332 U.S. 392 (1947), 46, International Salt Co., Inc. v. United States

Docket Nº:No. 46
Citation:332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20
Party Name:International Salt Co., Inc. v. United States
Case Date:November 10, 1947
Court:United States Supreme Court
 
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Page 392

332 U.S. 392 (1947)

68 S.Ct. 12, 92 L.Ed. 20

International Salt Co., Inc.

v.

United States

No. 46

United States Supreme Court

Nov. 10, 1947

Argued October 16, 1947

[68 S.Ct. 13] APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

1. It is violative per se of § 1 of the Sherman Act and § 3 of the Clayton Act for a corporation engaged in interstate commerce in salt, of which it is the country's largest producer for industrial uses, and which also owns patents on machines for utilization of salt products, to require lessees of such machines to use only the corporation's unpatented products in them. Pp. 394-396.

2. The defendant in a civil action to enjoin violations of § 1 of the Sherman Act and § 3 of the Clayton Act having admitted practices which were unlawful and unreasonable per se, the District Court was justified in granting summary judgment under Rule 56 of the Rules of Civil Procedure. P. 396.

3. Agreements which "tend to create a monopoly" being forbidden, it is immaterial that the tendency is a creeping one, rather than one that proceeds at full gallop; nor does the law await arrival at the goal before condemning the direction of the movement. P. 396.

4. A requirement in a lease of patented machines that the lessee use only the lessor's unpatented products in them is not saved from unreasonableness and from the tendency to monopoly by provisions entitling the lessee to the benefit of any general price reduction in the lessor's products and permitting the lessee to purchase the products in the open market if the lessor fails to furnish them at a price equal to the lowest price offered by any competitor. Pp. 396-397.

5. Rules for use of leased machinery must not be disguised restraints of free competition, though they may set reasonable standards which all suppliers must meet. Pp. 397-398.

6. The fact that they have not been included in all leases and have not always been enforced when included does not justify the general use of clauses requiring lessees of patented machines to use the lessor's unpatented products therein. P. 398.

7. In enjoining the practice of leasing patented machines on condition that the lessees would use only the lessor's unpatented products

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in them, it was not improper for the District Court to include a requirement that such machines be leased, sold, or licensed to all applicants on nondiscriminatory terms and conditions -- especially where the Court retained jurisdiction to consider applications for the amendment, modification or termination of any provision of the decree. Pp. 398-402.

6 F.R.D. 302 affirmed.

JACKSON, J., lead opinion

MR. JUSTICE JACKSON delivered the opinion of the Court.

The Government brought this civil action to enjoin the International Salt Company, appellant here, from carrying out provisions of the leases of its patented machines to the effect that lessees would use therein only International's salt products. The restriction is alleged to violate § 1 of the Sherman Act1 and § 3 of the Clayton Act.2 Upon appellant's answer and admissions of fact, the Government moved for summary judgment under Rule 56 of the Rules of Civil Procedure upon the ground that no issue as to a material fact was presented, and

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that, on the admissions, judgment followed as matter of law. Neither party submitted affidavits. Judgment was granted,3 and appeal was taken directly to this Court.4

It was established by pleadings or admissions that the International Salt Company is engaged in interstate commerce in salt, of which it is the country's largest producer for industrial uses. It also owns patents on two machines for utilization of salt products. One, the "Lixator," dissolves rock salt into a brine used in various industrial processes. The other, the "Saltomat," injects salt, in tablet form, into canned products during the canning process. The principal distribution of each of these machines is under leases which, among other things, require the lessees to purchase from appellant all unpatented salt and salt tablets consumed in the leased machines.

Appellant had outstanding 790 leases of an equal number of "Lixators," all of which leases were on appellant's standard form containing the tying clause5 and other

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standard provisions; of 50 other leases which somewhat varied the terms, all but 4 contained the tying clause. It also had in effect 73 leases of 96 "Saltomats," all containing the restrictive clause.6 In 1944, appellant sold approximately 119,000 tons of [68 S.Ct. 15] salt, for about $500,000, for use in these machines.

