Lektro-Vend Corp. v. Vendo Corp.
| Decision Date | 22 July 1980 |
| Docket Number | No. 65 C 1755.,65 C 1755. |
| Citation | 500 F. Supp. 332 |
| Parties | LEKTRO-VEND CORP., a Delaware Corporation, Ann Stoner, as Administrator of the Estate of Harry B. Stoner, Deceased, and Stoner Investments, Inc., a Delaware Corporation, v. The VENDO CORPORATION, a Missouri Corporation. |
| Court | U.S. District Court — Northern District of Illinois |
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James Hardgrove, Sidley & Austin, Barnabas Sears, Boodell, Sears, Sugrue, Giambalvo & Crowley, Chicago, Ill., for plaintiffs.
Earl E. Pollock, Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., Wayne F. Weiler, Reid, Ochsenschlager, Murphy & Hupp, Aurora, Ill., for defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This is an anti-trust action filed in 1965 by plaintiffs, Lektro-Vend Corporation ("Lektro-Vend"), Harry B. Stoner ("Stoner"), and Stoner Investments, Inc. ("Stoner Investments") against defendant, the Vendo Company ("Vendo"). Plaintiffs allege that defendant's acquisition of Stoner Manufacturing Corporation (the predecessor of Stoner Investments), in 1959, violated sections 1 and 2 of The Sherman Act, 15 U.S.C. §§ 1, 2 and Sections 4, 7, and 16 of The Clayton Act, 15 U.S.C. §§ 15, 18, and 26.
For the reasons herein stated, this court awards a judgment in favor of defendant.
A bench trial was held in this case beginning in August, 1978 and concluding in September, 1978. The background findings of fact, conclusions of law, and an analysis and discussion supporting this decision are stated below.
Plaintiff, Stoner Investments, Inc. ("Stoner Investments"), is a corporation organized and existing under the laws of the State of Delaware. It is a successor to an Illinois Corporation of the same name, which prior to June 1, 1959, was named Stoner Manufacturing Company.
Stoner Manufacturing Company ("Stoner Manufacturing") was an Illinois corporation engaged primarily in the manufacturing of candy vending machines.
Plaintiff, Harry B. Stoner ("Stoner"), was president and controlling owner of Stoner Manufacturing, now Stoner Investments, prior to his death in March, 1976. On October 1, 1976, Stoner's wife, Ann Stoner, administrator of his estate, was substituted as a party plaintiff in this case.
Stoner was president of defendant, Vendo Corporation's, Aurora Division (previously Stoner Manufacturing) from June 1, 1959 through June 1, 1964 and a director of Vendo from May 28, 1959 to April 21, 1964.
Plaintiff, Lektro-Vend Corporation ("Lektro-Vend"), is a Delaware corporation with its principal place of business in Aurora, Illinois. Lektro-Vend was first organized in September, 1963 as a manufacturer of candy and snack pastry vending machines.
Stoner Investments currently owns approximately 78% of the stock of Lektro-Vend.
Defendant, Vendo Corporation, is a Missouri corporation with its principal place of business in Kansas City, Missouri. The principal business of Vendo is the manufacturing and selling of bottle and can soft drink vending machines, including pre-mixed Coca-Cola, to franchised soft drink bottlers. In addition, Vendo manufactures and sells general merchandise vending machines, coffee vending machines, milk vending machines, ice cream vending machines, hot canned food vending machines, cold food vending machines, and soft drink vending machines to vending operators. At various times, Vendo also manufactured and sold candy, pastry and snack vending machines as well as cigarette vending machines to vending operators.
The parties agree that Stoner was a design genius in creating innovative vending machine products.
By 1959, Stoner Manufacturing's drop-shelf candy vending machine was the leading candy vending machine throughout the United States. As against other candy vending machine sales, its sales fluctuated between 71% of the market in 1955 and 31% in 1959.
By 1959, Stoner Manufacturing also manufactured and sold vending machines for instant coffee, hot canned food, hot sandwiches, and cigarettes. In addition, Stoner was at work on developing a console cigarette machine, a refrigerated sandwich machine, and a post-mix cold drink machine.
Stoner Manufacturing employed twelve to thirteen salesmen and sold vending machines throughout the United States. In early 1959, the company was also negotiating for the licensing of a company in England to sell its machines abroad, but the negotiations were unsuccessful.
From 1955 to 1959, Stoner Manufacturing's sales varied from a 6.8% share to a 4.2% share of the market of all U.S. vending machine sales. Within the "Vendo-served" market,2 in that same time period, Stoner Manufacturing's share varied from 7.2% to 4.4%.
