Dehydrating Process Co. v. AO Smith Corp., 5814.

• Decision Date: 13 July 1961
• Docket Number: No. 5814.,5814.
• Citation: 292 F.2d 653
• Parties: DEHYDRATING PROCESS COMPANY, Plaintiff, Appellant, v. A. O. SMITH CORPORATION, Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

292 F.2d 653 (1961)

DEHYDRATING PROCESS COMPANY, Plaintiff, Appellant, v. A. O. SMITH CORPORATION, Defendant, Appellee.

No. 5814.

United States Court of Appeals First Circuit.

Heard June 6, 1961.

Decided July 13, 1961.

Ralph Warren Sullivan, Boston, Mass., with whom James M. Malloy, Morton Myerson, Harry Bergson, Jr., Malloy, Sullivan & Myerson and Bergson & Wolf, Boston, Mass., were on brief, for appellant.

John M. Harrington, Jr., Boston, Mass., with whom James N. Johnson and Porter, Lauritzen, Quale, Porter & Zirbel, Milwaukee, Wis., and Ropes & Gray, Boston, Mass., were on brief, for appellee.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

ALDRICH, Circuit Judge.

This private treble-damage action under section 4 of the Clayton Act, 15 U.S. C.A. § 15, resulted in a directed verdict in favor of the defendant at the close of the evidence. Defendant urged a number of grounds. Only one, which goes to the heart of the matter, need be considered.

Defendant-appellee, a New York corporation with a factory in Wisconsin, is a national manufacturer of storage equipment; inter alia, a patented glass-lined silo, and a patented unloading device, hereinafter unloader. The unloader is a sweep-arm, installed inside at the bottom of the silo, which, when operated, directs the settling stored material out through a slot in the base. From 1951 through 1957, if requested, defendant sold its unloader separately from its silo. In 1958, allegedly because of complaints by customers who had purchased separate unloaders, defendant adopted a policy of not selling unloaders unless they were to be installed in presently-purchased, or already-owned¹ silos of its own manufacture. Plaintiff contends that this was a tie-in sale violative of section 3 of the Clayton Act, 15 U.S.C.A. § 14.²

Plaintiff-appellant, a Massachusetts corporation, is engaged in the manufacture of fish products, including fish meal, a dry, granular material, and homogenized condensed fish, a liquid. Fish meal was formerly sold in bags, but customers came to wish it in bulk. This presented a storage problem. Plaintiff employed a management consultant engineer, who recommended defendant's unloader and silo.³ Because the silo was not watertight it could not be used to store homogenized fish. In order to gain flexibility plaintiff decided to use defendant's unloaders, but with water-tight tanks so that if it should have an increase in its homogenized fish business and a decrease in fish meal it could remove the unloaders, plug up the bottom of the tanks, and use them to store the liquid fish product. It made a package contract with the G.A. T. Corporation for four of defendant's unloaders, to be installed by G.A.T. in four G.A.T. tanks. When G.A.T. ordered unloaders from defendant to complete this contract, defendant informed it of its new policy and refused to sell. Plaintiff permitted G.A.T. to rescind its contract. It then, through an intermediary, acquired four of defendant's unloaders and silos. Subsequently plaintiff suspended the manufacture of fish meal and increased its homogenized fish business. It sued defendant, claiming damages because defendant's units were more expensive than the G.A.T. combination, because loss of its G.A.T. contract occasioned an installation delay, and because it does not now have the alternative homogenized fish storage that the combination it preferred would have permitted.

In United States v. Jerrold Electronics Corp., D.C.E.D.Pa.1960, 187 F.Supp. 545, at page 559 in a well-considered opinion in a case involving a TV aerial system, Judge Van Dusen stated,

"The difficult question raised by the defendants is whether this should be treated as a case of tying the sale of one product to the sale of another product or merely as the sale of a single product. It is apparent that, as a general rule, a manufacturer cannot be forced to deal in the minimum product that could be sold or is usually sold. On the other hand, it is equally clear that one cannot circumvent the anti-trust laws simply by claiming that he is selling a single product. The facts must be examined to ascertain whether or not there are legitimate reasons for selling normally separate items in a combined form to dispel any inferences that it is really a disguised tie-in."

The court went on to say that the parts to the aerial system there involved could not normally be said to be a single product. It nevertheless held that the Clayton Act was not violated during the period for which justification from a business standpoint — apart from an illegal purpose — was shown for insisting upon a combination sale. It placed the burden of justification upon the defendant.⁴

We think the principle recognized by the district court in Jerrold, that a proper business reason may justify what might otherwise be an unlawful tie-in, is sound. Although plaintiff cites International Salt Co. v. United States, 1947, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20, we find its language, instead, favorable to the defendant. It is true that the defendant there was foreclosed from proving that the requirement that only its own salt be used in its machines was "reasonable," but examination discloses that this was because its proffered proof did not go far enough. The court said, in 332 U.S. at pages 397-98, 68 S.Ct. at page 16, "Of course, a lessor may impose on a lessee reasonable restrictions designed in good faith to minimize maintenance burdens and to assure satisfactory operation. * * * But it is not pleaded, nor is it argued, that the machine is allergic to salt of equal quality produced by anyone else and * * * it is admitted that, at times, at least, competitors do offer such a product." This seems a clear implication that if other appropriate salt was not available defendant might have insisted upon the use of its own.

We may agree with the plaintiff that the compulsory joining of two "separate" articles is a per se violation of the act. This statement, however, solves nothing. Articles, though physically distinct, may be related through circumstances. The sound business interests of the seller or, phrasing it another way, a substantial hardship apart from the loss of the tie-in sale may be such a circumstance. It would not be thought, for example, that a one-legged man could insist on purchasing only a left shoe. Whatever may be meant by per se, we must first consider what may be fairly treated by a seller as inseparable. See, in general, Turner, The Validity of Tying Arrangements under the Antitrust Laws, 72 Harv.L.Rev. 50, 68-72 (1958).

From 1951 to 1957 the defendant sold eighty unloaders to thirty-six customers who did not use its silos. Eighteen of these customers made claims, and six unloaders were taken back for refund.⁵ The principal reasons for the complaints were that, in spite of defendant's educational efforts, its customers did not install the unloaders in containers having correct mechanical tolerances, or that their containers lacked a sufficiently slippery inside surface, comparable to defendant's glass lining, to allow their particular material to have the gravity down-feed needed to permit the unloader to function. It may be assumed, however, that defendant did not readily escape claims, or the consequent injury to its reputation, by telling its customers that the fault was theirs.

It is true that this evidence came from defendant's witnesses. Some, however, was introduced by the plaintiff as part of its case, and none was in any way impeached or contradicted. For purposes of a directed verdict the court was warranted in considering it.⁶

The plaintiff contends that even if the principle of business justification is sound, it was for the jury to decide whether defendant's ground for claiming it was sufficient. We find no jury question. We believe the court was warranted in accepting defendant's uncontroverted evidence as inherently reasonable, and in holding a record of 50 per cent dissatisfied customers over a seven-year period a matter too substantial to be disregarded....