## Facts

- Fruehauf Corporation, a major truck-trailer manufacturer, acquired Kelsey-Hayes Company, a supplier of heavy-duty wheels (HDWs) and antiskid brake devices (ASBDs).
- The FTC alleged the acquisition violated § 7 of the Clayton Act by threatening to substantially lessen competition in three U.S. markets: HDWs, ASBDs, and truck trailers.
- The FTC’s HDW theory was that vertical integration would (1) lead Kelsey to favor Fruehauf during shortages and (2) shift Fruehauf’s purchases to Kelsey, increasing Kelsey’s power and raising entry barriers.
- The FTC’s ASBD theory depended on anticipated regulation-driven demand that would make Kelsey’s ASBD position competitively important to trailer makers.
- The FTC’s truck-trailer theory was that control of key inputs (HDWs and potentially ASBDs) would give Fruehauf an advantage over rival trailer manufacturers dependent on Kelsey.
- After administrative proceedings, the FTC found a § 7 violation and ordered divestiture of Kelsey’s Auto Truck Group and imposed a 10-year prior-approval requirement for acquisitions in HDWs, trailers, or ASBDs.
- Fruehauf petitioned for judicial review; the record included the FTC’s denial of a request to reopen based on subsequent market and regulatory developments.

## Issues

1. Whether substantial evidence supported the FTC’s finding that the acquisition may substantially lessen competition or tend to create a monopoly in the HDW, ASBD, and truck-trailer markets under Clayton Act § 7.
2. Whether divestiture and a 10-year prior-approval requirement were justified on this record, including in light of post-decision changes affecting the ASBD market.

## Decision

- The court declined to enforce the FTC’s divestiture order and did not uphold the FTC’s § 7 violation finding.
- The court held that the FTC’s competitive-harm theories were speculative and not supported by substantial evidence of likely foreclosure, increased market power, or downstream competitive injury.
- In the HDW market, the court emphasized that an actual post-merger shortage did not produce the predicted discrimination; Kelsey supplied customers without favoring Fruehauf.
- In the ASBD market, the court relied on the diminished significance of ASBDs following changes in government safety regulations, weakening the FTC’s predicted competitive effects.
- In the truck-trailer market, the court found insufficient evidence that rivals would be deprived of necessary inputs or otherwise disadvantaged to the degree required by § 7.
- Because a § 7 violation was not supported, the court found the FTC’s structural and prospective remedies unsustainable.

## Legal Principles

- Agency findings of a § 7 violation must be supported by substantial evidence of a probable competitive effect; conjecture about future conduct is insufficient.
- Vertical integration alone does not establish a § 7 violation absent evidence of meaningful foreclosure, increased market power, or likely harm to competition in a properly defined market.
- Actual marketplace behavior may rebut predictions of discriminatory supply or input foreclosure in vertical-merger challenges.
- When a theory of competitive harm depends materially on an assumed regulatory regime, significant regulatory changes can negate the factual basis for predicting anticompetitive effects.
- Divestiture and broad prior-approval conditions require a well-supported violation; remedial severity cannot substitute for proof of likely competitive harm.

## Conclusion

The Second Circuit refused to enforce the FTC’s divestiture and prior-approval order because the record did not provide substantial evidence that Fruehauf’s acquisition of Kelsey-Hayes was likely to substantially lessen competition in heavy-duty wheels, antiskid brake devices, or truck trailers, particularly given contrary market experience and changed regulatory conditions.


Fruehauf Corp. v. F.T.C., 603 F.2d 345 (2d Cir. 1979)