# United States v. Hartford-Empire Co.

> District Court, N.D. Ohio · August 25, 1942 · 46 F. Supp. 541

URL: https://www.frixlaw.com/law-library/cases/1555166

## Case

- **Full name:** UNITED STATES v. HARTFORD-EMPIRE CO. Et Al.
- **Court:** District Court, N.D. Ohio
- **Decided:** August 25, 1942
- **Citations:** 46 F. Supp. 541; 55 U.S.P.Q. (BNA) 14; 1942 U.S. Dist. LEXIS 2347
- **Precedential status:** Published
- **Opinion:** Opinion by Kloeb
- **Judges:** Kloeb
- **Cited by:** 36 later opinions in the Frix Law Library

## Citator (automated)

- **Yellow flag:** Modified by Hartford-Empire Co. v. United States, 323 U.S. 386 (1945).
- Negative treatments: 1
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1555166

## Opinion text

KLOEB, District Judge.
This is a civil action initiated by the Government of the United States under the antitrust laws — sections 1, 2 and 4 of the Sherman Act, 15 U.S.C.A. §§ 1 , 2, 4, and section 3 of the Clayton Act, 15 U.S.C.A. § 14 . The complaint was filed on December 11, 1939.
Sections 1 and 2 of the Act of July 2, 1890, 26 Stat. 209 , 15 U.S.C.A. §§ 1 , 2, commonly referred to as the Sherman Anti-Trust Act, as amended by the Act of August 17, 1937, 50 Stat. 693 , provide in part, as follows:
Sec. 1. “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal * *
Sec. 2. “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor * *
Section 3 of the Clayton Act, 15 U.S.C.A. § 14 , reads in part as follows: “It shall be unlawful * * * to lease or make a sale or contract for sale of * * * machinery, * * * whether patented or unpatented, * * * on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the * * * machinery * * * of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.”
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Section 4 of the Sherman Act reads in part as follows: “The several district courts of the United States are invested with jurisdiction to prevent and restrain violations of this act [sections 1-7 and 15 of this title] ; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations. Such proceedings may be by way of petition setting forth the case and praying that such violation shall be enjoined or otherwise prohibited.”
The defendants named in the complaint originally consisted of twelve corporations and one hundred and one individuals, the latter being officers, directors, or actors associated with the defendant companies in the activities complained of by the Government. Since the filing of the complaint, three of the corporations and forty of the individuals have been dismissed. A motion for summary judgment was made by the Stevenson Corporation and this was sustained before the commencement of the trial. The Anchor Hocking Corporation and the Liberty Glass Company each made motions to be dismissed upon completion of the plaintiff’s testimony, and these were sustained by the court. Two of the remaining corporate defendants and the individuals associated therewith — Corning Glass Works and Thatcher Manufacturing Company — filed motions for dismissal at the close of the plaintiff’s testimony, and argument upon these motions was heard by the court in the final argument of the case. These two motions, being as yet undisposed of, are hereby overruled. The forty individuals were dismissed in various ways— through the same motions for dismissal of the corporate defendants, by motion of the plaintiff at the conclusion of the case because of lack of evidence, and because of the death of some of them since the complaint was filed.
The complaint is brought against the leading concerns in the glass container industry. It charges, generally, a violation of the anti-trust laws, “by unlawfully conspiring, monopolizing, attempting to monopolize, and by unlawfully contracting, combining, and conspiring to restrain interstate and foreign trade and commerce, and more particularly by acquiring and maintaining monopolies of (a) patents covering the manufacture and licensing of glass-making machinery, (b) the manufacture and distribution of glass-making machinery, and (c) the manufacture, distribution, and sale of glass products, and by excluding others from the fair ■opportunity to engage freely and unrestrictedly in the interstate and foreign trade and commerce in said machinery and glass products.” (Paragraph 34 of the complaint.)
More specifically, in paragraph 37 of the complaint, it is charged:
“Defendants herein have conspired, and are now conspiring, unlawfully to attempt to monopolize and to monopolize, and have unlawfully combined and now are combining to restrain trade, and such defendants have maintained and are now maintaining an unlawful monopoly or unlawful monopolies, and such defendants have, and now are, unlawfully restraining trade among and between the several States of the United States with respect to—
“(a) Patents on automatic machinery for the production of pressed and blown glassware and glass containers;
“(b) Machinery for the production of pressed and blown glassware and glass containers, and the distribution of such machinery;
“(c) The manufacture and distribution of pressed and blown glassware and particularly heat-resisting glassware;
“(d) The manufacture and distribution of all kinds of glass containers;
“(e) The manufacture and distribution of milk bottles;
“(f) The manufacture and distribution of fruit jars.”
The relief prayed for requests generally that the court enjoin the illegal practices complained of, including the performance of the contracts between the various defendants, or the execution of similar agreements; that the court enjoin the holding of stock in another corporation in the industry by one corporate defendant, or an individual defendant connected with a corporate defendant; that the Hartford-Empire Company be dissolved and its patents and other properties be rearranged under several separate and independent corporations; and that such other relief be granted as may be necessary or the court deems proper.
The defendants have denied any violation of the anti-trust laws in the manner alleged in the complaint. The Hartford-Empire Company, answering generally, avers: “These defendants deny that they,
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or any one or more of them, individually or with one another, or with anyone else, have intended to establish or maintain, or have established or maintained, any conspiracy or monopoly in restraint of trade or commerce, or have entered into any combination or agreement in restraint of trade or commerce, or have committed, or threaten or intend to commit, any violation of the Sherman Anti-Trust Act or the Clayton Act.”
The position of the Hartford-Empire Company which, broadly, is the position of the remainder of the defendants with the exception, perhaps, of the Glass Container Association, whose situation differs from that of the other defendant corporations, is concisely set forth in the closing argument of defense counsel as follows (Record, page 11,526), “I want to say in conclusion, again, our position is that Hartford started out to create, started out to protect by patents what it did create, and to exploit its creation by appropriate means pointed out by the law and business custom. We claim that such domination of any part of the industry, either glass machinery or glass, as Hartford ever had, was only that inherent in the patents to which we believe we were entitled. That is what we sought, and that is what we got. The situation today is that the dominating adjudicated patents are those of Hartford’s own inventors.”
Description of the Corporate Defendants.
The defendant Hartford-Empire Company, hereinafter sometimes referred to as Hartford, is primarily a patent holding and developing company. It is a Delaware corporation, with its principal office in Hartford, Connecticut. It was organized in 1922 as the successor to the HartfordFairmont Company. The Hartford-Fairmont Company was organized in 1912 by a combination of interests of the BeechNut Packing Company, the Monongah Glass Company, and a group of Hartford engineers. In 1912, the Beech-Nut Packing Company was in need of a cheaper source of supply of glassware for its packing industry; the Monongah Glass Company was a glass manufacturing concern and had been supplying the BeechNut Packing Company with glassware; and the third group, comprised of engineers and inventors, was engaged in research work on automatic machinery for the production of glassware in the city of Hartford, Connecticut. The Hartford-Empire Company does not manufacture glassware of any kind except for experimental purposes. Its income is derived chiefly from royalties and fees obtained from the licensing and leasing of its machinery. The machinery is not made by Hartford but is manufactured for. it by the Hartford Special Machinery Company. The Hartford-Empire Company owns or controls substantially all of the gob feeding patents in the glass container industry.
The defendant Corning Glass Works, hereinafter referred to as Corning, is a New York corporation, with its principal office at Corning, New York. It is the successor of two other corporations that date back to 1875. It is one of the largest manufacturers of glass products in the United States, engaged primarily in the production and distribution of incandescent bulbs, signal and optical ware, heat-resisting (Pyrex) ware, and other forms of specialty ware. The field encompassed by Corning is commonly known as the pressed and blown field, or the non-container field, as distinguished from the container field. Corning does not now engage and during the period of this inquiry has not engaged in the manufacture of glass containers, with the exception of a limited production of tumblers.
The defendant Empire Machine Company, hereinafter referred to as Empire, was originally organized by Corning in 1909, under the laws of the State of Maine with its principal office at Portland, Maine, as a patent holding and developing company. Since 1922 it has owned substantially 43% of the stock of the defendant Hartford-Empire
Company.
Since the filing of the complaint in this case, the Empire Machine Company has been dissolved. It was represented in closing argument that there are no remaining assets of this company.
The defendant Owens-Illinois Glass Company is an Ohio corporation with its principal office in Toledo, Ohio. It owns and operates a large number of glass manufacturing plants scattered throughout the United States. In December, 1895, the Toledo Glass Company was organized by Edward D. Libbey and Michael J. Owens for the purpose of developing Mr. Owens’ inventions in glass producing machinery. In 1903, Mr. Owens produced the first fully automatic machine for blowing bottles. This is known as the suction type
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of machine, in which the molten glass is sucked up into the mold, in contradistinction to the gob feed type of machine developed later, in which the molten glass is dropped through a hole in the bottom of .the tank or an extension thereof into the molds in a forming machine, the size and shape of the glass delivered being controlled by a mechanism known as a feeder machine. The feeder and the forming machine together constitute one unit fully 'automatic in operation, as distinguished from the Owens suction machine. The Toledo Glass Company caused the organization of the Owens Bottle Machine Company under the laws of New Jersey. This company was changed to the Owens Bottle Company in 1919, and in 1929 it was merged with the Illinois Glass Company and became the Owens-Illinois Glass Company. The corporate predecessors of the Owens-Illinois Glass Company operated for some years as manufacturers of glass making machinery, and licensed and leased glass manufacturers in the use of such machinery. About 1909 Owens began the actual manufacturing of glassware and gradually shifted its efforts away from the manufacture of machinery except for its own use. About 1904, Owens began the pursuit of a policy of granting exclusive rights to certain licensees in limited fields for the manufacture of glassware, and it obtained and maintained an influence over the industry which it thus divided by acquiring substantial stock interests in the licensed companies, such as Thatcher and Hazel-Atlas, defendants herein. The Owens-Illinois Glass Company is the largest manufacturer of glass containers in the United States. Its efforts are directed mainly toward the manufacture of what is known as narrow neck ware. It and its predecessors will hereinafter be referred to as Owens.
The defendant Hazel-Atlas Glass Company, hereinafter referred to as Hazel-Atlas, is a West Virginia corporation with its principal office at Wheeling, West Virginia. It operates numerous plants, distributed throughout the country. It was originally incorporated in 1901 as the Atlas Glass and Metal Company and later merged with the Hazel Glass Company. It is the second largest manufacturer and distributor of glass container products in the United States. It directs its efforts chiefly to the manufacture of what is known as wide mouth ware.
The defendant Thatcher Manufacturing Company, hereinafter referred to as Thatcher, is a New York corporation with its principal office at Elmira, New York. It was organized in 1905. Its efforts are devoted chiefly to the manufacture of milk bottles, and in this field it is the largest manufacturer and distributor in the United States.
The defendant Lynch Corporation, hereinafter referred to as Lynch, is an Indiana Corporation with its principal office at Anderson, Indiana. With its predecessors, it dates back to 1917. It manufactures glass making machinery, and is the largest manufacturer of forming machines in the United States. It does not engage in the manufacture of glassware.
The defendant Ball Brothers Company, hereinafter referred to as Ball Brothers, is an Indiana corporation with its principal office at Muncie, Indiana. With its predecessors, it dates back to 1882. It is the largest manufacturer and distributor of fruit jars in the United States.
The defendant Glass Container Association, Inc., is a Delaware corporation with its principal office in New York City. It was organized in 1919 and is a statistical and research company. It does not engage in the manufacture of glassware. Its members include all but two of the glass container manufacturers in the United States. All of the corporate defendants herein are members of the Glass Container Association.
