International Business Machines Corporation v. United States
| Citation | 56 S.Ct. 701,298 U.S. 131,80 L.Ed. 1085 |
| Decision Date | 27 April 1936 |
| Docket Number | No. 758,758 |
| Parties | INTERNATIONAL BUSINESS MACHINES CORPORATION v. UNITED STATES |
| Court | United States Supreme Court |
Appeal from the District Court of the United States for the Southern District of New York.
Messrs. Martin A. Schenck and Drury W. Cooper, both of New York City, for appellant.
Mr. John Dickinson, Asst. Atty. Gen., for the United States.
This is an appeal, section 238 of the Judicial Code, 28 U.S.C.A. § 345, from so much of a decree of a District Court for Southern New York as enjoins the appellant from leasing its tabulating and other machines upon the condition that the lessees shall use with such machines only tabulating cards manufactured by appellant, as a violation of section 3 of the Clayton Act, 38 Stat. 731, 15 U.S.C. § 14 (15 U.S.C.A. § 14).
The government brought the suit against appellant and three other corporations, all manufacturers of machines performing substantially the same functions as appellant's, to restrain the use by each of the defendants of a specified type of lease of their machines as a violation of the Clayton Act (38 Stat. 730), and to declare void under the Sherman Anti-Trust Act (15 U.S.C.A. §§ 1—7, 15 note) a contract into which they had entered, by which each agreed to use that type of lease, and not to solicit the lessees of machines of the others to purchase tabulating cards which it manufactures. The case was tried upon the pleadings and a stipulation of facts, in which the defendants consented to a decree canceling their agreement with each other. Two of the defendants have been eliminated from the suit; one by dissolution and the other by merger with appellant. A third defendant, Remington Rand, Inc., has stipulated that the decree to be entered against it shall conform to that entered against appellant upon this appeal.
Appellant's machines and those of Remington Rand, Inc., are now the only ones on the market which perform certain mechanical tabulations and computations, without any intervening manual operation, by the use in them of cards upon which are recorded data which are the subject of tabulation or computation. Appellant manufactures three types of machines, known as punching machines, sorters, and tabulators. The punching machines are used to perforate cards, called tabulating cards, in such manner that the positions of the perforations indicate numerical or other data. When the cards are passed through the sorter or tabulator, control of its mechanism is effected by electrical circuits established by contacts through the perforations. The cards are thus made permanent records of information, and by the perforations are given such form that they may be used, as often as required, to control the function of the machines through which they are passed. The sorting machines are used to sort the perforated cards so as to classify them by the selection and segregation, in the desired manner, of those signifying any particular type of information. The tabulating machines are used to record the information denoted by the perforated cards or to make computations based upon it. In the Remington Rand machines the control is not electrical, but is accomplished by the use of cards which admit of the movement, into the perforations, of small pins which, by linkage, guide the mechanical operation of the machine so as to effect the desired result.
To insure satisfactory performance by appellant's machines it is necessary that the cards used in them conform to precise specifications as to size and thickness, and that they be free from defects due to slime or carbon spots, which cause unintended electrical contacts and consequent inaccurate results. The cards manufactured by appellant are electrically tested for such defects.
Appellant leases its machines for a specified rental and period, upon condition that the lease shall terminate in case any cards not manufactured by the lessor are used in the leased machine. A special form of lease has been granted to the government by which it is permitted to use cards of its own manufacture upon paying a 15 per cent. increase in the rental of the leased machines, but upon condition that the lease shall be terminable if the government uses such cards without payment of the additional rental.
Appellant insists that the condition of its leases is not within the prohibition of the Clayton Act (38 Stat. 730), and it has assigned as error the conclusion of the District Court that the condition tends to create monopoly. But its principal contentions are that its leases are lawful because the protection secured by the condition does not extend beyond the monopoly which it has acquired by patents on the cards and on the machines in which they are used, and that in any case the condition is permissible under section 3 of the Clayton Act (15 U.S.C.A. § 14) because its purpose and effect are only to preserve to appellant the good will of its patrons by preventing the use of unsuitable cards which would interfere with the successful performance of its machines.
1. Section 3 of the Clayton Act, so far as it is applicable to the present case, provides that 'It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease * * * machinery * * * whether patented or unpatented, for use * * * within the United States * * * on the condition * * * that the lessee * * * shall not use * * * supplies or other commodities of a competitor, * * * where the effect of such lease * * * or such condition * * * may be to substantially lessen competition or tend to create a monopoly in any line of commerce.' The statute thus in precise terms makes unlawful a condition that the lessee shall not use the supplies or commodities of a competitor of the lessor if the effect of the condition 'may be' to lessen competition substantially, or if it tends to create a monopoly.
