# United States v. United Shoe MacHinery Corp.

> District Court, D. Massachusetts · February 18, 1953 · 110 F. Supp. 295

URL: https://www.frixlaw.com/law-library/cases/1878333

## Case

- **Full name:** United States v. United Shoe MacHinery Corp.
- **Court:** District Court, D. Massachusetts
- **Decided:** February 18, 1953
- **Citations:** 110 F. Supp. 295; 1953 U.S. Dist. LEXIS 3089
- **Precedential status:** Published
- **Opinion:** Opinion by Wyzanski
- **Judges:** Wyzanski
- **Cited by:** 187 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/1878333

## How later opinions describe it (automated extraction)

- finding violation of § 2 where defendant had such strength in relevant market that it controlled that market, its strength excluded potential and limited actual competition, and its strength was not attributable solely to its ability, research, natural advantages, etc.

## Opinion text

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WYZANSKI, District Judge.
Findings of Fact, Conclusions of Law, and Opinions.
I.
■ Introduction.
December IS, 1947 the Government filed a complaint against United Shoe Machinery-Corporation under § 4 of the Sherman Act, Act of July 2, 1890, c. 647, 26 Stat. 209 , 15 U.S.C.A. § 4 in order to restrain alleged violations of §§ 1 and 2 of tliat Act, 26 Stat. 209 , SO Stat. 693, IS U.S.C.A. '§§ 1, 2.
Stripped to its essentials, the 52 page complaint charged,
first,
that since 1912 United had been “monopolizing interstate trade and commerce in the shoe machinery industry of the United States” [Par. 27 \(a)]. This first general charge was then subdivided, as it were, into these charges: (a) “monopolizing the manufacture and distribution in interstate commerce of all major shoe machines, except upper stitching and cement sole attaching .machines” [Par. 27(b)]; (b) “attempting to monopolize the manufacture and distribution in interstate commerce of cement sole attaching machines” [Par. 27(b)]; (c) ' “monopolizing the manufacture and distribution in interstate commerce of numerous minor machines” [Par. 27(c)]; (d) “attempting to monopolize the manufacture and distribution in interstate commerce of * * * minor shoe machines” [Par. 27(c)]; and (e) “monopolizing the manufacture and distribution in interstate commerce of parts used in shoe machinery leased by United” [Par. 27(d)]. The
second
principal charge laid by the complaint was that United had been (a) “monopolizing the distribution in interstate commerce of numerous * * * shoe factory supplies” and (b) “attempting to monopolize the distribution in interstate commerce of * * * other such supplies” [Par. 27(e)].
Third,
the complaint alleged United was “attempting to monopolize and monopolizing the manufacture and distribution in interstate commerce of tanning machinery used in the manufacture of shoe leather” [Par. 27(f)].
In support of this three-pronged attack, directed to shoe machinery, shoe factory supplies, and tanning machinery, the Government set forth detailed allegations with respect to acquisitions, leases, patents, and a host of other aspects of United’s business. The- part of this opinion containing findings of fact sets forth, in the same order as does the complaint, the Government’s allegations concerning, and this Court’s finding upon, each of these aspects. ■ ;
After stating its charges, the Government prayed ior an adjudication of United’s violations of both § 1 and § 2 of the Sherman Act; an injunction against future violations; a cancelation of United’s shoe machinery leases; a requirement that United offer for sale all machine types “manufactured and commercialized by it and be enjoined from leasing shoe machinery except upon terms * * * approved by the Court”; a requirement that, on such terms as the court may deem appropriate, United make available to all applicants all patents and inventions relating to shoe machinery; an injunction against United manufacturing or distributing shoe factory supplies; a cancelation of exclusive contracts governing shoe factory supplies; and a divestiture of United’s ownership of virtually all branches and subsidiaries concerned with shoe factory supplies or tanning machinery.
Defendant answered seasonably, denying all the significant allegations, and relying upon the judgments rendered by the Supreme Court of the United States in an earlier case brought against this company’s predecessor under the Sherman Act, IS U.S.C.A. §§ 1-7, IS note, United States v. United Shoe Machinery Company of N. J., 247 U.S. 32 , 38 S.Ct. 473 , 62 L.Ed. 968 and another case against this company under the Clayton Act, 15 U.S.C.A. § 12 et seq., United Shoe Machinery Corp. v. United States, 258 U.S. 451 , 42 S.Ct. 363 , 66 L.Ed. 708 .
A trial of prodigious length followed. The court attempted to shorten the hearings by requiring defendant in advance of trial to submit to the Government’s exhaustive requests for discovery, by requiring the Government at the opening of its case to file a brief correlating all its proposed evidence, by encouraging the use of sampling
*299
devices, and by insisting that the Government should, in formal answers, indicate in each branch of the case on what evidence it principally relied. Nonetheless, the hearings took 121 days and covered 14,194 pages of transcript and included the offer of 5512 exhibits totalling 26,474 pages (in addition to approximately 150,000 pages of OMR’s and over 6,000 soft copies of patents) and 47 depositions covering 2122 pages. At the close of the evidence the Court asked for briefs, and requested findings of fact and conclusions of law. The Government offered briefs totalling 653 pages, and requests totalling 667 pages. United submitted briefs totalling 1240 pages, and requests totalling 499 pages.
In an anti-trust case a trial court’s task is to reduce, as far as fairness permits, a complex record to its essentials, so that the parties, the Supreme Court, other courts, the bar, and the general public may understand the decree, and may recognize the premises on which that judgment rests. It is not the Court’s duty to make a precise finding on every detail of four decades of an industry. It is not its duty to approach the issues as an historian, an archaeologist [See A. N. Hand, Trial Efficiency pp. 31, 32, Business Practices Under Federal Antitrust Laws, 1951 Symposium, N. Y. State Bar Assoc.], an economist, or even a master appointed to settle every factual dispute. A trial judge who undertakes such tasks will unnecessarily sacrifice the rights of litigants in other cases clamoring for attention. Moreover, he will encourage just that type of extravagant presentation which has come to plague the field of anti-trust law. Hence this opinion is to be construed as denying on the ground of immateriality every request not granted.
Endeavoring to keep within reasonable and readable limits, this opinion, after this introductory part, sets forth in Part II findings of fact addressed to (A) defendant’s corporate structure, (B) fundamentals of shoe manufacture, (C) aspects of the shoe manufacturing industry, (D) a definition of the shoe machinery market relevant to this case, (E) defendant’s share of that market, (F) acquisition of property and patent rights, (G) restrictive agreements, (PI) leasing, (including written provisions, unwritten practices, service, effect of these provisions and practices on United, its lessees, and its competitors, and United’s pricing policy), (I) research, (J) policing of competition, (K) patents, (L) secondhand machinery, (M) shoe machinery parts, (N) shoe machinery supplies, and (O) tanning machinery. The aforesaid sections F to O follow the order of the Government’s complaint, and in no sense reflect order of importance. Part III considers questions of law pertinent to defendant’s alleged violations of the Sherman Act; Part IV, questions of remedy.
II.
[The ordinary reader can skip the whole of Part II, since its gist is summarized at the start of Part III. The role of Part II is primarily to dispose of 1166 printed pages of Requests for Findings.]
Findings of Fact.
A. Defendant’s Corporate Structure.
February 7, 1899 United Shoe Machinery
Company
was formed and took over the business of Goodyear Shoe Machinery Company, International Goodyear Shoe Machinery Company, Consolidated' & McKay Lasting Machine Company and McKay Shoe Machinery Company. March 1899, it acquired the business and property of Eppler Welt Machine Company and' International Eppler Welt Machine Company. This phase of United’s history has been explored in the Sherman Act case reported in D.C., 222 F. 349 and 247 U.S. 32 , 38 S.Ct. 473 , 62 L.Ed. 968 . No- material new facts respecting this early period were shown in the present proceedings.
By merger in 1917, this defendant, United Shoe Machinery Corporation, a New Jersey corporation, organized on May 2, 1905, became the successor of United Shoe Machinery Company. The business now conducted by United Shoe Machinery Corporation has been continuous since the organization of United' Shoe Machinery Company on February 7, 1899, and for the purposes of this case no distinction usually need be made between the
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enterprise formerly conducted by it and its predecessor. The enterprise is therefore usually hereafter referred to as United whether the reference is collective to the several corporations prior to 1917 or to the defendant alone after that date. The predecessor is sometimes referred to as the United Company.
United and. its subsidiaries, viewed collectively, are engaged in the development, manufacture, and distribution of shoe machinery and parts for that machinery; the servicing of that machinery; the manufacture of shoe factory supplies; and the distribution of those and other shoe factory supplies.
United manufactures at its main factory at Beverly, Massachusetts, all its shoe machinery, except treeing machines, tree feet, and irons, which it manufactures under the name of O. A. Miller Treeing Machine Company, at Plymouth, New Hampshire. Before January 1950 it manufactured certain machines under the name of Booth Brothers Company, at Rochester, New York; but in 1950 it transferred those manufacturing operations to Beverly.
Through branoh factories, United itself manufactures dies, at Binghamton, N. Y. and St. Louis, Mo., eyelets, under the name of J. C. Rhodes & Co. at New Bedford, Mass, and the S. O. & C. Co. at Ansonia, Conn., awls and drivers, under the name of United Awl & Needle Có. at West Med-way, Mass., shanks, under the name of United Shank & Findings Co. at Whitman, Mass, and Plymouth, N. H., and boxboard and fibreboard, under the name of Davis Boxboard and Fibreboard Division at West Hopkinton, N. H.
United has a majority of the voting stock of the following subsidiary corporations: B. B. Chemical Co., manufacturers of cements, blacking, adhesives, inks, stains, finishes, re-inforcing materials, waxes etc.; S. A. Felton & Son Co., brushes; Hoague-Sprague Corp., shoe-boxes, shoe box blanks, and box forming machines; Fred W. Mears Heel Co., Inc., wood heels and wedge blocks; Shoe Form Co., Inc., plastic shoe and hosiery forms, plastic utility boxes, and fish hooks; Shoe Lace Co., shoe laces; The Turner Tanning Machinery Co., tanning machinery; United Last Company, shoe lasts and bowling pins; W. W. Cross & Co., Inc., cut tacks and nails; and Krippendorf Kalculator Co., supplier of technical services for shoe factories.
United owns about 20%, of the voting stock of Tubular Rivet and Stud Company, manufacturers of hooks, rivets, and grommets. Defendant and E. I. du Pont de Nemours Company each own one-half of the voting stock of Celastic Corporation, manufacturers of celastic material and celastic box toes.
At February 29, 1950 United and controlled subsidiaries had 6274 employees. In the five fiscal years ending February 28, 1946, 1947, 1948, 1949, and 1950, United’s assets, as reported to shareholders, fluctuated between 103 million dollars and just over 105 million dollars; earnings before federal taxes between 9.4 and 13.5 million dollars; and earnings after federal taxes between 6.2 and 8.79 million dollars.
B.. Fundamentals of Shoe Manufacture.
In relation to this case it is necessary only to summarize certain aspects of shoe manufacture. Basic facts are that shoes are made to provide an approximate fit for every foot; no two feet are alike; consumers wish shoes for widely varying purposes, of widely differing styles, and of widely differing materials. Shoe styles have become increasingly varied as shoes have developed to serve not only strictly utilitarian, but also aesthetic, purposes, which alter as fashion alters.
Almost all shoes are made over wooden lasts. Lasts are made in graded sizes, and in models appropriate for the particular type of last style desired by the shoe manufacturer.
A shoe consists principally of the upper and the bottom. The shoe upper (of which the main components are the tip or toe, vamp, quarter, tongue, backstay, counter, box toe, ' lining, and doublers) is usually made from leather, though other fabrics are also used. Leather characteristics vary widely not only between skins of different types, but even in different areas of
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the same skin. There is less variation in fabrics. The parts of the shoe bottom (of which the main components are the insole, outsole, heel, and shank-piece, and in some shoes the mid-sole and platform) are made sometimes of leather, and sometimes of other materials. Fastening operations are made by tacks, nails, wire, cement, thread, or fibre.
