Keasbey & Mattison Co. v. Federal Trade Com'n

• Decision Date: 17 February 1947
• Docket Number: No. 9826-9829.,9826-9829.
• Citation: 159 F.2d 940
• Parties: KEASBEY & MATTISON CO. et al. v. FEDERAL TRADE COMMISSION. NORRISTOWN MAGNESIA & ASBESTOS CO. et al. v. SAME. ACME ASBESTOS COVERING & FLOORING CO. et al. v. SAME. PLANT RUBBER & ASBESTOS WORKS v. SAME.
• Court: U.S. Court of Appeals — Sixth Circuit

159 F.2d 940 (1947)

KEASBEY & MATTISON CO. et al. v. FEDERAL TRADE COMMISSION.

NORRISTOWN MAGNESIA & ASBESTOS CO. et al. v. SAME.

ACME ASBESTOS COVERING & FLOORING CO. et al. v. SAME.

PLANT RUBBER & ASBESTOS WORKS v. SAME.

Nos. 9826-9829.

Circuit Court of Appeals, Sixth Circuit.

February 17, 1947.

COPYRIGHT MATERIAL OMITTED

Philip L. Leidy, of Philadelphia, Pa., (John J. Kelly, John J. Kelly, Jr. and George Gilman Kelly, all of Chicago, Ill. on the brief), for petitioner Standard Asbestos Mfg. Co.

John Sailer and Philip L. Leidy, both of Philadelphia, Pa., (Pepper, Bodine & Stokes, of Philadelphia, Pa., and Taft, Stettinius & Hollister, of Cincinnati, Ohio, of counsel), for petitioner Keasbey & Mattison Co.

Albert L. Wolfe and Cyrus B. Austin, both of New York City, Moses Lasky, Herman Phleger, and Theodore R. Meyer, all of San Francisco, Cal., and Richard D. Daniels, of Washington, D.C. (Guy George Gabrielson and Cadwalader, Wickersham & Taft, all of New York City, on the brief; Albert L. Wolfe, F. Sims McGrath, and Cyrus Austin, all of New York City and Taft, Stettinius & Hollister, of Cincinnati, Ohio, of counsel), for other petitioners.

W. T. Kelley, Walter B. Wooden and Floyd O. Collins, all of Washington, D.C., for respondent.

Before HICKS, ALLEN and MARTIN, Circuit Judges.

ALLEN, Circuit Judge.

The petitioner corporations,¹ which compete with each other in the manufacture, processing, sale and interstate distribution of insulating materials and insulating articles fabricated therefrom, were charged with entering into an agreement with each other and petitioner Donald Tulloch, Jr., prior to and during the year 1934, for the purpose and intent and with the effect of substantially restricting and eliminating competition in price and otherwise in the sale and distribution of insulating material and products, including asbestos paper, plain and corrugated asbestos roll board, wool felt and sponge felt paper, pipe coverings, boiler jackets, sheets and blocks. Petitioners were found to have violated § 5 of the Federal Trade Commission Act, Title 15 U.S.C.A. § 41 et seq., 15 U.S.C.A. § 41 et seq., which declares unlawful, § 45(a) "unfair methods of competition in commerce * * *," and were ordered to cease and desist from the practices described in the findings.

The case arises out of the following facts found by the Commission, and for the most part uncontradicted.

On June 26, 1933, the members of the asbestos industry, including the petitioner corporations, acting under the National Industrial Recovery Act, 48 Stat. 195, formulated a code and merchandising plan applicable to the sale of their insulating products. All of the petitioner corporations were included in the Asbestos Paper and Allied Products Division of the Asbestos Industry. Petitioner Tulloch does not manufacture nor distribute the products involved, but had been connected with the industry since 1922, and was secretary manager of the division under the code. The petitioners operated in accordance with the code, and the merchandising plan, from November 1, 1933, until May 27, 1935.

The merchandising plan covered all sales of pipe covering by members in all parts of the United States except a specified zone on the Pacific Coast. It established and defined classes of buyers and required its members to submit the names of their customers to a merchandising committee of the division. It was the duty of the committee to investigate the lists of customers submitted by the members and if the committee found such customers to be properly classified, they were added to what was known as a "Master" classified list which was to be available to the members of the division. There was a provision for the addition to or deletion from such "Master" list by the code manager.

