United States v. Univis Lens Co.

• Decision Date: 17 September 1941
• Parties: UNITED STATES v. UNIVIS LENS CO., Inc., et al.
• Court: U.S. District Court — Southern District of New York

41 F. Supp. 258

UNITED STATES v. UNIVIS LENS CO., Inc., et al.

District Court, S. D. New York.

September 17, 1941.

Robert H. Jackson, Atty. Gen., of United States, and Stanley E. Disney, Irving B. Glickfeld, John E. McCracken, George L. Derr, and Samuel S. Isseks, Sp. Asst. to Atty. Gen., Sp. Attys., for plaintiff.

Frederick S. Duncan, of New York City, and Toulmin & Toulmin, of Dayton, Ohio (Frederick S. Duncan, of New York City, and H. A. Toulmin, H. A. Toulmin, Jr., and Rowan A. Greer, all of Dayton, Ohio, of counsel), for defendants.

GALSTON, District Judge.

The complaint charges violations of Secs. 1 and 3 of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1, 3, and alleges that the Univis Lens Co., Inc. (which will hereafter be referred to as the Lens Company), manufactures bifocal lenses pursuant to an unlawful combination and conspiracy in which the Univis Corporation is accused of having unlawfully set up a system of price control through the issuance of licenses to the Lens Company and others and by means of so-called fair trade agreements to certain wholesalers and retailers; that such lenses are covered by patents owned by the Univis Corporation and that the Lens Company owns a majority of the stock and controls the activities of the Univis Corporation. The individuals named as defendants are officers in both companies.

It is alleged that the conspiracy to restrain interstate commerce in bifocal lenses consisted in combining (1) to designate, and select, according to certain arbitrary rules and regulations, wholesalers and retailers to handle and deal in bifocal lenses manufactured by defendant Univis Lens Company; (2) to sell such bifocal lenses only to such designated and selected wholesalers and retailers; (3) to restrain such wholesalers and retailers from selling to other wholesalers and retailers not so selected; and (4) to fix uniform, arbitrary and unreasonable prices at which such wholesalers and retailers could resell such bifocal lenses.

The challenged plan adopted by the defendants involved three types of licenses to control all stages of the marketing of Univis bifocal lenses, through licenses to wholesalers, to retailers with facilities for finishing rough or semi-finished bifocal lenses, and to prescription licensees, i. e. retailers with no finishing equipment. By these means, so the Government contends, the defendants maintain a complete control of the marketing of Univis bifocal lenses including the fixing of minimum resale prices to the purchasing public. It is asserted that they refuse to issue licenses to wholesalers and retailers who are price-cutters or who otherwise engage in business practices of a nature disapproved by the defendants; also that the Lens Company sells the rough lens blanks only to Univis licensees or to consumers. Accordingly the Government seeks to have the contracts and combinations and conspiracies in restraint of interstate commerce decreed unlawful and the defendants enjoined.

The defendants admit that the Lens Company and the Univis Corporation to all intents and purposes are the same and that the individual defendants have owned or control both corporations. The Univis Corporation avers that it has consistently followed an "open end" license policy by which all licensees of the same class are charged the same license fee and have the same prices fixed for performing the same manufacturing service; and that the licenses are open to all qualified licensees. The basis of its policy is the maintenance of highest standards of quality, service and performance by each licensee at each stage of the manufacturing process. Such policy is founded upon the peculiar nature of the business of manufacturing, prescribing, fitting and distributing eyeglass lenses in a series of successive steps, by different types of manufacturing establishments at different distances from the customer. It is said that the "blanks" must be manufactured out of blocks of glass in which the near vision inserts are fused to form the same fabricated product from which the bifocal lenses are ultimately to be made; also that the lens blank, at such stage of manufacture, is not useful as an eyeglass lens and must be subjected to manufacturing processes by other licensees and finally fitted to the eyes of the wearer through a suitable examination of the eyes. As a matter of practice the retailer licensee who is in direct contact with the customer is alleged to participate in the manufacturing steps of fitting the lenses in accordance with the prescription of the lens in that he must determine the shape, the centering and the positioning thereof on the face of the wearer and the mounting of the lens in a frame in order to give the maximum vision and comfort to the wearer. The prescription for grinding is forwarded to a wholesaler to whom the lens blank has been sold by the Lens Company. The lenses when completed are then in turn delivered to the finishing retailer who adjusts and fits them to the eyes of the wearer.