History of the Case
A brief resume of the history of automatic machinery in the glass container industry and of the contracts and agreements entered into by and between these various corporate defendants and complained of by the Government, is helpful to an understanding of the facts of the case. Acts and things done by the defendants and complained of by the Government cover a period of approximately 25 years.
There are today two fully automatic processes for making glassware — suction and gob fed. In the
suction machine
process, the glass is sucked up from the surface of an extension of the furnace into the mold where it is formed into the desired product. In the feeder fed machines, the glass is delivered to the mold by a special device known as a
feeder.
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In the gob feed process, the molds into which the molten glass is fed are parts of a separate machine known as a
forming machine.
In the suction process the molten glass is sucked directly into the molds.
After the glassware leaves the forming machine, it is carried by a conveyor into a
lehyr
or closed tunnel, where it is stacked on a belt which moves slowly through an annealing chamber. The purpose of this, of course, is to prevent the finished product from cracking due to rapid changes in temperature. The bottles at the front end of the lehr are at a temperature of over 1,000 degrees Fahrenheit. The temperature gradually decreases as the bottle or container moves through the lehr. Upon its discharge the glass is cool enough to handle with bare hands.
The complaint deals with all four of these types of machinery, that is, the suction machine, the feeder machine, the forming machine and the lehr.
The suction machine was the first to appear and was the first fully automatic glassware manufacturing machine ever produced. It was put on the market in 1903 and immediately and completely revolutionized the industry, which had hitherto been limited to the hand-gathering method or to various types of semi-automatic methods. The Owens Bottle Machine Company possessed the exclusive rights on the suction machine. It licensed the use of that machine to manufacturers for specific kinds of ware, and thus set a pattern that was later followed by Hartford in the licensing and leasing of its automatic feeders. The Owens Company licensed Ball Brothers to make domestic fruit jars; it licensed Baldwin-Travis, later purchased by Thatcher, to make milk bottles; it licensed Hazel-Atlas to manufacture wide mouth ware; and it licensed the Illinois Glass Company to make narrow mouth ware. At the present time, only one of these licenses is outstanding, the license to Hazel-Atlas. However, Hazel-Atlas no longer uses the suction machine. Owens is the only concern that is now engaged in the use of that machine.
As a result of the licensing by Owens of only certain manufacturers, the remaining manufacturers in the industry were faced with the prospect of being forced entirely out of business unless a competing machine could be found. Extensive research and development programs were financed. The Brooke stream feeder was produced, but this was unsatisfactory. The invention of suspended gob feeding followed. This gob feeder was found to be more economical for certain lines of ware than the suction machine, as the latter .was then constituted, due chiefly to its ready application in the manufacture of diversified kinds of glassware, whereas the suction machine was better for long and steady runs on one item. Owens today uses both methods, suction and gob, although its use of suction greatly predominates.
Prior to the advent of the gob feeder, Owens had the whole field of automatic machinery for itself. Then, after the gob feeder was proved successful, Owens obtained certain patents and patent rights relating to that process, including the Brookfield and the Lott patent rights, and thereafter licensed a few companies in the use of its gob feeding machines.
Hartford was one of the pioneers in the development of the gob feeder. It proceeded to license and lease gob feeders in much the same manner that Owens had theretofore licensed its suction machines, that is, by issuing licenses to make specific kinds of ware.
Empire had been formed by Corning as a patent holding Company for the latter. Empire owned certain rights relating to the ’ Chamberlin applications. These applications were in interference in the Patent Office with the Hartford gob feeder applications.
On June 30, 1916, Empire and Hartford entered into an agreement wherein Empire was granted an exclusive license to use the patented glass making apparatus and processes of Hartford for the production of pressed and blown glassware, and Hartford in turn was granted an exclusive license by Empire to use the latter’s patented glass making apparatus and processes for the production of glass containers. In this manner, and by this means, Empire obtained for Corning the exclusive right to Hartford’s machinery and patents in Coming’s lines of ware, to wit, the pressed and blown field or the non-container field; and Hartford retained a free hand with respect to the remainder. This is the first transaction that the Government complains of as a violation of the anti-trust laws.
There followed agreements between Empire, Hartford and Corning on October
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6, 1922,
resulting in the formation of the Hartford-Empire Company, although the evidence discloses that the parties had agreed orally to the terms several years prior thereto. Hartford-Empire received all the assets of Hartford-Fairmont and all the assets of Empire Machine relating to the manufacture of machinery for the production of glassware. Empire received approximately 43% of the stock of Hartford-Empire. Corning received approximately the same exclusive use that Empire had received in the 1916 agreement, and Hartford-Empire received approximately the same rights from Corning that it had received from Empire in 1916, subject to a shop right in Corning that has never been exercised.
From 1916 to 1924, competition had arisen between Hartford and Owens with respect to the gob feeding process. They were in interference in the Patent Office together with other • inventors who had invented, manufactured, and placed upon the market glass feeding machines. There was extensive litigation between the two companies. Numerous conferences were .held between officials of the two companies from 1921 to 1924, looking to a settlement of their differences.
On April 9, 1924, Hartford and Owens entered into a written agreement by the terms of which Owens granted to Hartford an exclusive license on Owens’ patents relating to feeders and forming machines, and Owens received the right to use the Hartford patents for the manufacture of glassware. Owens was not to sell or license any of its gob feeding machinery. It was excluded from the pressed and blown field that had previously been reserved to Corning. Owens received one-half of Hartford’s divisible income over and above $600,000 per annum, to be collected by Hartford from its licensees. Section 22 of the agreement contained a provision that required Hartford to obtain Owens’ consent to the granting of any new licenses on machines embodying Owens’ inventions. In other words, Owens retained a veto power over the extension of licenses to use the gob feed machines of Hartford. This section was eliminated from the agreement in 1931. The agreement does not specifically mention suction machines, but, as will be shown later, it was the intention and understanding of the parties that there would be no undue competition between the suction and gob feed processes and that Owens intended to guard against any invasion of the suction field by anyone, including Hartford.
Immediately after the consummation of this agreement, the two companies set out to obtain control of the remaining feeder patents in the industry, sharing equally the costs and expenses between them, combining the efforts of their legal staffs for joint operation against the owners of feeder patents, and contributing equally to the cost of purchase and litigation expenses. Their goal was to control the licensing and production of glassware in the entire industry.
Hartford had purchased the feeder patents of the Howard Automatic Glass Machinery Company in 1921. In 1925, Hartford purchased the feeder patents of the W. J. Miller Company for $145,000, Owens sharing the purchase price. In the same year, Hartford purchased the feeder patents and applications of Tucker, Reeves & Beatty, sometimes referred to as the Federal Company, at a cost of $1,-600,000, Owens contributing one-half of the purchase price. Both Miller and Tucker, Reeves & Beatty had important patent rights and were in extensive interference proceedings with Hartford and Owens in the Patent Office. The Miller Company, before the sale to Hartford, had manufactured its feeders and had sold them outright to glass manufacturing concerns. After the acquisition of the Miller rights by Hartford, the latter brought suit against the purchasers and owners of Miller machines with the result that eventually nearly all of them became licensees of Hartford, and title to the feeders was surrendered to Hartford. Tucker, Reeves & Beatty had licensed its feeder machines. After the acquisition of the Tucker, Reeves & Beatty rights by Hartford, the licensees of the former promptly became licensees of the latter.
Other feeder rights were obtained by Hartford through suit'or threatened suit. It is Hartford’s claim that all these patents or patent applications were dominated by Hartford’s patents and patent rights. However, it is well here to mention that no controlling patents were issued to Hartford until 1926, and these were not tested in the courts until 1932.
Hazel-Atlas offered the strongest opposition to Hartford and Owens between the years 1924 and 1932. There was considerable litigation between them. Two impor
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tant infringement suits were decided by United States Circuit Courts of Appeals in 1932, one in favor of Hazel-Atlas in the Sixth Circuit, Hartford-Empire Co. v. Nivison-Weiskopf Co., 58 F.2d 701 , and one in favor of Hartford in the Third Circuit. Hartford-Empire Co. v. Hazel-Atlas Glass Co., 59, F.2d 399. Then, on July 1, 1932, Hartford, Owens and Hazel-Atlas entered into a series of agreements. Hartford granted to Hazel-Atlas the right to use Hartford patents and inventions, but Hazel-Atlas was not to license or sell such patents and inventions to anyone. Hazel-Atlas granted to Hartford the right to use Hazel-Atlas patents and inventions. Hazel-Atlas agreed to pay Hartford royalties for the use of the Hartford inventions. Hazel-Atlas was excluded from the pressed and blown field, which had previously been reserved to Corning. Hazel-Atlas and Owens were each to receive one-third of Hartford’s divisible income, that is, the income over and above $850,000 per annum that Hartford collected from royalties and license fees.
The result of these agreements was that the remaining opposition to Hartford collapsed and everyone took a license from Hartford. At the time the complaint was filed in December, 1939, there were only four small companies engaged in the manufacture of glassware who were not under license and lease from Hartford, representing less that 4% of the total production in the industry. Three of these four companies are defendants in the courts at the hands of Hartford. The fourth company, the Kerr Company, manufactures glassware with the Brooke stream feeder and appears to be out of the reach of an infringement suit because the patents on that process have expired.
The history of the forming machine control differs somewhat from that of the feeder history. The forming machine control ended with Hartford and Lynch manufacturing substantially all the forming machines for- the industry. Hartford had at an early date purchased the Cox forming machine patent rights, and in 1925, the year following its agreement with Owens, it purchased the Sears & Lobb applications; In 1924, Hartford, with Owens sharing equally in the cost, took an option on the Headley & Thompson forming machine applications controlled by the WhitallTatum Company. This option was exercised in 1933, when it appeared that the patents would issue with very broad claims and might dominate all narrow neck forming machines. Also in 1933,' Hartford purchased the O’Neill forming machine patents.
Headley & Thompson had been in interference in the Patent Office for many years with Lynch. In 1933 the Patent Office held in favor of Headley & Thompson. Immediately thereafter, Lynch purchased the Ed. Miller forming machine business located in Columbus, Ohio, a manufacturer of forming machines for the manufacture of wide mouth glassware. This transaction was accomplished through the financial assistance of Hartford and Owens, each contributing to Lynch the sum of $125,000. In addition, Lynch raised $200,000 additional through the sale of stock, with W. E. Levis, President of Owens, underwriting the sale thereof. Two days later, on August 23, 1933, Hartford and Lynch entered into a cross-licensing agreement whereby Lynch was given the right to sell forming machines embodying Hartford patents and inventions to anyone who obtained a forming machine license from Hartford, and thereafter Hartford granted a forming machine license free of royalties to its feeder licensees but charged royalty rates equivalent to the rates on feeders to anyone desiring a forming machine who was not a feeder licensee. In view of the fact that Headley & Thompson, now controlled by Hartford, was claimed to have dominated the Lynch forming machines, the result of the agreement was that Lynch could sell no narrow neck forming machines except to persons who had first obtained a forming machine license from Hartford. The Ed. Miller acquisition placed in the hands of Lynch wide mouth forming machine rights, and these apparently did not come within this requirement. This is the only situation in which the Government claims there is a violation of the Clayton Act.
Owens had already obtained an -option on all present and future Hartford inventions in the suction field. In the purchase of the Ed. Miller Company by Lynch, the latter secured certain suction rights of the Miller Company. Owens purchased these from Lynch, in addition to any other suction rights which Lynch might have. Also in 1933, Owens purchased the Knox-O’Neill vacuum machine rights. As a result of these transactions, Owens substantially completed its program for the acquisition
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of all suction rights in the United States. So far as the record is concerned, no one can now manufacture and use this type of machine without the consent of Owens. While it is true that the original suction patents have expired, Owens has improvement patents which make it impossible for anyone to get a modern version of the machine. Owens, since 1924, has refused to license or sell its suction machines to anyone who did not already have a license.