Shoe manufacturing proceeds by cutting parts from flat stock, joining them together as sub-assemblies, and shaping them over a last. The successive steps are performed differently in the manufacture of different shoes, but, so far as concerns this case, it will be sufficient to state that the steps often are performed, in succession, in the upper-cutting room, the upper-fitting room, the stock-fitting room, the lasting room, the bottoming room, the making room, the finishing room and the treeing room.
There are at least 18 principal shoe manufacturing processes, each of which involves distinctive operations in lasting or sole attaching or both. Those processes principally in use are: McKay, turned shoe, pegged shoe, nailed shoe, screwed shoe, Goodyear welt, McKay welt, single-sole stitchdown, two-sole stitchdown, three-sole stitchdown, prewelt, lock-stitch, cement shoe, cement welt, slip-lasted, soft-sole, rubber shoe, and moccasin.
Shoes for every known end use are manufactured by more than one principal manufacturing process. Each shoe manufacturer may vary the steps and operations used in the various processes according to his preferences, the materials used, the type of shoe, the profit-making potential, and many other variables..
Shoe manufacture is a long chain of detail operations, each preparatory to a succeeding operation and often requiring individual correction or adjustment. The final goal is the production of pairs of shoes of uniform and agreeable appearance, and appropriate fitting characteristics. This requires progressive correction of inaccuracies due to lasts, materials, industry practices, and operator performance. Such correction makes the manufacture of shoes different from'the usual fabrication and assembly process current in many other types of manufacturing industry.
C. Aspects of The Shoe Manufacturing Industry.
Since machines were introduced, begining with the advent, during the Civil War period, of the first McKay machine, shoe production has steadily risen. In 1899, 217 million pairs were produced; in 1927, 367; in 1937, 424; in 1947, 485. Peak all-time production was reached in 1946 at 529 million pairs.
There is no evidence that this increased production has been accompanied by an increase in the
number
of machines. In fact, the market for the more complex and expensive machines may have contracted.
In 1911 the number of shoe manufacturing enterprises was Í300; in 1927, 1377; in 1937, 993; in 1947, 1462. Shoe factories are located in over 30 states. In 1947, 437 were in Massachusetts, 391 in New York, 122 in Pennsylvania, and 121 in Missouri. No other state had more than 100. In
1947,
there were 664 known factories having capacity of 1,000 pairs per day or less; 226, between 1,000 and 2,000 pairs daily; 107, in excess of 5,000 pairs daily.
While there are a few shoe manufacturers such as International Shoe Corporation and General Shoe Corporation with assets, employment rolls, and bargaining power comparable to defendant, the overwhelming majority of concerns are small in production, assets, and employment rolls. The industry tends to disperse to small towns and to migrate gradually westward and southward.
It has been easy to enter the shoe manufacturing business. Many have started with small capital; and some, from a small start have become large producers. The shoe manufacturing business has been highly competitive with respect to style, cost, choice of processes, production techniques, and other factors.
There is no standard set or Humber of shoe machines which every shoe manufacturer must have. He not only has personal
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choice as to which process, processes, or sub-processes he will use, but he has wide choice as to whether a particular operation will be performed by hand, or by one or another type of machine. Some machine types have 'been familiar for a long time; others have been newly called into being by a new process or sub-process; others have been adapted to- a different process. The consequence is that the concept ■ of “shoe machinery” includes complicated relationships between different types of machines : in function, some types are parallel to other types; some are sequential to other types; and occasionally a pair of types which are competitive when used in two different shoe -manufacturing processes, are complementary when used in a single shoe manufacturing process.
Moreover, shoe machinery types may be as simple as a marking machine or a tack-detecting machine; or as complicated as a pulling over, toe lasting, heel seat lasting, or side lasting machine. With respect to the more complicated machines these generalizations may safely be made. To design them requires advanced engineering skill, familiarity with the problems of shoe-making, and generally, prolonged expensive research. Such complicated machines must have versatility and adjustability to meet varying last-styles, size-width combinations, combinations of materials and fastening materials, and shoes processed with varying degrees of skill. These machines will work with greatest satisfaction if shoes presented to them have been properly prepared in preliminary processes, and sometimes by appropriate auxiliary machines. No matter how skillfully designed, these complicated machine types will require frequent repair service. And breakdowns of such machines should be promptly attended to, because, in the shoe manufacturing industry, stoppages are particularly costly. The shoe manufacturer produces in small units or case lots; he must meet a market notoriously volatile, seasonal, and'fashion-ridden; his consumer is traditionally impatient; and his own labor cannot be efficiently and economically used if there is much down time. Moreover, there is a high degree of interdependence of machine operations in each factory, which accentuates the factors stressed in the last sentence. In support of the foregoing generalizations, defendant offered a wealth of corroborative detail. Recitation of that detail is unnecessary for the Government challenges not the accuracy, but the relevance of the generalizations.
D. A Definition of The Shoe Machinery Market Relevant to This Case.
The Government in paragraph 27(a) of its complaint charged defendant with monopolizing apparently
all
of the “interstate trade and commerce- in the shoe machinery industry,” and then in the following sub-paragraphs suggested that there are four appropriate sub-markets: (1) major shoe machines, except upper stitching and cement sole attaching machines; (2) cement sole attaching machines; (3) minor machines-made by United; and (4) other minor machines.
If it were important, it would not be difficult to find that there were various sub-markets, each of which as a matter of fact constituted an identifiable “part of the trade or commerce among the several States” within the meaning of § 2 of the Sherman Act. But in this case it is expedient to move directly to the question whether there is a more comprehensive market including not all of. the trade in shoe machinery, but all of that trade, except dry thread sewing machinery.
For the moment the exception may be disregarded, and attention focused on the propriety of broadly including in one aggregate market all other types of shoe machinery. In the previous section dealing with, characteristics of the shoe machinery industry, it was noted that some types of machines perform parallel functions, some sequential functions in relation to each other, and that some types are used only in one process, others in more than one. But regardless of. the relationship of a particular machine type to another type or to a particular process, they are in the same market, because all processes are in competition with one another. Each shoe manufacturer, regardless of what class of
*303
shoe he makes, is aiming for that part of the ultimate consumer’s dollar that is spent on footwear, - and the processes that he uses, and the machines -he selects, therefore, compete with the processes and machines which others select. Indeed, United itself repeatedly emphasizes in its requests for findings how highly competitive the shoemaking industry is in production techniques and other factors.
Furthermore, United, by itself offering virtually all machine types (except dry thread sewing machines), helps to define the shoe machinery market. To define a market in terms of ’what the most important producer offers does not involve circular reasoning. For the problem of defining a market turns on discovering patterns of trade which are followed in practice.
Nor is it inappropriate so to define the market as to exclude dry thread sewing machinery. Again, without any circular reasoning, this exclusion might be rested on the fact that the dominant and most experienced shoe machinery manufacturer, United, does not offer such dry thread sewing machinery, and shows in its records, its internal and external communications, and its research and other activities that such sewing machinery is apart from the broad field of other shoe machinery. But the exclusion rests also on additional bases. No major manufacturer of sewing machinery makes other types of shoe machinery; and no major manufacturer of other types of shoe machinery makes sewing machinery. Sewing machinery, unlike other shoe machinery, is used in many industries other than shoe manufacture, and its manufacture does not require detailed knowledge of the whole art of shoe making.
E. Defendant’s Share of That Market.
As an aid to calculating United’s share of the market, plaintiff offered records of machines in shoe factories as of certain dates. These were the Outside Machine Installation Reports (OMIR’s), Outside Machine Supplemental Reports (OMSR’s), and Outside Machine Removal Reports (OMRR’s), collectively referred to as OMR’s.
Each of the OMIR’s and OMSR’s reports a particular shoe machine not made by United, and said to be in a particular shoe factory. The report is on a form with spaces for recording its date and serial number, the name and address o’f the shoe manufacturer involved, the title of the' outside machine, the name of its manufacturer, its serial number, the name of the company installing the outside machine, the date of installation, the terms upon which it was installed, the payments made by the shoe manufacturer, whethér the outside machine is in use, the shoe manufacturing function it performs, and the type of shoe upon which it is used.
The OMRR’s. recite information on the removal of an outside machine, the date of its removal, whether it has been replaced by another machine or hand labor, and the reasons for its removal.
There are about 76,000 OMR’s ■ in United’s files, all but 3 of which were prepared by United’s employees, usually upon the basis of what they saw, sometimes upon the basis of what they were told by the supposed users of the machines, rarely from other sources.
OMR’s are prepared in quintuplícate. One copy goes to United’s Patent Department, another to its Research Division, a third to the interested operating department, and two are filed by the Miscellane-’ ous A Department. The record of this case abounds in instances where these OMR’s have been used in United’s business by the Miscellaneous A Department in preparing weekly bulletins, by United’s operating departments in preparing annual reports, by personnel in the Research Division, by the Patent Department and by others. Therefore, regardless of whether the author of a particular OMR himself observed what he reported, the OMR is admissible in evidence as an adoptive admission. United States v. United Shoe Machinery .Corp., D.C.Mass., 89 F.Supp. 349 .
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In considering the reliability, as distinguished from the admissibility, of the OMR’s, these factors deserve mention! The OMR’s cover only the factories to which United’s representatives have access. Yet, without laboring the point, it is clear that these are factories where more than 95%, of all American shoes are made. The OMR’s are not absolutely current with respect to installations and removals of competitors’ machines; but the constant checking by United’s representatives keeps the inventory at least as up-to-date as is apt to be the case with any other industry-wide reporting system. The OMR’s do not report accurately the details in any particular shoe factory, as was evident from 45 depositions taken in 1948 — 1949; but these depositions also show that the aggregate industry picture was substantially as portrayed in the OMR’s — such discrepancies as existed being due, in part, to the fact that the sample was over-weighted in favor of factories using the cement process. Furthermore, the picture given by the OMR’s as to one very important area, that in which United competes with Compo, was proved to reflect with high accuracy the number of machines Compo had competing with United — for the testimony of Compo’s own witnesses tended to corroborate the OMR’s. Most important of all, is United’s own use of these OMR’s in connection with business decisions at the operating, patent, and research levels. They enter, albeit often indirectly, into the planning of production, the setting of terms of distribution, and a host of other business judgments. Although explicit use of OMR’s usually occurs at a subordinate level, and not by officers or the general manager, nonetheless the management makes its decisions on the basis of subordinates’ recommendations, which the latter make partly on the basis of the OMR’s. When a business allows its own important judgments constantly to be affected by a statistical survey unflaggingly made, diligently kept current, and repeatedly consulted at least by subordinate advisers to the officers, then the statistical material may be used by a court to some degree as reliable evidence against the business.
For the foregoing reasons, the Court finds that, subject to minor corrections not affecting the general picture, the following tabulation, drawn from the OMR’s,
approximately
reflects the relation between United’s machines and competitors’ machines in American shoe factories about May 1, 1947.
USMC and Other Shoe Machines Outstanding
In Footwear Factories as oe About 5/1/47.
