Hard Rock Mining and Antitrust Laws: When Too Much Really Is Too Much, Even in the Ninth Circuit by Bartholomew Lee, 15 Golden Gate University Law Review 49 [no. 1, Spring 1985 – opening text]
I. INTRODUCTION: ANTITRUST IMPLICATIONS OF ORE RESERVES
“There is a principle of too much; phrased colloquially, when a pig becomes a hog it is slaughtered.”
So said the court in a recent tax case, [l] but the country metaphor applies to mining as well. This is a note on the uneasy amalgam of antitrust and mining law. Antitrust law may well forbid what mining laws might otherwise permit. Mineral ore can be monopolized through the aggregation of reserves and exclusion of competitors by litigation. Two recent Ninth Circuit cases, Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., and Energy Conservation, Inc. v. Heliodyne, Inc.,  have extended the reach of the antitrust laws. This has special significance to the mining industry in the Ninth Circuit because of the court’s unusual interpretation of the law applicable to the aggregation of mining claims.
This comment will explore the antitrust exposure which may arise upon the claiming of “too much” ore. An analogy will be drawn between mining law and United States patent and antitrust laws. The analogy is close, and in the proper case the liability quite large, which is of particular significance in the Ninth Circuit as the jurisdictional prerequisites of interstate commerce and standing are easily satisfied.
II. THE LAW OF HARD ROCK MINING
The Ninth Circuit stands alone in a unique interpretation of American mining law. The court has consistently refused to ap- ply the administrative “too much” rule to mineral ore reserves. The Bureau of Land Management (BLM) of the Department of Interior, and its administrative tribunal, the Interior Board of Land Appeals (IBLA) have long enforced a “too much” test. The “too much” rule holds that a mining claimant who has claimed too much ore may undercut the very premise by which he is entitled to make a claim. That is, the mineral claim must meet the test of discovery, locatability and marketability.
Congress intends the business of mining to be as competitive as any other business and courts have decided antitrust cases concerning the mining industry. What is unique about mining is that most minerals lie in the public lands, and the public lands are subject to a comprehensive scheme of federal regulation of mineral claims dating to the Mining Acts of 1856 and 1872.  These claims were administered by the states until the 1976 federalization of filing requirements under the Federal Land Policy and Management Act. 
There are several levels of rights in mineral lands including the “pedis possessio” rights of a prospector, state mining claims, tunnels and mill sites protected by state and federal law, and the land conveyed from the federal government by a federal land patent.  Such rights, at whatever level, provide a holder with the right to exclude others from a particular piece of land through the remedies of quiet title, ejectment and injunctive and damage actions.
Whether valid mining claims may be aggregated to exclude potential or actual competitors from a relevant market in a mineral ore is an antitrust as well as mining issue. The question is not merely academic, because the larger companies in the American mining industry, particularly in their operations within the Ninth Circuit,  have aggregated huge numbers of mining claims. These companies assert that the ore reserves subject to their exclusive use are worth billions of dollars. If these assertions are true, and the aggregations forestall competition in the production of the ore, then antitrust violations may arise.  The test for discovery of a “valuable mineral deposit” is whether the deposit justifies the locator to have reasonable expectations of developing a paying mine.  The Interior Department has promulgated regulations to prevent the appropriation of minerals solely for speculative purposes before sufficient work has been done to determine whether a vein or lode really exists. 
The policy underlying the “too much” rule is an estoppel. If there is “too much” of the mineral lying in the ground the very quantity of it reduces the value of anyone claim so that any single claim is no longer commercially viable.  In this instance, the “too much” rule is known as the rule against excess reserves. The fact that a mineral deposit on one claim satisfies the discovery standard, however, does not justify holding an entire group of claims on the mineral valid where the reserves on the claims are disproportionate to the total demand for such materials. 
The excess reserve rule limits the number of claims which a claimant may hold on the rationale that otherwise valid claims in too large numbers may fail to meet the discovery and market- ability test for location of a valuable mineral.  The Secretary of Interior has stated that: “[I]f the market could not absorb the materials from all of the [excess reserve] claims, then the super abundance of the available supply establishes the absence of a demand from the claim in question. 
The Ninth Circuit reviewed application of the excess reserve rule, which it dubbed the “too much test,” in 1979 and found it to be “an abuse of discretion which was contrary to the existing mining law.”  Therefore, the mining industry within the Ninth Circuit may freely aggregate excess reserves without fear of successful administrative challenge.
