United States v. United Shoe Machinery Co.

• Decision Date: 31 March 1920
• Docket Number: 4489.
• Citation: 264 F. 138
• Parties: UNITED STATES v. UNITED SHOE MACHINERY CO. et al.
• Court: U.S. District Court — Eastern District of Missouri

264 F. 138

UNITED STATES v. UNITED SHOE MACHINERY CO. et al.

No. 4489.

United States District Court, E.D. Missouri.

March 31, 1920

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

The allegations in the complaint, as well as the clauses in the leases claimed to be in violation of section 3 of the Clayton Act (38 Stat. 731, c. 323 (section 8835c, U.S. Comp. St 1918)), are set out in the former opinion of this court (234 F. 127) on the motion of the defendants to dismiss the complaint. It is therefore unnecessary to again state them in this opinion.

The answers of the defendants allege that each of the defendant corporations is an ordinary business corporation, and has a separate and complete entity of its own, although the directors of the United Shoe Machinery Company of Maine and that of New Jersey are for the most part the same. It is admitted that the United Shoe Machinery Corporation owns a large percentage of the stock of the New Jersey company which latter company, it is not denied, as charged in the complaint, owns all the stock of the Maine company.

The answers further allege that all the machinery the defendants lease to shoe manufacturers are patented, the patents for which were issued prior to October 15, 1914, the date of the enactment of the Clayton Act, and are still in force. They deny that the leases are made in the course of interstate commerce, or that patented articles leased or sold by it are articles of trade or commerce among the several states, within the meaning of the Clayton Act. The machines are manufactured by the New Jersey company, from whom the Maine company obtains them, and leases them to shoe manufacturers in various states of the United States.

They deny that they have business relations with all but a few shoe manufacturers, and that the Maine company markets patented machinery of a special kind manufactured by the New Jersey company, and admit that their business relates mostly to machines adapted for use in the manufacture of the kind of shoes known as 'Goodyear welts' and 'Goodyear turns.'

They deny that the distinction between principal and auxiliary machines, as set forth in subdivision B of section 3 of the complaint is arbitrary, and results from the defendants' system of leasing; but it is claimed to be due to the performance of the principal machines of certain fundamental operations, for which they were designed early in the art of shoe making, while the auxiliary machines prepare the shoe for the operation of the principal machines. They admit that certain of the principal machines are leased upon a royalty basis, while auxiliary machines, it is alleged, are for the most part leased for a nominal rental, and are usually restricted to use with the principal machines, and to the kind of shoes for which they were designed, so that they may be used together as a team or plant, and indirectly earn rentals through the royalties paid for the principal machines.

Under these conditions, and in certain cases, machines of different departments are leased, with a provision that they should be used only in the manufacture of shoes upon which certain other operations have been performed by machines held under lease from the defendants at reduced or wholesale rates, in order that, by economy in free repair and maintenance, co-ordination of operation, a higher quality of product, and increased production of shoes, they may constitute a team or plant and yield better returns, both to the manufacturer and the defendants. These methods are greatly to the benefit of the manufacturers, and not unlawful, and do not tend to have, nor do they in fact have, the effect of substantially lessening competition, nor in fact tend to a monopoly, but in practically all cases machines of different departments are furnished on reasonable terms, without restrictions as to use with machines of other departments, to persons so desiring.

They further allege that the auxiliary machines were developed by the New Jersey company at great expense for the purpose of increasing and developing the manufacture of Goodyear welt and Goodyear turn shoes, by reducing the cost of manufacture, and thereby increasing the use of Goodyear welt sewing and outsole stitching machines. As these auxiliary machines are from time to time improved, they are and always have been furnished to the lessees without any additional charge. They deny that they have shipped to their lessees any machinery or supplies in the course of interstate commerce, and deny the allegations in the complaint that competitors produce machines similar in function to its machines.

It is also alleged that, aside from the protection for their patents, any one may fairly engage in the manufacture and selling or leasing of machines for the manufacture of shoes; that their machines are extensively used, because they are the best of the kind, are patented, and the defendants are the only lessors of shoe machinery, who furnish hourly and daily service for their machines, and because of the excellence of their service furnished without charge. They deny that they have removed machines and imposed heavy penalties upon lessees, as charged in the complaint, nor have they threatened to do so. They admit that they have in a few cases, where the leases and licenses were clearly violated, called the attention of such manufacturer to such violation.

They have other forms of leases, which are without these restrictions, and the shoe manufacturers may exercise their choice which leases they prefer. While their stitch indenters and burnishers are patented, others can be obtained from competitors, and these machines only perform minor operations, and are neither essential nor indispensable in the manufacture of shoes. They deny that the initial premium on their unrestricted or independent leases are prohibitive, and therefore compel the acceptance of restricted leases. They allege that they put out two types of leases, an unrestricted form, involving as a prerequisite the payment of a reasonable initial premium; but it is denied that that initial premium is prohibitive. These unrestricted leases permit the leased machines to be used with machines of other makers. The other leases restrict the use of their machines in certain parts or clauses complained of. The restricted leases grant limited rights to use the machines under leases obtained or granted prior to October 15, 1914. The service furnished by the defendants to their lessees, in order to maintain the efficiency of the machines, costs them over $1,000,000 annually; and they have undertaken, not only to train operators of shoe manufacturers in the proper use of machines, and to secure the prompt repair of machines disabled, but also to supply them with the latest improvements, by substituting improved machines, whenever such are made by them, without extra cost to the user. This service is furnished, by maintaining at 27 central points more than 700 competent employes to attend to them without charge. The limited use clauses in leases tend merely to the leasing of machines in groups, as these machines have a definite mechanical relation to each other and are so designed as to fit each operation, and they are essential for the success of the operation of each machine; for, if such prior operations have not been properly and definitely performed, the work of that machine cannot be done right, and the output is greatly lessened, thereby reducing their rentals.

The requirement in Exhibit 4 to the complaint, that the lessee purchase all duplicate parts and all supplies, used in connection with the leased machines, is reasonable and just, for the reason that, if a part does not properly fit, it would seriously injure the machine, and its income from the other machines leased by them would be seriously affected.

It is also claimed that, as to leases made before the enactment of the Clayton Act, that act would be unconstitutional, if intended to affect them, as claimed by the plaintiff, as it would deprive them of vested rights, in violation of the patent clause of article 1 (clause 8, Sec. 8) and article 5 of the Amendments to the Constitution; the defendant having, prior to the enactment of that act, invested several million dollars in the invention and construction of these machines, covered by patents.

They deny that these leases were put in interstate commerce, as they do not provide for the transportation of machines from one state to another, although some of the machines held under leases were shipped from Massachusetts to other states; that, while the restricted leases require no initial payments as do the unrestricted leases, a charge is made when the machines are returned.

The answers state in detail the history of how the defendant companies were formed, and that the purchases of patents and plants from other manufacturers were the logical business result to maintain the position of preeminence in their respective lines; that one of the objects of the restricted leases was to lease them on the wholesale plan, the machines having been designed and adapted to permit successful operations on certain types of shoes and insure greater productivity, better product, less cost of maintenance, and a steadier income to both lessor and lessee; that the defendants make 175 machines for use in the manufacture of shoes, and the restricted leases apply only to a comparatively small number of them; that the royalties charged have never been increased since the leases were first adopted, and in some instances they have been reduced; that machines performing substantially all the operations for which defendants supply machines are manufactured and supplied by other makers, and that the large share of the...