United States v. Masonite Corporation

Decision Date11 May 1942
Docket NumberNo. 723,723
Citation62 S.Ct. 1070,316 U.S. 265,86 L.Ed. 1461
PartiesUNITED STATES v. MASONITE CORPORATION et al
CourtU.S. Supreme Court

Appeal from the District Court of the United States for the Southern District of New York.

Messrs. Francis Biddle, Atty. Gen., Hugh B. Cox, Sp. Asst. to Atty. Gen., and Thurman Arnold, Asst. Atty. Gen., for appellant.

Mr. Charles H. Tuttle, of New York City, for appellee Masonite Corporation.

[Argument of Counsel from Page 266 intentionally omitted] Mr. Andrew J. Dallstream, of Chicago, Ill., for appellees Celotex Corporation and others.

Mr. Justice DOUGLAS delivered the opinion of the Court.

The question presented by this case is whether appellees have combined to restrain trade or commerce in violation of §§ 1 and 2 of the Sherman Act. 15 U.S.C. §§ 1, 2, 15 U.S.C.A. §§ 1, 2, 26 Stat. 209. The bill to enjoin the alleged violations of the Act was dismissed by the District Court (40 F.Supp. 852) on the authority of United States v. General Electric Co., 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362. The case is here on appeal. 15 U.S.C. § 29, 15 U.S.C.A. § 29, 32 Stat. 823, 36 Stat. 1167; 28 U.S.C. § 345, 28 U.S.C.A. § 345, Judicial Code, § 238.

The appellees are Masonite Corporation, Celotex Corporation, Certain-Teed Products Corporation, Johns-Manville Sales Corporation, Insulite Company, Flintkote Company, National Gypsum Company, Wood Conversion Company, Armstrong Cork Company, and Dant & Russell, Inc. Each is engaged either in manufacturing and selling building materials, or in selling building materials manufactured by others. All maintain selling organizations and to a large extent compete in the same markets. As we shall see, some have competing patents, though others do not. Masonite is a manufacturer and distributor of hardboard. Hardboard—a homogeneous, hard, dense, grainless, synthetic board—is made from wood chips. It has a high tensile strength, low water absorption and a density that ranges from 30 to 60 lbs. per cubic foot. It is used in the building industry as wallboard, panelling, flooring, ceilings and forms into which concrete is poured. It also has numerous industrial uses. Masonite began its production of hardboard in 1926 and distributed it through its own selling organization. Between March 30, 1926 and March 20, 1928, four patents were issued to it, the claims of which covered both hardboard and the processes for making it. Celotex for some period prior to 1928 had been manufacturing and selling insulation board a fibre board which has a density of less than 30 lbs. per cubic foot and which is softer and lighter, has a lower tensile strength, and is less resistant to water than hardboard. In 1928 Celotex announced that it intended to begin the manufacture of hardboard from bagasse, a waste product from the grinding of sugar cane. It began production in 1929. Several patents were issued to it. Late in 1928 Masonite notified Celotex that its hardboard infringed Masonite's patents. Various discussions were had with a view of avoiding patent litigation by entering into a cross-licensing agreement. Masonite refused. Celotex continued to manufacture and sell hardboard. Its production increased from about 800,000 square feet in 1929 to about 12,000,000 square feet in 1933. It sold its product in competition with Masonite's hardboard and marketed it at prices lower than Masonite sold its hardboard. In 1931 Masonite instituted suit against Celotex for infringement of one of its patents. The District Court held Masonite's patent valid but not infringed. Masonite Corp. v. Celotex Co., 1 F.Supp. 494. Masonite appealed. The Circuit Court of Appeals held that Masonite's patent was both valid and infringed. 3 Cir., 66 F.2d 451. A petition for a writ of certiorari was filed in this Court in September, 1933. About that time Masonite renewed negotiations with Celotex. Those negotiations resulted in a settlement of the patent litigation and in the execution of the so-called 'agency' agreement of October 10, 19331—one of the agreements which is here attacked and which we discuss later.

Shortly after the decision of the Circuit Court of Appeals in the patent litigation between Celotex and Masonite, the latter company sent the same proposed 'agency' agreement which it had worked out with Celotex to various of the appellees. Johns-Manville Sales Corporation, National Gypsum Company, Armstrong Newport Company (predecessor of Armstrong Cork Company), Hawaiian Cane Products Ltd. (assignor of Certain-Teed Products Corporation), and Wood Conversion Company each executed identical agreements with Masonite on various dates between October 31, 1933 and June 25, 1934. As each agreement was made Masonite informed the other party of the existence and terms of each of the agreements which Masonite had previously made with the others. And as each contract was executed Masonite sent copies to the companies which had previously executed similar contracts.

