Appendix — Vendo Co. v. Lektro-Vend Corp.
Supreme Court brief1977
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OCT 28
APPENDIX MICHAEL RODAK,
*_==_{___—_{====_$_$ EEE
In THE
Supreme Court of the Gnited States
Octoser Term, 1976
No. 76-156
THE VENDO COMPANY, a Missouri corporation,
Petitioner,
vs.
LEKTRO-VEND CORP., a Delaware corporation,
HARRY B. STONER and STONER INVESTMENTS, INC.,
a Delaware corporation,
Respondents.
On Writ of Certiorari to the United States Court
of Appeals for the Seventh Circuit
PETITION FOR A WRIT OF CERTIORARI FILED AUGUST 4, 1976
CERTIORARI GRANTED OCTOBER 4, 1976
Bupreme Court, U. &
FIiL&D
eee ee
InN THE
Supreme Court of the GAnited States
Ocroser Term, 1976
No. 76-156
THE VENDO COMPANY, a Missouri corporation,
Petitioner,
vs.
LEKTRO-VEND CORP., a Delaware corporation,
HARRY B. STONER and STONER INVESTMENTS, INC.,
& Delaware corporation,
Respondents.
On Writ of Certiorari to the United States Court
of Appeals for the Seventh Circuit
INDEX
Chronological list of relevant docket entries ......... 1
Complaint filed by The Vendo Company August 10,
1965, in Vendo Co. v. Stoner, et al, No. 65-2134 in the
Circuit Court for the 16th Judicial Circuit, Kane
County, Dlinois (reproduced from pages 1-7 of
ee es cc ckas ch encaseun eeus 6
Docket entries in Vendo Co. v. Stoner, et al, No. 65 C
1364, in the United States District Court for the
| Northern Dietrict of Mlinois ..................... 11
Reply to Plaintiff’s Objections To Removal, in Vendo
Co. vy. Stoner, et al, No. 65 C 1364, filed September 2,
SD onkddnsed une Redd dabdinda ucakediat wb eadbah hae oe 13
Plaintiffs’ Complaint filed October 21, 1965, in Lektro-
Vend Corp. v. Vendo Co., No. 65 C 1755, United
States District Court for the Northern District of
Dt ci-cbesarekebenededdesdosdudsdenwekumatens 15
li
Stoner’s and Stoner Investments’ Sixth Separate De-
fense (federal antitrust defense) filed October 25,
1965, in Vendo Co. v. Stoner, et al., No. 65-2134, in the
Cireuit Court for the 16th Judicial Cireuit, Kane
County, Illinois (reproduced from pages 14-15 of
Se TE GED nee eantccdesccebadenekunus
Amendment to Complaint filed January 28, 1966, by
Plaintiff The Vendo Co. in Vendo Co. v. Stoner, et al.,
No. 65-2134 in the Circuit Court for the 16th Judicial
Cireuit, Kane County, Illinois (reproduced from
Plaintiffs’ Exhibit 303, pages 43-54) ..............
Amendment to Complaint filed June 26, 1966, by
Plaintiff The Vendo Co. for purpose of adding lan-
guage at the end of Count II, in Vendo Co. v. Stoner,
et al., No. 65-2134, in the Cireuit Court for the 16th
Judicial Circuit, Kane County, Illinois (reproduced
from Plaintiffs’ Exhibit 303, pages 51, 71) ........
Opinion of trial court rendered December 16, 1966, in
Vendo Co. v. Stoner, et al., No. 65-2134, in the Circuit
Court for the ‘6th Judicial Cireuit, Kane County,
Illinois (reproduced from pages 478-490 of Plain-
Ge EE EE 6k. ban bddncenandusdedddunacesass
Judgment of trial court, entered December 27, 1966, in
Vendo Co. v. Stoner, et al., No. 65-2134, in the Circuit
Court for the 16th Judicial Circuit, Kane County,
Illinois (reproduced from pages 74-75 of Plaintiff’s
SNS THUD: 606d ehaccvcubeunessececoedassaseus
Opinion of Illinois Appellate Court in Vendo v. Stoner,
et al., 105 Ill. App. 2d 261, 245 N.E.2d 263 (2d Dist.
1969), decided January 30, 1969 (Exhibit E to
Plaintiffs’ Amended and Supplemental Complaint) .
