United States v. United Shoe Machinery Co.

• Decision Date: 06 June 1916
• Parties: UNITED STATES v. UNITED SHOE MACHINERY CO. et al.
• Court: U.S. District Court — Eastern District of Missouri

234 F. 127

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

United States District Court, E.D. Missouri.

June 6, 1916

This is an action to enjoin the defendants, the United Shoe Machinery Company, a corporation existing under the laws of the state of Maine, the United Shoe Machinery Company, a corporation existing under the laws of the state of New Jersey, the United Shoe Machinery Corporation, also existing under the laws of the state of New Jersey, and certain individuals alleged to be the directors and officers of these corporations, from enforcing, or attempting to enforce certain provisions of leases alleged to be prohibited by section 3 of the act of Congress approved October 15, 1914 38 Stat. 730, known as the 'Clayton Act.' For convenience the defendant United Shoe Machinery Company of Maine will be referred to in this opinion as the 'Maine Company,' the United Shoe Machinery Company of New Jersey as the 'New Jersey Company,' and the United Shoe Machinery Corporation as the 'corporation.'

The complaint is brief and concise, and will be practically set out in full. It charges: That the Maine Company is a corporation organized under the laws of the state of Maine with an authorized capital stock of $3,000,000. Its original corporate name was 'Goodyear Shoe Machinery Company.' All of its capital stock, assets, and business were acquired in 1889 by the United Shoe Machinery Company of New Jersey which now owns the same. That in 1902 the name of the 'Goodyear Shoe Machinery Company' was changed to 'United Shoe Machinery Company,' and, while it continues its corporate existence, it is merely a selling and leasing department of the New Jersey Company. It is the only one of the defendants which does business in the Eastern district of Missouri. That the officers and directors of all three companies are in effect the same. That the New Jersey Company has a capital stock of $20,850,519, all of which is substantially owned by the defendant the United Shoe Machinery Corporation. That ever since its incorporation it has been engaged in manufacturing, selling, and leasing shoe machinery, and it is the operating company of the business followed by the defendants. Its chief manufacturing plant is at Beverly, Mass., and its officers and directors are, for the most part, the same as those of the other corporate defendants. That the corporation has an authorized capital stock of $50,000,000, and is empowered by its charter to engage in manufacturing, selling, and leasing shoe machinery, but its activities have been confined chiefly to those of a holding company. Shortly after its organization it acquired and now owns 98 1/2 per cent. of the outstanding capital stock of the New Jersey Company and through this company dominates the other corporate defendants. In addition it controls the stock of certain other affiliated corporations, engaged in business related to the shoe machinery interest. That the defendant Sidney M. Winslow is president, director, and managing officer of all these three corporations, and numerous other corporations owned and subsidiary corporate defendants, and the other individual defendants are officers and directors, some of all three corporations, and others of two of the defendant corporations. That the defendants have leased, sold, and are leasing and selling their machinery, supplies, and repairs, and in certain instances have fixed and are fixing the prices thereof, and discounts and rebates from such prices, on condition, agreement, and understanding that the lessee or purchaser shall not use the machinery, supplies, or other commodities of competitors of the lessors, which agreements tend to create a monopoly in that branch of interstate commerce which relates to the shoe machinery business.

The bill then alleges: That nearly all shoes now made in the United States are manufactured by machinery. Over 1,500 manufacturers are engaged in cities and towns of nearly every state in the Union in the production, annually, of more than 300,000,000 pairs of machine-made shoes. With all but a very few of these manufacturers the defendants have business relations. That the defendants devote themselves particularly to the production of machinery used in preparing and stitching soles to the uppers of shoes. They also manufacture machinery used in other shoe-making operations. That the defendants divide certain of their important machines into two classes, 'principal' and 'auxiliary.' In a general way machines which perform operations of major importance are spoken of as 'principal' while machines which execute operations necessary to the work of 'principal' machines are called 'auxiliary.' The distinction, however, it is charged, is largely arbitrary, and results chiefly from the defendants' system of leasing. Many of the more important machines are put out by the defendants on leases. On some the lessees are required to pay royalties, and on others an annual rental. All machines on which royalties are exacted are designated as 'principal,' and all those on which an annual rental is paid 'auxiliary.'