USMC Machines Others
Machine Types
Total USMC Share of Total
16,346 1. Clicking ..................... 16,346 539 16,885 97%
2. Eyeletting ................... 2,296 545 2,841 81%
3. Cutting Press (Dinking)....... 3,319 316 3,635 91%
4. Pulling Over................. 3,145 19 3,164 99%
5. Lasting — Total ............... 12,561 796 13,357 94%
Bed Lasting.................. 5,233 54 5,287 99%
Hand Method Lasting......... 1,763 52 1,815 97%
Heel Seat Lasting............. 1,463 3 1,466 99%
Platform Cover .............. 361 332 693 52%
Pre-Welt Lasting ............ '99 90 189 52%
Staple Side Lasting............ 2,627 6 2,633 99%
Stitchdown Lasting........... 542 259 801 68%
Welt Toe Lasting............. 473 473 100%
6. Welt Sewing................. 1,470 40 1,510 97%
7. Inseam Trimming ............ 595 3 598 99%
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Machine Types
USMC Machines Others Total USMC Share of T otal
8. Outsole Laying............... 1,029 99 1,128
91%
9. Rough Rounding ............. 1,430 31 1,461
98%
10. Outsole Stitching............. 3,537 309 3,846
92%
11. Cement Sole Attaching........ 870 1,319 2,189 40%
12. Littleway Lockstitch .......... Sole Sewing 580 58 638 91%
13. McKay Chainstitch........... Sole Sewing 498 65 563 88%
14. Loose Nailing................ 1,224 23 1,247 98%
15. Outsole Leveling .. /.......... 1,082 29 1,111 97%
16. Fibre Fastening .............. 470 470 100%
17.
Heel Attaching. — Total........ 3,168 230 3,391 93%
Leather & Rubber............ Heel Attaching 1,682 27 1,709 98%
Wood Heel Nailing........... 814 172 986 83%
Wood Heel Attaching......... 672 31 703 96%
18. Slugging.....................
Other Machine Types Listed By USMC Departments
773 72 845 91%
19. Cement Shoe................. 3,415 2,130 5,525 63%
20. Cutting Die .................. 673 87 760 89%
21. Eyeletting ................... 839 839 100%
22. Fitting Room ................ 13,555 9,730 23,285 58%
23. General ..................... 19,416 7,781 27,197 71%
24. Goodyear .................... 7,722 1,077 8,799 88%
25. Heeling ..................... 3,502 695 4,197 83%
26. Lasting ...................... 3,192 438 3,630 88%
27. Littleway .................... 853 50 903 94%
28. Metallic ..................... 3,380 986 4,366 77%
29. Pulling Over................. 4,138 138 4,276 97%
30. Rubber Shoe ................. 709 769 1,478 48%
Totals ......................115,787 28,374 144,141
At the Court’s suggestion, the Government took and offered in addition to the OMR’s depositions of 45 shoe manufacturers operating 55 factories. The Court arbitrarily selected from a standard directory of shoe manufacturers, the first 15 names that began with the first letter of the alphabet, the first 15 names that began with the eleventh letter of the alphabet, all 8 of the names that began with the twenty-first letter of the alphabet, and the first seven of the names that began with the twenty-second letter of the alphabet. This sample covers 3 per cent of the shoe manufacturers. The sample includes small and large factories, and concerns manufacturing shoes according to substantially the most popular shoe manufacturing processes. Probably the sample unintentionally overrepresented machines used in the cement process, somewhat under-represented those in the Goodyear welt process, and greatly under-represented those used in the stitch-down, Littleway Lockstitch, and some minor processes. But these and any other distortions discussed at this bar, would have the effect of showing United with a
smaller
percentage of the aggregate market than a better devised sample. And in criticising this sample, United has not suggested, much less offered, a preferable sample. If antitrust trials are to be kept manageable, samples must be used, and a sample which
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is in general reasonable should not be rejected in the absence of the offer of a better sample. For the foregoing reasons, the Court finds that, subject to minor corrections not affecting the general picture, the following tabulation, drawn from the depositions, approximately reflects the relation between United’s machines and competitors’ machines in American shoe factories in the summer of 1949.
USMC and Other Shoe Machines Outstanding In 55 Selected Shoe Factories
Machine Types
USMC Machines Others Total USMC Share of Total
1. Clicking ..................... 568 10 578 98%
2. Eyeletting ................... 48 12 60 80%
3. Cutting Press ................ 47 12 59 78%
4. Pulling Over................. 89 89 100%
5. Lasting ...................... 403 17 420 96%
6. Welt Sewing................. 36 36 100%
7. Inseam Trimming ............ 15 15 100%
8. Outsole Laying............... 18 19 95%
9. Rough Rounding ............. 35 35 100%
10. Outsole Stitching............. 100 4 104 96%
11. Cement Sole Attaching........ 19 60 • 79 24%
12. Littleway Lockstitch .......... 20 2 22 91%
13. McKay Chainstitch ........... 11 2 13 85%
14. Loose Nailing ............... 20 20 100%
15. Outsole Leveling ............. 41 44 93%
16. Fibre Fastening .............. 6 6 100%
17. Heel Attaching............... 110 6 116 95%
18. Slugging .................... 18
Other Machine Types Listed By USMC Departments
11 29 62%
19. Cement Shoe................. 95 139 234 41%
20. Cutting Die .................. 19 4 23 83%
21. Eyeletting ................... 5 5 100%
22. Fitting Room................. 587 726 1,313 45%
23. General ...................... 993 312 1,305 76%
24. Goodyear .................... 191 38 229 83%
25. Heeling ..................... 104 20 124 84%
26. Lasting ...................... 105 13 118 89%
27. Littleway .................... 31 1 32 97%
28. Metallic ..................... 108 91 199 54%
29. Pulling Over................. 160 7 167 96%
30. Rubber Shoe ................. 1 1 100%
Totals 4,003 1,491 5,494
To make a highly accurate computation of the share of the shoe machinery market which United 'had at the time the complaint was filed, more is needed than the OMR’s and the depositions which show only machines in position. But much of this additional material is in the record. It includes United’s own estimate in words, and in rates set, of the relative importance to the shoe industry of different machine-types; .United’s own statements as to the degree to which each machine-type is useful in each of the different processes; the periodic flow of both sold and leased ma
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chines from United; and the periodic flow of revenues from both sold and leased machines. These are sufficient for calculating the share of a market of diverse products of which some are sold, and some leased. The calculation, for example, would not need to be based exclusively upon United’s share of the value of the outstanding stock of machines; it could be estimated from United’s share of the value of current services flowing from those machines, or on some hybrid method combining stock and flow.
There is no advantage in a Court discussing these or other different methods of calculation and applying them with minute care to the subsidiary facts in the record. For the evidence is all in one direction. United offered no evidence; did not suggest that some other method of sampling should be used; and does not now offer any method of calculation. This, of course, does not relieve the Government of its burden of proof. But, on the uncontradicted evidence, it is transparent that, by any measuring rod, United supplies 75% to 95% of the total current demand for shoe machinery, exclusive of dry thread sewing machinery. Different methods of weighting the various factors would produce different results; but no reasonable, qualified person would, by any rational process, reach a figure outside that range; and probably most methods would reach a figure close to the middle of it. Moreover, even though this high figure is not attained in every part of the market, nonetheless the figure may be fairly used since United supplies in every significant generic class of shoe machinery, except machinery used in the cement process, and in rubber shoe manufacturing, and of course, excepting dry thread sewing machinery, far more than 50% of the demand. In short, it is not inaccurate in this market to say United has a 75-95% share; and it probably would be accurate to say an approximately 85% share.
Before turning to the several different alleged means of monopolizing, (such as post 1920 acquisitions, leases, and other business practices,) of which the Government complains, it should be noted that by far the most important means by which United originally achieved its share of the market and its market power was that set of transactions in 1899 by which it brought under one corporate control the business.of the so-called constituent companies. But these transactions have already been adjudicated in favor of United, and are not now in issue. The issues of fact now under review relate to how United's market power has been maintained and exercised since the earlier adjudication. This requires a consideration of United’s acquisitions, agreements, leases, patents, research, and other business practices.
F. Acquisition of Property and Patent Rights.
In its complaint the Government listed 15 examples of United “disabling actual or potential competitors by the acquisition of their assets and the employment of their key men.” [Pars. 29-51], The trial brief added 15 more. The earliest of these 30 transactions occurred in 1916 or 1917; the latest in 1938, 9 years before the Government filed this complaint. All the property and patent acquisitions taken together appear to have involved just over 3% million dollars. This total is probably less than
Veth
of what was expended in the same time for research.
Under the Court’s prodding, the Government listed as the four most important acquisitions those involving General Shoe Machinery Company, Alexander E. Little, Beacon Folding Machine Company, and C. C. Blake, Inc. Probably it would be satisfactory to state summarily the findings on each of these four instances. But the immediately succeeding paragraphs give the first instance in some detail not only because so much testimony was addressed to it, but because the Government contended (a contention which the Court expressly rejects) that there was a covert, discreditable design not immediately apparent.
(1)
General Shoe Machinery Company.
General Shoe Machinery Company was organized before 1916. In 1921 its shares of stock were held as follows: 575, by International Shoe Company, one of the country’s largest shoe manufacturers; 235,
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by General’s president; 500, by an independent attorney, Gladney; 1500, by Gladney’s client, Ferguson; 583, by others. A reason for International’s original interest was its dissatisfaction with United’s then form of lease. After the Government secured a decree against United in the Clayton Act case, 258 U.S. 451 , 42 S.Ct. 363 , 66 L.Ed. 708 , and after United’s subsequent change in its leases, and in the face of General’s losses in every year after 1917, International was unwilling to give General further financial backing. General could not proceed without outside aid.
International’s president, Rand, approached United on March 9, 1923. At that time, General’s commercial business was derived principally from its business in treeing machines, of which it leased over 100, mostly to International. But General’s inventor, Ballard, had made other inventions, including a welter, a sole layer, channeling machines, upper trimming machines, inseam trimming machines, hand tackers, and a device for creasing vamps. Moreover, from these inventions General had developed a complete line of shoe machines which was currently producing a cheap and a medium grade of welt process shoes at the Spencer, Massachusetts plant of Groat Shoe Company.
United’s president, Winslow, did not commit himself in March or later in 1923 to acquire all, or substantially all General’s assets. He was mindful of the risks of being charged with an anti-trust violation.
March 9, 1923, United wrote General a letter that United had information that General’s machines at the Groat factory were infringing United’s patents. In accordance with permission given by General’s representatives, United’s representatives examined the Groat factory machinery and the General patents. United’s representatives reported that Ballard’s invention was an improvement on United’s existing two types of channeling machines, and that Ballard’s application antedated United’s but that machines embodying Ballard inventions would infringe United’s patent, and that, therefore, there was a blocking situation. These representatives also reported that Ballard’s inventions in regard to upper trimming machines, inseam trimming machines, and hand tackers would constitute improvements in United’s machines. United purchased the foregoing Ballard inventions and application, any rights General had to Ballard’s future inventions, and a non-exclusive license under Erikson patent No. 1,084,259 with respect to a heel-breasting machine. United paid General $100,000 on June 8, 1923, and $300,000 more on August 11, 1923. When General disposed of these assets, it terminated Ballard’s employment but not his position as director. Ballard applied to United for employment, and received it.
After these 1923 transactions, General continued its development work on its welter and its sole layer, experimented with the former in International’s factories, and installed the latter at International and two other shoe manufacturers. Its power treeing machine business virtually ceased. It sold 128 of these machines to International which had been leasing them. It sold similar machines to other lessees. It made almost no new leases of similar machines in 1926 and 1927; so that by October 31, 1927 only 32 such machines were on lease.
In February 1927 Rand asked United to buy General’s assets; but Winslow, United’s president, refused to make such an agreement. In July 1927 Rand told Wins-low International was considering liquidating General and taking over what was necessary to maintain such General machines as International owned. Rand asked for Winslow’s advice, and Winslow said he did not know what help he could give but he would be glad to look over a list of General’s assets. Rand sent Winslow on July 28, 1927 a list of General’s assets, and on September 1, and again on September 20, a request for an appraisal by a United employee. December 27 Rand asked for the appraisal. ' December 31, Winslow, having seen the appraisal by United’s employee, Booth,’ wrote Rand that the Booth report would go forward but Winslow knew the figures would be disappointing to Rand as they were to him. January 31, 1928 Rand telegraphed Winslow that International was purchasing the assets and want
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ed United to service
the
machines. March 1928 International purchased for $150,000 General’s assets, except its machine tools, transmissions, small tools, furniture, fixtures, raw material, and shipping supplies. In
March 23, 1928, United paid International $75,000. $35,000 was for spare parts, and the tools necessary to make additional spare parts, for General treeing machines. $40,000 was for non-exclusive licenses under General’s Ballard patents and a confirmatory license under General’s Erikson patent. These licenses covered improvements in treeing machines, inventions which later were embodied in United’s Model K welter and United’s ORL stitcher, and inventions which led to the development of two types of breasting and automatic heel compressing machines.
