to Ansell's (Table
2) and Schmid's (Table 3) own estimates, plaintiff has submitted market
share data provided by Nielsen Marketing Research. These figures are
based on periodic national surveys and it is undisputed that Nielsen's
statistics serve as a source of data for the U.S. retail condom
Table 1 shows Nielsen market shares, in units and revenues, of latex
condoms in the U.S. retail market for the twelve months ending July 1,
Latex Condoms: Retail Market
12 months through July 1, 1990
Shares Based Shares Based
on Units on Revenues
Carter Wallace 61.1% 59.3%
Schmid 22.1% 26.2%
Ansell 9.9% 10.3%
NSL 4.5% 3.2%
All others 2.4% 1.0%
Ansell's estimated sales of latex condoms in the U.S. retail market for
1990 are contained in Table 2. Ansell's estimates are represented in both
units and revenues.
Latex Condoms: Retail Market
Shares Based Shares Based
on Units on Revenues
Carter Wallace 56.4% 56.6%
Schmid 24.5% 24.6%
Ansell 10.7% 11.6%
NSL 5.4% 4.1%
All others 3.0% 3.1%
Table 3 contains Schmid's estimated unit sales of latex condoms in the
U.S. retail market for 1990. Schmid has not supplied its estimates
expressed in terms of revenues.
Latex Condoms: Retail Market
Carter Wallace 62.29%
American Home .80%
All others 2.36%
It is apparent, under any of the market share estimates, that the
retail condom market is a highly concentrated market. Prior to Schmid's
acquisition, the U.S. retail market consisted of four firms controlling
approximately 97% of the market measured in units and between 97% and 99%
of the market measured in sales revenues. Now that Schmid has acquired
NSL the relevant market is dominated by only three companies. Schmid's
market share has increased to 26.6% (units) and 29.4% (revenues) under
the Nielsen estimates, 29.9% (units) and 28.7% (revenues) under the
Ansell estimates, and 24.37% (units) under Schmid's estimates. Defendants
contest the above figures only because they disagree with plaintiff's,
and now the Court's, characterization of the relevant market and argue,
unpersuasively, that the market should include sales to USAID.
Further adding to the highly concentrated nature of this market is the
apparent unlikely possibility of significant new market entrants. This
issue was more fully discussed above, see III.A.2.h., supra.*fn5
IV. SEEKING DIVESTITURE UNDER CLAYTON ACT SECTION 16
A. Antitrust Injury/Standing.
Plaintiff requests this Court to either order divestiture by Schmid of
its acquisition or order rescission of the transaction agreement.
Although Section 16 of the Clayton Act grants the plaintiff standing to
sue for injunctive relief,*fn6 the remedies that section provides are
only available to a certain limited group of plaintiffs. The Treasurer,
Inc. v. Philadelphia Nat'l Bank, 682 F. Supp. 269, 273 (D.N.J.), aff'd
w/o opinion, 853 F.2d 921 (3d Cir. 1988). The plaintiff must allege and
prove threatened loss or damage that constitutes "`antitrust injury' in
order to fall within the narrow class of persons who can benefit from
these laws." Id.*fn7
In Brunswick Corp. v. Pueblo Bowl-A-Mat, Inc., 429 U.S. 477, 97 S.Ct.
690, 50 L.Ed.2d 701 (1977), the Supreme Court held that plaintiffs
seeking damages under Section 4 of the Clayton Act must "prove antitrust
injury, which is to say injury of the type the antitrust laws were
intended to prevent and that flows from that which
makes the defendant's acts unlawful." Id. at 489, 97 S.Ct. at 697
(emphasis in original). The plaintiffs in Brunswick were three of the ten
bowling centers owned by a relatively small bowling chain. The
defendant, one of the two largest bowling chains in the country, acquired
several bowling centers located in the plaintiffs' market that would have
gone out of business but for the acquisition. Plaintiff claimed that the
purchase would deprive it of income that would have accrued had the
acquired centers gone bankrupt. The Court held that this injury, though
causally related to a merger alleged to violate Section 7, did not
constitute antitrust injury, "since"[i]t is immical to [the antitrust]
laws to award damages' for losses stemming from continued competition."
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 109-10, 107
S.Ct. 484, 488-89, 93 L.Ed.2d 427 (1986) (quoting Brunswick Corp., 429
U.S. at 488, 97 S.Ct. at 697). The Brunswick Court noted that this was
consistent with the principle that "the antitrust laws . . . were enacted
for `the protection of competition, not competitors.'" Brunswick Corp.,
429 U.S. at 488, 97 S.Ct. at 697 (quoting Brown Shoe Co., 370 U.S. at
320, 82 S.Ct. at 1521) (emphasis in original). No claim for relief can be
sustained "where the sole injury alleged is that competitors were
continued in business, thereby denying [plaintiff] an anticipated
increase in market shares." Id. 429 U.S. at 484, 97 S.Ct. at 695.
