United States v. United Shoe Machinery Corp.

Decision Date18 February 1953
Docket NumberCiv. A. 7198.
Citation110 F. Supp. 295
PartiesUNITED STATES v. UNITED SHOE MACHINERY CORP.
CourtU.S. District Court — District of Massachusetts

James M. Malloy, Boston, Mass., Sigmund Timberg, Washington, D. C., C. Worth Rowley, Boston, Mass., Margaret H. Brass, Washington, D. C., Alfred Karsted, Edward M. Feeney, Boston, Mass., Morton Myerson, Brookline, Mass., Laurence S. Flaherty, Somerville, Mass., Herbert F. Peters, Falls Church, Va., Roy N. Freed, Leominster, Mass., Special Attys. for the United States, H. Graham Morison, Asst. Atty. Gen., and Gerald J. McCarthy, Special Asst. to Atty. Gen., of Mass., for plaintiff.

John L. Hall, Robert Proctor, Claude R. Branch, Charles P. Curtis, John B. Reigeluth, Conrad W. Oberdorfer, John M. Hall, Boston, Mass., of Choate, Hall & Stewart, Boston, Mass., Walter Powers and Bertram H. Loewenberg, Boston, Mass., of Sherburne, Powers & Needham, Boston, Mass. (Theodore Kiendl, on the brief), for defendant.

Summary.

United Shoe Machinery Corporation manufactures all the principal types of machines used in all the major processes of shoemaking. It distributes the more important types only through leases. These leases have many "partnership" features which go beyond assuring United prompt, periodic payment of rent. Through these leases United maintains a network of contacts with approximately 90% of all shoe factories. It supplies more than 75% of the demand for shoe machinery (excluding dry thread sewing machinery). From these and other facts, such as an analysis of United's pricing practices, and a comparison between United and its competitors in terms of financial resources, of facilities, of accumulated experience, and of variety of machines offered, it appears that United has such substantial market power as to give it effective control of the shoe machinery market.

United's market control is attributable first, to the company's original constitution, approved in 1918 by the Supreme Court, second, to the company's superior products and services, and third, to the company's business practices. Of these practices the most important have been the leases already mentioned. In the leases have been provisions such as the 10-year rental term, the full capacity clause, and the deferred payment charges, which, as written and applied, have adversely affected actual or potential competition in the shoe machinery market. The methods followed by United in supplying in one bundle machinery and repair services in return for one, unsegregated, set of charges, and the methods used by United in establishing economically discriminatory rates of profit on different machine types, have had additional adverse effects on competition. Though these practices and methods have not been predatory, immoral, nor, on their face, discriminatory as between different customers, they have operated as barriers to competition. United's market strength has also been increased to some extent by its acquisitions of patents and its purchases, for scrap, of second-hand machines.

Since Judge Learned Hand's opinion in 1945 in United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416, and the 1948 opinion of the Supreme Court in United States v. Griffith, 334 U.S. 100, 68 S.Ct. 941, 92 L.Ed. 1236, that provision of § 2 of the Sherman Act, 15 U.S.C.A. § 2, addressed to "Every person who shall monopolize * * * any part of" interstate commerce has been so interpreted as to reach any enterprise that has exercised power to control a defined market, if that power is to any substantial extent the result of barriers erected by its own business methods (even though not predatory, immoral, or restraining trade in violation of § 1 of the Sherman Act, 15 U.S.C.A. § 1), unless the enterprise shows that the barriers are exclusively the result of superior skill, superior products, natural advantages, technological or economic efficiency, scientific research, low margins of profit maintained permanently and without discrimination, legal licenses, or the like.

Obedient to these and other appellate rulings, the Court holds that United falls not within the exceptions, but within the main thrust of the doctrine applied in the Aluminum and subsequent cases, for it has exercised effective market control by the business practices and methods already indicated.

To dissipate the effects of United's monopolization, the Court refuses to order that the company should be dissolved into three manufacturing concerns, but does decree, among other forms of relief: first, that United must offer for sale every type of machine it leases, though it remains free to continue leasing if the leases are for not more than 5 years, are terminable short of that time upon payment of non-discriminatory, reasonable rates, have no full capacity clause, and segregate charges for machines from charges for repair services; second, that United must discontinue acting as a distributor of other companies' supplies and must dispose of its branches and subsidiaries which manufacture nails, tacks, and eyelets; and third, that United must make its patents available upon a reasonable royalty basis to those wishing to manufacture shoe machinery and supplies.

