## Facts

- Pennsalt Chemicals Corp. and Olin Mathieson Chemical Corp. formed a new corporation, Penn-Olin Chemical Company, each taking 50% of its stock, to build and operate a sodium chlorate plant at Calvert City, Kentucky.
- Penn-Olin began producing sodium chlorate in 1961 and sold into the southeastern United States.
- The parties agreed the relevant product market was sodium chlorate and the relevant geographic market was the southeastern United States.
- The sodium chlorate industry was concentrated, with a small number of large producers.
- Pennsalt was already a sodium chlorate seller in the United States; Olin was not yet producing sodium chlorate but had the resources and capability to enter.
- Both Pennsalt and Olin had considered entering the southeastern market separately, but chose joint entry through Penn-Olin instead.

## Issues

1. Whether § 7 of the Clayton Act applies when two firms form and acquire stock in a jointly owned corporation to conduct a new business venture.
2. Whether, under § 7, the government must show both parents would probably have entered the market independently absent the joint venture, or whether it is enough to show the venture removed significant potential competition (including “edge-of-the-market” entry threats).
3. Whether the joint venture also constituted an unlawful restraint of trade under Sherman Act § 1.

## Decision

- The Supreme Court held that § 7 applies to joint ventures formed by two companies creating a third entity and acquiring its stock to engage in commerce.
- The Court rejected the district court’s approach that effectively required a finding that both parents probably would have entered independently.
- The Court ruled that § 7 analysis must also address whether the joint venture eliminated potential competition from a firm that could have remained poised to enter and thereby constrained the market.
- The Court vacated the judgment for defendants and remanded for further findings under the correct legal standard.

## Legal Principles

- Clayton Act § 7 can reach stock acquisitions that create a jointly owned enterprise when the effect of the acquisition may be substantially to lessen competition or tend to create a monopoly.
- For § 7, the inquiry is forward-looking and probabilistic; actual restraint or completed anticompetitive effects need not be shown.
- In evaluating a joint venture, courts must assess harm to both actual and potential competition, including the competitive significance of a capable firm’s threat of entry in a concentrated market.
- The legality of the acquisition is assessed based on its economic effects at the time of suit, including the venture’s operation in commerce.

## Conclusion

The Court required lower courts to evaluate joint ventures under Clayton Act § 7 with attention to whether the arrangement reduced potential competition, including the disciplining effect of a credible prospective entrant, and remanded because the trial court used an improperly narrow independent-entry test.


United States v. Penn-Olin Chem. Co., 378 U.S. 158 (1964)