In 1934, Hartford attempted to purchase the lehr business of the Amsler-Morton Company and, failing in that, sued the Swindell Brothers, a manufacturer of glassware who had purchased some lehrs from Amsler-Morton. Under the terms of the contract of sale, Amsler-Morton was compelled to defend this suit. It was limited in its defense of the suit, however, because Swindell was under license and lease from Hartford and had agreed not to contest the validity of Hartford’s patents. Hartford prevailed in the Circuit Court of Appeals and Amsler-Morton was enjoined from further manufacture of lehrs.
On December 6, 1937, Hartford purchased title to the Nagle lehr from the Thatcher Company, and thus completed its control over the manufacture and licensing of all lehrs used in the glass container industry. It is contended by Hartford that there are in existence three or four other concerns that engage in the manufacture and sale of lehrs, but these are of so little consequence as to be negligible.
Thatcher obtained the exclusive right to manufacture milk bottles on Hartford’s original paddle needle feeder in 1920. Hartford’s first effort at the invention of a gob feeder resulted in what was known as the paddle feeder, and it came into production about 1916. The paddle needle feeder followed thereafter. Then came the single feeder, which is the machine in general use today. Prior to 1920, Thatcher had the exclusive right to manufacture milk bottles on the Owens suction machine. This was obtained early in the history of Owens, at a time when Owens obtained substantial stock holdings in Thatcher. All the other milk bottle manufacturers were gradually brought under the Hartford licensing system and, with the exception of the Liberty Glass Company, a small Oklahoma concern, were restricted in quantity. Owens also has an unlimited right to make milk bottles. Approximately two-thirds of all milk bottles manufactured and sold in the United States are manufactured by Owens and Thatcher.
Prior to 1933, Ball Brothers was the largest manufacturer of domestic fruit jars, but Hartford had never been able to license that company. Ball Brothers had operated on machines of its own design, as well as on the suction machine of Owens, the right to the latter having been obtained early in the life of the Owens-Company.
On March 25, 1933, Ball Brothers took a license from Hartford and also obtained the residual rights of Hartford in fruit jars. As a part of this transaction, several companies that were engaged in the manufacture of fruit jars under license from Hartford sold back to Hartford their limited fruit jar rights, or sold them to Ball Brothers. General Glass Company sold its fruit jar rights back to Hartford. The Knox Company sold its fruit jar rights to Ball Brothers, with Hartford cooperation. Brockway’s fruit jar business was sold to Ball Brothers by and with the cooperation of Hartford. Gayner did likewise under similar circumstances.
Much discussion was had as to the rights of Hazel-Atlas and Owens to manufacture fruit jars, and it was proposed that they be limited by written agreement to 300,-000 gross and 100,000 gross annually, respectively. It was finally decided to refrain from setting such a restriction down in writing. However, since that date, neither of these companies has in any one year exceeded these limitations, with but one negligible exception. There is one additional manufacturer of fruit jars, the Kerr Glass Company, and that company is not a licensee of Hartford. At the time the complaint was filed, Ball Brothers manufactured approximately 54.5% of all the fruit jars manufactured and sold in the United States, Hazel-Atlas 17.6%, Owens 6.4%, and Kerr 21.5%.
In 1935, the agreements between Hazel-Atlas, Hartford and Owens were revised, although they were originally designed to run until 1945. At the time of the revision, Hartford purchased Owens’ right to participate in Hartford’s divisible income for the sum of $2,500,000.
This whole system of purchases, agreements and mergers has resulted in a situation where less than 6% of the total production of glassware on feeders is on feeders not owned or controlled by Hart
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ford, and this represents less than 4% of the total production on all types of machinery. The only other substantial production is that of Owens on its suction machines, and of course Owens does not have to pay royalties on its suction production.
It is impossible for anyone to obtain a feeder, machine except by virtue of a license from Hartford. Owens has consistently refused to sell or license its suction machine. The same is true of forming machines and lehrs — a license must be obtained from Hartford. The result is that no new concern may engage in the manufacture of glass containers except with the consent of Hartford extended through a license to use its machines — feeders, formers or lehrs. During the life of Section 22 of the 1924 agreement between Hartford and Owens, Hartford was required to consult Owens before it issued a license to any newcomer in the industry. As a result, it is contended by the Government, no newcomers have been admitted into the industry during the entire existence of the Hartford Company. Hartford claims that it has licensed two newcomers, the Northwestern and Diamond companies. Although Section 22 was stricken from the 1924 agreement by Hartford and Owens in 1931, yet the record indicates that adherence to the requirements of this agreement has been carried on since 1931 without the necessity of a written agreement.
The Nature of the Case.
At the outset, it is well to consider that this is a conspiracy case; that the alleged conspiracy must be looked at as a whole; that if the conspiracy as a whole is an unlawful one, then the Government has made out a case for relief.
In Standard Oil Company v. United States, 1911, 221 U.S. 1 , at page 75, 31 S.Ct. 502 , at page 520, 55 L.Ed. 619 , 34 L.R.A.,N.S., 834, Ann.Cas.1912D, 734, the Supreme Court laid down the principles followed by it in ascertaining the intent of the parties to restrain trade, to monopolize, and to bring about monopolization. The Court there said: “the
prima facie
presumption of intent to restrain trade * * * is made conclusive by considering (1) the conduct of the persons or corporations who were mainly instrumental in bringing about the extension of power in the New Jersey corporation before the consummation of that result and prior to the formation of the trust agreements of 1879 and 1882; (2) by considering the proof as to what was done under those agreements and the acts which immediately "preceded the vesting of power in the New Jersey corporation, as well as by weighing the modes in which the power vested in that corporation has been exerted and (3) the results which have arisen from it.”
It may be well, therefore, in order to determine the intent of the parties involved in the case at bar, to consider, first, the conduct of the parties who were the main actors, second, the proof as to what the actors said and did, and, third, the results which their activities accomplished.
A total of one hundred and twelve days was consumed in actual time of trial and arguments. The evidence produced is voluminous. The record of testimony and argument consists of over twelve thousand pages. There are over three thousand exhibits, consisting chiefly of letters, contracts and memoranda, that are considerably more voluminous than the record of testimony. This is primarily a documentary case.
In the course of the trial, many of the chief officers and attorneys for the defendant corporations appeared as witnesses at the behest of the Government. Their testimony was utilized primarily for the purpose of identifying letters, memoranda and contracts that form the history of the case. Some of these witnesses conscientiously observed their oaths and freely disclosed matters within their knowledge; some of them quite apparently were testifying under difficulty because of the long period of time covered by the inquiry; and some of them, unfortunately, were clearly reluctant to make disclosures that their apparent physical and mental capabilities, and the positions occupied by them in the industry, would credit them with knowing. The reticence of some of the key witnesses to disclose what plainly was within their knowledge as principal actors in the main conferences that occurred over a period of time, and that resulted in the consummation of important agreements, was of such a pronounced character as to discount substantially the weight of their testimony, and their credibility, in the eyes of the court.
From a study of the entire record, I am convinced that there has not only been a violation of the anti-trust laws, beginning with the first agreement between Hartford and Empire in 1916, but I am convinced
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that this violation of the laws was as deliberate as any that I can find in a review of anti-trust cases. The evidence is so conclusive that I can arrive at no other conclusion.
In many cases the court is required to rely upon inferences derived from circumstantial evidence, so meager is the record before the court; in many cases the court must rely upon inferences from some direct as well as circumstantial evidence and arrive at its conclusions accordingly; in this case, the men who planned and directed the proceedings under scrutiny, from 1916 down to the time of the filing of the complaint herein, left behind them numerous exchanges of letters and many memoranda executed contemporaneously with the happening of the main events and designed for the information of their contemporaries, their beards of directors, or for their successors in office. It is hard to imagine a case in which a court would have more first-hand information of what the parties did and intended than in the case at bar. These documents indisputably make a case that sustains the Government’s contention that the defendants have violated and are now violating Sections 1 and 2 of the Sherman Act and, in the case of Hartford and Lynch, Section 3 of the Clayton Act, “by unlawfully conspiring, monopolizing, attempting to monopolize, and by unlawfully contracting, combining, and conspiring to restrain interstate and foreign trade and commerce, and more particularly by acquiring and maintaining monopolies of (a) patents covering the manufacture and licensing of glass-making machinery, (b) the manufacture and distribution of glass-making machinery, and (c) the manufacture, distribution, and sale of glass products, and by excluding others from the fair opportunity to engage freely and unrestrictedly in the interstate and foreign trade and commerce in said machinery and glass products.”
Now let us examine into the conduct of the principal actors, the proof as to what was done by them, and the results that have arisen therefrom, in order to arrive at the intent of the parties.
The Conspiracy as Related to Feeders.
Corning and Empire. There is very little evidence prior to the 1916 agreement between Hartford and Empire. The evidence does show that the two companies were in interference in the Patent Office through a conflict in the Chamberlin applications of Empire and the Peiler applications of Hartford, and that the two companies decided to settle their differences by leaving the container field to Hartford and the non-container field to Empire. Empire had been formed by Corning and Corning produced only in the non-container field at that time. So far as the production of Corning was concerned, it received everything that it desired. Hartford was given the container field, much larger than the field left to Empire, but, of course, not as large as the whole field. While one purpose of the agreement was to settle patent interferences, the effect of the agreement was also to divide the field between them with a provision that they; would not compete in each other’s field.
The agreement not only divided the fields of ware by giving the container field to Hartford and the non-container field to Corning, but it eliminated the impending competition between Hartford and the Corning interests in the glass making machinery field. In this connection it is well to note that Corning had “consistently maintained that the contract was a continual exchange of inventions and developments for prescribed fields regardless of patents.” (Ex. 358)
There is considerably more evidence in the interim between the agreements of 1916 and 1922 between these companies which sheds light not only on the purpose of the 1922 agreements, but also on the purpose of the 1916 agreement. Some time in the year 1919, F. Goodwin Smith, who was at that time general manager and who later became vice-president and then president of Hartford, wrote a memorandum concerning the proposed merger of Hartford and Empire. It reads in part as follows (Ex. 6):
“Working as one unit properly financed and properly organized, this unit owning or controlling the most modern patented automatic machine process for the various fields of ware — plus special glass formulas, would, within reasonable time, dominate the entire glass industry here in the States as far as manufacturing methods are concerned * * *
“The talent of both organizations combined should at once insure continual improvements in the art and in the design of the machines, which would insure the maintenance of leadership and practically pro
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hibit any other organization from obtaining parallel results.
“Hartford or Empire working alone as individual units will to some degree block each other on the question of patent rights, whereas working together on a basis of exchange of patent rights, the position of each, singly or together, would be greatly strengthened.”
This exhibit clearly shows that Hartford was at that time looking to a merger that would result in its domination of the art.
Exhibit 7 is a memorandum prepared by the same author, setting forth what occurred at a conference at South Dartmouth, Massachusetts, on August 2, 3, and 4, 1919, between A. B. Houghton, A. A. Houghton, Dr. Day and Alexander Falck, representing the 'Corning and Empire interests, and F. Goodwin Smith, the author of the document, representing the Hartford- interests, concerning the proposed Hartford and Empire merger. It reads in part as follows:
“Also told them that it was quite apparent to us that we must either proceed independently on a very much ’arger scale than we had in the past, or else consider the desirability of entering into negotiations with the Owens interests, Banking interests, or with the Empire Machine Company’s interests. * * * ”
Houghton said, “That there should be no secret that if we thought a merger was not the proper procedure for us, they must immediately start an entirely separate company for intensive machine development— and that unquestionably this would result in additional competition and raise the continual question of rights between the Owens group, ourselves, and the Empire group.