May 1, 1928 United’s British subsidiary paid International $75,000 for assets in England which International had bought from General.
On the basis of the detailed facts stated, and reasonable inferences therefrom, these are found to be the ultimate facts with respect to the acquisitions by United in 1923 and 1928 of certain assets of General.
United did not initiate either transaction. United’s acquisitions were not the reason that General did not survive as an independent entity. By 1923, unless it could acquire outside capital, which was not shown to be available, General had to dispose of some, if not all, of its assets. United did not then make any commitment to acquire General’s treeing business, welters, sole layers, or miscellaneous assets, but hired Ballard and bought only those inventions useful in channeling machines, upper trimming, inseam trimming, and hand tacking machines and a non-exclusive license under the Erikson patent with respect to a heel-breasting machine. If in 1923 United -contemplated purchase of other General assets, United’s plan was indefinite, and contingent on a bargaining situation favorable to United. By 1928 when that favorable situation had developed United did plan to buy for $150,000 General’s business of supplying parts for General treeing machines, non-exclusive licenses under various General patents, and General’s British tangible assets. Though technically International was not United’s agent in acquiring those assets from General and transferring them to United, nonetheless, Booth’s role, the matched prices, and like factors justify treating the 1928 transactions as involving, for purposes of the anti-trust laws, a transfer from General to United of the business in treeing machine parts, the non-exclusive licenses, and the British tangibles.
Looked at in their total aspect, the 1923 and 1928 transactions show United’s power to acquire, at times and prices convenient to it, inventions of some competitive value. But, in. appraising both United’s actual intent, and the effect of its acquisition upon the shoe machinery market, it is worth emphasizing that United proceeded in a far from exclusionary manner. In 1923 United ran the risk that General’s business in treeing machines, welters, and sole layers, might fall into the hands of potential competitors; and in 1928 United took licenses that were non-exclusive.
(2)
Alexander E. Little.
In 1921 Little, a shoe manufacturer, and United were both working on the problem of fastening the upper to the insole by means of staples which did not extend through the insole. Little was prosecuting the Reed patents for a shoe and a method of making a shoe; and these applications were of such scope that they would have blocked
the
Goddu method, then being developed by United. Little, in a small machine shop, had also developed and was using a lockstitch machine and a stapling machine. Examples of these machines were also in the possession of another shoe manufacturer. United was building a lock-stitch horn machine.
Little approached United. In 1924 they executed an agreement. Pursuant to that agreement, they formed the Littleway Process Company for the purpose of owning, and granting licenses under, the shoe and method patents of Little. At the same time, United acquired title to a number of applications covering improvements in the Little stapling machine and lockstitch ma
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chine. United paid Little $1 million and got 49% of Little’s stock in Littleway Process Company, and an option to buy the remaining 51% which was issued to Little.
United developed and commercialized its own staple lasting and lockstitch machines, and not those of Little. A disagreement followed. In 1927 United purchased for $1.4 million Little’s stock in Littleway Process Company, and certain machinery, jigs and tools relating to machines used in carrying out the Littleway process and certain patents and applications relating to those machines and that process.
The Littleway Process Company derived royalties from licenses which about equalled the price United paid for its stock. United has also received revenue from its machines used' with the process. In 1946 over 50 million pairs of shoes were staple lasted in accordance with the Littleway process, and over 10 million pairs were staple lasted by such process and lockstitched.
On the basis of the above specific facts, these are the ultimate facts. This was an important acquisition. It represents approximately two-thirds of United’s total expenditure for acquisitions in the 22 year period. It covered a technologically and commercially important process from which United would have been blocked; it also covered machine types and shoe making processes which, whether or not inferior to United, were practical and which would have formed either for Little or someone else the nucleus of a significant shoe machinery business. The total effect of the transaction was to eliminate the risk of substantial competition.
(3)
Beacon Folding Machine Company.
Beacon Folding Machine Company was formed in 1920 by the late T. C. Rowen, Sr. and others. The only machine that it ever offered commercially was a folding machine that folded French cord, or French binding, over the edge of the upper, and there secured it adhesively. It also experimented with skiving and binding machinery.
United in 1921 had 3 patents applicable to folding machines, and it was working on what later became its Rapid Folding Machine, Model G.
When Beacon’s folding machine came out in 1921, United informally notified Beacon of its claim that United’s 3 patents were infringed. Then in 1923 a United subsidiary sued Beacon for infringement of those patents. After the suit was brought, United’s counsel advised United that “the chances are considerably less than even that you would succeed as to any of the patents in suit.”
Beacon in 1923 considered selling its business to United. At that time four interferences had been declared in the Patent Office between applications filed by United’s inventors and Beacon’s inventors. In 1924 United’s Patent Department reported that many of the 30 pending Beacon applications contained claims which, if granted,, would prevent United from marketing its. Model G Folding Machine and its Skiving Machine, Model A.
Meanwhile, Rowen, Sr. became ill. Beacon met severe competition from the Rotary Machine Company; it had to abandon the leasing system and the usé of roadmen; it ceased manufacturing gears, springs, main castings, etc.; and it moved its factory to-one room. Beacon again offered to sell out to United.
In 1925 Beacon granted to United a license, excluding all except the grantor, in' respect of 6 patents and 31 applications; and United granted similar licenses to Beacon in respect of 4 patents (including the-3 patents alleged to have been infringed) and 2 applications. United paid Beacon $80,000 in cash, and agreed to pay royalties, up to $75,000. These royalties turned out to be $63,900. United also agreed to buy for $25,000 all patents and applications owned at Rowen, Sr.’s death by his estate or Beacon. And the infringement suit was settled by consent.
In 1926 Rowen, Jr. went to work for United. After Rowen, Sr.’s death, the son asked United to buy Beacon’s tangible assets. It did so for $11,000.
Reviewing the whole Beacon situation, the Court finds that United had legitimate
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reasons for bringing its infringement suit. Even if United’s counsel regarded the chances of success as less than even, he thought that there was “a fighting chance”. And no patentee is to be charged with bad faith merely because he is a fighter against odds. Moreover, United had legitimate reasons for settling that infringement suit by cross-licenses and payment of cash. For, unless it secured licenses from Beacon, United might have been unable to market its Model G Folding Machine and its Model A Skiving Machine. But the acquisition of exclusive licenses (exclusive, that is, except against the grantor) cannot be so justified. Such an exclusionary acquisition, followed up by later acquisition of the patents themselves, not only had the effect, but seems to have had the purpose, of preventing competition not by Beacon to be sure, but by possible third parties. This impact on third parties is significant. The impact on Beacon is not significant. For, after Rowen’s health began to fail, after United brought its legitimate infringement suit, and after Rotary began competing severely, Beacon itself was never an important factor. Hence nothing turns on United’s engagement of Rowen, Jr. or United’s purchase for $11,000 of the few tangible assets left at Rowen, Sr.’s death.
(4)
C. C. Blake, Inc.
In 1912 C. Chandler Blake organized G. C. Blake, Incorporated. The company tried to develop welting machinery which would be to some degree automatic. It never "got beyond the experimental stage. The original backers withdrew about 1915. A subsequent backer, Godfrey M. Hyams, before his death in 1927 advanced directly, or through a trust, more than $950,000. But by 1924 he had received a practical shoe man’s report that the Blake process was not commercially feasible. By 1926 the Blake Company ceased activities. In 1929 it dissolved and conveyed its assets to the Hyams trust, a charity. H. Le Barron Sampson, Esq., the diligent and highly competent executor of Hyam’s will and counsel for the Trust, found that the Blake process had not been successful, and that there was- no hope of making- it successful without large expenditure, and that there was no known source from which the necessary money could be obtained. He asked United to buy the patents and machines. In 1932 United paid $15,000 for
77
patents, one trade mark, and machines. Neither the patents, nor the trade mark, nor the machines had any appreciable value, except that some of the patents might be infringed by machines which United wished to put out or might subsequently develop, and some of the machines were worth displaying in United’s model room.
Since all of the activities of C. C. Blake, Incorporated had ceased 6 years before the sale to United, since the assets including the patents had no significant commercial value, and, since‘there was m> discernible potential user of Blake’s developmental work, neither actual nor potential competition was affected by United’s purchase.
In 1933 United hired Blake at $2500 a year for an option on any shoe machinery idea which he might have. Since Blake did not develop any valuable inventions in the 2 years he lived thereafter, this contract did not affect actual or potential competition.
(5)
Henne and Preo.
While it is not one of the four instances regarded by. the Government as of greatest importance, the Henne and Preo transaction deserves a word. Miss.Henne was a shoe manufacturer; Preo was her.foreman. They developed, and in 1921 and 1922 offered, to United a method and machinery for attaching wood heels on turned shoes. They had made a heel seat fitting machine and a heel forming machine and ’had relevant patents and applications. While United had developed in 1913 a machine for fitting heel seats, the machine did not take care of turned seat work, and United’s efforts to improve it were blocked by the Plenne and Preo patents. Possibly, though less clearly, United’s patents blocked Henne and Preo. Instead of exchanging mutual licenses, Henne and Preo offered United its inventions, patents, and machines for $14,000 and a share in the -royalties received by United from its licensees of heel seat fitting machines. United agreed in 1923. United in 1926 acquired for $125,000 the outstanding royalty claims of. Miss
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Henne, she having in the meantime acquired Preo’s rights, and he having become a United employee. The effect of this acquisition of Henne and Preo’s inventions and machines, and Preo’s services, was to give United what its own counsel described as “the first * * * commercially successful set of machines for fitting the heel seats for wooden heels.” The effect of the transaction, unlike a non-exclusive license (which so far as appears was not offered by Miss Henne or discussed by United), was to exclude from this phase of the shoe machinery market actual successful competition. It also precluded' the possibility of this machine type becoming the nucleus of a machinery business competitive with United.
(6)
Summary of the Acquisition Phase of the Case.
These 5 acquisitions, taken together with the other 25 acquisitions, not set forth in detail, do not show an extensive program of acquisitions. It has already been pointed out that they did not involve much money. Moreover, none of them involved the acquisition of a plant of a shoe machinery company. While there are some exceptions, (such as the machines for attaching wooden heels to shoes developed by Isabelle Henne and John Preo and acquired from them in 1923), generally United did not acquire commercial shoe machines of any importance. The only acquisition of outstanding technological significance was the Littleway process obtained from Little. Most, not all, of the acquisitions centered on relatively second string patents, patent applications and developments.
Often these inventions and developments had been commercial failures, or were in the hands of moribund companies, or were valuable to United chiefly because they re-, moved a patent block, or enabled United to enter a new field.
Yet, it must be added that these acquisitions taken in bulk, as well as the refusal by, United to acquire many important machinery and allied businesses offered to it, and listed by Mr. Winslow in his testimony, show that while United does not embrace every opportunity offered, it has such a position in the shoe machinery industry that those in this field who want to dispose of patents, shoe machinery, and the like, turn to it. Moreover, when United does purchase, its interest generally has gone beyond acquiring non-exclusive licenses enabling it to carry on its own research. United has usually acquired such inventions and developments outright. This has laid the ghost of some potential competition.
In sum, the Court finds that acquisitions since 1916 have not been one of the principal factors in enabling defendant to achieve and hold its share of the market. But these acquisitions- are an evidence of market power. And there would -have been some increased competition against United if it had not had transactions with Little, Henne and Preo-, and Beacon Folding Machine Company.
