[PUBLISH]



              IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT



                            No. 97-8320

                 D. C. Docket No. 6:95-CV-45-WLS


UNITED STATES OF AMERICA,

                                               Plaintiff-Appellant,

                               versus

ENGELHARD CORPORATION, FLORIDIN COMPANY
U.S. BORAX INC., and U. S. SILICA COMPANY,

                                              Defendants-Appellees.


          Appeal from the United States District Court
               for the Middle District of Georgia

                         (October 23, 1997)

Before EDMONDSON and DUBINA, Circuit Judges, and LIMBAUGH*, Senior
District Judge.




DUBINA, Circuit Judge:



_________________________________________________________________
*Honorable Stephen N. Limbaugh, Senior U.S. District Judge for the
Eastern District of Missouri, sitting by designation.
     In this antitrust case, plaintiff-appellant The United States

of America (“the Government”) appeals the district court’s order

denying     its     request   for       a    permanent     injunction    prohibiting

defendant-appellee        Engelhard           Corporation     (“Engelhard”)      from

acquiring the assets of defendant-appellee Floridin Corporation

(“Floridin”). The district court refused to enjoin the transaction

after concluding that the Government failed to carry its burden of

establishing the relevant product market.                    For the reasons that

follow, we affirm the judgment of the district court.
                                 I.         BACKGROUND

     This    case     involves      a       transaction    between   Engelhard    and

Floridin -- the two leading producers and distributors of gel

quality attapulgite clay (“GQA”) in the United States.                    Only three

companies currently produce GQA in the United States.                      Engelhard

and Floridin each hold over forty percent (40%) of the GQA market.

A third company, Milwhite, holds approximately fifteen percent

(15%) of the GQA market.

     Attapulgite is a form of clay found throughout the world.                     In

the United States it is found only along the Georgia-Florida

border.     There are two forms of attapulgite.                  “Sorbent quality

attapulgite,” as the name would indicate, has absorbent qualities

and is used in products designed to absorb liquids.                     GQA, the type

of attapulgite at issue in this case, is used as a thickening and

suspension agent in a variety of industrial products, including

suspension        fertilizers,   animal           feeds,   paints,   asphalt   roof-

coatings, tape joint compounds, drilling fluids, and molecular

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sieves.   Engelhard and Floridin process both sorbent quality

attapulgite and GQA.   The Government has raised antitrust concerns

solely with GQA.

     U.S. Silica, Floridin’s parent corporation, decided to get out

of the attapulgite business and offered to sell Floridin’s assets.

Engelhard expressed interest in purchasing Floridin’s assets, in

large part to acquire Floridin’s more modern processing plant in

Quincy, Florida.    In an attempt to avoid antitrust problems, the

parties structured the deal so that Engelhard purchased only the

Quincy processing plant and Floridin’s sorbent quality attapulgite

business, not its GQA business.       A third party, ITC Corporation

(“ITC”), would purchase Floridin’s GQA business. ITC and Engelhard

planned to enter a joint venture agreement under which Engelhard

would provide ITC with GQA at cost, the companies would share the

Quincy processing plant, and would otherwise operate as independent

distributors of GQA.

     The Government challenged the proposed transaction, arguing

that it would substantially lessen competition in the GQA market.

After a three-week bench trial, the district court found that the

Government failed to carry its burden of establishing the relevant

product market. Based on this threshold ruling, the district court

did not reach the other issues in the case.       The district court

entered an interim injunction to allow the Government to seek an

injunction pending appeal from this court. We refused to issue the

injunction but expedited the appeal.       The transaction has since

been consummated.

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                           II.    DISCUSSION

     The Government contends incorrectly that the district court

rejected the approach of the U.S. Department of Justice and Federal

Trade Commission Horizontal Merger Guidelines §§ 1.0 and 1.11

(1992)   (hereinafter,   “the    Guidelines”)   as   to   product   market

definition.   Under the Guidelines, the relevant inquiry is whether

there are substitutes to which a customer would switch in response

to a “small but significant and nontransitory price increase” in

the product in question.    See AREEDA, HOVENKAMP & SOLOW, ANTITRUST LAW,

Vol. IIA, ¶ 537a (1995) (hereinafter, “AREEDA”).      The Department of

Justice (“DOJ”) quantifies a “small but significant price increase”