WYZANSKI, District Judge.

Findings of Fact, Conclusions of Law, and Opinions.

I.

Introduction.

December 15, 1947 the Government filed a complaint against United Shoe Machinery Corporation under § 4 of the Sherman Act, Act of July 2, 1890, c. 647, 26 Stat. 209, 15 U.S.C.A. § 4 in order to restrain alleged violations of §§ 1 and 2 of that Act, 26 Stat. 209, 50 Stat. 693, 15 U.S.C.A. §§ 1, 2.

Stripped to its essentials, the 52 page complaint charged, first, that since 1912 United had been "monopolizing interstate trade and commerce in the shoe machinery industry of the United States" Par. 27 (a). This first general charge was then subdivided, as it were, into these charges: (a) "monopolizing the manufacture and distribution in interstate commerce of all major shoe machines, except upper stitching and cement sole attaching machines" Par. 27(b); (b) "attempting to monopolize the manufacture and distribution in interstate commerce of cement sole attaching machines" Par. 27(b); (c) "monopolizing the manufacture and distribution in interstate commerce of numerous minor machines" Par. 27(c); (d) "attempting to monopolize the manufacture and distribution in interstate commerce of * * * minor shoe machines" Par. 27(c); and (e) "monopolizing the manufacture and distribution in interstate commerce of parts used in shoe machinery leased by United" Par. 27(d). The second principal charge laid by the complaint was that United had been (a) "monopolizing the distribution in interstate commerce of numerous * * * shoe factory supplies" and (b) "attempting to monopolize the distribution in interstate commerce of * * * other such supplies" Par. 27(e). Third, the complaint alleged United was "attempting to monopolize and monopolizing the manufacture and distribution in interstate commerce of tanning machinery used in the manufacture of shoe leather" Par. 27(f).

In support of this three-pronged attack, directed to shoe machinery, shoe factory supplies, and tanning machinery, the Government set forth detailed allegations with respect to acquisitions, leases, patents, and a host of other aspects of United's business. The part of this opinion containing findings of fact sets forth, in the same order as does the complaint, the Government's allegations concerning, and this Court's finding upon, each of these aspects.

After stating its charges, the Government prayed for an adjudication of United's violations of both § 1 and § 2 of the Sherman Act; an injunction against future violations; a cancelation of United's shoe machinery leases; a requirement that United offer for sale all machine types "manufactured and commercialized by it and be enjoined from leasing shoe machinery except upon terms * * * approved by the Court"; a requirement that, on such terms as the court may deem appropriate, United make available to all applicants all patents and inventions relating to shoe machinery; an injunction against United manufacturing or distributing shoe factory supplies; a cancelation of exclusive contracts governing shoe factory supplies; and a divestiture of United's ownership of virtually all branches and subsidiaries concerned with shoe factory supplies or tanning machinery.

Defendant answered seasonably, denying all the significant allegations, and relying upon the judgments rendered by the Supreme Court of the United States in an earlier case brought against this company's predecessor under the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, United States v. United Shoe Machinery Company of N. J., 247 U.S. 32, 38 S.Ct. 473, 62 L.Ed. 968 and another case against this company under the Clayton Act, 15 U.S.C.A. § 12 et seq., United Shoe Machinery Corp. v. United States, 258 U.S. 451, 42 S.Ct. 363, 66 L.Ed. 708.

A trial of prodigious length followed. The court attempted to shorten the hearings by requiring defendant in advance of trial to submit to the Government's exhaustive requests for discovery, by requiring the Government at the opening of its case to file a brief correlating all its proposed evidence, by encouraging the use of sampling devices, and by insisting that the Government should, in formal answers, indicate in each branch of the case on what evidence it principally relied. Nonetheless, the hearings took 121 days and covered 14,194 pages of transcript and included the offer of 5512 exhibits totalling 26,474 pages (in addition to approximately 150,000 pages of OMR's and over 6,000 soft copies of patents) and 47 depositions covering 2122 pages. At the close of the evidence the Court asked for briefs, and requested findings of fact and conclusions of law. The Government offered briefs totalling 653 pages, and requests totalling 667 pages. United submitted briefs totalling 1240 pages, and requests totalling 499 pages.

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