United States v. Klearflax Linen Looms

• Decision Date: 06 September 1945
• Docket Number: Civil No. 429.
• Citation: 63 F. Supp. 32
• Parties: UNITED STATES v. KLEARFLAX LINEN LOOMS, Inc.
• Court: U.S. District Court — District of Minnesota

63 F. Supp. 32

UNITED STATES v. KLEARFLAX LINEN LOOMS, Inc.

Civil No. 429.

District Court, D. Minnesota, Fifth Division.

September 6, 1945.

NORDBYE, District Judge.

Melville C. Williams and Urban A. Lavery, Sp. Assts. to Atty. Gen., and Victor E. Anderson, U. S. Atty., of St. Paul, Minn., for plaintiff.

Rollo F. Hunt and Hunt, Palmer & Hood, all of Duluth, Minn., for defendant.

Klearflax Linen Looms, Inc., hereinafter referred to as Klearflax, is the only manufacturer of linen rug material in the United States. Its principal place of business is in Duluth, Minnesota. The linen rug material is manufactured from flax straw, generally in strips or rolls approximately 100 feet in length and from 26 inches to 12 feet in width. For some years, Klearflax has set up a method or system of distribution and sale of its linen rug rolls through distributors, jobbers, and certain retail stores appointed in various cities of the United States. District sale representatives of the company are also located in cities, generally in which the principal distributors are located. The rolls of linen rug material are sold to the distributors, who cut them into required rug sizes and finish them by binding the cut edges and fringing them when necessary. The finishing of the rugs in this manner is not performed exclusively by Klearflax distributors, but since 1941 Klearflax has encouraged its distributors and certain other customers to fabricate the rug rolls into finished rolls, and thus relieve the factory of this work. However, Klearflax does some finishing of the rugs at the factory, and these rugs are sold to its customers, including distributors, jobbers, retail stores, and government agencies.

The history of Klearflax's monopoly in the manufacture of linen rugs is free from any wrongful domination, illegal combination, or wrongful destruction of the business of other competitive manufacturers. Anyone is free to manufacture linen rugs, and Klearflax has no patent rights which enter into their manufacture, nor does it control any secret processes which enable it to be the exclusive manufacturer. Neither does it appear that the amount of capital necessary to enter into the linen rug manufacturing industry is in any way prohibitive. It seems clear, therefore, that Klearflax's singular position as the sole manufacturer of linen rugs is not due to any baleful practices on its part.

It does appear that linen rugs have some unique features which render them distinctive and probably more durable for certain uses than other floor coverings. They are reversible, easily cleaned, moth-proof, and they will not burn, except superficially by reason of lighted cigarettes being dropped upon them. Rugs of other material, however, are in active competition with Klearflax's product, and undoubtedly there are rugs other than linen rugs which, to some degree, at least, possess the same distinctive qualities referred to. However, it is evident that linen rugs are in demand by hotels, office buildings, and public buildings. It appears that the total amount of Klearflax's annual production approximates in volume one million dollars, and is less than one-half of one per cent of the total rug business in the entire Nation.

The Procurement Division of the Treasury Department of the United States usually advertises for bids on finished linen rugs once or twice a year. The name, address, and contract price of the successful bidder are published in what is termed a "General Schedule" issued by the Treasury Department and circulated to all Federal executive departments and agencies interested in purchasing linen rugs. Any department or agency of the Government may then order finished linen rugs from the successful bidder at the contract price reflected therein. Such contract is generally referred to as the "General Schedule Contract." From 1934 until April 1, 1944, Klearflax was the only bidder on the General Schedule Contract let by the Procurement Division for the purchase of linen rugs by the various Federal agencies. While the amount of the General Schedule Contract is only about five per cent of the total annual business of Klearflax, the amount of government business which comes to the holder of the contract totals approximately thirty per cent of Klearflax's annual production. Moreover, the government business which comes to the successful bidder is usually handled on the prices reflected in that contract. Hence, the higher the bid on the General Schedule, the higher the return to the successful bidder on the other government business which comes to it.