Little need be said of the contention that the condition of appellant's leases does not infringe these prohibitions. It is true that the condition is not in so many words against the use of the cards of a competitor, but is affirmative in form, that the lessee shall use only appellant's cards in the leased machines. But as the lessee can make no use of the cards except with the leased machines, and the specified use of appellant's cards precludes the use of the cards of any competitor, the condition operates in the manner forbidden by the statute. See United Shoe Machinery Corp. v. United States, 258 U.S. 451, 457, 458, 42 S.Ct. 363, 66 L.Ed. 708; compare Federal Trade Commission v. Sinclair Ref. Co., 261 U.S. 463, 474, 43 S.Ct. 450, 67 L.Ed. 746. A different question is presented from that in the Sinclair Case, where a wholesale distributor of gasoline leased gasoline pumps to retail dealers with the stipulation that they should not be used for the pumping of gasoline of the lessor's competitors. As the only use made of the gasoline was to sell it, and as there was no restraint upon the purchase and sale of competing gasoline, there was no violation of the Clayton Act.
The conclusion of the trial court that appellant's leases infringe the monopoly provisions of the section does not want for support in the record. The agreed use of the 'tying clause' by appellant and its only competitors, and the agreement by each of them to restrict its competition in the sale of cards to the lessees of the others, have oper- ated to prevent competition and to create a monopoly in the production and sale of tabulating cards suitable for appellant's machines, as the District Court found. The commerce in tabulating cards is substantial. Appellant makes and sells 3,000,000,000 cards annually, 81 per cent. of the total, indicating that the sales by the Remington Rand Company, its only competitor, representing the remaining 19 per cent., are approximately 600,000,000. It is stipulated that appellant derives a 'substantial' profit from its card sales. The gross receipts from its machines during the past ten years have averaged $9,710,389 a year, and an average of $3,192,700, has been derived annually from the sale of its cards. These facts, and others, which we do not stop to enumerate, can leave no doubt that the effect of the condition in appellant's leases 'may be to substantially lessen competition,' and that it tends to create monopoly, and has in fact been an important and effective step in...
To continue reading
Request your trial
-
Chicago Title Ins. Co. v. Great Western Financial Corp.
...or lessor. (International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; International Business Machines Corp. v. United States, 298 U.S. 131, 56 S.Ct. 701, 80 L.Ed. 1085.) '(A) tying arrangement may be defined as an agreement by a party to sell one product but only on t......
-
Reserve Realty, LLC v. Windemere Reserve, LLC
...Salt Co. v. United States , 332 U.S. 392, 395–96, 68 S. Ct. 12, 92 L. Ed. 20 (1947) ; International Business Machines Corp . v. United States , 298 U.S. 131, 135–37, 56 S. Ct. 701, 80 L. Ed. 1085 (1936) ; see also Jefferson Parish Hospital District No. 2 v. Hyde , 466 U.S. 2, 17, 104 S. Ct.......
-
Tampa Electric Company v. Nashville Coal Company
...also, International Salt Co. v. United States, 1947, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; International Business Machines v. United States, 1936, 298 U.S. 131, 56 S.Ct. 701, 80 L.Ed. 1085; Oxford Varnish Corp. v. Ault & Wilborg Corp., 6 Cir., 1936, 83 F.2d 257; Radio Corp. of America v. ......
-
Jefferson Parish Hospital District No v. Hyde
...928-30, 92 L.Ed. 1260 (1948); International Salt, 332 U.S., at 395-396, 68 S.Ct., at 14-15; International Business Machines Corp. v. United States, 298 U.S. 131, 56 S.Ct. 701, 80 L.Ed. 1085 (1936). The same strict rule is appropriate in other situations in which the existence of market powe......
-
Tying and bundled discounts
...131 The Ninth Circuit explained the apparent inconsistency between the per se label and the consideration of business justifications: 128. 298 U.S. 131 (1936). 129. Id . at 138-40. 130. 337 U.S. 293, 306 (1949). 131. See, e.g. , Mozart Co. v. Mercedes-Benz of N. Am., Inc., 833 F.2d 1342, 13......
-
Table of cases
...1344 (Fed. Cir. 2007), 218, 219 Hynix Semiconductor Inc. v. Rambus Inc., 2008 WL 73689 (N.D. Cal. 2008), 366, 367 IBM v. United States, 298 U.S. 131 (1936), 106 478 Intellectual Property and Antitrust Handbook I Idaho Potato Comm’n v. M&M Produce Farm & Sales, 335 F.3d 130 (2d Cir. 2003), 1......
-
The Treatment of Specific Licensing Issues
...States v. Lowe’s, Inc., 371 U.S. 38, 45 (1962); United States v. Paramount Pictures, 334 U.S. 131, 156-59 (1948); IBM v. United States, 298 U.S. 131 (1936); International Salt Co. v. United States, 332 U.S. 392 (1947); Northern Pac. Ry. v. United States, 356 U.S. 1, 10 n.8 (1958); Times-Pic......
-
Enforcement and Remedies
...obtained an injunction against IBM’s practice of tying punch card sales to tabulation machines in the 1930s. IBM v. United States, 298 U.S. 131 (1936). In the 1950s, the government brought an action for tying in IBM’s marketing of tabulation machines; the dispute eventually ended in a conse......