333 U.S. 364 (1948), 13, United States v. United States Gypsum Co.

Docket Nº:No. 13
Citation:333 U.S. 364, 68 S.Ct. 525, 92 L.Ed. 746
Party Name:United States v. United States Gypsum Co.
Case Date:March 08, 1948
Court:United States Supreme Court
 
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Page 364

333 U.S. 364 (1948)

68 S.Ct. 525, 92 L.Ed. 746

United States

v.

United States Gypsum Co.

No. 13

United States Supreme Court

March 8, 1948

Argued November 14-15, 1947

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE DISTRICT OF COLUMBIA

Syllabus

A complaint in a suit by the United States to restrain alleged violations of the Sherman Act charged that the defendants had violated §§ 1 and 2 of the Act by a conspiracy to restrain and monopolize interstate trade in gypsum products. It alleged that the defendants acted in concert in entering into patent licensing agreements; that one of the defendants, dominant in the industry, granted patent licenses and the other defendants accepted licenses with the knowledge that all other concerns in the industry would accept similar licenses and that, as a result of such concert of action, competition was eliminated by fixing the price of patented board, eliminating the production of unpatented board, regulating the distribution of patented board, and stabilizing the price of unpatented plaster. Upon conclusion of the Government's case, the District Court granted the defendants' motion to dismiss. On direct appeal to this Court,

Held:

1. The evidence established a violation of the Sherman Act. Pp. 368-386, 388-393, 400-402.

2. The plan of the conspiracy to control prices and distribution was not within the protection of the patent monopoly. United State v. General Electric Co., 272 U.S. 476, distinguished. Pp. 389-391, 400-402.

3. The industry-wide license agreements, entered into with knowledge on the part of licensor and licensees of the adherence of others, under which control was exercised over prices and methods of distribution, were sufficient to establish a prima facie case of conspiracy. Pp. 388-389.

4. Patent exploitation of the kind here attempted is within the prohibition of the Sherman Act, regardless of the motives of the participants. Pp. 391-393.

5. With the conspiracy fully established, the declarations and acts of the various participants, even though made or done prior to the adherence of some to the conspiracy, became admissible against all as declarations or acts of co-conspirators in aid of the conspiracy. Pp. 388-393.

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6. When a group of competitors enters into a series of separate but similar agreements with competitors or others, a strong inference arises that such agreements are the result of concerted action. P. 394.

7. Under Rule 52(a) of the Rules of Civil Procedure, a finding of fact by the trial court is "clearly erroneous" when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Pp. 394-395.

8. Where denials by alleged conspirators that they had acted in concert are in conflict with documentary evidence, they can be given little weight, particularly when the crucial issues involve mixed questions of fact and law. Pp. 395-396.

9. The finding by the trial court that defendants had not associated themselves in a plan to blanket the industry under patent licenses and stabilize prices is set aside as clearly erroneous. Pp. 393-394.

10. The provision in the patent licensing agreements for payment of royalties on the production of unpatented board is strongly indicative of an agreement not to manufacture unpatented board; and the testimony in this case is ample to show that there was an understanding, if not a formal agreement, that only patented board would be sold. Such an arrangement in purpose and effect increased the area of the patent monopoly, and is invalid. P. 397.

11. Where the purpose is to prevent competition by uncontrolled resale prices, an arrangement for the elimination of jobbers does not fall within the protection of the patent grant. Findings by the trial court that defendants had not conspired to eliminate jobbers are here set aside. Pp. 397-398.

12. Findings by the trial court that defendants had not stabilized the price of unpatented plaster sold in conjunction with patented board are here set aside. Pp. 398-399.

13. The General Electric case does not authorize a patentee, acting in concert with all members of an industry, to issue substantially identical licenses to all members of the industry under the terms of which an industry is completely regimented, the production of competitive unpatented products suppressed, a class of distributors squeezed out, and prices on unpatented products stabilized. Pp. 400-401.

14. The "rule of reason" is applicable to efforts to monopolize through patents. Pp. 400-401.

15. Even in the absence of the specific abuses in this case, which fall within the traditional prohibitions of the Sherman Act, it

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would be sufficient to show that the defendants, constituting all former competitors in an entire industry, had acted in concert to restrain commerce in the industry under patent licenses in order to organize the industry and stabilize prices. P. 401.