On the question of price the answer alleges that the wholesaler purchases the manufactured rough Univis blank generally for $3.25. The process practiced by the wholesaler in following the prescription received from an optometrist, dispenser or opthalmologist entails great accuracy and requires, so it is alleged, from three and a half to four hours for each pair of lenses. The wholesaler receives an average gross profit of approximately $3.70 for a pair of lenses. The total average margin of gross profit for the retailer is stated to be about $9 per pair of lenses.

Specifically answering the complaint the defendants deny any violations of the Sherman Act and aver that until the manufacture of the products under the patents and trade-marks is completed and delivered to the ultimate wearer of the lenses there has not passed in interstate commerce any such thing as a bifocal lens; that the blanks are not bifocal eyeglass lenses; that what passes from the Lens Company to the wholesaler is a blank, not an eyeglass lens and that there is but one sale of the completed lens and that occurs when the retailer sells it to the customer, the particular user.

The Government's proof establishes that the Lens Company manufactures bifocal blanks under license from the Univis Corporation. The license between the two corporations refers to other contracts which are not before the court and accordingly is not in itself a complete instrument. It does appear that the Univis Corporation is to receive on all lenses manufactured in the United States and sold in the United States by the Lens Company a royalty of $.50 per pair to be paid by the Lens Company to the Univis Corporation. The Lens Company is to sell to none other than those appearing from time to time on an approved list of prescription purchasers to be submitted by the Univis Corporation. On the whole the instrument affords very unsatisfatcory proof of the terms and conditions of the agreement between the Univis Corporation and the Lens Company.

It is important at this stage to understand what a lens blank is. Silverman's definition, and it is not contradicted in the case, is that such a blank is a rough piece of glass or a partly manufactured piece of glass. As manufactured and distributed by the Lens Company the lens blank consists of reading and distance segments; and in the case of trifocal lenses a reading segment, distance segment, and an intermediate segment. The great bulk of the business done in the manufacture and distribution of the lens blanks by the Lens Company is of the bifocal character. The Lens Company sells these lens blanks to licensed distributors known as wholesalers; also to grinding finishing licensees and to dispensing opticians who have complete grinding laboratories. In other words, the Lens Company has two types of customers; wholesalers and retailers. It is of importance to note that the lens blank sold by the Lens Company to either wholesalers or retailers could be used for no other purpose than as a lens blank to be made into a finished optical bifocal lens. The Lens Company employs service men to educate the lens grinders employed by the licensees, for these Univis lens blanks are computed on a series of corrective curves, i.e. a series of curves for each individual prescription to the end that the widest angle of vision may be obtained by the consumer. Such curves have been the subject of computation by the technical department of the Lens Company, are charted, and the chart discloses the curve to be ground on every prescription. In addition special tools are furnished to the wholesaler or finishing retailer.

It is important to distinguish between the finishing retailer and the prescription retailer. The former has a complete grinding and finishing laboratory comparable to that of the wholesaler and performs the same functions, the same grinding and finishing operations, as does a wholesaler and supplies the lenses through the stages of fitting and designing directly to the public.

A prescription retailer, if he is an optometrist, examines the patient's eyes, prescribes the lens, designs the size, the shape and contour thereof to conform with the patient's peculiar facial characteristics; designs the size, heights and positioning of the reading segment to conform to the patient's particular vocation or other personal requirements. These specifications he forwards to a laboratory for completion. On receipt of the completed lenses from the laboratory he fits the lenses to the patient's face.

To determine whether the licensing scheme of the defendants is within the monopoly of the patent grant it is necessary critically to examine the terms of these licenses.

Concededly the Lens Company has the right to manufacture lens blanks and to sell them as restricted by the Univis Company only to those who are either licensed wholesalers or licensed retailers. There can be no doubt that the owner of a patent...