“He therefore thought, all points considered, that if we pooled our entire interests into one company on a 50-50 basis, it would be a proposition which would have a very large and successful future before * * #
“There is no question in my nfind but what the Owens Co. will increase their efforts to attack our patents as applied to all machines which we produce. This will prove costly as regards litigation, and may prove costly as regards some necessary changes.
“I also feel that the Owens Co. Will be forced to let down the bars as regards their present royalty basis as received from their present, licensees, which would at once create keener competition between the large Owens groups of manufacturers and our licensees. * * *
“I also feel that it will be a very disturbing factor to have the Empire Machine Co. start out with a large capital and proceed to come into the field with a still separate line of automatic machinery.”
The last paragraph clearly shows that Hartford wanted to eliminate a competitor.
Exhibit 8, written by W. H. Honiss, patent counsel for Hartford, dated October 4, 1919, to F. Goodwin Smith of the same company, reads in part as follows: "In connection with your expected conferences of next week, it may be of use to remind you of some of the assets of the HartfordFairmont Company which, in aggressive hands, our own or others, might be made very useful in limiting competition.”
Exhibit 9 is a memorandum written by F. Goodwin Smith in 1920, commenting on • the proposed Hartford and Empire agreement. It reads in part as follows:
“Will not the combined ownership of patent rights dominate the Federal situation so as to preclude this Federal feeder becoming a competitor here in the States, as well as across the water? * * *
“Any concern which can offer the use of automatic machinery and special formulas ought to eventually control the key to the glass industry in this country and foreign countries. * * * ”
From the foregoing excerpts, it will be seen that as early as 1919 and 1920, Hartford was looking toward complete control of the gob feeding art; that it wanted to eliminate the competition of Empire and combine the assets and talents of both concerns in the ultimate fight for control; and that it thought their combined rights would dominate the Federal feeder, otherwise known as the Tucker, Reeves & Beatty feeder, an important rival which Hartford must necessarily face in the near future.
An important consideration for Corning in these negotiations was its relationship with the General Electric Company in the manufacture of electric light bulbs. General Electric was a licensee of Corning in the manufacture of bulbs. On October 30, 1920; V. M. Dorsey, patent counsel for Coming, wrote-to A. D. Falck, president of that company, as follows (Ex.
677) :
“I expressed an opinion that the whole bulb situation would be strengthened if a
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monopoly could be gotten into one hand, of the Flowing field, with right to take bulb licenses from the owner of such monopoly, and that unless the HartfordFairmont Company succeeded in doing this, as they expected to do, there would be a purely competitive field which would seriously injure the monopoly in the cheapest way of producing bulbs.”
The monopolistic intention of Corning in entering into the agreements in 1916 and 1922 is further stated in another letter from Dorsey to Falck, dated September 24, 1921 (Ex. 1988):
“I have been forced to consider what we really intended to get under this Ware, Class D. As originally defined five years ago, it had two possible purposes,—
“(1) To prevent the use of the Hartford machines by others in the manufacture of baking ware, irrespective of the quality of the glass.
“(2) To let Corning use the Hartford inventions in baking ware, milk bottles, etc., if we should discover a new glass not containing boric oxide, but still useable.
“Since that time, Ware Division C has been broadened out in one way so that it no longer demands the use of boric oxide in the glass, but covers all that we really consider good glasses.
“From this it seems to follow to me, that Ware Division D could be now well changed to cover only glass-ware in which food is cooked in an oven, i. e., OvenWare. This will prevent our baking dish competitors from using the HartfordFairmont inventions without our consent, for making competing ware in the baking field, and will permit us to license them to make such ware with the Hartford invention even though the glass is of inferior quality.”
It will be seen from the foregoing that the intention of Corning in entering into the original agreement with Hartford in 1916 that effected a division of the fields of ware was not primarily to settle interferences that then existed in the Patent Office involving the Chamberlin patents of the Empire Company and the Peiler patents of Hartford. The primary intention was “to prevent the use of the Hartford machines by others in the manufacture of baking ware.” It was to “prevent our baking dish competitors' from using the Hartford-Fairmont inventions without our consent.” And it was to “permit us to license them to make such ware with the Hartford inventions even though the glass is of inferior quality.” This, of course, meant that the competitors would be charged royalties even though the output was of inferior quality.
The agreements of 1922, including the so-called “Formation Agreement,” effectuated a merger of the Hartford-Fairmont and Empire companies into what thereafter was known as the Hartford-Empire Company. The relations between Hartford and Corning were renewed and strengthened.
In 1930 and 1931, negotiations were had between officials of Corning and Hartford with a view toward revising the contractual relationship between the two companies. H. K. Smith, secretary and general counsel of Hartford, prepared a memorandum on December 29, 1930, setting forth the status of the discussions on revision of the contracts. Speaking of the question of the respective fields for the two companies, he stated (Ex, 392):
“This is by far the most difficult and important point of difference between the two Companies. It is very complicated; it is rather hard to get any general principle which will apply throughout for a division of fields and it is hard for each party to foresee the course which the glass industry may take in the coming years.
“It is my impression that Judge Green and I have reached a very vague agreement to the effect that, with many exceptions and reservations, the Corning field is, naturally, the monopolistic high quality field and the Hartford field is, naturally, the competitive low quality field. But as soon as we begin to go any further in detail, we arrive at serious differences. * * *
“Corning also raises the question of whether it cannot have a right to make containers out of ordinary glass at standard royalties. To grant any such right is contrary to Hartford’s present and long established policy of endeavoring to limit competition between its licensees within reasonable bounds, and Hartford, especially at present, would be quite adverse to putting into this very competitive field a new and powerful competitor.”
On March 3, 1931, the same author wrote a memorandum “On the Revision of Glass Contracts Protecting Monopolies.” It reads in part as follows (Ex. 393) :
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“1. The present Glass Contract” — between Corning and Hartford — “gives now * * * what Corning wants; namely, Hartford’s support and protection of Coming’s monopolies. The proposed
new
contract, in the form Corning wants, will do the same, but over a much wider scope, i. e., as to furnaces, handling and finishing devices, and lehrs, in addition to feeders and formers.
“It, therefore, raises the basic question in more acute form.
“2. What Corning wants is that H-E should so tie up all H-E’s inventions as to protect Coming’s special fields from competition
by H-E’s licensees or assignees,
even after the failure or expiration of the patents now covering those fields. * * *
“Now, what support, conversely, can HE expect for
its
monopolies from Corning? Assume that H-E feeder patents fail or expire. How will our hold on glass feeding be saved or improved by anything coming from Corning under the Glass Contract ?
“This contribution and support of Corning for our monopoly is not very imposing. * * *
“11. I do not see that the addition of furnaces will alter the principles above.
(a) It is, however, a very important addition. Probably the next greatest advance will come here. It will have the special advantage of reducing costs
without
increase of production.
(b) A real patent or patents in this line would be a powerful support for our respective monopolies. For practical reasons a merger of interest here is desirable, because furnaces are used for all fields, and separate development programs mean waste and possibly patent deadlock.”
It will be seen from this that Corning was looking forward to the day when its patents on the so-called Pyrex oven ware, known as heat resistant ware, would expire, and was making arrangements so that it would have the exclusive use of the Hartford feeders for the making of heat resistant ware in the years thereafter. This is the exact situation that obtained at the time of the filing of the complaint herein.
Again, quoting from the same document: “32. Protection of Monopolies — This is perhaps the most difficult question remaining. We agree on the general principle that it is desirable that each party should use its patent strength to protect the exclusive fields of the other.”
This plainly is an illegal, cooperative effort upon the part of Corning and Hartford to use the patent strength of each to protect the exclusive fields of the other. It is a cooperative effort for the purpose of maintaining monopolies.
From the above extracts, it is plain that the purpose of entering into this contractual relationship, both in 1916 and 1922, was, from Hartford’s viewpoint, to eliminate Empire as a possible competitor in automatic machinery, to obtain Coming’s support in getting and maintaining a monopoly on automatic machinery, and to eliminate Corning as a manufacturer in the container field; and, from Coming’s viewpoint, to obtain from Hartford a monopoly in the manufacture of non-container ware.
The result of these contracts was to give Corning the power to exclude all others from Coming’s fields. During the years that followed down to the filing of the complaint herein, there are many instances where manufacturers were kept out of Coming’s fields, either by Hartford alone or by Coming’s refusal to consent to their entrance into its fields. Hartford refused requests by Fry Glass Company, Mantle Glass Company, Owens, Bartlett-Collins and Swindell Brothers. Corning refused to consent to the licensing of MacBethEvans, Fairmont, Indiana Glass Company, McKee, and Anchor Hocking. The record does show that in two or three instances limited licenses were granted in this field with Coming’s consent.
Coming’s valuable glass composition rights for heat resistant ware and oven ware expired in 1936, but Hartford refused to license anyone to make this ware on its feeders, thus helping Corning to maintain its monopolies.
The contract between Corning and Hartford does not in itself give Corning any control over the future policies of Hartford. But that Corning does exercise such a control consistent with its own desires is clear. A. D. Falck, president of Corning, in exhibit
676,
dated June 8, 1920, wrote that it was decided “not to make this request, as we have entire confidence in you and your group. We will, however, wish to participate actively in formulation of policies and major decisions, and I assume
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from what you have said to me that this will be your desire.”
Also, F. Goodwin Smith of Hartford wrote to A. D. Falck on October 27, 1927 (Ex. 271): “at the time of the formation of the Hartford-Empire Company, you considered Empire’s minority holdings of 45% amply protected, as Beech-Nut, Hartford and Monongah represented to you three separate and distinct holdings, and, further, that these three groups
might not
always agree among themselves. Therefore, from a practical standpoint the 45% held by Empire was to all intents and purposes as good as control.”
In addition to the 45% of the stock of Hartford that is held by Corning through Empire, the record indicates that there have always been at least four of eight to nine members of Hartford’s board of directors who were also directors of Corning or Empire. Hence Corning not only had an exclusive license from Hartford covering the non-container field, but it also in practical effect had sufficient control over Hartford to dictate the policies of Hartford in accordance with Coming’s wishes.
In 1922 these two companies, Corning and Hartford, did not have an actual monopoly of feeders. At that time there were four serious competitors of Hartford,. in the gob feed field. These were the Howard Automatic Machinery Company, the Owens Bottle Company, the William J. Miller Company, and the Federal Company, the latter having control of the Tucker, Reeves & Beatty feeder rights. Hartford was in litigation and interference with all these companies. But by the end of 1925, Hartford owned or controlled all the feeder rights which these companies possessed.
Howard. The Howard interests were the first to come under the control of Hartford. This was accomplished by outright purchase. Howard had licensed some of its machines and in taking over the patent rights it was necessary that Hartford prevent the Howard licensees from obtaining a defense of estoppel against Hartford, in order to leave Hartford free to sue them and force them to take licenses from Hartford. To this end the Beech-Nut Packing Company, which was one of the original organizers of Hartford, purchased the stock of Howard and then transferred it to the Hartford Special Machinery Company, which in turn transferred to Hartford all the Howard patent rights. We shall later see just what relationship an involved transaction of this kind has to the reference of the Supreme Court to “manifestations of guilt.”
The purpose of Hartford in entering into the Howard transaction is clearly expressed by F. Goodwin Smith of Hartford in a statement to his Executive Committee on June 23, 1922, as follows (Ex. 58):
“If outstanding, he presents a very serious competitor commercially. * * *
“The sale of Howard to Owens would be distinctly disastrous, probably the worst single thing that could happen. That Owens has twice tried to buy out Howard, making considerable offers therefor.”
That Howard was an active competitor of Hartford is further shown in a statement by V. M. Dorsey, patent counsel for Corning and Hartford, on April 12, 1922 (Ex. 57) : “Howard has a going business and a feeder which can compete with ours unless properly shut up.”