In the Tenth Circuit,  the industry aggregates excess reserves at some risk, in that the non-use of a group of claims may be held to be in abuse of the claims process.  In 1975 the Tenth Circuit  held that if a mining claimant has held claims for several years but has not developed them, a presumption arises that the claimant has failed to discover valuable mineral deposits where the market value of discovered minerals was not sufficient to justify the cost of extraction. 
These issues came to the Tenth Circuit on facts indicating that the defendant did not meet the customs of miners, let alone applicable law, in making its discoveries en masse. The mining industry, in fact, may not be as fastidious as it asserts concerning its own compliance with the law. 
Although the Ninth Circuit does not apply the “too much” rule to ore reserves, the antitrust laws, as interpreted by the Ninth Circuit, can reach the same result. Since the two recent antitrust holdings in Clipper Exxpress and Heliodyne , it is now possible for adversaries to reach would-be and actual holders of large ore reserves, and to create antitrust and treble damage exposure for any mining company which seeks to enforce its federal mining rights in “too much” ore.
III. THE ANTITRUST CONSIDERATIONS
The antitrust laws are the fundamental constitution of our economic system.  The Supreme Court has called the Sherman Act the “charter of economic liberty aimed at preserving free and unfettered competition.” 
The antitrust laws, however, not only favor competition, they promote the interest of competitors against what Justice Brandeis called “the curse of bigness.”  Justice Black picked up this theme in 1962 stating that the antitrust laws protect viable small businesses. 
The inconsistency between promoting the efficiencies of competition on one hand, and the equities of protecting competitors on the other, may be a major flaw in the character of American antitrust law. The court has swung between the application of these two philosophies and may again swing towards economic efficiency at the expense of smaller competitors. 
American’s policy favoring competition in the minerals industries, including mining, has often been discussed in case law.  Courts of Appeal  and the Supreme Court  have noted the pro-competitive congressional policy applicable to mineral lands. 
It has been the explicit policy of American mineral law since the Gold Rush days to avoid monopolization of the nation’s mineral wealth. California passed the Possessory Act of 1850 to preclude the monopolization of mineral lands under the guise of agricultural uses. The intent of the legislature was to prevent monopolization of mining land and the anti-monopoly policy behind the Possessory Act was often emphasized by the California Supreme Court.  A later California case,  emphasized that in early California mining law, no matter was considered more important than the limitation upon the extent of mining claims.
Monopolization of, and restraint from trade in mineral ores has also given rise to Justice Department and private anti- trust cases. The famous Alcoa case of 1945,  dealt in part with the allegation that Alcoa had monopolized aluminum ore. The Supreme Court also dealt with ore deposits in Continental Ore  where it was charged that ore deposits were monopolized.  The same ore monopolization also gave rise to another noteworthy antitrust case, in which the Tenth Circuit held that the defendant’s “took affirmative and effective steps to fix the prices for the raw ore. ..and to forestall and eliminate competition. …”  The court went on to quote with approval Ninth Circuit holdings that “[t]he mere unlawful combination over a period of time to eliminate competition is proof of damage” and that any implied restraint of trade would patently result in some loss of business.  Any mining monopolist in the Western Circuit Courts of Appeal therefore, faces a presumption that the fact of antitrust injury arises from unlawful acts.
The cases demonstrate that mineral ores are a relevant product  subject to the protections of the antitrust laws, and that the antitrust laws reach restraints of trade and monopolization of mineral ores,  despite the pervasive federal scheme of exclusive mining claims on the public lands. 
IV. THE PATENT ANALOGY
Aggregation of mining claims is similar to situations which arise when invention patents and enforcement litigation violate the antitrust laws.  A patented invention and a patented mining claim reach the same result because ownership of a valuable property right is obtained by governmental action. An invention patent, like a mining claim, provides a certain exclusivity to the holder, by law, for the purposes of encouraging exploitation of the resource. However, if the holder of the exclusive governmental grant abuses it by using it to exclude competition from the whole market, or otherwise abuses its exclusivity, antitrust liability may arise.  *** [the note continues…]
1. United States v. Dolese, 605 F.2d 1146, 1154 (10th Cir. 1982).
2. Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1290 (9th Cir. 1982), cert. denied, 1035 S.Ct. 1234 (1983); Energy Conservation, Inc., v. Heliodyne, Inc., 698 F.2d 386 (9th Cir. 1983).