Definitions were established in the merchandising plan for carload, mixed car, stopover car, and less-than-carload shipments with prohibitions against hiring the trucks of customers or renting trucks of customers or making allowances for trucking charges where the material was picked up at the factory or warehouse by customers' trucks. Factory points, metropolitan areas and manufacturers' warehouses were defined and units of sale were established. Sales were required to be made at prices derived from one standard list price. Price differentials were fixed as between different thicknesses of covering and different types of construction, as between the different geographical zones, and as between the various classifications of purchasers. Price differentials were fixed for differences in weight of canvas used on pipe coverings or waterproof jackets and for various types of bands. Procedures were established for many details in the handling of quotations and shipments as well as the treatment of different classes of customers following an advance or decline in price. The method of determining warehouse prices was specified. The terms of payment, including cash discounts to different classes of buyers, were fixed. Important features of contracts were standardized. Consignment of stocks and the selling of sub-standard materials below the normal selling schedule of the manufacture were prohibited. Territorial zones were defined for the purpose of determining freight allowances and similarly detailed schedules applied to other products.

Following the decision of the Supreme Court in A.L.A. Schechter Poultry Corp. v. United States, May 27, 1935, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570, 97 A.L.R. 947, which declared vital provisions of the National Industrial Recovery Act unconstitutional, certain of the petitioners assisted in preparing a voluntary agreement to continue many features of the code, including the filing of prices and adherence to the prices and terms filed. The agreement was not approved by the Government and never became operative.

Petitioners Johns-Manville, Norristown, Carey, Keasbey & Mattison, and Empire filed price schedules with petitioner Tulloch under the N.R.A. Code, and as manager for the Asbestos Paper Division he distributed them to other manufacturers. As a result of the price filing, prices tended to become uniform, for each company set its prices to meet the published price.

Since September, 1931, an application for patent had been pending upon the process of manufacturing water-repellent and shrink-proof asbestos paper and asbestos pipe covering. Johns-Manville had done the experimental research and development of this patent, and expended about $20,000 upon it. The patent, No. 1,972,500 (hereinafter called the Toohey patent), issued September 4, 1934 to Earl L. Williams and Edward Toohey, was assigned to Johns-Manville, which gave an exclusive license to Tulloch on September 11, 1935. The license gave Tulloch the exclusive right to sub-license others, and required payment by him of $1,250 a year to Johns-Manville. He immediately gave a non-exclusive sublicense to Johns-Manville, and then proceeded to sub-license the respondents below, including all of the petitioners in this court.

The essential feature of the Toohey patent is that it covers an insulating product into which a wax sizer composed of paraffin and other ingredients has been beaten, rendering it water-repellent and shrink-proof. The invention solved an industry problem and created a superior product. However, it is agreed that the various products involved in this case which after the license were manufactured under the Toohey patent, prior to Toohey were manufactured without the use of the sizer, and after the issuance of the patent could be, and often were, manufactured without using the sizer.

While he was still manager of the Asbestos Paper and Allied Products Division under the N.R.A. Code, Tulloch had tried to interest members of the industry in entering into a licensing system and merchandising plan. He consulted with Johns-Manville and other petitioners as to the details of such an agreement, appointed an advisory committee with representatives of Johns-Manville, Carey, Ruberoid, Norristown, and Keasbey & Mattison, to consider a merchandising plan, and called meetings of various members of the industry to consider the matter months before Johns-Manville issued its exclusive license to him.

In connection with the license and sub-licenses, a merchandising plan similar to that adopted under the N.R.A. Code was formulated by Tulloch after consultation with the petitioners, and put into effect. While special conditions were attached to the sale of different licensed products, in substance the plan among other things, (a) fixed the price at which and the conditions under which the products were to be sold; (b) required uniform classification of customers for pricing purposes; (c) fixed differentials in prices between different classes of customers; (d) required contracts for the sale of such products to be uniform in substance; (e) zoned the country, or large parts thereof, into territorial zones for pricing purposes and required certain items of such products to be sold at delivered zone prices; (f) designated standards for the size and thickness of certain products and fixed the differential in prices between such products of different size and thickness; (g) provided for equalization of delivered prices through freight equalization on standard products and designation of certain specific cities from which freight should be figured in equalizing freight; (h) provided for rigid enforcement of the provisions of the merchandising plan and price schedule and for the imposition of penalties for digression; (i) required a uniform method of computing prices through the use of so-called "Manual of Unit Prices" for pipe covering and insulating blocks.

All the licensees conformed to the requirements of the merchandising plan. Changes were made from time to time in its provisions as to prices and terms of sale, after consideration by and consultation with the important members of the...