G. Restrictive Agreements.
The Government in paragraph 52 of its complaint alleged United had “entered into agreements and understandings with various manufacturers of shoe machinery and shoe repair machinery designed to restrict, curtail, and prevent their competition in the manufacture and sale of such machinery.” The complaint listed 5 instances. They deserve only brief consideration.
In paragraphs 53 through 55 of its complaint, the Government alleged an agreement with Singer Sewing Machine under which United would refrain from manufacturing and distributing upper fitting machinery, and Singer would refrain from manufacturing any other type of shoe machinery. No such agreement was proved by direct or indirect evidence. Winslow, now Chairman of United, denied that such-an. agreement existed, and the Court believes him.
Paragraph 56 of the complaint is headed-“The Lamson Company”. Lamson Company developed in the early 1930’s a single rack horizontal conveyor and also- a vertical conveyor system. In 1934 United and Lamson entered into an agreement under which (in general) Lamson was to manufacture, market, and lease to the shoe trade,
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conveyors; United was to service the conveyors and to collect payment from lessees; United and Lamson were to divide equally costs and revenues from the 'business', except that royalties and profits on the sale of conveyor systems should be divided 60% to Lamson and 40% to United; and United should pay Lamson $220,000.
The Lamson horizontal system turned out not to be satisfactory; therefore, United stopped distributing it; and now only one is in use. There is no foundation for any suggestion that United was responsible for the failure of the shoe factories to use more horizontal conveyors.
The Lamson vertical system is satisfactory, and United still distributes it.
United’s agreement with Lamson gave United control of the servicing of a novel conveyor system, and gave United an interest in the net revenues from the distribution of the system. The conveyor system has not been of great practical consequence, and so it has not in fact contributed in a substantial way to United’s position in, or affected competition in, the shoe machinery trade. The transaction, however, does show an example of United embracing an opportunity to establish exclusive relationships in connection with a product it did not itself develop.
Paragraph 57 of the complaint relates to Tubular Rivet & Stud Company. On March 1, 1924 United became the selling agent in the United States for the Tubular Rivet & Stud Company for all its lacing hooks and studs, and, since then, it has installed and serviced Tubular’s Hook Setting Machines, which have been distributed under Tubular’s own lease agreement. So far as appears, these arrangements are at will, and do not preclude Tubular from giving any would-be competitor of United the right to sell hooks or service machines. In short, the arrangement has not excluded, and does not exclude, competition. Of course, this arrangement like any other non-exclusive distributorship, or non-exclusive system of servicing another’s machines, has increased United’s offerings available to shoe manufacturers.
Paragraph 58 of the complaint relates to Breuer Electric Manufacturing Company. Before 1936 Breuer Electric Manufacturing Company manufactured blowers and successfully distributed them to the shoe trade through Brawley as exclusive agent. In November 1935 United bought from Sandt’s estate the Sandt patent for a heat blower. Breuer’s blower infringed this patent. United complained. In 1936 an agreement among Breuer, Brawley, and United was made by which United bought from Brawley for $1500 its contractas exclusive agent, and Breuer agreed to.furnish, at $35 each, blowers to United as exclusive agent for the shoe trade.
On the foregoing facts, neither Breuer nor Brawley could complain, for they were infringers of the Sandt patent. But the problem is whether the United States can complain of United’s acquisition of the Sandt patent on the ground that United bought it in order to gain control of the manufacture and distribution of blowers. This acquisition standing alone was not substantial, and would have had no appreciable effect on United’s position in, or competition in, the shoe machinery trade. This acquisition taken with all other acquisitions of patents and other kinds of property, shows that to some extent United has maintained its position through acquisitions of patents.
In paragraph 59 of its complaint the Government alleged that Landis Machine Company (which has been engaged since 1906 in the manufacture and sale of shoe repair machinery), “agreed with United to refrain, and has refrained, from soliciting the business of shoe manufacturers for machinery manufactured by Landis.” The evidence shows no such agreement, express or implied. No useful purpose would be served by reciting the parties’ patent controversies, their exchange of non-exclusive licenses, Landis’ sales to the shoe machinery trade, or other details, for even cumulatively, they do not show a tacit understanding to divide fields. In fact, Landis does sell shoe machinery to shoe factories. Its failure to sell more may be due to the market power of United, but it is not due to any consensual arrangement.
The other instances of “restrictive agreements”, covered in the transcript, the briefs,
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and the requests for findings, add nothing of significance to the case. Taken cumulatively, they do not show that restrictive agreements in the shoe machinery field have been important sources of United’s power, have substantially affected competition, or have maintained to any noteworthy degree United’s share of the market. They do, however, illustrate the degree to which the Government has unnecessarily increased the burden resting on the parties and the Court. Further reference to them would only serve to encourage the repetition in later antitrust litigation of the unforgivably unselective tactics pursued by the Government in this case.
H. Leasing (Including Written Provisions, Unwritten Practices, Service, Effects of These Provisions and Practices on United, its Lessees, and its Competitors, and United’s Pricing Policy).
I.
Introduction.
The practice of leasing shoe machinery began as early as the Civil War, was followed by the companies from which United was formed, and has been continuously used by United and most of its American competitors. Of the 342 machine types now marketed by United, United offers 178 on lease basis only, 42 on sale basis only, and 122 on alternate lease or sale terms at the customer’s option. The more complicated machines, those producing the largest revenue, and those of more importance for the shoe manufacturer are offered only for lease.
A standard type of lease was annexed to defendant’s answer as Exhibit F (pp. 333— 345), and reads as follows:
This Agreement made this day of between the United Shoe Machinery Corporation, a corporation duly organized by law, hereinafter referred to as the United Corporation, of the one part, and of in the State of hereinafter referred to as the lessee, of the other part:
Witnesseth, that the United Corporation, in consideration of the covenants and agreements on the part of the lessee herein contained, does hereby lease to the lessee the machine or machines of the United Corporation now or hereafter delivered to the lessee and designated by number or numbers in the following schedule, viz.:—
Schedule of Machines
I. Payment in case of loss by fire, etc. (See Article 3)
II. Initial payment (See Article G)
III. Rental (See Article
7)
IV. Paymont per pair (See Article 8)
V. Monthly payment for use less than minimum (See Article 8)
VI. Minimum number of pairs per month (See Article 8)
VIL Payment upon expiration or termination (See Article 14)
USMC Wood Heel Attaching
Machine, Nos.............$200.00 None $1.25 1 (S $6.00 2,500 $75.00
USMC Heel Seat Drilling Machine, Nos............. 100.00 None 5.00 None None None 35.00
USMC Heel Seat Fitting Machine, Model A, Nos.... 675.00 None 1.50 6.00 4.000 150.00
USMC Heel Seat Forming Machine, Model B, Nos.... 650.00 None 2.75
l................
(Title)
If lessee is a corporation, add corporate seal here.
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In the written terms of United’s standard lease are 4 specific clauses which the Government alleged deterred competition. These related to (a) the period of time covered by the lease, that is, its term, (b) the requirement that a lessee of a unit charge machine should pay a monthly minimum charge, (c) the requirement that such lessee shall use his machine to its full capacity, and (d) the obligation of the lessee at the termination of thé lease to make a deferred payment or return charge [Complaint, Par, 64].
In practice, these and other written provisions of the lease are in some respects modified; in some, supplemented. To show how the written provisions and unwritten practices are interwoven, the following findings consider in turn: the written provisions for the term of an original lease and for the term of a renewal lease; the written provisions for monthly minimum charges on unit charge machines; the written provision involving the full capacity clause; the written provision for deferred payments; the right of deduction fund, which is not referred to in the leases; the principal departures in practice from the foregoing four written provisions of the lease; other departures from those four, and certain other, written provisions of the lease; and the practice of supplying repair and other services not specifically covered in the lease.
Next, the findings examine the general effect upon United, its lessees, and competitors of the leasing system including both the written provisions and the unwritten practices. In that examination nothing is said of the impact of what may be called United’s pricing policy, that is, the practices United has followed in determining what to charge for particular machine types. ■ A separate section deals with the way these rates are set for individual machine types. And then the findings examine those instances where the Government claims that the rates set demonstrate that United was exercising monopoly power or was restraining actual or potential competition.
.2.
Term of the Lease.
Before 1922 the usual term of United’s leases was 17 years. After the Sherman Act case, United offered the shoe manufacturers’ representatives a 7 year term, but, to meet their preferences, United adopted a 10 year term, now in effect except for renewal leases. Renewal leases are for a 5 year term.
United’s leases (and renewal leases) provide that upon the expiration of the 10 year term, (or the renewal term) the leased machinery shall continue under the lease indefinitely, but either party may, upon 60 days’ notice, terminate the lease. United’s policy has been not to leave the machine on 60 days’ notice. If the lessee wishes to retain the machine, United executes a 5-year renewal lease.
The actual average lease life expectancy is, at the present time, 10 years. This is an average. A number of machines will be out on lease longer that 10 years; perhaps 30% will be out .for as long as 15 years. Other machines will be out considerably less than 10 years, perhaps 20- ' 25% will be returned in less than 5 years.
'3.
Monthly Minimum Charge, etc.
Generally speaking, no initial payments are required on machines leased only on a monthly rental or unit charge basis (though initial payments are required on most machines offered on optional lease or sale basis). That is, for lease only machines, no down payment is required, and no installation charge is made. However, when a new shoe manufacturing concern enters the business, United will supply its leased machinery only on condition that the manufacturer pay a deposit of varying amounts. For lease only machines, there are return charges, discussed below; usually monthly rental charges; and, for some types, monthly minimum charges. This last type of charge is discussed here. It is included in 91 types of machines, of which 6 are based on a unit charge only basis and 85, on a unit charge plus monthly rental basis.
Leases covering these 91 types contain a provision for a monthly payment (in addition to the monthly rent, if any is pay
*320
able), if the machine is used for less than a certain minimum number of pairs per month. The minimum for each machine type is not fixed according to a formula -applicable to all machine types. United usually establishes the minimum number of pairs per month at approximately 25% of its estimate of the capacity of the machine type. It usually sets the monthly payment for less than that minimum use at 40% of what the minimum number of pairs charged at the unit rate would yield. Since 40% of 25% is 10%, this means that the minimum charge is usually 10% of what United would receive in unit charges if the machines were used to United’s estimate of full capacity.
4.
Full Capacity Clause.
United’s leases contain a covenant by the lessee that he “shall use the leased machinery to its full capacity upon all * * * footwear * * * made by or for the lessee in the manufacture * * * of which such machinery is capable of being used.”
5.
Deferred Payment
(Sometimes called
Return
Charge).
United’s leases contain a provision for a payment upon the return of machines of all but 3 minor types. The amount of this deferred payment runs somewhere between 30% and 40% of the manufacturing plus the developmental cost of the machine type, but there is no fixed formula.
6.
Right of Deduction Fund.
Effective January 1, 1923, United established an amortization plan, or right of deduction fund. This plan is not referred to in the text of the leases. It was established, and has been modified by, written notices to lessees. Under the plan, 2% (increased to 3% beginning February 1, 1927, and to 4% beginning August 1, 1939) of all unit charges, rentals and minimum charges, on a machine is credited to the lessee. The credit is solely for the purpose of being applied, if the lessee desires, to deferred (or return) payments and, since 1939, to payments “for use less than minimum”, due on that machine or other machines in that factory. And the credit is not available if the lessee is in default on any payment due United, or if the lease has been terminated by reason of the lessee’s breach or insolvency.
7.
Principal Departures from Foregoing Lease Provisions.
Despite its express terms, the full capacity clause is not considered by United to have been violated unless the lessee fails to use the machine on work for which the machine is capable of being used, and instead performs such work by using a competitor’s machine. In other words, it is not treated as a violation if the lessee fails to use United’s machines because he performs the work by hand, or because he discontinues the type of operation for which the machine is capable of being used.
