United Shoe Machinery Corporation v. United States, No. 119

• Court: United States Supreme Court
• Writing for the Court: DAY
• Citation: 66 L.Ed. 708,42 S.Ct. 363,258 U.S. 451
• Parties: UNITED SHOE MACHINERY CORPORATION et al. v. UNITED STATES. Re
• Decision Date: 17 April 1922
• Docket Number: No. 119

258 U.S. 451 42 S.Ct. 363 66 L.Ed. 708 UNITED SHOE MACHINERY CORPORATION et al.

v.

UNITED STATES.

No. 119. Reargued Jan. 17 and 18, 1922. Decided April 17, 1922.

[Syllabus from pages 451-453 intentionally omitted]

Page 453

Messrs. Charles F. Choate, Jr., and Frederick P. Fish, both of Boston, Mass., and Cordenio A. Severance, of St. Paul, Minn., for appellants.

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Messrs. La Rue Brown and Elias Field, both of Boston, Mass., for the United States.

Mr. Justice DAY delivered the opinion of the Court.

This suit was brought by the United States against the defendants, United Shoe Machinery Company (of Maine), United Shoe Machinery Corporation, United Shoe Machinery Company (of New Jersey), and the officers and directors of these corporations, under the provisions of Clayton Act Oct. 15, 1914, c. 323, 38 Stat. 731, 736, to enjoin them from making leases containing certain clauses, terms and conditions alleged to be violative of the act. Issues were made up, testimony taken, and a decree granted by the District Court enjoining the use of certain clauses in the leases. 264 Fed. 138. From that decree the present appeal was prosecuted to this court.

The record embraces 27 volumes of printed matter and 4 volumes of exhibits. The summary of testimony compiled by the defendants contains more than 1,000 pages. Much of it has but little bearing on the real issues to be decided, and so much as was essential might well have been embraced within a much narrower compass than is contained in the voluminous record now before us.

Section 3 of the Clayton Act (Comp. St. § 8835c), so far as pertinent, makes it unlawful for persons engaged in interstate commerce in the course of such commerce to lease machinery, supplies, or other commodities, whether patented or unpatented, for use, consumption, or resale within the United States, or to fix a price therefor, or to discount from, or rebate upon, such price, upon the condition, agreement, or understanding that the lessee thereof shall not use or deal in the machinery, supplies, or other commodities of the competitor or competitors of the lessor, where the effect

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of such lease, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly.

The trial judge states that he took the time necessary to read and examine this voluminous record, and from it in the course of his opinion he makes certain findings of fact. These findings are entitled to the presumption of correctness which is given to the conclusions of a chancellor reached upon consideration of conflicting evidence, and we may add that in this case the opinion gives evidence of careful and painstaking research.

Our own examination of the testimony gives little occasion to modify the findings of fact made by the District Court. The record discloses that the United Shoe Machinery Corporation, hereinafter called the United Company, controlled a very large portion of the business of supplying shoe machinery of the classes involved in this case. The court below found that it controlled more than 95 per cent. of such business in the United States. Whether this finding is precisely correct it is immaterial to inquire. It is evident from this record that the United Company occupies a dominant position in the production of such machinery and makes and supplies throughout the United States a very large percentage of such machinery used by manufacturers.

It may be conceded at the outset, and was so found in the court below, that the company did not act oppressively in the enforcement of the forfeiture clauses of the leases. It is established that it furnishes machines of excellent quality; that it renders valuable services in the installation of machines, instructions to operators, promptness in furnishing machines when desired by manufacturers, and is expeditious in making repairs and replacements when necessary so to do. The machines of the United Company are protected by patents granted prior to the passage of the Clayton Act, and the validity of none of them is called in question here.

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It is contended that the suit must fail for want of necessary parties, inasmuch as the lessees were not brought into it; that they were necessary parties because their rights were necessarily adjudicated in enjoining the enforcements of the contracts involved. But we agree with the District Court that the lessees were not indispensable or even necessary parties. The relation of indispensable parties to the suit must be such that no decree can be entered in the case which will do justice to the parties before the court without injuriously affecting the rights of absent parties. 1 Street's Equity Practice, 519, quoted with approval in Waterman v. Canal-Louisiana Bank Co., 215 U. S. 33, 30 Sup. Ct. 10, 54 L. Ed. 80, in which case the former adjudications in this court are cited and considered. The covenants enjoined were inserted for the benefit of the lessor, and were of such restrictive character that no right of the lessee could be injuriously affected by the injunction which was prayed in the case. We are of opinion that their presence was not necessary to a decision.

Turning to the decree, it will be found that the court enjoined the use of (1) the restricted use clause, which provides that the leased machinery shall not, nor shall any part thereof, be used upon shoes, etc., or portions thereof, upon which certain other operations have not been performed on other machines of the defendants; (2) the exclusive use clause, which provides that if the lessee fails to use exclusively machinery of certain kinds made by the lessor, the lessor shall have the right to cancel the right to use all such machinery so leased; (3) the supplies clause, which provides that the lessee shall purchase supplies exclusively from the lessor; (4) the patent insole clause, which provides that the lessee shall only use machinery leased on shoes which have had certain other operations performed upon them by the defendants' machines; (5) the additional machinery clause, which provides that the lessee shall take all additional machinery for

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certain kinds of work from the lessor or lose his right to retain the machines which he has already leased; (6) the factory output clause, which requires the payment of a royalty on shoes operated upon by machines made by competitors; (7) the discriminatory royalty clause providing lower royalty for lessees who agree not to use certain machinery on shoes lasted on machines other than those leased from the lessor. The defendant's restrictive form of leases embraces the right of the lessor to cancel a lease for the breach of a provision in such lease, or in any other lease or license agreement between the lessor and the lessee. The lessor in such case is given the right, by notice in writing to the lessee, to terminate any and all leases or licenses then in force to use the machinery and this notwithstanding previous breaches or defaults may have been unnoticed, waived, or condoned by or on behalf of the lessor. The District Court held that the United Company had the right to cancel a lease for a violation of the terms of the particular lease, but could not, without violating the act reserve the right to cancel a lease because the lessee had violated the terms of some other lease. This part of the decree must be read in the light of the circumstances shown as to the necessity of procuring shoe machinery from the United Company, and the danger of a lessee losing his ability to continue business by a forfeiture incurred from the breach of a single covenant in one lease.

While the clauses enjoined do not contain specific agreements not to use the machinery of a competitor of the lessor, the practical effect of these drastic provisions is to prevent such use. We can entertain no doubt that such provisions as were enjoined are embraced in the broad terms of the Clayton Act, which cover all conditions, agreements, or understandings of this nature. That such restrictive and tying agreements must necessarily lessen competition and tend to monopoly is, we believe, equally apparent. When it is considered that the United Company

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occupies a dominating position in supplying shoe machinery of the classes involved, these covenants, signed by the lessee and binding upon him, effectually prevent him from acquiring the machinery of a competitor of the lessor, except at the risk of forfeiting the...