The same author wrote to F. Goodwin Smith on December 27, 1921 (Ex. 1522):
“I repeat what I have said before that so far as affects the suppression of piracy and control of the gob feeding art, I believe the deal with Howard is more effective than any deal you can make with Owens. * * *
“ *
* * I again say that you will not by reason of your deal with Owens be able to stop pirates. * * * On the other hand, the deal with Howard permits an immediate, effective, offensive campaign coupled with the necessity of protecting our rear from Owens.”
Thus it is plain to be seen that Hartford’s purpose in entering into this transaction was both to eliminate a competitor and to obtain rights which could be used against other competitors. It is well at this point to again keep in mind that while Hartford was an applicant for basic patents, none was actually issued to it by the Patent Office until 1926. Regardless of this, Hartford refers to its competitors as “pirates.”
Owens. The next important step was an agreement by Hartford with Owens that eliminated all competition between them. From the record, this appears to be the most important and far-reaching step ever taken in the history of the industry. The negotiations extended over a period of several years, beginning about 1919 and
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concluding with a written agreement dated April 9, 1924.
At the time negotiations between the two companies commenced, Owens was primarily a manufacturer of glassware, although it still licensed some concerns in the use of the suction machine and had outstanding a few gob feeder licenses.
We now come to another fundamental motive behind the desire of the defendants to concentrate the control of automatic machinery in the hands of one individual. We have already seen that it was Hartford’s desire to obtain domination of the feeder art, and this, of course, was for the purpose of receiving the greatest possible income from its proposed licensing system. Owens’ main purpose was different. Owens wanted stabilization of the industry in the marketing of glass products so that higher prices might be charged. A means to that end was the control of the feeder business in the hands of one concern, with enough control retained to enable it to keep everyone in line. Thus, the feeder monopoly was a means to an end so far as Owens was concerned. With Hartford it was the other way around. Hartford wanted a feeder monopoly in order to obtain the greatest possible income from royalties. A means to this end was the stabilization of the industry, since a well stabilized industry meant that higher royalties could be absorbed and passed on to the consumer. Thus, stabilization of the industry was a means to an end so far as Hartford was concerned. We will now look to the exhibits which show these purposes and how the companies worked together so that each might obtain its desired end.
During the negotiating period, various plans were offered and rejected or modified. Many conferences were held. The conferring officials of the two companies followed Hartford’s policy of preparing memoranda of these conferences as a means of communication with their brother officers, boards of directors, etc. At times it appears that the negotiations had definitely failed. During the entire period of the negotiations, the record indicates that Michael Owens of the Owens Company assumed the initiative in presenting his ideas and the ideas of his company- to the Hartford representatives. His 'expressed convictions looking to a regulated control of the glass container industry cannot be misinterpreted. The general situation at the beginning of the negotiations is clearly set forth in a memorandum prepared by H. K. Smith of Hartford, dated December 23, 1921, in which he set forth what occurred in a conference between ofcials of the two companies (Ex. 23) :
“3. Mr. Owens stated that a number of years ago there had been developed and put into commercial operation glass feeding and forming machinery, broadly known as the Owens machine. At that time the industry was in very crude shape, and in rather precarious condition; that this new machine became adopted, glass manufacturers used it for a number of years and became generally prosperous, and that everything was happy until the rise of the device or process which Mr. Owens referred to as the ‘plug feeder’ — probably intending to cover thereby the general method of feeding by the plug, needle, or in gobs, as distinguished from the Owens suction method.
“4. That up to this time the industry had become fairly stabilized and was in generally sound condition. That the Owens Company had adopted the general policy of taking in royalties one-third of the saving made by their machines.
“5. But then, upon the appearance of the said new process, trouble arose all around. The patent protection, which had hitherto stabilized the industry, was assailed, seriously endangered.
“6. That he had made two attempts to come to some adjustment with the Hartford-Fairmont Company. * * *
“7. That the Owens Company were now making a third attempt to get some solution of a very serious situation. That if they did not succeed in doing so, they would have to fight over the entire field to a general finish, by all proper means.
“8. That the Owens Company would go in for such a fight expecting one or the other of the following final results r
a. Either that the Owens Company would result in dominating the entire glass-industry, — or
b. The whole field of the industry would be thrown wide open on a purely competitive basis, with no considerable patent protection for any one, and any ‘farmer’ could take up this cheap method and go into the glass business. * * . *
“11. He, however, preferred to disregard in this discussion any concrete questions of the merits of patents, assuming that each side has a strong patent position and:
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is thoroughly confident of that position. Assuming this — the fact nevertheless remains that as long as Owens and Hartford continue to fight each other, the so-called ‘outside feeders’ will continue to operate and increase in number, with all their destructive effect on the stability of the industry. That
as
long as these outsiders know that our two companies are fighting with each other, the outsiders will feel safe, or at least safe enough, to go on and increase their present hold on the trade. They are, however, badly scared on the merits of the patent questions and if the Owens and Hartford companies should combine, they would probably run to cover. * * *
“16. Mr. Goodwin Smith then said that he agreed with Mr. Owens namely; that the future stabilization of the glass industry was most important and most essential to both interests, and that he personally was particularly worried as to what the outcome would be if continual patent litigation between Owens and Hartford destroyed all advantages of any patent monopoly and permitted outside o feeders to continue to license their machine. * * *
“Mr. Smith stated, however, that he felt some means could and should be worked out whereby Owens and Hartford could combine their patents and skill to effect the stabilizing of the industry. *
* *
“19. All of the Hartford representatives indicated that they were in agreement with the position stated by Mr. Owens as to the danger of unstabilizing the industry and of destroying or greatly reducing the present patent control of it, and that they also agreed that it was very important that the two companies should take any measures they could to prevent such dangers.”
This exhibit shows that the considerations which prompted the officials of the two companies to negotiate were (a) competition arising between them in licensing and (b) stabilization of the industry.
At a later date another meeting was held between representatives of the two companies, and a memorandum of this conference was written by H. K. Smith of Hartford, exhibit 26, dated January 17, 1922. Pie wrote that J. C. Blair, of Owens, stated at the conference that “there should be in the glass industry some concern like Owens in a sufficiently strong position practically. to force a stable price policy upon all important producers; that if Owens, by the plan as above suggested, had the free use of its own suction feed and the free use of the gob feed it could then go to any other producer who threatened to cut prices and unstabilize the market, and inform him that such a policy was detrimental, but that if the outsider persisted in doing so Owens had a sufficient margin, by reason of its free use of both devices, so that if necessary it could come out on top in a price war and still make money. He felt that some such stabilizing influence was necessary and that it could only be established through one company having such a peculiar strength as would be given in this case.”
Exhibit 1962 is a communication by W. H. Honiss of Hartford to F. Goodwin Smith of Hartford dated January 26, 1924:
“Toledo naturally wants one or both of:
“(a) The control of our licensing to keep a check on growing competition from our future licensees.
“(b) A large share of our income as an edge in meeting such competition.”
Thus it is plain that one element of stabilization of the industry was the elimination of price-cutting and the establishment of a stable price policy. Owens wanted to be in a position to dictate the prices which could be charged for glassware by having a sufficient lee-way in cost so that no one could fairly compete with it. Owens could then force competitors to sell at its prices. If they refused, Owens would be in a position to win out in a price war.
Exhibit 21 is a letter from F. Goodwin Smith of Hartford to E. M. Ashcraft of the Illinois Glass Company. At this time, Ashcraft was engaged as- an intermediary between the Hartford and Owens companies. He was tied by obligations of his company to both Owens and Hartford. The Illinois Glass Company was an early licensee of Owens for the use of the suction machines in the manufacture of narrow neck ware. At a later date it became a licensee of Hartford for the use of the gob feeder in the manufacture of narrow neck ware. The letter is dated February 15, 1921, and reads in part as follows:
“Owens also went on to say that he doubted very much whether either Howard or Miller or ourselves or anybody, as a matter of fact, would control the basic claims for gob feeding — that .he thought the control was very much split up, — prob
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ably we had valuable claims, Howard had valuable claims, Miller had valuable claims, and that Owens could contribute something of value. Therefore, it seemed very logical that we in some way or other should get together with the Owens Company to see if the gob feeding method could be entirely controlled by the two companies, even if it meant acquiring Howard and others. •
“Owens felt that if no one controlled the gob feed method, the whole field would be open to a number of feeders which would unstabilize the general trade, and that our licensees would be thrown into competition with a lot of small factories that could get Howard or Miller feeders on a
5‡
or a
6‡
royalty rate.”
This letter indicates that Owens was not so much interested in the patent angle as it was in the ultimate control of the patent situation by someone who was in sympathy with Owens’ desire to stabilize the industry. There are many other exhibits that clearly show the negotiations were intended to eliminate competition between Hartford and Owens, to control the gob feeding art, and to stabilize the glassware market.
Exhibit 24 is a memorandum by F. Goodwin Smith of Hartford dated January 24, 1922, and reads in part as follows:
“I think it must be definitely assumed that the offer of Owens was based:
“(a) To prevent patent and commercial war between the two methods of manufacture — Suction Machines vs. Gob Fed Machines.
“(b) To stabilize the industry and strengthen patent assets for the purpose of eliminating outside feeders and machines. *
*
*
“High rates of royalties, Owens maintain, will stabilize business and place them as a company in a very strong position to control and dominate.”
Exhibit 30 is a memorandum of a conference by H. K. Smith of Hartford, dated March 3, 1922, in which he states
“That this negotiation is exclusively directed at harmonizing the situation as between the suction and gob feeds. * * *
“Owens wants—
“(a) Stabilization of the industry
“(b) Raise royalties
“(c) Control status of gob and suction feed in container field.”
Exhibit 574 contains a part of the minutes of an Executive Committee meeting of Hartford on April 19, 1922: “Other features of the plan were that H-F should receive general immunity for its gob feeders and its formers from Owens — that some restriction preventing over-plant investment and price-cutting was to be placed on the licensing of gob feed by H-F and that Owens should agree not to license their gob feed at all in competition with H-F. That the whole plan should be probably conditioned upon getting the consent of the majority of our licensees to a satisfactory royalty raise. That the two companies would cooperate actively in attacking the outsiders, sharing equally in the expenses including cost of buying out outsiders, if necessary, and equally in the proceeds.”
Exhibit 32 is a memorandum by H. K. Smith of Hartford relative to a conference with J. C. Blair of Owens on April 20, 1922:
“It would be a prerequisite that a substantial majority of the H-F licensees should agree beforehand on a proper royalty raise. This extra payment would probably have to be conditioned upon the maintenance, generally speaking, of the gob feed monopoly; that the licensees would undoubtedly say — ‘Suppose we agree to pay this extra rate and then both your patents and those of Owens fall down so that the field is entirely open. Have we got to go along paying this raise?’ I said it seemed to me fairly obvious that the licensees would object to such a possibility. I did not see just what form of guarantee we could give them as to the maintenance of the monopoly. We could not, of course agree that these payments should be conditioned upon the absolute exclusion from the industry of every outside form of feeder; that on the other hand they were entitled to a substantial protection. * * *
“That Owens was not to license its gob feeder to outsiders or in competition with the Hartford gob feed and that some reasonable restrictions shall be placed upon H-F so that it shall not license its feeders in such a way as to produce over-plant investment or danger of price-cutting.”
Exhibit 1925 is a communication by A. D. Falck of Corning to F. Goodwin Smith of Hartford, dated April 25, 1922: “The value of the whole deal depends upon the extent to which gob feeding processes can be monopolized, and therefore the How
*561
ard situation and possibly the Federal must be appraised and provision made for controlling them by successful suit and bringing the users in as sources of income or, failing a control by successful suit, by purchase on a fifty-fifty basis, to which purchase I think Owens must be positively committed.”