Insulite, a manufacturer of insulation board, began producing hardboard in 1930. Its production rose from about 4,500,000 square feet in 1932 to about 9,000,000 square feet in 1933 and amounted to over 7,000,000 square feet annually in 1934 and 1935. There was some evidence that it was selling hardboard at prices lower than those of Masonite. It was advised by Masonite in July, 1933, of possible legal action if it continued to manufacture and sell hardboard. It received from Masonite a copy of the proposed 'agency' agreement. It formally advised Ma- sonite of its refusal to enter into any such agreement in December, 1933. In March, 1934, Masonite filed suit against a dealer who handled Insulite's hardboard charging infringement of one of Masonite's patents. Insulite undertook the defense; but before issue was joined negotiations between Insulite and Masonite resulted in the execution in February, 1935 of a so-called 'agency' agreement substantially identical with the agreement between Masonite and Celotex.2 At that time Insulite knew that Masonite and the other companies had previously executed the other agreements.

Disputes arose between Masonite and the so-called 'agents' concerning the operation and construction of the 'agency' agreements. As a result, the agreements were modified in 1936. Each agreement when executed in 1936 was placed in escrow. The escrow agreement was signed by each of the companies and included the name of each of the other 'agents'. Each 'agent' knew at that time that Masonite proposed to make substantially identical agreements with the others. The escrow agreement provided that it should become effective only when all the 'agents' had agreed to it. The new agreements became effective October 29, 1936. In 1937 Flintkote Company and Dant & Russell, Inc., entered into identical agreements with Masonite. Though their agreements differed somewhat from the 1936 agreements, they were substantially similar for present purposes. Both companies knew when they signed the contracts that similar 'agency' agreements existed between Masonite and the other appellees.

By each of the 1933 agreements Masonite designated the other party as an 'agent' and appointed it as a 'del credere factor' to sell Masonite's hardboard products. The 'agent' expressly acknowledged the validity of Masonite's hardboard patents so long as the agreement remained in force. The 'agent' agreed to promote the sale of Masonite hardboards. Masonite agreed to manufacture designated hardboard products in specified sizes and to ship on orders and specifications from the 'agent' to any place within the continental United States or Hawaii. Masonite agreed to designate from time to time the minimum selling price and the maximum terms and conditions of sale at which the 'agent' might sell Masonite's products. The list prices and terms of sale were to be the minimum prices and maximum terms of sale at which Masonite was either offering or making sales to its customers. The right to change the list prices and terms of sale was vested solely in Masonite and might be exercised on 10 days notice. It was agreed that Masonite was bound to adhere to the prices, and terms and conditions of sale which it fixed for its 'agents'. In case the 'agent' sold for less than the minimum price it was obligated to pay liquidated damages at a specified rate. On direct shipments to the 'agent' the hardboards 'shall be received and held on consignment' and 'title thereto shall remain' in Masonite until sold by the 'agent'. The minimum prices were f.o.b. Masonite's factory, the 'agent' paying freight and transportation costs and sales and other taxes. The 'agent' also agreed at its expense to carry insurance on all products consigned to it. The 'agent's' compensation was fixed by way of specified commissions on each sale. The 'agent' was prohibited from making sales (except for offsized boards) to any person other than specified classes. Those provisions permitted the 'agent' to sell only to the construction industry, the industrial market being reserved for Masonite. The 'agent' agreed to compensate Masonite by advancing one-half of the difference between the list price and the agent's discount within 20 days after the close of the month in which the order was shipped and the balance within 20 days after the close of the month in which the products were sold by the 'agent' to its customers. In case of direct shipments by Masonite to the customers of the 'agent' the latter agreed to pay the entire amount due Masonite within 20 days after the close of the month in which the shipment was made. The 'agent' agreed not to use the trade name or the trade marks of Masonite. But the latter agreed to mark, without extra cost, all hardboard with the 'agent's' or its customer's name or trade mark if the 'agent' or customers so desired. And Masonite reserved the right to mark all products sold by the 'agent' with Masonite's patent notice. Masonite warranted that the products were to...

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