Despite the 10-year term of the lease, where a lessee wishes to return a leased machine because he has abandoned the operation, or intends to perform it by hand, or finds that the machine will not perform successfully the operation the lessee contemplates, or replaces it with another United machine, United always allows him to return the machine upon paying for transportation, broken and missing parts, and a return charge if there is any. However, where a lessee wishes to return a United machine solely to replace it with a competitor’s machine, United allows the return, on the payment, in addition to' the items just stated, of an adjustment or commutation of sums that would have accrued thereafter. That commutation charge was fixed by a plan which went into effect in 1935. Under the plan, a lessee returning a machine leased without any unit charges, has been charged, in addition to the items mentioned, 25% of the monthly rentals payable for the balance of the term plus the deferred payment; and a lessee returning a machine leased in whole or in part on the basis of unit charges, has been charged, in addition to the items mentioned, 50% of the minimum monthly payment for the balance of the term of the -lease after the waiver of 4 months, for each of the remaining years, plus the deferred payment. These charges are, at the lessee’s option, payable in cash or charged against the Right of Deduction Fund.
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The Government offered 90 instances where United invoked the full capacity, return, or like provisions of the standard lease during the period 1927-1948, that is, both before and after the 1935 plan.
The more striking earlier instances include these examples. From 1931 to 1935 Florsheim wanted to return 5 United machines covered by unexpired leases, and substitute competitors’ machines, but United insisted on the lease terms, including the full capacity clause. In 1931 Dunn & McCarthy, Inc. had a precisely parallel experience with 2 leased United machines. In 1932 United took at least initial steps to enforce the full capacity clause against Mishawaka Rubber & Woolen Mfg. Co. which had set aside United machines in favor of Mishawaka’s own machines. In 1932 American Felt Slipper Co. wanted to return an Alpha Wood Heel Nailer, and United quoted a higher return charge in July when American planned to substitute a German machine, than United later quoted and accepted when such substitution was not involved.
The later instances show United’s practices under its 1935 plan. Typical of United’s post-1935 practice of billing its customers under the full capacity clause when competitive machines were used, and refunding the amounts by credits when those competitive machines were returned are: Unity Shoemakers, 1936; Barr and Bloomfield, 1936; and Shapiro Brothers, 1936-1937. In another comparable instance, Lucille Footwear in 1937 transferred a competitive machine to other production, after United invoked the full capacity clause.
The instances cited, and the 1935 plan on its face, show that United, in accepting returns of machines before the lease has terminated, offers less favorable terms to a lessee who wishes to replace United’s machine with a machine of outside manufacture, than to a lessee having some other reason for returning a United machine. The discriminatory features of this plan and practice are not explicable merely on revenue grounds. The discrimination is designed to operate as, and does operate as, a method of excluding from the shoe factories shoe machinery competitive with United. If this were otherwise doubtful, this finding is confirmed by the statement in court of United’s president “that the full capacity clause operates as a deterrent to a factory taking on a competitor’s machine” and the General Manager’s statement that “there is a deterrent to cover * * * the use of a competitive machine in place of the corporation’s machine.”
8.
Other Departures from Lease Provisions.
United’s practice is to furnish a machine temporarily and only for a limited period to take care of periods of peak production in a shoe factory. Before United makes a peak-load installation, it requires the lessee to sign a regular 10-year lease which automatically goes into effect if the machine is not returned within a specified period of time. If the peak-load machine is promptly returned, no deferred payment is charged.
Since at least 1924, United has allowed shoe manufacturers to obtain machines for a trial period of 30 days which may be extended for successive 30-day periods. Before a trial-period installation, United requires the lessee to sign a regular 10 year lease which automatically goes into effect if the machine is not returned within a specified period of time. For a trial machine which is seasonably returned the lessee pays the regularly established terms, except that he does not pay a deferred payment charge.
By management letters, United has waived monthly minimum charges during some portion of the year. Originally the period was two months; since 1926, the period has been any 4 months selected by the lessee, or, in default of selection, the 4 months most favorable to him.
United’s leases provide that the leased machinery shall be insured. However, for the past 25 years this insurance clause has been waived by management letters. The reason for using the management letters was to allow United, if it saw fit in
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the future, to change its general policy and to withdraw the waiver and enforce the insurance provision.
9.
Service.
United’s leases provide that the lessee shall at all times and at his own expense keep the leased machinery in good order; and that if in United’s opinion the machinery is not in good order United may cause it to be so put, and the lessee shall pay United the expenses of making repairs and replacing parts. However, in fact, United has at all times assumed the burden of keeping its leased machinery in good order. It has made no separate charge to the lessee for such services, but has charged him for such parts as are required.
To keep in good order the leased machines, which in 1947 were distributed among 1,220 enterprises, and to render certain other services, United has a Department of Agencies which coordinates 16 branch offices and 29 sub-offices and service stations, located in 17 states. Each of the 16 branch offices has a manager, a sales manager, a machinery department manager, salesmen, clerks and roadmen. No branch office, except Los Angeles, has fewer than ten roadmen. The sub-offices have chiefly roadmen. In 1951 in all branch-offices and sub-offices there were 1500 employees, of which 828 were.road-men.
The most important duty of roadmen is to respond quickly when a factory’s United machine breaks down, and as soon as possible to get it in good condition. Calls for this service are 'frequent: in some factories 2 to 10 men are needed every day. Road-men carry parts in their bags. More extensive stocks are maintained in each of the branch offices, in Beverly, and in Boston. Roadmen are generally trained as experts on certain groups of machines. They not only repair, they also install new United machines and instruct operatives in their use. When asked, roadmen give expert advice on how to improve the quality of shoe production, give help in various technical shoemaking and shoe factory problems, and, in general, are available for all sorts of counsel and cooperation.
From Boston, United furnishes other services, if desired. The so-called Shoe Ex Department furnishes shoe making advice. The Planning Department is available to assist shoe manufacturers desiring engineering surveys on production methods, on costs, on factory layouts, and other matters.
In all respects, the service rendered by United is uniformly of excellent quality. It is promptly, efficiently, and courteously rendered. No system that has been suggested would be likely to be superior from a technological viewpoint. Shoe manufacturers, in general, are well satisfied with the technical service.
Nor have shoe manufacturers protested at the economic consequences of United’s practice of setting monthly and unit charges high enough to pay United for service rendered, instead of following the practice of lowering monthly and unit charges and then charging separately for service as rendered. But, though no protest has been received, it is plain that the practice of tying into one bundle the use of the machine and services in connection with it, is a method which is to the advantage of some, and the disadvantage of other, lessees. From the sample study of the Milwaukee manufacturers, from the testimony of Assistant General Manager Walker, and from other evidence, it appears that some plants have persistently high service requirements and others have persistently low service requirements, and it is not true that over the years the cost to United of supplying service averages the same regardless of who is the lessee. The cost to United will be higher, for example, if the management is inexperienced or inefficient, if the plant has poor labor relations, if the type or quality of shoes made involves a high degree of repair, if the number of shoes of a particular style or size produced is less than average, or if the factory is so distant from a branch office as to require more than average travel.
In short, United gives varying amounts of service to customers who make the same payments. To a large extent, the customers who will make above-average demands are predictable. Since the variations in service
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requirements are systematic and not random in character, the failure to charge for service on the basis of the amount rendered does not conform to sound insurance principles. To put the same matter another way, the efficient manufacturer* with good managerial and labor relations, located in the heart of a large shoe center, is not paying to avoid the risk that his concern will have an unpredictably large call for service, but is bearing to some extent the burden of the predictably large call for service of the distant, inefficient managements.
10.
Effects of the Leasing System.
The effect of United’s leasing system as it works in practice may be examined from the viewpoints of United, of the shoe manufacturers, and of competitors potential or actual.
For United these are the advantages, (a) United has enjoyed a greater stability of annual revenues than is customary among manufacturers of other capital goods. But this is not due exclusively to the practice of leasing as distinguished from selling. It is attributable to the effects of leasing when, as is the case with United, the lessor already has a predominant share of the market, (b) United has been able to conduct research activities more favorably than if it sold its machines outright. The leasing system, especially the service aspect of that system, has given United constant access to shoe manufacturers and their problems. This has promoted United’s knowledge of their problems and has stimulated United’s shoe machinery development. This research knowledge would not be diminished substantially if United’s service activities covered fewer factories. 'But if all access to shoe factories were denied the diminution would be of great consequence to research. (c) The steadiness of revenues, attributable, as stated above, not to the leases alone, but to leases in a market dominated by the lessor, has tended to promote fairly steady appropriations to research. But these appropriations declined in the 1929 depression. Research expenditures might or might not be increased if competition were increased. The experience of United when faced with Compo’s cement process suggests that declining revenues, no less than steady revenues, may promote research expenditures, (d) United has kept its leased machines in the best possible condition, (e) Under the leasing system United has enjoyed a wide distribution of machinery in a relatively narrow market. But this is merely another way of saying that United’s market position, market power, lease provisions, and lease practices give it an advantage over competitors.
Upon shoe manufacturers, United’s leasing system has had these effects. It has been-easy for a person with modest capital and of something less than superior efficiency to become a shoe manufacturer. He can get machines without buying them; his machines are serviced without separate charges; he can conveniently exchange an older United model for a new United model; he can change from one process to another'; and his costs of machinery per pair of shoes produced closely approximate the machinery costs of every other manufacturer using the same machinery to produce shoes by the same process. Largely as a consequence of these factors, there were in 1950, 1300 factories each having a daily production capacity of 3,000 pairs a day or less; 100 factories each having a capacity of■ 3,000 to 8,000 pairs; and 40 larger manufacturers. Many of these larger manufacturers, who collectively account for 40% of the shoe production of the United States, started 'in a small way and flourished under United’s leasing system. Moreover the testimony in this case indicates virtually no shoe manufacturers who are dissatisfied with the present system. It cannot be said whether this absence of expressed dissatisfaction is due to lack of actual dissatisfaction, to practical men’s preference for what they regard as a fair system, even if it should be monopolistic, or to' fear, inertia, or reluctance to testify.
However, while United’s system has' made it easier to enter the shoe manufacturing industry than to enter many, perhaps most, other manufacturing industries, it
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has not necessarily promoted in the shoe manufacturing field the goals of a competitive economy and an open society. Without attempting to make findings that are more precise than the evidence warrants, this much can be definitely stated. If United shoe machinery were available upon a sale basis, then—
• (a) Some shoe manufacturers would be able to secure credit whether by conditional sales, chattel mortgages, or other devices.
(b) Under such a system, there is no reason to suppose that a purchaser’s first installment on a machine would significantly exceed the deposit now often required of a new shoe manufacturer by United.
(c) A few shoe manufacturers would be able to borrow at rates of interest comparable to the interest rates at which United borrows, or raises capital.
(d) Some shoe manufacturers would be able to provide for themselves service at a cost less than the average cost to United of supplying service to all lessees of its machines.
(e) Those manufacturers who bought United machines would not be subject, as are those manufacturers who lease United machines, to the unilateral decision of United whether or not to continue or modify those informal policies which are not written in the leases and to which United is not expressly committed for any specific future period. While there is no evidence that United plans any change in its informal policies, and while United has not heretofore proceeded to alter its informal policies on the basis of its approval or disapproval of individual' manufacturers, United has not expressly committed itself to continue, for example, its 1935 plan for return of machines, its right of deduction fund, its waiver for 4 months of unit charges, or its present high standard of service. United’s reserved power with respect to these matters gives it some greater degree of psychological, and some greater degree of economic control, than a seller of machinery would have.
(f) Some manufacturers who had bought machinery would find that financial and psychological considerations made them more willing than lessees would be, to dispose of already acquired United machines and to take on competitors’ machines in their place.
In looking at United’s leasing system from the viewpoint of potential and actual competition, it must be confessed at the outset, that any system of selling or leasing one company’s machines will, of course, impede to some extent the distribution of another company’s machines. If a shoe manufacturer has already acquired one company’s machinery either by outright purchase, by conditional purchase, or on lease on any terms whatsoever, the existence of that machine in the factory is a possible impediment to the marketing of a competitive machine.