The last communication indicates that the settlement of patent interferences or infringement suits was not the impelling reason why Hartford and Owens wanted to join their interests, but it does definitely indicate that they were aiming at a complete control of the gob feed process and that they aimed to effectuate that control by purchase of outside feeder patents and rights on a fifty-fifty basis if they failed to gain control by successful suit. The record shows that in due course Howard and Federal were both purchased, the former alone by Hartford and the latter through joint contribution of Hartford and Owens.
On April 22, 1922, H. K. Smith of Hartford wrote to J. C. Blair of Owens as follows (Ex.34):
“There is another point which I think I ought to touch on. As we understand it, this arrangement will practically divide the industry, so far as our two companies are concerned, into two branches — the suction process branch controlled by Owens and the gob feed branch controlled by H-F. We both recognize that there is a distinct field for each of these processes. It would seem then to be the proper thing to let the two processes go along side by side and each develop the proper field as the demand from the industry would naturally work it out. But, of course, we both also recognize that it would be unfortunate to have this parallel development of the two processes reach a stage where competition between the two became generally destructive and unstabilized. With this in view we have accepted the proposition that restrictions tending to preserve stability shall be imposed, and, of course, it is just as important that the suction process and any future development of it should not be used to unstabilize the industry, as it is that the gob process should not be so used. I have tried to state this idea in Section 6 of the memorandum.
“I think we both recognize that when it comes to defining these restrictions, necessary for stability, we shall probably have a good deal of difficulty, but I still feel that it can be done with a fair degree of success.”
Here it appears that restrictive licenses were to be resorted to in order to effect stabilization of the industry. Restrictions in the licenses would, of course, be feasible because of the plan followed by Hartford of refusing to sell its machinery outright. By retaining title to its machines and licensing a use thereof and exacting from the user a royalty on all glassware produced from it, Hartford now appears to be considering cooperation with Owens in the use of these restrictions, not as a part of its patent privilege as a patentee, but because “we have accepted the proposition that restrictions tending to preserve stability shall be imposed.”
Exhibit 37 is a memorandum by H. K. Smith of Hartford, dated April 27, 1922:
“4. It is agreed in principle as follows: * * *
“(b) That Owens Company is able to contribute substantially to the maintenance of the Patent monopoly on gob feed.
“(c) That H-F’s contribution to such maintenance will be greater than that of Owens Company.
“5. That the commercial considerations, involved in considering either an agreement or a conflict between Owens and H-F, are of greater importance than the relative patent values controlled by the two companies. By ‘commercial considerations’ is meant the domination of outside feeders, the stabilization of the industry tending against irresponsible price-cutting; the general co-operation between the gob and suction processes for an orderly development of the two side by side, such as will be most beneficial to the interest of the two companies and to the industry; and finally the steadying influence that will be established in the machine side of the industry by a recognized co-operation between the two companies.
“6. That there is a broad field for the application of the gob process and that, broadly speaking, the two processes in the hands of friendly companies should be allowed to develop side by side and find their natural field and expansion.
“7. That under some such arrangement as has been generally discussed in these negotiations H-F would have entire discretion as to the licensing of the gob feeders,
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and Owens would not license its gob feed in competition therewith. * * *
“11. Contributions by Owens Company. 5*5 SK S»<
“(c) Contributing to the control of the outside feeders, to the stabilization of the industry and the establishment of a substantial monopoly over the gob feed process. * * *
“17. There is a further disagreement
on
the relative values, outside of cash, offered by Owens and H-F. The chief factor in this question is that which relates to maintaining the gob monopoly permanently, and deals with the relative values of the patent defenses offered by H-F and Owens for that purpose.”
Here the parties are in agreement that the “commercial considerations” — and by that they mean the domination of outside feeders and the stabilization of the industry tending against irresponsible price-cutting —are of greater importance than the relative patent values controlled by the two companies.
This appears to be conclusive of the question as to whether or not the agreement about to be entered into was brought about primarily for the purpose of settling Patent Office interferences and litigation in the courts, or whether it was done so that, by joint efforts and through the cooperation of the two companies, dominance over the entire glass container industry might thereby be obtained. It appears unquestionably that the settlement of patent differences was secondary in purpose.
Here also is an
agreement
about to be entered into between owners of competing patents, each patent employing and defining a separate method in the making of glass products, to wit, the gob feed method and the suction method. A combination of competing patents for the purpose of obtaining domination in a field of industry, where such competing patents represent the only commercially practicable methods in a field of industry such as the glass container industry, has the effect of destroying the competition that has theretofore existed between the two methods of manufacture.
“Combinations between owners of independent patents, whereby, as a part of a plan to monopolize the commercial field, competition is eliminated, are within the Sherman act, for the reason that the restraint of trade or monopoly arises from combination, and not from the exercise of rights granted by letters patent.” Blount Manufacturing Co. v. Yale & Towne Manufacturing Co., D.C.Mass.1909, 166 F. 555 , at page 562.
While there was no combination of the suction and feeder patents in the case at bar, the owners did enter into an agreement with the understanding that there would be no undue competition between the two methods, as will be discussed more fully later in this opinion.
Exhibit 1892 contains minutes of an Executive Committee meeting of Hartford on April 19,
1923:
“Voted: That the present form of the negotiations with the Owens Company be discarded and that the whole matter be taken up anew with Owens Company on approximately the following basis:
“(a) That no deal between our two companies alone would in any way make a clean-up of the gob feed situation or stabilize the industry.
“(b) That to do this, it is necessary to settle the factor of the Federal patent rights and licensing business.
“(c) That as each of our companies, Hartford-Empire and Owens, have something on the Federal Company, the best strategy is for our two companies to go against Federal in unison. This' makes a stronger attack and cuts out the chance of the Federal Company playing one of us off against the other.
“(d) That this, if carried out successfully with Federal, is the one procedure which will promptly and completely stabilize the situation and stop the very serious Miller advance.”
Exhibit 43 is a memorandum written by F. Goodwin Smith of Hartford, dated April 27, 1923:
“2. Stabilization:
“We concur and urge the necessity of taking immediate action towards controlling the present feeder situation, and submit the following form of an agreement,— any agreement to merely cover the Container field:
1. Owens agrees to turn over to Hartford its present gob feed patents and applications pertaining to feeders and formers.
2. A deal with Federal to be made, whereby Federal is assured a definite income for a definite term of years, in return for Federal turning over to Hartford all their patents,, applications and licensees all
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income above the net amount guaranteed Federal, to be divided between Owens and Hartford 50-50.
3. Users of Miller feeders to be sued for infringement by Hartford, with agreement that they either be stopped or certain ones be allowed to continue to use Miller feeders at higher rates of royalty than Hartford is now asking.”
From the above extracts it will be seen that Owens was primarily interested in a stabilization of the industry. Later we will go more fully into what the parties meant by “stabilization of the industry.” Hartford was fully in accord with this desire, and was willing to go along with it, because it meant that when Hartford obtained control of the feeder art, its income would be enhanced through the power to charge high royalty rates.
As early as the date of the purchase of the Howard assets, Hartford recognized the desirability of stabilizing the feeder situation. Exhibit 1889 contains a statement by F. Goodwin Smith of Hartford to the Executive Committee of Hartford at a meeting on May 18, 1921, to the effect that he “felt that the Howard feeder was sufficiently good to upset trade conditions in general, inasmuch as this feeder when operated by the smaller glass concerns would permit the small concerns to continue to exist and at the same time quote prices which would be detrimental to the general trade.”
Again, exhibit 56 is a memorandum by F. Goodwin Smith of an interview with Howard on April 25, 1922: “Howard stated quite frankly that he realizes something ought to be done to stabilize the trade, and that in general he would be willing to consider any proposition that gave the stockholders a reasonable return and did not destroy the prestige which he and his company had obtained.”
Corning also thought that stabilization of the industry was a factor to consider. Exhibit 1928, a letter written by A. D. Falclc of Corning to V. M. Dorsey on July 25, 1923, reads in part as follows:
“On the whole, however, it seems to me that substantially all the points I have raised in a crude way have the merit of being absolutely .fair. The fundamentals of an agreement with Owens for the settlement of our patent differences, the stabilization of the commercial container business, and the sharing with Owens under conditions of the income can all be met without including in the agreement any of the provisions which I consider improper and unfair.”
The issuance of new licenses would, of course, play an important part in the program of stabilization. On this point, Dorsey thought that there might be trouble. Exhibit 612 is a letter from H. W. Carter, of the Patent Department of Owens, to J. C. Blair of the same company, dated August 14, 1923, in which the author stated that another problem was, “with regard to the proposed participation of Owens in the future conduct of the feeder business. As to any such arrangement, Dorsey would, in the first place, be in fear of the anti-trust laws, and in the second place, could see no basis of agreement between a company which must primarily regard the granting of licenses from the point of view of greatest possible income, and a company which, on the other hand, would primarily have in mind the effect of such licenses on competition.”
Eventually, however, the officials of both companies realized that a cautious policy with respect to issuing licenses worked for the best interests of both.
Hazel-Atlas at this time was a large manufacturer of glass containers and, of course, the policy adopted by it would have considerable bearing on whether the industry could be stabilized in the manner in which Owens and Hartford desired. However, this possibility was evidently taken care of. In a memorandum by H. W. Carter of Owens, dated November 7, 1923, he states (Ex. 611):
“They” — Owens and Blair — “even stated, as their view, that the advantage of having the feeder field under some patent control is so great, from a business standpoint, that this company would rather see such control in the hands of Hartford than to have the field open — that consequently if we should lose out on Lott, we would have no interest in holding Hartford in the Patent Office by interference proceedings, or in defeating Hartford’s claims in court — that our interest would rather be in aiding Hartford to maintain its control, than to narrow or defeat its patents, or delay their issue.
“To my inquiry as to whether we could •rely on Hazel-Atlas -going with us in this policy, their answer was in the affirmative — that they were anticipating no dif
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ficulty in this respect. Mr. Owens quoted statements of Mr. J. C. Brady which would lead to the conclusion that the Hazel-Atlas Company would rather pay royalties for the use of its plug feeders, than to have the field open, quoting him further as saying that they could, if necessary, return to the flow feeder for their line of ware in case the royalty situation became too onerous.”
The agreement of April 9, 1924, shows how Owens finally obtained its position of dominance in the industry and how it was placed in a position whereby it could force its policy of stabilization upon the rest of the industry. The agreement gave Owens the use of 40 feeder units, free of royalty. In addition, Owens did not have to pay royalty on its suction production. Finally, Owens was to receive one-half of Hartford’s income from royalties over and above $600,000. Hence Owens not only did not have to pay royalties on nearly everything it produced, but it also received a share of the royalties paid to Hartford by all the other licensees of Hartford, some of whom were competitors of Owens. This resulted in Owens obtaining a very favorable position and one in which it would have the power to enforce a stable price policy in the industry.
The procedure to be followed in arriving at the ultimate goals of Hartford and Owens was the elimination of competition between themselves and their respective gob and suction processes, an attack against all outsiders until Hartford had complete control over all automatic machinery used in the production of glassware, and then the licensing by Hartford of every glassware manufacturer in the industry.
Immediately after the agreement of April 9, 1924, the two companies began a systematic program for the elimination of all competition. First, they settled the patent interferences and court litigation existing between themselves. Not only did they settle these interferences and suits, but they did so with an eye to coming out of the Patent Office with the strongest possible claims and patents with which to attack the remainder of the field. For example, claims were dropped if the effect was to make other claims stronger, or the claims in their respective patent applications pending in the Patent Office were shifted about so as to bring out the strongest possible patents.
The agreement of April 9, 1924, did not cover all the inventions of both concerns. However, the companies showed a spirit of cooperation in matters outside the contract, which is an indication that the agreement was not based on patent considerations. Exhibit 614, signed by R. D. Brown of the Patent and Licensing Department of Hartford, and J. F. Rule, of the Patent Department of Owens, dated September 2, 1925, reads as follows:
“The undersigned believe that it is for the interest of both companies to mutually disclose, consider and settle any overlapping or conflicting matters of inventions that may arise between the companies, even though such overlapping or conflicting matters may be outside the field of licensed inventions.