As hereinbefore stated, the distributors appointed by Klearflax were located in various cities throughout the United States. A certain area adjacent to the distributor's place of business was considered to be the territory where it should operate, but apparently the assignment of territory in this regard was not rigid. Each distributor received a discount from Klearflax of 20 per cent, plus 5 per cent, and an additional 5 per cent in the event of payment within 10 days. Jobbers usually buy their Klearflax rugs from distributors, and receive a less discount than the distributors receive from the manufacturer. There were no restrictions placed upon the distributors, jobbers, or retail stores in selling Klearflax products to governmental agencies. So far as the evidence indicates, they were always permitted, not only to sell to any government agency, but to enter a bid on the General Schedule Contract.

Floor Products, Inc., is located in Chicago, Illinois, and has been a distributor of Klearflax products since 1938. In 1942, it became a duly appointed distributor of linen rugs, with its territory in general in the so-called Chicago trade area. Since 1942, as such distributor, Floor Products purchased rug rolls from Klearflax and did the necessary fabricating or finishing so as to be enabled to deliver the finished rugs to its customers. In 1943, it purchased floor coverings from Klearflax totaling some $32,000 and was the sixth in volume of the eleven distributors who were buying from Klearflax during that year. The demand for linen rugs far exceeded the supply made available by Klearflax, and in 1942 Klearflax adopted a so-called allocation system. The total shipments for the ensuing year were estimated, and the Eastern division of the United States was to receive 45 per cent, the Central division 30 per cent, and the Western division 25 per cent. These percentages were not broken down among the distributors, but it would appear that in 1943 a rough estimate or approximation was made out as to the probable amount of merchandise each distributor would receive. However, Klearflax made no commitment to any distributor, though it fairly appears that it attempted to allow for allotment for the year 1944 about the same volume of merchandise which the particular distributor had received during the year 1943.

Early in February, 1944, Floor Products, without the knowledge of Klearflax, entered its bid on the General Schedule Contract for linen rugs for the period from April 1, 1944, to October 1, 1944. Klearflax also bid. The bid of Floor Products was about 4 per cent less per square yard than that of Klearflax. Floor Products also offered a discount of 2 per cent upon payment in 30 days. No discount was offered by Klearflax. It was on March 2, 1944, that Klearflax learned that Floor Products had submitted a lower bid on the General Schedule Contract. Immediately attempts were made by it to get Floor Products to withdraw its bid. It suggested to Floor Products that its bid should be withdrawn and advised Mr. Gronenberg, President of Floor Products, to telegraph the Procurement Division that its bid was withdrawn. Floor Products was informed by Klearflax that no distributor had ever bid on the General Schedule Contract before; that it was the private business of Klearflax; and that it did not want any interference with that line of business. It offered Floor Products a substantial increase in its monthly allotment if the bid were withdrawn. Yielding to the insistence of Klearflax, Floor Products notified the Procurement Division in writing that its bid was withdrawn. However, Floor Products was notified by the Procurement Division that the bid could not withdrawn without sufficient reason, and upon being so informed Floor Products immediately conferred with Klearflax and advised it of the position taken by Procurement. Thereupon, Klearflax sought to induce Floor Products to wire the Procurement Division that it had made a mistake and had bid on Scandia rugs, which is a cheaper grade of floor covering material manufactured of linen and cotton. In some way, the suggestion that Floor Products had made a mistake came to the attention of Mr. Ballard, one of the officials of the Procurement Division, and upon inquiry as to whether its bid was on all-linen or Scandia rugs, Mr. Gronenberg replied that the bid of Floor Products was on all-linen rugs. Thereafter, Floor Products refused to go through with the attempted cancellation of its bid. Although Klearflax knew that Floor Products bid on linen rugs and that no mistake had been made, it attempted to get Floor Products to cancel the bid on the subterfuge that a mistake had been made. When Floor Products refused to be a party to that scheme, Klearflax attempted to get Floor Products to advise Procurement that it could not go forward with its bid because it had been advised by Klearflax that sufficient delivery could not be obtained. When it appeared that Floor Products refused to go forward with the suggested cancellation on the grounds urged by Klearflax, the latter set out on a concerted plan and scheme to "freeze" Floor Products out of the government business by refusing to sell it any linen floor coverings. On March 8, 1944, Floor Products sent to Klearflax an order for certain rolled goods, anticipating the granting of the contract by Procurement and...