United States v. Northern Pacific Railway Company

• Decision Date: 23 June 1956
• Docket Number: No. 2277.,2277.
• Citation: 142 F. Supp. 679
• Parties: UNITED STATES of America, Plaintiff, v. NORTHERN PACIFIC RAILWAY COMPANY and Northwestern Improvement Company, Defendants.
• Court: U.S. District Court — Western District of Washington

142 F. Supp. 679

UNITED STATES of America, Plaintiff, v. NORTHERN PACIFIC RAILWAY COMPANY and Northwestern Improvement Company, Defendants.

No. 2277.

United States District Court W. D. Washington, N. D.

June 23, 1956.

Victor R. Hansen, Asst. Atty. Gen., Margaret H. Brass, Edward M. Feeney, Victor H. Kramer, Dept. of Justice, Washington, D. C., and Charles P. Moriarty, U. S. Atty., Seattle, Wash., for plaintiff.

M. L. Countryman, Jr., St. Paul, Minn., Dean H. Eastman, Harold G. Boggs, Roscoe Krier, Seattle, Wash., for defendants.

BOLDT, District Judge.

By this action the government seeks to have certain contractual provisions contained in deeds and leases granted by defendants held illegal as contravening Section 1 of the Sherman Anti-Trust Act, 26 Stat. 209, 15 U.S.C.A. § 1 et seq.¹ The action is authorized by Section 4 of the Act. Injunctive relief is sought to prevent enforcement of the contract provisions which defendants designate as "preferential routing agreements" and government counsel refer to as "traffic clauses." The terms of the clauses being the same under either designation, for brevity and convenience the latter term will be used herein.

The complaint was filed May 26, 1949. Since then, by answer, interrogatories, depositions and stipulation, many facts have been agreed to. The government moves for summary judgment under Rule 56(a) (c), 28 U.S.C.A., on the undisputed facts. Discretion is not involved in considering the facts and the motion can only be granted to such extent as the law may warrant on facts shown in the record beyond genuine issue.

The material facts thus shown are: Defendant Northern Pacific Railway Company, a Wisconsin corporation (the N. P. herein), is the successor to a land grant railroad which in 1864 was chartered by act of Congress for the purpose of constructing a railroad from Lake Superior to Puget Sound.² The N. P. is primarily engaged as a common carrier in the business of transporting passengers and freight in interstate commerce. Defendant Northwestern Improvement Company, a Delaware corporation (the Land Company herein) and wholly owned subsidiary of the N. P., conducts the business of selling, leasing and managing N. P. lands.

By congressional land grants the N. P. acquired slightly less than 39,500,000 acres of public land located, except for about 100,000 acres, in the area of the states in which the N. P. railway lines are now located, i. e., Wisconsin, Minnesota, North Dakota, Montana, Idaho, Washington and Oregon.

Prior to the commencement of this action much of the granted land had been sold. Defendants now own approximately 2,700,000 acres of land exclusive of land for right-of-way, etc., classified by the Interstate Commerce Commission as for "transportation purposes." Some of the presently owned land was not acquired under the grants of public land. Approximately 21,000,000 acres of land were sold without reservation of any kind. Of the acreage sold with mineral reservations, 6,500,000 acres remain subject to such reservation.

The lands now owned by the defendants, as well as lands which they formerly owned and sold, are of many types. Some contain timber, iron ore, coal, oil and other natural resources. Some of the lands have been used for grazing and agriculture, while still others have been devoted to industrial developments of various kinds.

Traffic clauses in a variety of forms have been included in some of defendants' deeds and in almost all of the leases of lands in each of the categories referred to. The minimal obligation of all of the clauses in question requires the grantee or lessee to route via N. P. railway shipments of commodities produced by or on the land sold or leased, provided neither a lower rate nor better service be available from a competing line. Typical examples of defendants' traffic clauses are given below.³

The government contends that under the stated facts, shown in the record without genuine dispute, the traffic clauses provide for restraints of trade which are unreasonable per se and therefore violative of Section 1 of the Sherman Act under principles announced in the "tying" cases.⁴ The essence of the contention is that defendants' dominance of N. P. land as a tying commodity or device has been used to foreclose or restrict competition in the tied commodity, transportation service to and from the land, the commerce in which is not "inconsequential or insubstantial" in amount.

Defendants contend that the rules of the tying cases are inapplicable to the facts of the instant case; that if so, neither the necessary dominance over the market in the tying commodity nor the required substantial volume of commerce in the tied commodity appears on the present record; and that defendants are entitled to present proof in support of their affirmative defenses alleging that in practice and effect the restraint of the traffic clauses is reasonable and beneficial.