Yet as already noted, a shoe manufacturer may psychologically or economically be more impeded by a leasing than by a selling system. And this general observation is buttressed by a study of features in the United leasing system which have a special deterrent effect. Though these features are stated separately, and some of them alone are important impediments, they must be appraised collectively to appreciate the full deterrent effect.
(a) The 10 year term is a long commitment.
(b) A shoe manufacturer who already has a United leased machine which can perform all the available work of a particular type may be reluctant to experiment with a competitive machine to the extent he would wish. He may hesitate to ask for permission to avoid the full capacity clause. If permission is given for an experimental period he may find the experimental period too short. Thus a competitor may not get a chance to have his machine adequately tried out by a shoe manufacturer. If a shoe manufacturer prefers a competitive machine to a United machine on hand, he may not know the exact rate at which future payments may be commuted. If he knows, he may find that a fresh outlay to make those commuted payments (which admittedly are not solely for revenue but also are for protection against competition, and which admittedly discriminate in favor of
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a lessee who takes a new United machine and not a competitor’s machine) plus the rentals he has already paid cost him more than if he had bought a similar machine in the first place and were now to dispose of it in trade or in a second-hand market. Thus for a maker of competitive machines he may be a less likely customer than if United had initially allowed him to buy the machine.
(c) United’s lease system makes impossible a second-hand market in its own machines. This has two effects. It prevents United from suffering that kind of competition which a second-hand market offers. Also it prevents competitors from acquiring United machines -with a view to copying such parts of the machines as are sot patented, and with a view to experimenting with improvements without disclosing them to United.
(d) United’s practice of rendering repair service only on its own machines and without separate charge has brought about a situation in which there are almost no large scale independent repair companies. Hence when a typical small shoe manufacturer is considering whether to acquire a complicated shoe machine, he must look to the manufacturer of that machine for repair service. And a competitor of United could not readily market such a complicated machine unless in addition to offering the machine he was prepared to supply service. As the experience of foreign manufacturers indicates, this has proved to be a serious stumbling block to those who have sought to compete with United.
(e) If a shoe manufacturer is deciding whether to introduce competitive machines, (either for new operations or as replacements for United machines on which the lease has not expired), he faces the effect of those decisions upon his credit under the Right of Deduction Fund. If he already has virtually all United machines, and if he replaces few of them by competitive machines, the Fund will take care of substantially all his so-called deferred charges, and may cover some of his minimum payments. This is because credit to the Fund earned by a particular machine enures to the benefit of all leased machines in the factory, and the maximum advantage to the shoe manufacturer is to have a large number of United machines to which the credit can be applied. This advantage to the shoe manufacturer of acquiring and keeping a full line of United machines deters, though probably only mildly, the opportunities of a competing shoe manufacturer.
11.
United’s Pricing Policy for Shoe Machinery.
In setting sale and lease terms for machines, United has followed the policy of securing from its shoe machinery business as a whole sufficient income to pay the expenses of that business and accompanying services and research, and to return a profit. In setting terms for individual machine types, it has taken into account the benefit which the machine is expected to give the shoe manufacturer, the prices charged by competitors, uniformity of rate for all customers, and steadiness of rates throughout the years. There is little or no evidence that United has fixed its prices on the basis of its patent strength in connection with each machine type. But there is, as appears later in this findings, considerable evidence, that United has fixed its prices in order to minimize competition.
' There is no evidence that United has secured a monopoly profit on its total operations, or on the machinery branch as a whole. United’s book earnings on its total operations 1925-1949 were about 10% net, after taxes, on invested capital. This approximates the average of 72 other manufacturers of durable equipment.
In attempting to calculate profits earned by individual types of machines produced by a multi-product firm, there is always some arbitrary element in the allocation of overhead, research, and the like. Any attempt rigidly to apply a particular formula would not be practical. United has used its so-called “10 year investment formula” as a rough guide, but not as an absolute standard, in determining costs, fixing prices, and estimating the profitableness of lease-only machines.
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Under the formula, four items are added: (1) the amount spent on the development of that particular machine type rateably distributed among the machines of that type United expects to market; (2) the estimated manufacturing and installation costs for each machine; (3) 60 per cent of item 2; and (4) the estimated annual cost of services multiplied by 10 and then multiplied by .27.
Without elaborate analysis, it readily appears that this formula is crude. For example, the calculation ignores the time distribution of research and manufacturing expense, and also of actual machine leasings. For this and other reasons, there is no reality to the 60 per cent item which purports to represent interest. The manufacturing and installation costs are computed without regard to fluctuating prices of materials, and with arbitrary inclusions of round percentages for assembly of parts and for overhead. Service costs are hardly better than informed guesses.
Despite this crudity, the 10 year investment formula for calculating costs cán reasonably be used to determine in a general way whether there are wide variations in margins between costs and prices among United’s various machine types; and, if so, where the margins are greatest and least.
On this point S-310 speaks conclusively. It shows the variations in the number of years required to return the 10 year investment on the basis of the 1950 terms applied to 66 machine types. One machine returns the 10 year investment within 2 years; 29 more within 4.5 years; 13 more within 5.5 years; 19 more within 8 years; 2 more within 10 years; 1 more within 11 years; and 1 more within 12.1 years. Since the smaller the number of years it takes to return the 10 year investment cost, the higher the margin of profit, this exhibit reveals one aspect of the range of- “price discrimination”, in the economic sense.
Another aspect of price discrimination is revealed by this and other exhibits. The 10 year investment will be returned under the 1950 rates in 2.21 years in the case of the Welt Sewing K; 3.9 years, Inseam Sewing B; 4.36 years, Sole Laying A; 4.66 years, Outsole Rapid Lockstitch O; 5.3 years, Sole Stitching C; and 6.0 years, Ce decades old, and related mostly to wood heels. That will not warrant a finding adverse to defendant.
Finally, comes tanning machinery made by Turner. There is no evidence that United has dominant market power, and there is no evidence of a plan to monopolize. The leases are, it is true, like United’s shoe machinery leases. But, as has been previously emphasized in this opinion, this Court does not rule that leases of that type are in every context restraints of trade, or otherwise unlawful. All that this opinion has ruled is that when control of the market has been obtained in large part by such leases, the market power cannot be said to have been thrust upon its holder through its own skill, energy, and initiative, or through technological conditions of production and distribution, or the inevitable characteristics of the market. In short, the leases themselves are not forbidden; only when they are used as an instrument for seeking market control is the lessor to be charged with using them in an attempt to monopolize. Such use of tanning machinery leases was not proved.
IV.
Opinion on Remedy.
Where a defendant has monopolized commerce in violation of § 2, the principal
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objects of the decrees are to extirpate practices that have caused or may hereafter cause monopolization, and to restore workable competition in the market.
A trial judge, until he is otherwise directed Iby the Supreme Court or Congress, (see 110 F.Supp. 345 footnote 2, supra, must frame a decree upon the basis of the presuppositions underlying Aluminum and Griffith. He must accept these as the premises of the current interpretation of § 2 of the Sherman Act. Concentrations of power, no matter how beneficently they appear to have acted, nor what advantages they seem to possess, are inherently dangerous. Their good behavior in the past may not be continued; and if their strength were hereafter grasped by presumptuous hands, there would be no automatic check and balance from equal forces in the industrial market. And in the absence of this protective mechanism, the demand for public regulation, public ownership, or other drastic measures would become irresistible in time of crisis. Dispersal of private economic power is thus one of the ways to preserve the system of private enterprise. Moreover, well as a monopoly may have behaved in the moral sense, its economic performance is inevitably suspect. The very absence of strong competitors implies that there cannot be an objective measuring rod of the monopolist’s excellence, and the test of its performance must, therefore, be largely theoretical. What appears to the outsider to be a sensible, prudent, nay even a progressive policy of the monopolist, may in fact reflect a lower scale of adventurousness and less intelligent risk-taking than would be the case if the enterprise were forced to respond to a stronger industrial challenge. Some truth lurks in the cynical remark that not high profits but a quiet life is the chief reward of monopoly power. And even if a particular enterprise seeks growth and not repose, an increased rate in the growth of ideas does not follow from an increased concentration of power. Industrial advance may indeed be in inverse proportion to economic power; for creativity in business as in other areas, is best nourished by multiple centers of activity, each following its unique pattern and developing its own esprit de corps to respond to the challenge of competition. The dominance of any one enterprise inevitably unduly accentuates that enterprise’s experience and views as to what is possible, practical, and desirable with respect to technological development, research, relations with producers, employees, and customers. And the preservation of any unregulated monopoly is hostile to the industrial and political ideals of an open society founded on the faith that tomorrow will produce a better than the best.
Yet a trial judge’s decree attempting to recreate a competitive market should be drafted in the spirit which has been attributed to Lord Acton — the most philosophical mind that has ever been directed to the evils of concentration of power. “No one can be sure what view Acton would have adopted on contemporary economic issues. What is certain is the principles and tests he would have employed. Of every proposal he would have asked, Is it just? Is it in accordance with the permanent will of the community? Is it practicable? Will it be efficient? Will it increase or diminish real freedom?”. Fasnacht, Acton’s Political Philosophy (1952), p. 124.
Judges in prescribing remedies have known their own limitations. They do not
ex officio
have economic or political training. Their prophecies as to the economic future are not guided by unusually subtle judgment. They are not so representative as other branches of the government. The recommendations they receive from government prosecutors do not always reflect the over-all approach of even the executive branch of the government, sometimes not indeed the seasoned and fairly informed judgment of the head of the Department of Justice. Hearings in court do not usually give the remote judge as sound a feeling for the realities of a situation as other procedures do. Judicial decrees must be fitted into the framework of what a busy, and none too expert, court can supervise. Above all, no matter with what authority he is invested, with what facts and opinion
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he is supplied, a trial judge is only one man, and should move with caution and humility.
That considerations of this type have always affected anti-trust courts is plain from the history of the Standard Oil, American Tobacco and Alcoa cases. To many champions of the anti-trust laws these cases indicate judicial timidity, economic innocence, lack of conviction, or paralysis of resolution. Yet there is another way of interpreting this judicial history. In the anti-trust field the courts have been accorded, by common consent, an authority they have in no other branch of enacted law. Indeed, the only comparable examples of the power of judges is the economic role they formerly exercised under the Fourteenth Amendment, and the role they now exercise in the area of civil liberties. They would not have been given, or allowed to keep, such authority in the antitrust field, and they would not so freely have altered from time to time the interpretation of its substantive provisions, if courts were in the habit of proceeding with the surgical ruthlessness that might commend itself to those seeking absolute assurance that there will be workable competition, and to those aiming at immediate realization of the social, political, and economic advantages of dispersal of power.
Such self-restraining considerations have peculiar force in this case. Until Alcoa lost its case in 1945, there was no significant reason to suppose that United’s conduct violated § 2 of the Sherman Act. The Supreme Court had three times, in United States v. Winslow, 227 U.S. 202 , 33 S.Ct. 253 , 57 L.Ed. 481 , United States v. United Shoe Machinery Company of N. J., 247 U.S. 32 , and United Shoe Machinery Corp. v. United States, 258 U.S. 451 , 42 S.Ct. 363 , 66 L.Ed. 708 reviewed aspects of this company’s, or its predecessor’s, activities. What United is now doing is similar to what it was then doing, but the activities which were similar stood uncondemned,— indeed, one ought to go further and say they were in part endorsed.. In the face of these decisions, it would be anomalous to charge the officers of United with any moral deficiency.
In the light of these general considerations, it is now meet to consider four of the principal problems respecting a proposed decree: first, dissolution, second, treatment of the leases, third, divestiture of supply activities, and fourth, patents.