3. See generally Gage, Cry Wolf — Sherman and Clayton Are Coming! 27A Rocky Mtn. Min. L. Inst. I, (1982).
4. Federal Land Policy and Management Act, 43 U.S.C. § 1701 (1976). The FLPMA is also known as the Organic Act for the Bureau of Land Management. For a good summary of state and federal mining statutes and requirements for miners, see generally, Robert G. Pruitt. Jr., Digest of Mining Claim Laws (Rocky Mountain Mineral Law Foundation, 2d ed. 1981).
5. See generally, American Law of Mining, Titles I-IX (Rocky Mountain Mineral Law Foundation, 1982), (hereinafter ALM).
6. These companies have acted with immunity to the “too much” rule.
7. Upon a finding of antitrust liability the stockholders of any such aggregating mining company might well wish, in retrospect, that they had suffered the application of the Department of the Interior’s “too much” rule rather than application of the Clayton Act’s treble damage penalties.
8. 1 ALM § 2.4 at 163 (1982); the definition is based on Chrisman v. Miller, 196 U.S. 313 (1905) and Castle v. Womble, 19 L.D. 455 (1894). For a discussion of the none -to -clear relation of this “prudent man” test to marketability, see 1 ALM § 4.80 at 705 noting recent cases hold that mining claims may be invalidated upon a showing of no “present demand for the materials from the claim.” 9. 43 C.F.R. § 3814.3-1 (1974); 1 ALM § 4.13 at 611.
10. The Ninth Circuit interprets mining law for most of the mineral rich western states yet does not apply the “too much” test.
11. 1 ALM § 4.87A at 710.10.
12. Id. at 710.11.
13. United States v. Osborne, 28 IBLA 13, 15 (1976).
14. United States v. Baker, 613 F.2d 224, 229 (9th Cir. 1979), cert. denied 449 U.S. 932 (1980).
15. See Miller, Surface Use Rights under the General Mining Law: Good Faith and Common Sense, 28 Rocky Mtn. Min. L. Inst. 761, 773 (1983).
16. Id. 17. United States v. Zweifel, 508 F.2d 1150 (10th Cir. 1975) cert. denied 423 U.S. 829 (1976).
18. See Miller, supra, note 15, at 774. The Tenth Circuit’s test is similar to the excess reserves rule.
19. For example, a story is told of a helicopter foray to the mountains of Colorado to stake out new claims the very next day after release of official news of potential mineralization in the area. However, there was so much snow on the ground that the would-be discoverers of valuable mineralization would have been lucky to discover pine trees under the snow, let alone copper ore. See Summer, Wilderness and Mining Law, in The Living Wilderness 8, 16, (Spring, 1973), as recounted in Strauss, Mining Claims on Public Lands: A Study of Interior Department Procedures, 1974 Utah L. Rev. 185 (1974).
20. Clipper Exxpress, 690 F.2d at 1290 and Energy Conservation, Inc., 698 F.2d at 386.
21. “Antitrust laws in general and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. The freedom guaranteed to every business, no matter how small, is the freedom to compete – to assert with vigor, imagination, devotion and ingenuity whatever economic muscle it can muster….” United States v. TOPCO Associates, Inc., 405 U.S. 596, 610 (1972).
22. “The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress, while at the same time producing an environment conducive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition. …” Northern Pacific Ry. v. United States, 356 U.S. 1, 4-5 (1958) (construing the Sherman Act, 15 U.S.C. § 1 (1974)).
23. As trenchantly put by Justice Douglas in a 1948 dissent that later became the view of a majority of the Justices: “The problem of bigness. ..can be an industrial menace because it creates gross inequalities against existing or putative competitors. .. Industrial power should be decentralized. ..That is the philosophy and the command of the Sherman Act. …” United States v. Columbia Steel Co., 334 U.S. 495, 535 (1948), (Douglas, J., dissenting).
24. “It is competition, not competitors which the Act protects. But we cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned businesses. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision.” See Brown Shoe Co. v. United States, 370 U.S. 294, 344 (1962) (construing the Clayton Act, as amended, 15 U.S.C. § 18 (1976)).