“It is therefore requested that permission be given to the patent attorneys of the respective companies to dispose of any such conflicts by agreement of such attorneys or by means of the arbitration system which is now in force as to matters falling under licensed inventions.”
W. J. Miller and Tucker, Reeves & Beatty. Two very important steps were taken in 1925. In that year the assets of the W. J. Miller Company were purchased, as were also the patent rights of Tucker, Reeves & Beatty, sometimes referred to as the Federal Company. The two companies, Hartford and Owens, shared in the purchase price of each, the sum of $145,000 being paid for Miller, and $1,600,-000 for Federal. The exhibits clearly show that the purpose in purchasing the Miller feeder rights without going through a patent fight was that Miller was selling machines outright, and this constituted a serious menace to Hartford’s licensing and lease system. This is shown in a letter from H. W. Carter of Owens to W. H. Boshart of Owens, dated August 23, 1924 (Ex. 621):
“Miller sells his feeder installation outright for $5000.00, and where does this leave the royalty game ? There cannot possibly be more than one answer unless Miller can be stopped by patents.
“It is fatuous to believe that glass manufacturers are going to continue to pay royalties in the face of competition which pays no royalty and yet has the use of such a successful feeder as Miller’.”
The same was generally true of Federal, or Tucker, Reeves & Beatty. The feeders
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of this company were licensed and leased but at a much lower royalty rate than was charged by Hartford. In this transaction Hartford was interested both in adding more to its income from licenses and in eliminating a competitor. K. E. Peiler, an inventor and engineer for Hartford, wrote in June, 1922, that the Federal feeder was (Ex. 70) : “a serious competitor in the tumbler field and a menace in the bottle field. It has many possibilities of development, both as a distinct type of feeder and as an adjunct to other types of feeders.”
On August 12, 1925, H. W. Carter of Owens wrote to W. H. Boshart of Owens (Ex. 1972): “Tucker and Reeves are today in possession of a very practical and desirable form of feeder, which is the basis of a going business of sizable income and which feeder is of such a distinctly different type from those developed by Hartford and Owens in principles of construction and method of operation. * * * If the Tucker and Reeves type of feeder is added to what we now have it would be a distinct asset to our feeder business and as an immediate and definite source of income.”
Miscellaneous. Another part of the plan was a system of litigation against all remaining outsiders. Here the power of litigation pursued by a strong combination of two companies, one of which, Hartford, was dominated and partially owned by a third powerful company, Corning, backed by unlimited financial means, is brought into play against individual companies, most of them small manufacturers of glass products. Suits were brought against Hazel-Atlas, Kearns-Gorsuch, Lamb, Nivison-Weiskopf and Obear-Nester. The expense of this litigation was shared equally between Hartford and Owens, and this expense was by no means small. The record discloses that Hartford expended substantially $900,000 in the pursuit of litigation against so-called outsiders. The Hartford Company did most of the work, but Owens contributed a substantial part, and the patent lawyers of both companies were continually consulting each other with respect to both substance and procedure.
The litigation against Nivison-Weiskopf cleared itself up when the assets of that company were purchased by the General Glass Corporation, which company then sold its patent rights to Hartford and took a license.
The litigation with the Obear-Nester Company is still pending, several suits having been filed.
The litigation with Lamb ceased after Hartford had come to an agreement with Hazel-Atlas and the latter had taken a license from Hartford. Lamb then followed suit by taking a license.
Kearns-Gorsuch was a subsidiary of Hazel-Atlas and that litigation ended with the settlement with Hazel-Atlas in 1932.
In the meantime, in 1928, Hartford and Owens had purchased the Rankin feeder rights.
The Rankin feeder was controlled by a man named Pratt. He had decided to bring suit against Hartford when Owens and Hartford purchased his rights for $63,500. The purpose of this acquisition is shown in a letter from F. Goodwin Smith of Hartford to W. H. Boshart of Owens, dated October 18, 1928 (Ex. Ill) :
“You and the rest of us want stabilization in the industry to be accomplished as soon as possible, and you and all of us admit that one step towards accomplishing stabilization is for us to have our patents adjudicated, and the infringers either brought in under a license or closed up. I therefore was strongly of the opinion that if Pratt himself or the purchaser of the Pratt patent and applications brought suit against this Company at this time it would go a long way towards negating the prestige which has come to us in winning the St. Louis suit.
“As I see it, Hartford cannot afford to be in a defensive position. It has assumed the offensive policy and must continue to do so.”
Hazel-Atlas. We have seen how Owens and Hartford entered into a partnership agreement in 1924 for the purpose of obtaining a monopoly of all gob feeder rights, for the elimination of competition between the gob feed and the suction methods of manufacture, and for the stabilization of the industry. In 1932, a third partner was brought in, and from then on it was only a question of time until those purposes were achieved. The agreements between Owens, Hazel-Atlas and Hartford made thenceforth a three-way partnership, two of whom were the largest manufacturers in the glass container industry.
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Hazel-Atlas had been fighting the Hartford gob patents for a number of years. It had obtained a suction license from Owens at an early date, as we have heretofore seen, but in later years it had been using the gob feed process to a large extent. While it was not much interested in the marketing of machinery, it was insisting upon its right to use the machinery which it manufactured.
Shortly after the completion of the agreement between' Owens and Hartford in 1924 these two companies set about to license Hazel-Atlas. The purpose of this attempt was the strengthening of their patent situation and the further stabilization of the industry. However, the negotiations broke down and it was not until 1932 that an agreement was finally worked out.
In 1932, the patent situation between Hartford and Hazel-Atlas was coming to a head. Two suits had just been decided by different United States Circuit Courts of Appeal, one in favor of Hartford (Hartford-Empire Co. v. Hazel Atlas Glass Co., 3 Cir., 59 F.2d 399 ), and one in favor of Hazel-Atlas. Hartford-Empire Co. v. Nivison-Weiskopf Co., 6 Cir., 58 F.2d 701 . There was still the possibility of an appeal to the Supreme Court from the decision in the Third Circuit, which went against Hazel-Atlas, and Hazel-Atlas did contemplate this. Before that was accomplished, the parties reached an agreement.
The underlying reasons for entering into this agreement can be seen from a letter written by F. Goodwin Smith of Hartford to A. D. Falck of Corning, the latter being also a director of Hartford, in June, 1932 (Ex. 140). In this letter, F. Goodwin Smith explained that if no deal with Hazel-Atlas was made and the patent position of Hartford failed,
“1. O. will be affected as follows: * * *
“(b) Loss of opportunity to stabilize industry * * * O. considers stabilization worth several hundred thousand dollars a year. * * *
“2. Hartford will be affected as follows:
(a) * * * practical abandonment of licensing business.
“3. H-A will meet present and increased competition.”
But if a deal was made and the patent position did not fail, the writer stated that, “Hartford,- Owens and Hazel-Atlas will have solidified industrial situation.”
Exhibit 123 is a communication from H. L. Heintzelman, president of Monongah Glass Company, to F. Goodwin Smith, dated June 19, 1924, setting forth what occurred at a conference between the writer and certain officials of Owens:
“I explained that the amount of royalty paid was not so material so long as it was within reason, provided we had some way to get it back, but that my experience was that Hazel-Atlas was not inclined to get big prices for their product, and I enumerated a number of cases to illustrate this. I soon found out that they knew about as much regarding Hazel-Atlas’ business methods as I did and that they had been continually endeavoring to get them to change their policy, but that heretofore their representation on the Hazel-Atlas board did not mean anything, as Mr. Brady had been inclined to dominate the policy and had gotten away with it.
“Mr. Boshart informed me that he felt quite sure that Mr. Brady now realized his mistake in policy and that they were going to make an effort to change this policy. He further stated thát it is absolutely necessary that they do so, because they had made no money last year, and the forepart of this year was equally as bad, and that they were in a position where they had to do something.
“Owens is now represented on the Hazel-Atlas board by Mr. Boshart and Mr. Biggers, and both of these gentlemen spoke very highly of the two members of the. board recently put on.
“Mr. Boshart suggested that I get up a price list, have it printed, then, take the matter up with Hazel-Atlas, and the others concerned, and he felt that some good would come from it. I told him I would give this consideration.”
Exhibit 644 is a communication from H. W. Carter of Owens to W. H. Boshart of Owens, dated May 4, 1925:
“In talking with Mr. Neave and Mr. Philbin, Mr. Belknap expressed great confidence in the outcome of our suit against Miller on the Lott patents. We urged that Hazel join with Owens and Hartford on the broad proposition that the true interests of the industry demand the building up, rather than the tearing down, of patent control, and that Hazel as one of the big figures in the industry, should be helping, rather than hindering, in this direction.” ¡
Exhibit 140 is a letter from F. Goodwin Smith of Hartford to A. D. Falck of Corn-'
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mg dated June 15, 1932. In speaking of the proposed Hazel-Atlas agreements, he said that if no deal was made with Hazel and the patent position failed, there would be "Loss of opportunity to stabilize industry as far as present competition goes. O considers stabilization worth several hundred thousand dollars a year.”
Under the terms of the agreements worked out between the three companies, Hazel-Atlas contributed its patents to the Hartford pool and received therefor the right to one-third of Hartford’s income from royalties paid by Hartford’s licensees over and above $850,000. Owens’ participation in Hartford’s income from royalties was likewise to be one-third thereafter instead of one-half as it had previously received. Hazel-Atlas was to pay standard royalties and was excluded from Coming’s fields.
Owens’ right to the free use of 40 feeder units was eliminated, as was the provision in the 1924 agreement that Owens was to share in Hartford’s litigation expenses. From this time on, the combination and the conspiracy was merely enhanced by the presence of another large manufacturer who, up to that time, was the second largest manufacturer in the glass container industry. The ends desired were still the same, but from this time on there were three large hands to work out the program, instead of two. All three contributed whatever they could toward the common objective.
Results. Hazel-Atlas had been the leader of the opposition to Hartford until 1932. Hartford and Owens were particularly anxious to have Hazel-Atlas take a license because of the effect on the remainder of the industry. In other words, they thought that the remaining outsiders would fold up and become Hartford licensees as soon as they learned that Hazel-Atlas, their leader, had done so. It is also a fact, as established by the record, that with the advent of a favored licensee to the combination, the newcomer immediately put forth his utmost efforts toward inducing other concerns to likewise license themselves to Hartford. This was true immediately after Hazel-Atlas joined the combination in 1932. It was true after Ball Brothers had joined its interests with those of Hartford in 1933. In the case of Hazel-Atlas, it was advantageous to it to induce other concerns to pay royalty fees to Hartford because it, with Owens, was sharing in these royalty fees. It was advantageous to Ball Brothers to induce other concerns to accept licenses because it brought them under the restrictive licenses of Hartford, whereas it had an unlimited and residual license from Hartford.
What Hartford, Owens and Hazel-Atlas anticipated did shortly occur. Within a year all but seven manufacturers in the industry had taken licenses from Hartford, and three of these subsequently took licenses. Today only four so-called outsiders remain, to wit, Kerr, Obear-Nester, Reed and Jeannette. The latter is not in the container field but manufactures more in the pressed and blown field. All of these companies, with the exception of Kerr, are being sued by Hartford.
The Conspiracy as Related to Suction Machines.