as a five to ten percent (5-10%) permanent increase.         The DOJ uses

the 5-10% test “to delineate the relevant market, to determine

whether the merger is horizontal, to identify the other competitors

in the market, and to assess the likelihood of entry.”         Speech of

Assistant Attorney General James Rill, 7 Trade Reg. Rep. (CCH) ¶

50,032 at 48,639.    Under this test, the Government asks whether

customers of a particular product, for example Product A, would

switch to alternative products in the face of a permanent 5-10%

increase in the price of Product A by a hypothetical monopolist,

where the increase is not cost justified.       If customers would not

switch, then the Government views Product A as the relevant product

market. If customers would switch to the alternative product, then

the Government believes there is sufficient cross-elasticity of

demand so that Product A and the alternative product are in the

same product market.

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     In this case, the Government relied heavily on the 5-10% test

at trial.    The Government produced evidence that current GQA

customers would not switch to alternative products in the face of

a 5-10% increase in the price of GQA.    Largely on this basis, the

Government contends that GQA is the relevant product market and

that the district court erred because, according to the Government,

it rejected the 5-10% test.

     We disagree with the Government’s characterization of the

district court’s order.   The district court did not reject the 5-

10% test.   As the district court stated in its order denying the

Government’s motion for an injunction pending appeal:

     under the facts of record as presented to the Court, the
     5%-10% test, as applied by the plaintiff, to a limited
     number   of   consumers   provided   contradictory    and
     inconclusive answers as to what, if any, competition
     exists between gel quality attapulgite and other products
     for the purposes of relevant product analysis.

Dist. Ct. Order at 4 (RE Tab # 138).    In fact, in response to the

Government’s contention that the district court had rejected the 5-

10% test, the court explicitly stated that “[i]n light of the

inadequacies in breadth and scope of the plaintiff’s inquiries to

consumers, the Court could not hold that gel quality attapulgite

constituted a relevant market even under the plaintiff’s 5 to 10

percent standard.” 

The district court’s decision turned
on the Government’s failure to prove the product market it alleged.

Establishing the relevant product market is an essential element in

the Government’s case.    See U.S. Anchor Mfg., Inc. v. Rule Indus.

Inc., 

, 994 (11th Cir. 1993) (“Defining the market is a


                                  5
necessary    step    in    any     analysis    of   market    power   and       thus    an

indispensable element in the consideration of any monopolization or

attempt case arising under section 2.").               Despite the Government’s

protestations to the contrary, this case does not touch upon broad

antitrust principles, but instead turns on a simple question asked

in every civil case -- whether the plaintiff carried its burden of

proof.    Therefore, it is unnecessary for us to address, as a

general matter of law, the validity of the 5-10% test.

     “The definition of the relevant market is essentially a

factual question.”         U.S. 

.             Thus, we review

the district court’s determination that the Government did not

prove the relevant product market under the clearly erroneous

standard.    National Bancard Corp. v. Visa U.S.A., Inc., 

, 604 (11th Cir. 1986); Cable Holdings, Inc. v. Home Video,

Inc., 

, 1563 n.6 (11th Cir. 1987).                In determining the

relevant market, “[t]he finder of fact normally is presented with

voluminous    expert      testimony      and   other      evidence.        In   such     a

situation, its factual findings are accorded great deference.”

National 

.             Therefore, the issue before us

is whether the district court committed clear error in finding that

the Government did not prove that GQA is a relevant product market.

     “Defining a relevant product market is primarily a process of

describing    those       groups    of   producers        which,   because      of     the

similarity    of    their    products,     have     the    ability    --   actual      or

potential -- to take significant amounts of business away from each

other.”     U.S. 

(quotations omitted).                           The

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boundaries of the product market are determined by “the reasonable

interchangeability of use or the cross-elasticity of demand between

the product itself and substitutes for it.”             Brown Shoe Co. v.

United States, 

, 325 (1962); see also, AREEDA, Vol. IIA,

¶   530a   (“[A]   market   is   the   arena   within   which   significant

substitution in consumption or production occurs.”).               Although

every product has a substitute, the relevant product market does

not encompass all substitutes. Times-Picayune Publ’g Co. v. United

States, 

, 612 n.31 (1953).         “The circle must be drawn

narrowly to exclude any other product to which, within reasonable

variations in price, only a limited number of buyers will turn; in

technical terms, products whose ‘cross-elasticities of demand’ are

small.”    

court found that the Government did not prove

that GQA was the relevant product market after concluding that the

Government’s methodology used to gather data was grievously flawed.