Most, if not all, of the decisions of the United States Supreme Court in tying cases based on either Sherman Act or Clayton Act, 15 U.S.C.A. § 12 et seq., or both, are listed in footnote 4.

Not any one of the cited cases is closely apposite in facts to the present case; but the facts of this case bring it squarely within a formula derived from all of the cited cases: When (1) a seller or lessor, enjoying market control of a particular commodity, in contracts for the sale or lease of such commodity, requires buyer or lessee to purchase a distinctly different and separate commodity, and (2) the amount of interstate commerce in the tied commodity is not insignificant or insubstantial, the tying arrangement is illegal per se under Section 1 of the Sherman Act.

The rationale of the tying doctrine is briefly stated in the latest of the decisions, Times-Picayune Publishing Co. v. United States, 1953, 345 U.S. 594, 73 S.Ct. 872, 97 L.Ed. 1277:

"Tying arrangements, we may readily agree, flout the Sherman Act's policy that competition rule the marts of trade. Basic to the faith that a free economy best promotes the public weal is that goods must stand the cold test of competition; that the public, acting through the market's impersonal judgment, shall allocate the Nation's resources and thus direct the course its economic development will take. Yet `tying agreements serve hardly any purpose beyond the suppression of competition.' Standard Oil Co. of California v. United States, 1949, 337 U.S. 293, 305, 69 S.Ct. 1051, 1058, 93 L.Ed. 1371. By conditioning his sale of one commodity on the purchase of another, a seller coerces the abdication of buyers' independent judgment as to the `tied' product's merits and insulates it from the competitive stresses of the open market. But any intrinsic superiority of the `tied' product would convince freely choosing buyers to select it over others, anyway. Thus `in the usual case only the prospect of reducing competition would persuade a seller to adopt such a contract and only his control of the supply of the tying device, whether conferred by patent monopoly or otherwise obtained, could induce a buyer to enter one.' Id., 337 U.S. at page 306, 69 S.Ct. at page 1058. Conversely, the effect on competing sellers attempting to rival the `tied' product is drastic: to the extent the enforcer of the tying arrangement enjoys market control, other existing or potential sellers are foreclosed from offering up their goods to a free competitive judgment; they are effectively excluded from the marketplace.

"For that reason, tying agreements fare harshly under the laws forbidding restraints of trade. * * *" 345 U.S. at page 605-606, 73 S.Ct. at page 878.⁵

The Supreme Court sustained summary judgments finding tying arrangements violations per se of the Sherman Act in Associated Press v. United States, 1945, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 and in International Salt Co., Inc., v. United States, 1947, 332 U.S. 392, 68 S. Ct. 12, 92 L.Ed. 20. Application of tying principles is not limited to cases involving monopolies granted by patent and copyright. United States v. Griffith, 1948, 334 U.S. 100, 68 S.Ct. 941, 92 L. Ed. 1236; Times-Picayune v. United States, supra. Specific intent to restrain trade or build monopoly is not necessary for a finding of antitrust law violation and "it is unreasonable, per se, to foreclose competitors from any substantial market." United States v. Griffith, supra; International Salt Co., Inc., v. United States, supra.

The traffic clauses in question prohibit grantees and lessees of N. P. lands from a free choice in the selection of transportation routing in the shipment of commodities to and from the lands sold or leased. Admittedly, a large, if not major, portion of such shipments are in interstate commerce. Obviously, the traffic clauses provide at least a nominal "restraint of trade or commerce among the several States". While the Sherman Act provides that "every" contract in such restraint is illegal, ever since Standard Oil Co. of New Jersey v. United States, 1911, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619, only unreasonable restraints are held condemned by the Act. Unreasonable restraints are those which tend to create monopoly by restricting consumers or purchasers from enjoyment of the advantages of free competition. Standard Oil Co. of New Jersey v. United States, supra; United States v. American Tobacco Co., 1911, 221 U.S. 106, 31 S.Ct. 632, 55 L.Ed. 663. Among the restraints held to be unreasonable per se are those effecting price fixing, boycott and a tying arrangement involving the two elements previously stated.

Defendants argue that the first tying element, i. e., market domination over the tying product, is not established because the record does not show the proportion of N. P. lands of various types to the total of the lands of the same types sold and leased in the area of defendants' operations. This contention ignores the plain language of the cited decisions, providing that market...