A Federal Trade Commission law judge yesterday took a major step toward ending nine years of legal and political debate over the agency's effort to break up the nation's three leading cereal companies by urging the commission to dismiss the landmark case. The commission is expected to go along with the recommendation.
The FTC already is close to dropping several other major antitrust matters, including actions against the oil and auto industries.
The commission staff has 10 days to decide whether to appeal the decision to the four-member commission, and although top FTC staff members had not yet read the decision by yesterday afternoon, antitrust experts suggested that the sweeping nature of the judge's decision made such an appeal unlikely.
The decision is another milestone in a government rollback of antitrust enforcement, a movement that had been a hallmark of the regulatory fervor of the early 1970s. President Reagan, during last year's election campaign, charged the case "has very little basis in fact" and would have a "chilling effect" on American business.
The suit was brought in 1972 against Kellogg Co., General Mills Inc., General Foods Corp. and Quaker Oats Co. Quaker was dropped from the case in 1978.
In a 266-page decision, Administrative Law Judge Alvin L. Berman said FTC lawyers failed to prove either a price-fixing conspiracy or "noncompetitive pricing activity under a shared monopoly theory."
The case is considered a major test of the limits of antitrust law since it was an unprecedented effort to demonstrate that several companies can essentially dominate a market without overt or conspiratorial price-fixing acts.
"The trouble with this case is that it had no law," said Frederick R. Furth, a San Francisco lawyer representing Kellogg. "This is an effort of the FTC to play Congress, to move the dome from the top of the Hill down Pennsylvania Ave."
Spokesman for the three companies praised the Berman decision. General Foods noted the case had cost the company more than $6 million, General Mills $1 million a year and Kellogg an estimated $10 million.
"This is an outstanding victory for what we have been battling for," said Kellogg President William E. LaMothe. "They were going for the very heart of the business that we felt we have earned honestly and competitively."
The "shared-monopoly" concept embodied in the case suggested that the three companies did not compete, kept prices high and discouraged others from entering the business. In fact, the FTC staff alleged that the conspiracy cost consumers of the popular cereal products $1.2 billion in higher grocery prices between 1958 and 1972.
The FTC staff had recommended that five new cereal companies be created through divestiture of the three firms that were targets of the action. Further, the staff had proposed that the companies be required to license their trademark products free for the next 20 years.
Berman's decision was released one day after the House of Representatives voted to bar the FTC from spending money on the initial decision until 60 days after the close of a separate investigation into the FTC's internal handling of the contract between the agency and Berman's predecessor, Harry Hinkes.
In one of a series of unusual events that the defendants have used to publicize their case, Hinkes was awarded a $72,000 contract to stay with the matter after he announced his retirement, several years after the trial began. That matter is under investigation by representatives of the Office of Personnel Management.
The case also has become the target of aggressive lobbying by the companies, most notably Kellogg, which succeeded in securing criticism of the case and its shared-monopoly premise from dozens of members of Congress and from Reagan and former vice president Walter Mondale. The two men criticized the case in Battle Creek on the eve of last year's general election in an effort to win votes in the crucial state.
"I think the decision is wrong, but I'm glad the judge was given a chance to make it," said Jay Angoff, a representative of Congress Watch.
The reaction to the decision was also swift from members of Michigan's congressional delegation.
"This was simply an appropriate action, and I'm glad the case was decided squarely on the merits," said Rep. Howard Wolpe (D-Mich.), who represents Battle Creek, where Kellogg has its headquarters. "This is a classic example of bureaucracy trying to write new law."
Said Sen. Carl Levin (D-Mich.): "I always felt that the kind of novel theory that was devised by the FTC had no business being presented in an administrative proceeding."
Levin and Sen. Donald Riegle (D-Mich.) both said the decision would prevent a loss of jobs. "This is one situation where government interference into private industry was not warranted," said Riegle.