25. For an overview of applicable antitrust law and these policy issues, see generally P. Areeda & D. Turner, Antitrust Law, §§ 103 -113c at 7-33 (1978) (Hereinafter Anti- Trust Law); see also Rosenberg, William Baxter’s Antitrust Legacy, California Lawyer, Apr. 1984, at 29.
26. See Cage, supra, note 3, who is particularly good on the cases involving the extractive side of the minerals industry, and Carr, The Int’l Energy Program and the U.S. Antitrust Law, 15 Nat. Resources l. 503 (1982).
27. For example, the Fifth Circuit has noted “[T]he public policy of the United States is directed at opposing the monopoly of federally-owned mineral deposits. …” McKenna v. Wallis, 344 F.2d 432, 435 (5th Cir. 1965).
28. The Supreme Court similarly analyzed the statute providing for leasing of mineral lands noting that Congress “[P]revented mineral rights, on pain of forfeiture, from passing into the hands of any unlawful trust or becoming the subject of any contract or conspiracy in restraint of trade. ..Its whole policy seems to contemplate the opening of the public domain to competitive exploitation. …” Chapman v. Sheridan Wyoming Coal Co., Inc., 338 U.S. 392, 397 (1950).
29. The present Supreme Court has even upheld use of outright public taking of private land “to reduce the perceived social and economic evils of a land oligopoly.” Hawaii Housing Authority v. Midkiff, 476 U.S. 229 (1984).
30. The [California] Possessory Acts of 1850 and 1852 (Cal. Gen. L 1850-1864, § 6790 (H. H. Bancroft & Co. 1868)). See also 1 ALM § 1.10 at 28, 29, Tartar v. Spring Creek Water & Mining Co., 5 Cal. 395, 398 (1855) and Smith v. Doe, 15 Cal. 100, 105 (1860).
31. Argonaut Mining v. Kennedy Mining & Milling Co., 131 Cal. 15, 63 Pac. 148, 150 (1900), aff’d. 189 U.S. 1 (1903).
32. United States v. Aluminum Co. of America, 148 F.2d 416, 432 (2nd Cir. 1945): “The plaintiff (the United States) attempted to prove, and asserts that it did prove, that ‘Alcoa’ bought up Bauxite deposits, both in Arkansas – the chief source of the mineral in the United States – and in Dutch, and British Guiana, in excess of its needs, and under circumstances which showed that the purchases were not for the purpose of securing an adequate future supply, but only in order to seize upon any available supply and so assure its monopoly.” Id.
33. Continental Ore Co., v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962).
34. “The defendants were charged with purchasing and acquiring control over substantially all accessible vanadium-bearing ore deposits in the United States. ..[and other restraints].” Id. at 693.
35. Union Carbide and Carbon Corporation v. Nisley, 300 F.2d 561, 575 (10th Cir. 1962).
36. Id. (quoting Fox West Coast Theatre Corp. v. Paradise Theatre Building Corp., 264 F.2d 602, 608 (9th Cir. 1958), and Richfield Oil Corporation v. Karseal Corp., 271 F.2d 709, 713 (9th Cir. 1959)).
37. For a discussion of the parameters of the relevant market concept, see generally II Antitrust Law, §§ 507 at 330.
38. The Supreme Court has broadly defined mineral reserve geographic markets when faced with the issue in merger cases. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961) and United States v. General Dynamics Corp., 416 U.S. 486 (1974) in Cage, note 3 supra.
39. Company size alone may have antitrust implications. See Kennecott Copper Corp. v. F.T.C., 467 F.2d 67 (10th Cir. 1968), cert. denied 416 U.S. 909 (1969). See also Cage, supra, note 3, at 31, where it is stated that “[i]n an industry where deep pockets are part of the necessary uniform, the Kennecott decision must be viewed as just another example of the underlying resistance to the ‘curse of bigness.’”
40. See generally III Antitrust Law, § 704 at 114.
41. See generally I Antitrust Law, § 201 at 36.
42. Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir.), cert. denied 344 U.S. 837 (1952); Rex Chainbelt Inc. v. Harco Products, Inc., 512 F.2d 993 (9th Cir.), cert. denied 423 U.S. 831 (1975). The author is indebted to the court in Handguards v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979) for its concise analysis of the patent/antitrust cases. ***