16. In a suit to restrain alleged violations of the Sherman Act, in which the defendants rely upon patents, the Government is entitled to an opportunity to prove that the patents are invalid. Pp. 386-388.

53 F.Supp. 889, 67 F.Supp. 397, reversed.

The United States brought suit in the District Court to restrain alleged violations of §§ 1 and 2 of the Sherman Act by the appellees. Under the Expediting Act, a three-judge court was constituted to hear the case. Upon presentation of the Government's case, the District Court dismissed the complaint. 53 F.Supp. 889, 67 F.Supp. 397. The United States appealed directly to this Court under the Expediting Act. Reversed, p. 402.

REED, J., lead opinion

MR. JUSTICE REED delivered the opinion of the Court.

The United States instituted this suit on August 15, 1940, in the District Court of the United States for the District of Columbia against United States Gypsum Company,

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five other corporate defendants, and seven individual defendants, as a civil proceeding under the Sherman Act. The complaint charged that the appellees had violated both §§ 1 and 2 of the Sherman Act by conspiring to fix prices on patented gypsum board and unpatented gypsum products, to standardize gypsum board and its method of production for the purpose of eliminating competition, and to [68 S.Ct. 529] regulate the distribution of gypsum board by eliminating jobbers and fixing resale prices of manufacturing distributors.

The Attorney General filed an expediting certificate on December 16, 1941, and on September 17, 1942, a three-judge court was constituted to hear the case. By amendment to the complaint, the government charged that the article claims of five patents owned by United States Gypsum were invalid and void. The appellees moved to strike the amendment to the complaint or in the alternative for partial judgment dismissing the amendment. On November 15, 1943, the court granted appellees' motion for partial judgment on the ground that the government had no standing to attack the validity of the patents in an antitrust proceeding. The case thereupon went to trial, and, upon conclusion of the government's case on April 20, 1944, the appellees moved to dismiss the complaint under Rule 41(b) of the Federal Rules of Civil Procedure upon the ground that, on the facts and the law, the Government had shown no right to relief. On June 15, 1946, the court filed an opinion holding that the motion should be granted, and on August 5, 1946, the court filed findings of fact and conclusions of law and entered judgment dismissing the complaint. The government appealed directly to this Court, 32 Stat. 823, and probable jurisdiction was noted on December 16, 1946. The decisions below are reported as United States v. United States Gypsum Co., 53 F.Supp. 889 and 67 F.Supp.

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397. United States v. Line Material Co., decided today, ante, p. 287, will be of value to the reader in considering this opinion.

I

The appellees are engaged in the production of gypsum and the manufacture of gypsum products, including gypsum plasterboard, gypsum lath, gypsum wallboard, and gypsum plaster. At the time of the alleged conspiracy, appellees sold nearly all of the first three products which were marketed in states east of the Rocky Mountains, and a substantial portion of the plaster sold in the same area. Gypsum products are widely used in the construction industry. In 1939, the sales value of gypsum products was approximately $42,000,000, of which $23,000,000 was accounted for by gypsum board (plasterboard, lath, and wallboard), $17,000,000 by gypsum plaster and the remainder by gypsum block and tile and other products. Over 90% of all plaster used in building construction in the United States is made with gypsum.

Gypsum is found in numerous deposits throughout the country. Gypsum board is made by taking the crushed and calcined mineral, adding water, and spreading the gypsum slurry between two paper liners. When the gypsum hardens, the mineral adheres to the paper and the resulting product is used in construction. Plasterboard and lath have a rough surface, and are used as a wall and ceiling base for plaster; wallboard has a finished surface, and does not require the addition of plaster.

Since its organization in 1901, United States Gypsum has been the dominant concern in the gypsum industry. In 1939, it sold 55% of all gypsum board in the eastern area. By development and purchase, it has acquired the most significant patents covering the manufacture of gypsum board, and, beginning in 1926, United States Gypsum offered licenses under its patents to other concerns

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in the industry, all licenses...

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