In Associated General Contractors of California, Inc. v. California
State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723
(1983), the Court noted that among the factors that must be weighed in
determining antitrust standing are the directness or indirectness of the
injury, the court's ability to keep trial of the claim within manageable
limits, and the nature of the injury (i.e., is it of the type that the
antitrust laws were meant to prevent). Id. at 538-45, 103 S.Ct. at
908-912. See also Alberta Gas Chemicals, Ltd. v. E.I. Du Pont De Nemours
and Co., 826 F.2d 1235, 1240 (3d Cir. 1987), cert. denied, 486 U.S. 1059,
108 S.Ct. 2830, 100 L.Ed.2d 930 (1988). Additionally, the Supreme Court
noted that even if a restraint of trade is unlawful, "it does not, of
course, necessarily follow that still another party . . . is a person
injured by reason of a violation of the antitrust laws within the meaning
of § 4 of the Clayton Act." Associated General, 459 U.S. at 529, 103
S.Ct. at 904.
In Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 107 S.Ct.
484, 93 L.Ed.2d 427 (1986), the Supreme Court emphasized the necessity
for scrutinizing the Brunswick antitrust injury factor and extended this
requirement to cases such as this one, where plaintiffs are seeking an
injunction under Section 16. The Court held that in such a case, a
private plaintiff is required to show threatened antitrust injury just as
a plaintiff seeking damages under Section 4 of the Clayton Act is
required to show actual antitrust injury. Id. at 113, 107 S.Ct. at 491.
The Court reaffirmed that an injury, although causally related to an
antitrust violation, nevertheless does not qualify as "antitrust injury"
unless it can be attributed to an anticompetitive aspect of the practice
under scrutiny. The Court added that "a showing of loss or damage due
merely to increased competition does not constitute such injury." Id. at
122, 107 S.Ct. at 495.
The Third Circuit has also recently addressed the issues of antitrust
standing. In Alberta Gas Chemicals, Ltd. v. E.I. Du Pont De Nemours and
Co., 826 F.2d 1235 (3d Cir. 1987), cert. denied, 486 U.S. 1059, 108
S.Ct. 2830, 100 L.Ed.2d 930 (1988), the court recognized that the
doctrine of standing was a "malleable concept" which had been construed
in a variety of ways and settings and that "[t]he struggle to articulate
a precise formulation is a continuing one because success has proved
elusive." Id. at 1239. In Alberta Gas, the plaintiff (Alberta Gas, a
methanol producer) challenged a competitor's (Du Pont's) acquisition of
another company (Conoco) whose merger led to the cancellation of the
acquired company's plans to produce methanol. Alberta Gas had claimed
that it would lose sales caused by the termination of Conoco's plans to
produce and build demand for methanol as a fuel. Applying the standards
set forth in Cargill and Brunswick,
the Third Circuit held that these types of losses "were neither connected
with, nor resulted from Du Pont's market power in the methanol-producing
industry." Id. at 1241. The court noted that the same harm would have
occurred had any acquirer decided to terminate Conoco's plans to produce
and market methanol.
In this case, the issue now before the Court is whether Ansell has
standing to seek its requested relief. This will depend upon whether it
has proved threatened losses which may properly be called anti"in trust
injury since the sense that plaintiffs who sustain antitrust injury may
not recover, they may be loosely said to lack standing." Alberta Gas, 826
F.2d at 1240. We first look to what Ansell claims to be its "antitrust
B. Ansell's Claims of Antitrust Injury.
Ansell asserts that the threat of injury is due primarily to Schmid's
enhanced market share. It claims that the addition of the nationally
recognized Protex brand to Schmid's market share gives Schmid the
increased "market clout" to displace the Lifestyles brand in retail
outlets throughout the United States. Plaintiff speculates that this will
occur particularly in retail outlets where Protex has not been carried
previously, such as convenience stores and mass merchandisers. As evidence
of Schmid's intent to "drive Lifestyles from the shelves", Ansell refers
to parts of LIUS's (Schmid's parent) 1988/89-1991/92 Business Plan. Under
the heading "Key Strategies" this document states, along with other
proposed strategies for Schmid's condom business:
Attack smaller competitors (Ansell, NSL, Today, Fuji)
using the full marketing mix to relegate these
products to an insignificant section of the display
and eventually drive them from the category.
PX-6 at S0001495.
In another section purporting to suggest Schmid's response to Ansell's
competitive strategy, the Business Plan states:
• A Target at weak Lifestyles SKU's and
get them delisted in drug stores.
• A Use Schmid's higher profit/square foot story
and higher share per SKU to get new distribution in
non-drug stores and get Lifestyles delisted.
PX-6 at S0001467.