The Government’s proposal that the Court dissolve United into three separate manufacturing companies is unrealistic. United conducts all machine manufacture at one plant in Beverly, with one set of jigs and tools, one foundry, one laboratory for machinery problems, one managerial staff, and one labor force. It takes no Solomon to see that this organism cannot be cut into three equal and viable parts.
Nor can the division of United’s business be fairly accomplished by dividing the manufacture of machinery into three broad categories, and then issuing an injunction restraining the Beverly plant from manufacturing two broad categories of machine types, and vesting in each of two new companies the right to manufacture one of those categories. Such an order would create for the new companies the most serious type of problems respecting the acquisition of physical equipment, the raising of new capital, the allotment of managerial and labor forces, and so forth. The prospect of creating three factories where one grew before has not been thought through by its proponents.
A petition for dissolution should reflect greater attention to practical problems and should involve supporting economic data and prophesies such as are presented in corporate reorganization and public utility dissolution cases. Moreover, the petition should involve a more formal commitment by the Attorney General, than is involved in the divergent proposals that his assistants have made in briefs and in oral arguments addressed to the Court..
On the whole, therefore, the suggested remedy of dissolution is rejected.
From the opinion on defendant’s violations it follows that some form of relief regarding defendant’s leases and leasing practices is proper and necessary.
The Government does not propose that United should cease leasing machines. It
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does suggest that this Court order defendant to eliminate from the leases those provisions found to he restrictive, to offer for sale every type of machine which it offers for lease, and to make the sales terms somewhat more advantageous to customers, than the lease terms.
The Court agrees that it would be undesirable, at least until milder remedies have been tried, to direct United to abolish leasing forthwith. United is free to abolish leasing if it chooses to do so, but this Court hesitates to lay down any absolute ban for two reasons. First, if a ban were immediately applied, a substantial number of shoe factories would probably be put out of business, for they have not the assets, nor the capacity to borrow, requisite to purchase machines, even on conditional sales agreements. Second, if this Court forbade United to lease machines, it could not apply a similar ban to its competitors. This would constitute for United a major not a minor competitive handicap if one accepts the testimony of the large number of shoe manufacturers who have already expressed their preference for leasing rather than buying machines. How deeply rooted is this preference might be disputed; but it cannot be denied that virtually all the shoe manufacturers who took the stand, and the 45 shoe manufacturers who were selected as a sample by the Court, expressed a preference for the leasing system. It is, of course, possible that through inertia, fear of reprisal, or other motives, those who oppose the leasing system did not speak up. Yet, the number of dissenters must foe small. Moreover, Compo, which is United’s chief rival, and which the Government claims was a chief victim of United’s policies, favors the leasing system, and might encourage shoe factories to continue leasing.
Although leasing should not now be abolished by judicial decree, the Court agrees with the Government that the leases should be purged of their restrictive features. In the decree filed herewith, the term of the lease is shortened, the full capacity clause is eliminated, the discriminatory commutative charges are removed, and United is required to segregate its charges for machines from its charges for repair service. For the most part, the decree speaks plainly enough upon these points. Yet, on two matters, a further word is in order.
The decree does not prohibit United from rendering service, because, in the 'Court’s view, the rendition of service, if separately charged for, has no exclusionary effects. Moreover, the rendition of service by United will keep its research and manufacturing divisions abreast of technological problems in the shoe manufacturing industry; and this will be an economic advantage of the type fostered by the Sherman Act.
Nor does the decree attempt to deal with that feature of United’s pricing policy which discriminates between machine types. To try to extirpate such discrimination would require either an order directing a uniform rate of markup, or an order subjecting each price term and each price change to judicial supervision. Neither course would be sound. Some price discrimination, if not too rigid, is inevitable. Some may be justified as resting on patent monopolies. Some price discrimination is ■economically desirable, if it promotes competition in a market where several multiproduct firms compete. And while price discrimination has been an evidence of United’s monopoly power, a buttress to it, and a cause of its perpetuation, its eradication cannot be accomplished without turning United into a public utility, and the Court into a public utility commission, or requiring United to observe a general injunction of non-discrimination between different products — -an injunction which would be-contrary to sound theory, which would require the use of practices not followed in any business known to the Court, and which could not be enforced.
The Court also agrees with the Government that if United chooses continue to lease any machine type, it must offer that type of machine also for sale. The principal merit of this proposal does not lie in its primary impact, that is, in its effect in widening the choices open to owners of shoe factories. For present purposes it may be assumed that the anti-trust laws are not designed, chiefly, if at all, to give a customer choice as to the selling methods
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by which his supplier offers that supplier’s own products. The merit of the Government’s proposal is in its secondary impact. Insofar as United’s machines are sold rather than leased, they will ultimately, in many cases, reach a second-hand market. From that market, United will face a type of substitute competition which will gradually weaken the prohibited market power which it now exercises. Moreover, from that market, or from United itself, a competitor of United can acquire a United machine in order to study it, to copy its unpatented features, and to experiment with improvements in, or alterations of, the machine. Thus, in another and more direct way, United’s market power will 'be diminished.
Furthermore, the creation of a sales market together with the purging of the restrictive features of the leases will, in combination, gradually diminish the magnetic hold now exercised ¡by what United properly describes as the partnership features of the leasing system. As United’s relationships with its customers grow feebler, competitors will have an enhanced opportunity to market their wares.
Two objections to this proposal should now be answered.
First, United emphasizes the point that if a decree requires United to offer for sale all machine types which it leases, the decree will discriminate against United, because its competitors will be subject to no parallel injunction. United says that this discrimination violates United’s legal rights. In support of this contention, United relies upon the language in Hartford Empire Company v. United States, 323 U.S. 386, 409-410 , 65 S.Ct. 373, 385 , 89 L.Ed. 322 , in which a judicial decree was modified, because it placed a defendant “for the future, ‘in a different class than other people’ ”. But that ruling of the Supreme Court of the United States does not apply to the case at bar, because, through its own action, United has already put itself in a class different from any of its competitors. It has used its leases to monopolize the shoe machinery market. And if leasing continues without- an alternative sales system, United will still be able to monopolize that market. To root out monopolization and to bring United, in the future, in the same class as its competitors, it is necessary not merely to, place -limitations upon United’s leases, but also to require United to offer for sale any machine type which it leases. While, on its face, the decree seems to discriminate against United, in the context of the market situation created by United itself, the effect of the decree is to bréale down barriers -erected by a monopolizer,- so that, hereafter, there may be no wall between the class in which it is and the class in which its competitors are.
A second possible objection to the decree is that it confers upon United’s competitors the unearned opportunity to copy the unpatented features of United’s machines. These competitors get a free ride.
In reply, it might be enough to say that there does not appear to -be any federal or local, statutory or common law, principle protecting United’s interest in these' unpatented features. See Cheney Bros. v. Doris Silk Corp., 2 Cir., 35 F.2d 279 . That is, the decree takes from' United nothing which the policy of our law protects. A further answer is that if the creation of a sales alternative to leasing is, as this Court believes, necessary to dissipate United’s monopoly power, the Court should not withhold its decree because its effect is to allow competitors to copy United’s designs. Cf. Fashion Originators’ Guild of America, Inc. v. Federal Trade Commission, 312 U. S. 457, 468 , 61 S.Ct. 703 , 85 L.Ed. 949 .
The Government goes one step further and -asks the Court to require defendant to make its sales terms more attractive to customers than -any lease terms it offers. One -difficulty with this proposal is that, instead of redressing the balance between United and its competitors, it would give a marked advantage to such of United competitors as chose-to continue leasing machines. But there are even more serious practical objections. If this Court were to direct United to- make its sales terms more favorable than lease terms, and to keep that discrimination effective every time that new terms were set, every time that new machine types were introduced, and every time that money rates changed in the financial world, this Court would be
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creating administrative problems which would require its continuous judicial supervision. To avoid the difficulties just stated, it seems to the Court sufficient to direct defendant, if it offers any machine type for lease, to set such terms for leasing that machine as do not make it substantially more advantageous for a shoe factory to lease rather than to buy a machine. Admittedly, there is in this direction some flexibility. But defendant is forewarned by the decree itself that if it abuses this flexibility, the Court after the entry of this decree may modify it. Thus the decree invokes the precedent not of Draco, but of Damocles and Dionysius. Compare Appalachian Coals, Inc. v. United States, 288 U.S. 344, 378 , 53 S.Ct. 471 , 77 L.Ed. 825 .
One other phase of the decree to which this opinion should expressly advert is the method of handling those subsidiaries and branches which produce supplies in fields which United has monopolized. The clearest examples are nails and tacks, and eyelets for the shoe machinery market. These are large scale monopolizations attributable to the machinery monopoly. And United should be divested of its business of manufacturing and distributing these particular supplies, because this is the kind of dissolution which can be carried out practically, and which will also reduce monopoly power in each of the affected supply fields. Logically, the same principle might be applied to those other parts of United’s enterprise which manufacture other supplies that United monopolizes. But in each of the other cases where this might at first blush seem reasonable, the supply is technically so intimately related to a machine as to be naturally manufactured by the maker of the machine, or the supply is sold in such small annual volume, or the difficulties of enforcing divestiture of part of a plant are so obvious, as to make the extension of the decree to those instances undesirable.
No similar practical difficulties exist in ordering United to divest itself of its business of distributing supplies manufactured by companies which are not part of United’s organization. The annual dollar volume of some of these supplies, if looked at individually, is often not large; but the annual volume of all of them together is roughly $4% million. The specifications for some of these supplies did originate with United, but their continued manufacture does not require United’s assistance. Their distribution could be economically undertaken, if not by the several manufacturers, by a new supply distributor. And United ought not to be allowed to continue these distributorships because they flowed to United partly, at any rate, as an indirect consequence of United’s prohibited monopolization of shoe machinery. To be sure, other advantages flowed to United from its monopolization; but the particular advantages inherent in the large scale distribution of supplies are, as already noted, easily severable, and would probably lead to the organization of a new supply company, or the expansion of an existing supply company, which could become in time a manufacturer of certain machine types, or a source of repair service. Thus the total effect would be to develop avenues for the dissipation of United’s monopoly power in the machinery field.
Similar reasoning dictates the decree’s treatment of patents. Defendant is not being punished for abusive practices respecting patents, for it engaged in none, except possibly two decades ago in connection with the wood heel business. It is being required to reduce the monopoly power it has, not as a result of patents, but as a result of business practices. And compulsory licensing, on a reasonable royalty basis, is in effect a partial dissolution, on a non-confiscatory basis. In regard to patents, as in regard to the termination of supply distributorships, the decree does no more than what defendant’s own expert recognized would be appropriate if the 'Court found defendant had monopolized the shoe machinery market.
Final Decree.
February 18, 1953.
This cause having come on to be heard, and the Court having fully considered the evidence and arguments, and having filed its Findings of Fact, and Opinions on Violation and Remedy, it is .hereby
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Ordered, Adjudged, and Decreed that:
1. As used in this Decree:
"A Day” means six months after entry of this Decree, unless, within the period allowed by law, an appeal shall be taken to the Supreme Court of the United States, in which event “A Day” means six months after that Court sends its mandate to this Court.
“B Day” means three months after “A Day”.
“C Day” means ten years after “A Day”.
“Shoe machinery” means all types of shoe machinery except dry thread sewing machinery.
2. Defendant violated § 2 of the Sherman Act, 15 U.S.’C.A. § 2, by monopolizing the shoe machinery trade and commerce among the several States. Defendant violated the same section of the law by monopolizing that part of the interstate trade and commerce in tacks, nails, eyelets, grommets, and hooks, which is concerned with supplying the demand for those products by shoe factories within the United States. The other charges of violation of the Sherman Act set forth in the complaint are dismissed with prejudice.
3. Defendant, its subsidiaries, and each of their directors, officers, agents, and employees, and, all persons acting for them, are hereby enjoined and restrained from further monopolizing those parts of the trade or commerce among the several States which have

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/1878333. Public record. Not legal advice.