There can be no doubt that one of the purposes of the 1924 agreement between Hartford and Owens and their relations thereafter was the elimination of competition between the gob feed process and the suction process. While it is not specifically stated in the agreement that Owens would thereafter have the exclusive use of the suction process in return for Hartford’s exclusive use of the gob feed process, yet the negotiations preceding the signing of the agreement leaves no doubt that one of the primary purposes in entering into the agreement was to divide the industry into two branches, to wit, suction, to be controlled by Owens, and gob feed, to be controlled by Hartford. Furthermore, as a result of the elimination of competition in the gob feed process, the industry could be stabilized. It would, of course, be futile to eliminate competition in the gob feed process if competition between the suction and gob processes was to continue.
As early as February 15, 1922, F. Goodwin Smith wrote a memorandum (Ex. 20) in which he pointed out that, “a feeder with forming machines represents a competing unit to the Owens Suction-fed automatic bottle machine.”
Exhibit 35, a memorandum dated April 21, 1922, written by H. K. Smith of Hartford, reads in part as follows:
“5. Owens is not to go out and license its forms of gob feed in competition with the H-F feed. In principle H-F. is to be the gob feed concern and Owens the suction concern.
“6. H-F. shall restrict the issuance of further licenses in the container field in such manner, (to be defined more specifical
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ly later), as shall preserve the general principie of preventing over plant-investment and over-production, as well as keeping the licenses out of the hands of objectionable and irresponsible parties.
“In like manner, Owens shall restrict the licensing of its suction feed and all developments thereof in such a way as to maintain a similar position.”
On April 22, 1922, the same author wrote to J. C. Blair of Owens as follows (Ex. 34): “this arrangement will practically divide the industry, so far as our two companies are concerned, into two branches— the suction process branch controlled by Owens and the gob feed branch controlled by H-F.”
On March 3, 1922, H. K. Smith wrote that (Ex. 30) :
“Owens wants * * *
“(c) Control status of gob and suction feed in container field.”
Exhibit 24, a memorandum by F. Goodwin Smith, dated January 24, 1922, says in part:
“I
think it must be definitely assumed that the offer of Owens was based:
“(a) To prevent patent and commercial war between the two methods of manufacture — Suction Machines vs. Gob Fed Machines.”
In a memorandum dated April 27, 1922 (Ex. 37), H. K. Smith wrote:
“That the commercial considerations, involved in considering either an agreement or a conflict between Owens and H-F, are of greater importance than the relative patent values controlled by the two companies. By ‘commercial considerations’ is meant the domination of outside feeders, the stabilization of the industry tending against irresponsible price-cutting; the general .co-operation between the gob and suction processes for an orderly development of the two side by side, such as will be most beneficial to the interest of the two companies and to the industry; and finally the steadying influence that will be established in the machine side of the industry by a recognized co-operation between the two companies.
“That there is a broad field for the application of the gob process and that, broadly speaking, the two processes in the hands of friendly companies should be allowed to develop side by side and find their natural field and expansion.”
In Exhibit 33, a memorandum by H. K. Smith written in 1922, he says:
“(1) We must keep it clearly in mind that this license plan in theory, at’ least, still leaves the two companies to go on independently, except so far as they join for the purpose of attacking outsiders.
“In theory this means that the gob and suction processes will be in direct competition, letting the best process win. This situation will raise several questions, as follows:
“ (2) • Owens will undoubtedly want some limits placed on our new single feeder. If we go out with it broadcast, Owens may also do the same with theirs, as they have threatened, and there will be a sharp competitive war in spite of the agreement This might go so far as to be bad for both.
“(3) There is also involved in this general question, the question as to what is to be done with the outsiders when dominated. How many shall be allowed to survive and at what price ?
“(4) It is almost certain that Owens will recognize these difficulties and will demand that some limits be placed both on our single feeder and on the gob feed outside. In other words, they will want to put some limits on any straight out fight between the gob and suction process.
“(5) If they do this, however, it is equally logical for us to demand that there be limits placed on the use of new forms of the suction feed. If it is not to be a free-for-all fight, then both sides must be limited equally.”
Here is the spectacle of an officer — a secretary, general counsel and director of the Hartford company — discussing, in negotiations for an agreement with the largest manufacturer of glass products in the country, agreements or understandings that to him, as a lawyer, he must have known were in direct violation of the anti-trust laws. He says that there is involved “the question as to what is to be done with the outsiders when dominated,” He says further, “How many shall be allowed to survive and at what price?” He says that Owens “will want to put some limits on any straight out fight between the gob and suction process.” He says, “It is equally logical for us to demand that there be limits; placed on the use of new forms of the suction feed. If it is not to be a free-for-all fight, then both sides must be limited equally.” I repeat that it is not necessary
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for a court in this case to resort to inferences from either circumstantial or direct evidence.
As stated above, the 1924 agreement does not specifically cover the suction process. The reason may be found in the testimony of K. E. Peiler of Hartford, at page 7095 of the record:
“Q. Well now, this much is clear: that you understood, as you just said, that Owens would take the suction field, and your company would take the gob field? A. Yes.
“Q. And you also understood, did you not, that they wouldn’t do anything to injure your phase of the business, in entering the gob field business, and, of course, neither would you do anything to injure, them in the suction field? A. Well, of course, I realized that once having made an agreement whereby we got the license, they couldn’t touch us, and as far as suction was concerned, they were already established, and what little I had done in suction didn’t amount to much, so we couldn’t have touched them at the then stage of the game on suction.”
However, shortly after the 1924 agreement, a question came up with respect to suction feeders, as distinguished from suction machines, in which the glass was raised into a gathering cup by suction, but the glass got into the molds as freely dropped mold charges. On May 12, 1926, R. D. Brown of Hartford wrote to F. Goodwin Smith of Hartford as follows (Ex. 1734):
“The developments now actively under way in Peiler’s suction feeder and in O’Neill’s suction feeder make it highly desirable that an understanding be had with Owens as to whether suction feeders are or are not ‘licensed inventions’ under the contract of April 9, 1924. * * *
“I recommend that an understanding with Owens on this question be arrived at before they have a chance to learn of the possibility of commercially exploiting our suction feeder.”
In accordance with this letter, the matter was taken up between the two companies and settled with respect to this particular device. Hartford agreed that it was a licensed invention and hence Owens would share in the income. Exhibits 249, 615.
In 1929, the officials of Hartford and Owens got- together and determined which of their respective suction patents might be used against the O’Neill suction gathering machine. There was a possibility that some of the claims of each company would be put into interference with each other in the Patent Office, and to avoid the delay in attacking O’Neill a plan was worked out whereby Owens would drop its claims having subject matter interfering with Hartford’s application. Exhibit 1880.
Later, in the same year, it was contemplated that in the acquisition of the O’Neill rights, Hartford would be entering into the suction field. Since suction was outside the 1924 agreement, Owens was not entitled to share in the income. Owens would not consent to this, and a special provision was contemplated whereby they would share in the income from this particular device. At that time, both companies realized that there was a possibility that Hartford could compete with Owens in suction. Exhibit 257.
Exhibit 252, a communication by H. K. Smith to F. Goodwin Smith, both of Hartford, dated July 30, 1929, reads in part as follows: “The other important problem is the effect of this partnership with Owens on our mutual relations in the suction field. I have tried to leave us, and Owens, as free as possible in that field for the future, and still bring us together enough to protect the present and future O.S.M.”— O’Neill Suction Machine — “as it may be fairly forecast.”
Exhibit 253, a memorandum written by H. K. Smith of Hartford, dated July 30, 1929, entitled “Knox-O’Neill Summary”, contains the following:
“The .purchase contracts now outstanding call for (83) machines. These machines will be free of royalty and free of all restrictions on ware.
“This block is so large that it will certainly, if the machine is successful, cause a great disturbance in the industry; very serious friction with our licensees, and they
might
have the result of upsetting our present licensing system, on which the stability of the industry depends, and forcing us, also, to a straight sales policy. * * *
“He” — Levis—“stated that he felt, off hand, favorably inclined toward the plan, but that he favored it more because of what it promised for the future relations of Hartford and Owens than because of the merits of this particular O’Neill matter. He said that it was his ideal that Hartford
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and Owens should enter into much closer relations; Hartford should be the sole controller and licensor of all patents, both gob feed and suction, or any other form developed by the two companies; should be the sole developing company; and that Owens should confine itself solely to manufacture. He also wanted to have Owens have preferential rates under all the combined group of inventions, and a share in all the income therefrom.”
Here is the picture of the second member of this “partnership,” Owens, making arrangements to confine its activities solely to manufacturing, giving to the first partner, Hartford, the control and licensing of all patents, both gob feed and suction, or any other form developed by the two companies, and agreeing that Hartford should then be the sole developing company. However, under this setup, Owens was to receive preferential rates over its competitors who were also to be licensees of Hartford; and, in addition, Owens was to have a share in all the income produced by royalties collected from its competitors. This, of course, had the effect of placing Owens in a position of decided advantage over all other manufacturers of glass products who produce the same lines of ware produced by Owens.
Exhibit 629, a communication from Garland Lufkin of Owens to H. W. Carter of Owens, dated October 12, 1929, reads in part as follows:
“I consequently agree with you that there is very little to be gained by us in continuing our present effort to conceive new ideas on feeder type machines.
“Instead, I think we should turn these efforts to suction type machines. The importance of doing this seems to be all the more vital in view of the following analysis :
“At the present time, there are quite a few manufacturers paying feeder royalties to Hartford who are successfully competing with us. This indicates at least a rough equality between Owens operating costs and feeder operating costs plus royalties.
“In a few years these manufacturers will be able to use feeders without royalties, so that we must accomplish sufficient reduction in our cost of Owens operation by that time to offset their present royalty charges, if we wish to remain even on an equal footing.
“We must, however, do better than that if we are to acquire the position in the industry for which we are aiming, and this would mean, among other things, that our Owens costs will have to be much lower than feeder costs.
“If this can be accomplished, it will demonstrate the superiority of the suction gathering process and will therefore attract many other manufacturers to this type of machine. Consequently, it is very necessary that we get all the patent protection possible on improvements in the suction field.
“Inasmuch as the Hartford-Empire Co. has no connection with us on suction inventions and since it is quite likely that their engineers have been giving a lot of thought to this type of process, it would appear that some agreement with Hartford on inventions pertaining to this process, would be desirable. If such an agreement cannot be worked out, then it is of the more importance for us to concentrate our attention on this particular line.”
In 1932, as a part of the agreements entered into between Hazel-Atlas, Hartford and Owens, the two latter companies did come to an agreement on suction rights. In this agreement, Hartford gave Owens an option to take up any suction rights that Hartford might develop.
Owens was getting a little apprehensive of Hartford entering the suction field with the possibility of producing a machine that would cut Owens off from its favorite position. Early in 1932, Hartford wanted to get into the Owens plants to see some of Owens’ suction developments, but Owens refused. Owens stated that it was very jealous of its suction field, even as against Hartford. H. W. Carter of Owens wrote to F. G. Smith of Hartford on January 29, 1932 as follows (Ex. 631):
“For you will readily see, Goodwin, that the difficulties of our relationships in respect to this particular matter are inherent in our basic agreement. In recognizing your dominant interest in the feeder field, you will recall that we were very careful to insist on our own dominant position in the suction field, and I do not think I am giving away any secret when I say that the interests which control this company, both those which were originally attached to the old Owens organization, and those which have come into control through the Illinois Glass merger, are still decidedly jealous of anything that looks towards an invasion of
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this field by others, including yourselves.
“And while there has been a certain relaxation of this attitude because of our common interest in discouraging O’Neill’s incursion in this field, this department recognizes it is still the controlling view of our management.
“So much so that when on June 20, last, I made, at the suggestion of Mr. Hazelton, my guarded inquiry as to the rumor which had reached us to the effect that you were trying out a suction feeder, I reported to Mr. Levis as follows—
“ ‘Concerning Mr. Hazelton’s report and the suggestion in that connection that we inquire of Hartford as to what they are doing in their development of a suction feeder. Am doing this as per

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1555166. Public record. Not legal advice.