The court criticized the Government’s case on several grounds.

Likewise, the Government on appeal has roundly criticized the

district court’s view of the evidence.             However, we need not

discuss each disputed fact at issue in this case.                Under the

clearly erroneous standard, we must affirm the district court

unless review of the entire record leaves us “with the definite and

firm conviction that a mistake has been committed.”             Anderson v.

Bessemer City, 

, 573 (1985) (citing United States v.
United States Gypsum Co., 

, 395 (1948)).            As long as

the district court’s findings are plausible, we may not reverse the

                                       7
district court even if we would have decided the case differently.

(“Where there are two permissible

views of the evidence, the factfinder’s choice between them cannot

be clearly erroneous.”).

      There are good reasons for our deference to district courts in

determining matters of fact.         As stated by the Supreme Court:

      The trial judge’s major role is the determination of
      fact, and with experience in fulfilling that role comes
      expertise. Duplication of the trial judge’s efforts in
      the court of appeals would very likely contribute only
      negligibly to the accuracy of fact determination at a
      huge cost in diversion of judicial resources.          In
      addition, the parties to a case on appeal have already
      been forced to concentrate their energies and resources
      on persuading the trial judge that their account of the
      facts is the correct one; requiring them to persuade
      three more judges at the appellate level is requiring too
      much.

.           This is all the more true in an

antitrust   case   such   as    this   where     the    district   court    heard

voluminous evidence over the course of a three-week bench trial.

See   National   

.     Thus,    rather    than

discussing each piece of evidence in as much detail as did the

district court, we will focus on what, in our view, are the most

obvious shortcomings in the Government’s case.

      First, when determining the relevant market, the question is

whether a hypothetical monopolist could profitably raise price. If
a sufficient number of customers switch to alternative products,

then the hypothetical GQA price increase can become unprofitable.

Furthermore, it is possible for only a few customers who switch to

alternatives to make the price increase unprofitable, thereby


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protecting a larger number of customers who would have acquiesced

in    higher   GQA   prices.    To    evaluate     such   possibilities,    the

Government should have ascertained the size of the GQA market in

its different end-use applications.               However, the Government’s

expert, Dr. Bodisch, could not identify the number of companies

using GQA in many of its end-use applications.             Dist. Ct. Order at

17.    This undermines the Government’s entire case.              No matter how

many customers in each end-use industry the Government may have

interviewed, those results cannot be predictive of the entire

market if those customers are not representative of the market.

Without knowing the size of the market, we cannot know if the

customers interviewed are representative of that market. In short,

under the circumstances of this case, evidence on the size of the

GQA market was essential, and its absence casts a shadow over the

reliability of all Dr. Bodisch’s conclusions.

       Second, the Government failed to consider competition in the

pre-formulation industrial thickener market -- competition before

GQA has been selected as an ingredient.            In applying the test, the

Government asked current GQA customers whether they would switch to
alternative     products   in   the   face   of   a   permanent    5-10%   price

increase.      The evidence showed that they would not.           However, the

record is replete with evidence that GQA is used in specially

formulated products designed to achieve very particular end-use

requirements.        A change in the type of thickener or suspension

agent used may change the product’s end-use performance, thus

requiring testing and reformulation before the product will perform

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properly. In fact, some GQA customers are even reluctant to switch

among GQA suppliers for fear of reformulation costs and performance

problems. Moreover, some Engelhard customers testified that they

would not switch to Floridin GQA if faced with a 5-10% increase in

price.     This makes clear that current GQA customers consider the

high cost of reformulation in their responses to the 5-10% question

posed by the Government. Additionally, GQA customers are reluctant

to switch because GQA makes up only a small percentage of the final

cost of the products in which it is used.          See Dist. Ct. Order at

8 (finding that GQA makes up 0.1% to 10% of total cost of products

in which it is an ingredient and on average makes up 5% or less of

total cost).      Therefore, a 10% increase in the price of GQA on

average will increase the overall cost of a $100 product by only 50

cents.