The appellant's patents confer a limited monopoly of the invention they reward. From them, appellant derives a right to restrain others from making, vending, or using the patented machines. But the patents confer no right

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to restrain use of, or trade in, unpatented salt. By contracting to close this market for salt against competition, International has engaged in a restraint of trade for which its patents afford no immunity from the antitrust laws. Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488; Mercoid Corporation v. Mid-Continent Investment Co., 320 U.S. 661; Mercoid Corporation v. Minneapolis-Honeywell Regulator Co., 320 U.S. 680.

Appellant contends, however, that summary judgment was unauthorized because it precluded trial of alleged issues of fact as to whether the restraint was unreasonable within the Sherman Act or substantially lessened competition or tended to create a monopoly in salt within the Clayton Act. We think the admitted facts left no genuine issue. Not only is price-fixing unreasonable, per se, United States v. Socony-Vacuum Oil Co., 310 U.S. 150; United States v. Trenton Potteries Co., 273 U.S. 392, but also it is unreasonable per se to foreclose competitors from any substantial market. Fashion Originators' Guild of America v. Federal Trade Commission, 114 F.2d 80, aff'd, 312 U.S. 457, 668. The volume of business affected by these contracts cannot be said to be insignificant or insubstantial, and the tendency of the arrangement to accomplishment of monopoly seems obvious. Under the law, agreements are forbidden which "tend to create a monopoly," and it is immaterial that the tendency is a creeping one, rather than one that proceeds at full gallop; nor does the law await arrival at the goal before condemning the direction of the movement.

Appellant contends, however, that the "Lixator" contracts are saved from unreasonableness and from the tendency to monopoly because they provided that, if any competitor offered salt of equal grade at a lower price, the lessee should be free to buy in the open market, unless appellant would furnish the salt at an equal price; and

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the "Saltomat" agreements provided that the lessee was entitled to the benefit of any general price reduction in lessor's salt tablets. The "Lixator" provision does, of course, afford a measure of protection to the lessee, but it does not avoid the stifling effect of the agreement on competition. The appellant had at all times priority on the business at equal prices. A competitor would have to undercut appellant's price to have any hope of capturing the market, while appellant could hold that market by merely meeting competition. We do not think this concession relieves the contract of being a restraint of trade, albeit a less harsh one than would result in the absence of such a provision. The "Saltomat" provision obviously has no effect of legal significance, since it gives the lessee nothing more than a right to buy appellant's salt tablets at appellant's going price. All purchases must, in any event, be of appellant's product.

Appellant also urges that since, under the leases, it remained under an obligation to repair and maintain the machines, it was reasonable to confine their use to its own [68 S.Ct. 16] salt, because its high quality assured satisfactory functioning and low maintenance cost. The appellant's rock salt is alleged to have an average sodium chloride content of 98.2%. Rock salt of other producers, it is said, "does not run consistent in sodium chloride content, and in many instances runs as low as 95% of sodium chloride." This greater percentage of insoluble impurities allegedly disturbs the functioning of the "Lixator" machine. A somewhat similar claim is pleaded as to the "Saltomat."

Of course, a lessor may impose on a lessee reasonable restrictions designed in good faith to minimize maintenance burdens and to assure satisfactory operation. We may assume, as matter of argument, that, if the "Lixator" functions best on rock salt of average sodium chloride content of 98.2%, the lessee might be required to use

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only salt meeting such a specification of quality. But it is not pleaded, nor is it argued, that the machine is allergic to salt of equal quality produced by anyone except International. If others cannot produce salt equal to reasonable specifications for machine use, it is one thing; but it is admitted that, at times, at least, competitors do offer such a product. They are, however, shut out of the market by a provision that limits it not in terms of quality, but in terms of a particular vendor. Rules for use of leased machinery must not be disguised restraints of free competition, though they may set reasonable standards which all suppliers must meet. Cf. International Business Machines Corporation v. United States, 298 U.S. 131.

Appellant urges other objections to the summary judgment. The tying clause has not been insisted upon in all leases, nor has it always been enforced when it was included. But these facts do not justify the general use of the restriction which has been admitted here.

The appellant also strongly objects to the provisions of the sixth paragraph of the decree.7 Appellant denies

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the necessity for such provision, and it is...

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