The cutting of the soles, uppers, and lining, and the stitching of the uppers and lining, follow about the same course with respect to all kinds of shoes. It is when the sole comes to be attached to the upper of the shoe-- 'bottomed,' as it is called in the trade-- that the fundamental difference in construction arises. Here two chief categories appear: In the one the soles are fastened by thread; the other, by wire, nails, or wooden pegs. The first category is subdivided into three classes: (A) McKay sewed; (B) turned; (C) welt shoes. The second category is divided into two classes: (a) Metallic fastened; (b) pegged shoes. The McKay sewed shoe is so called because it is bottomed on a McKay sewing machine; the turned shoe takes its name from the fact that it is turned inside out during the process of attaching the sole, which is done on a welt and turn sewing machine; the welt shoe is so designated because a narrow strip of leather, called a welt, is sewed to the upper and insole, by a welt sewing machine, and the outsole is attached to the welt by an outsole stitching machine. Metallic fastened shoes have their soles attached to the insoles on a 'loose nailer,' or by wire screws on a 'standard screw' machine; pegged soles are bottomed on a 'pegging' machine. In connection with the working of these machines are certain accessory operations which are executed for the most part by 'auxiliary' machines. The bill then describes how this work is done. It is then charged that 'principal' machines cannot be operated profitably without the use of some, if not all, of the 'auxiliary' machines. The 'auxiliary' machines are of substantially no value, except as they are used in connection with the 'principal' machines.

The illegal actions of which complaint is made are described as follows: The writings under which the defendants put out most of their machinery are variously designated 'ordinary and temporary lease and agreement,' 'lease and agreement,' 'lease and license agreement,' or 'agreement,' but are in the bill referred to as leases. Under these leases it is charged the defendants ship, and for many years have been shipping, in interstate and foreign commerce, the shoe machinery and supplies herein referred to, from Beverly, Mass., to points in other states and foreign countries. The leases generally run for a period of 17 years. Many of them were made before, and some since, the passage of the Clayton Act, but all are now being enforced by the defendants. The bill does not complain of the leases as a whole, but only parts thereof, which are described in the bill as 'tying clauses' and 'discounts and rebates.' The bill charges that in each of the leases there are certain provisions denominated the 'tying clauses,' because they tie together the uses of several leased machines, and in effect, though not always in terms, prohibit the lessees from using machines of lessor's competitors. For example, the fastening machines may not be used on any shoe not welted, stitched, slugged, heeled, or seat-nailed on machinery leased from the defendants. In other words, machines are 'tied' in a similar manner. The tying clauses provide in substance that the lessee: (1) Shall not use machinery in the manufacture or preparation of footwear which has not had certain essential operations performed upon it by other machines leased from the lessor. (2) Shall use the leased machinery to its full capacity. (3) Shall use exclusively the leased machinery for the class of work for which it is designed. (4) Shall obtain from the lessor exclusively, at such prices as it may establish, all duplicate parts, mechanisms, or repairs needed in operating the leased machines, and all supplies needed in connection with them. (5) Shall use patented insoles made on defendants' machinery only in connection with certain footwear manufactured by machinery leased from the lessor. (6) Shall lease from the lessor any additional machinery which he may need for work in the same department as that of the machine leased. (7) Shall permit the lessor to determine whether the lessee has in his factory more machinery adapted for doing the same work than he needs, and, if so, to remove such machines as, in the opinion of the lessor, are unnecessary. (8) Shall, at the election of the lessor, suffer a termination of all leases which he may have, and the removal of all machines leased by him from the defendants, in the event of any violation of any term of any one of the leases.

Copies of the clauses above referred to are attached to the bill as Exhibits 1, 2, 3, 4, 5, 6, 7, and 8.

Exhibit 1.

The leased machinery shall be used for no other purpose than for lasting boots,...