Prior to 1959, Vendo was primarily a manufacturer of beverage and ice cream vending machines. It had approximately 112 company salesmen who sold throughout the United States and it exported its machines to 58 countries.
Vendo's sales and income after taxes for the calendar year ending December 31, 1955 through 1977 are set out in the following table:
Calendar Year
Ending
December 31 Sales Net Income (Loss)
1955 $ 20,799,000 $ 842,000
1956 42,076,000 1,660,000
1957 37,056,000 1,075,000
1958 29,410,000 973,000
1959 45,046,000 2,484,000
1960 61,244,000 3,153,000
1961 53,696,000 2,297,000
1962 55,343,000 2,898,000
1963 51,958,000 1,990,000
1964 63,538,000 3,503,000
1965 77,425,000 5,101,000
1966 90,577,000 6,460,000
1967 88,361,000 5,016,000
1968 99,931,000 4,605,000
1969 99,353,000 2,408,000
1970 90,748,000 2,110,000
1971 91,868,000 92,000
1972 110,794,000 2,573,000
1973 113,346,000 2,857,000
1974 88,374,000 (3,134,000)
1975 69,164,000 (2,463,000)
1976 83,370,000 ( 857,000)
1977 97,168,000 (3,650,000)
Vendo's share of all vending machine sales was 20.3% in 1955, 21.5% in 1956, 28.2% in 1957, and 28.4% in 1958. Its share of the "Vendo-served" market was 21.6% in 1955, 22.9% in 1956, 30% in 1957, and 24.3% in 1958.
Vendo researchers reported that Vendo commanded the following percentages of the markets in which it competed from 1959 through 1969; 35.6% (1959); 34.9% (1960); 26.6% (1961); 29.1% (1962); 26.4% (1963); 28.9% (1964); 32.4% (1965); 33.0% (1966); 31.4% (1967); 32.3% (1968); and 33.0% (1969).
As can be seen, during the time period most immediately relevant to this suit (1959-1966), Vendo controlled approximately 30% of the market in which it competed. In 1966, Vendo expected its share of market dollars to climb to 58% by 1971.
The vending machine industry experienced rapid growth and change in the years 1955 through 1966.
During that period there was a significant trend toward concentration within the industry with one-half the number of manufacturers existing in 1966 as existed in 1958. The 130 manufacturers in 1957 dwindled to 76 in 1963 and 66 in 1964. In 1964, 49 of the 66 manufacturers experienced sales over $100,000.
In 1964 only 16 manufacturers of vending machines for confections and food had sales in excess of $100,000; in 1964 only 8 of 12 companies manufacturing vending machines for candy bars had sales in excess of $100,000. This trend toward concentration throughout the vending machine manufacturing industry has continued through 1975. The 66 manufacturers of 1964 had dwindled to 44 by 1975. From 1963 to 1973, the number of manufacturers with sales of $100,000 fell from 54 to 31.
Also during the years 1955 through 1966, the number of locations available for the placement of machines increased and the number of operators in the business increased.
Additionally, development of new equipment was substantial.
The vending machine industry reached its peak in 1966 with sales of $216,518,000.
By 1966, the industry was approaching a point of saturation. Industrial construction declined, the number of locations available for the placement of machines decreased, and an increasing percentage of the new machines sold were for replacement of existing machines at existing locations rather than for new locations.
Customers for vending machines can be divided into two different classes: 1) franchised soft drink bottlers (e. g., the Coca-Cola Company), which purchase machines to vend soft drinks which they manufacture, and 2) vending service companies, known as "operators", which purchase vending machines for the sale of food, beverages, and other items typically manufactured by others, including vending machines for hot, cold, and frozen foods, dairy products, coffee, candy, pastry, snacks, ice, soft drinks, and cigarettes. Bottlers and operators conduct different types of businesses for different purposes.
Franchised soft drink bottlers are in the business of mixing, bottling, and selling, by whatever means, their brand-named soft drink. Bottlers purchase and operate bottle and can vending machines as only one means to sell their drink. Bottlers, in operating soft drink vending machines, are both seeking a profit and a means for creating a preference for their product by making their brand-name soft drink available in as many places as possible whether the location is profitable or unprofitable.
Operators, on the other hand, are companies solely in the business of purchasing vending machines, placing them on locations, loading them with products, and maintaining them in service. Vending operators operate machines solely for a profit, as they are not interested in establishing the brand name of any product they vend.
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