       Consideration of reformulation costs and the minuscule impact

of GQA prices on the price of the finished products in which it is

used, explain why current GQA users are reluctant to switch in the

face of hypothetical price increases sometimes well in excess of

10%.     More    importantly,   however,   it   highlights    the    need   for

evidence    of   pre-formulation   competition     among     GQA    and   other

industrial thickeners and suspension agents.         Certainly, Engelhard

and Floridin are not content to simply hold on to the GQA business

they now have; rather, they hope to expand it.         As new products of

all stripes are developed and old products are reformulated, GQA

must compete against other industrial thickeners and suspension

agents or become obsolete.      For example, if GQA and an alternative

                                     10
product competed at the pre-formulation stage, that competition

might protect current GQA users (who would acquiesce in much higher

GQA prices) from the exercise of monopoly power.              As the district

court stated:

     [The Government] presupposes that competition can only
     exist at the post-formulation stage, when GQA has already
     been chosen as an ingredient in an end-use product. . .
      [This] highlights the failure of the 5-10% test to
     account for the possibility that purchasers and potential
     purchasers of GQA could opt to use a substitute substance
     for the same function when creating a new product or
     retooling an old one. Such formulation stage competition
     could   very   well   serve  as   a   restraint   against
     anticompetitive price increases by forcing GQA producers
     to price their products competitively or price themselves
     out of the market completely.

Dist. Ct. Order at 11-12.      Given the evidence in the record of high

reformulation costs and the low cost of GQA in relation to the

products in which it is used, evidence on the pre-formulation

industrial thickener market was essential.

     Although not directly on point, we agree with the district

court   that   the   Supreme   Court’s     analysis   in   United     States   v.
Continental Can Co., 

(1963), supports the district

court’s view of the evidence in this case.                   Continental Can
involved   the   merger   of   the   second    largest     producer    of   metal

containers and the third largest producer of glass containers.

Although the district court found competition between glass, metal,

and plastic containers, the district court did not find glass and

metal to be in the same market.               The Supreme Court reversed.

Although customers who pack their goods in cans versus bottles do

not switch back and forth each day as prices of cans and bottles


                                      11
vary,     the    Court      held    that     glass     and    metal      containers           could

constitute the same product market.

       [T]hough the interchangeability of use may not be so
       complete and the cross-elasticity of demand not so
       immediate as in the case of most intraindustry mergers,
       there is over the long run the kind of customer response
       to innovation and other competitive stimuli that brings
       the competition between these two industries within § 7's
       competition-preserving proscriptions. . . That there are
       price differentials between the two products or that the
       demand for one is not particularly or immediately
       responsive to changes in the price of the other are
       relevant matters but not determinative of the product
       market issue.

 Continental 

.                    A similar situation exists in

the industrial thickener market.                    Although the demand for GQA is

not immediately responsive to changes in the price of GQA or other

industrial        thickeners,         GQA     competes        with      other      industrial

thickeners when products are being formulated.                         Over the long run,

this pre-formulation competition may protect current GQA users from

the exercise of market power.1                      Of course, we do not mean to


   1
         Professor Areeda describes a similar problem as the “time factor” of market power. It is
illustrative here as well:

       A defendant’s market power may be greater in the very short run than in some
       longer period. [B]uyers shift quite rapidly among substantially identical products
       when relative prices change, quickly revealing the cross-elasticity of demand
       between brands X and Y. Shifts may take more time when substitute products
       differ significantly in their physical characteristics. A coal-burning boiler may
       not be readily convertible to natural gas; a baker’s wrapping machine may handle
       only cellophane, not wax paper. Despite a rising relative price for coal or
       cellophane, shifting to gas or paper may not be economical for these users until
       their boilers or wrapping machines “wear out.” Consequently, demand shifts may
       be gradual, thus delaying their full impact on price for several years, during which
       the defendant’s power would be declining.

AREEDA, Vol. IIA, ¶ 530c.

                                               12
suggest that this pre-formulation competition necessarily would

prevent a hypothetical GQA monopolist from profitably raising

prices.    On this issue, the record is inadequate because the

Government did not offer evidence of pre-formulation competition.

Without   such    evidence,   determining       whether       a    hypothetical

monopolist could profitably raise GQA prices is pure guesswork.

     The Government’s methodology for determining the relevant

product   market,   as   applied   in    this   case,   was       flawed.   The

Government failed to ascertain the size of the GQA market and did

not consider the possibility that pre-formulation competition could

restrain GQA prices.      After thoroughly reviewing the record, we

cannot say the district court was clearly erroneous in holding that

the Government failed to carry its burden of establishing the

relevant product market.
                            III.   CONCLUSION

     For the foregoing reasons, we affirm the judgment of the

district court.

     AFFIRMED.




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