Transcript of proceedings indicating withdrawal of
federal antitrust defense (Sixth Separate Defense)
on April 29, 1971, by state court defendants Stoner
and Stoner Investments, Inc. in Vendo Co. v. Stoner,
et al., No. 65-2134, in the Circuit Court for the 16th
Judicial Circuit, Kane County, Illinois (reproduced
from page 727 of Plaintiffs’ Exhibit 304) .........
PAGE
31
33
35
37
47
49
Pete ms
lil
Memorandum Opinion and Order dated June 1, 1971,
in Lektro-Vend Corp. v. Vendo Co., No. 65 C 1755,
United States District Court for the Northern Dis-
See SG, hob ccubU5edenedsecssentendsbans
Minute Order dated June 1, 1971, in Lektro-Vend Corp.
v. Vendo Co., No. 65 C 1755, United States District
Court for the Northern District of Illinois, denying
motions of plaintiffs and defendant for summary
SES ckdbcddadenss beastnevansesacdinsseeeae
Judgment of trial court, entered August 13, 1971, in
Vendo Co. v. Stoner, et al., No. 65-2134, in the Circuit
Court for the 16th Judicial Circuit, Kane County,
Illinois (reproduced from pages 652-655 of Plain-
gg I Pe re ere
Memorandum Opinion dated October 21, 1971, in
Lektro-Vend Corp. v. Vendo Co., No. 65 C 1755,
United States District Court for the Northern Dis-
oc. c5 ad cnenus bonne idaen bees
Opinion of Illinois Appellate Court in Vendo Co. v.
Stoner, et al., 13 Tll. App. 3d 291, 300 N.E.2d 632
(2d Dist. 1973), decided May 29, 1973 (Exhibit F to
Plaintiffs’ Amended and Supplemental Complaint) .
Opinion of Illinois Supreme Court in Vendo Co. v.
Stoner, et al., 58 Ill. 2d 289, 321 N.E.2d 1 (1974), filed
September 27, 1974 (Exhibit G to Plaintiffs’
Amended and Supplemental Complaint) ..........
Plaintiffs’ Amended and Supplemental Complaint, filed
January 2, 1975 in Lektro-Vend Corp. v. Vendo Co.,
No. 65 C 1755, United States District Court for the
Northern District of Illinois .....................
Transcript of proceedings, January 23, 1975 in Lektro-
Vend Corp. v. Vendo Co., No. 65 C 1755, United
States District Court for the Northern District of
EE Sn ad beceneuedcusndkdecevaseenasedanbaesie
Plaintiffs Stoner’s and Stoner Investments’ Motion for
Preliminary Injunction, filed January 29, 1975 in
Lektro-Vend Corp. v. Vendo Co., No. 65 C 1755,
United States District Court for the Northern Dis-
gg NE ORE AUIS Sa eee roe a et
PAGE
92
100
124
160
iv
PAGE
Affidavit of James E. 8. Baker, filed January 29, 1975,
and exhibits attached, filed in Lektro-Vend Corp. v.
Vendo Co., No. 65 C 1755, United States District
Court for the Northern District of Illinois. ....... 178
Affidavit of Harry B. Stoner, filed January 29, 1975,
in Lektro-Vend Corp. v. Vendo Co., No. 65 C 1755,
United States District Court for the Northern Dis-
SOE ED. ddnnscdeda@esecnaceishe ds oases 185
Additional Affidavit of James E. S. Baker, filed Janu-
ary 29, 1975, in Lektro-V.end Corp. v. Vendo Co., No.
65 C 1755, United States District Court for the
Northern District of Illinois. ..................... 186
Counter-Affidavit of L. M. Ochsenschlager to Addi-
tional Affidavit of James FE. S. Baker, filed January
29, 1975, in Lektro-Vend Corp. v. Vendo Co., No. 65
C 1755, United States District Court for the Nor-
Gets BINOUNOOE GE TRIGED 5 nw ccc ccsccvevcccccecces 208
Defendant The Vendo Company’s Objections to Plain-
tiff’s Motion for Preliminary Injunction, filed Janu-
ary 29, 1975, in Lektro-Vend Corp. v. Vendo Co., No.
65 C. 1755, United States District Court for the
Northern District of Tllinois .................... 211
Transcript of proceedings, January 29, 1975 in Lektro-
Vend Corp. v. Vendo Co., No. 65 C 1755, United
States District Court for the Northern District of
IN clatter ee es oda oa Se ie 213
Table of Contents from post-trial brief for Defendant,
The Vendo Company, in opposition to the Motion of
Harry B. Stoner and Stoner Investments, Ine. for
Preliminary Injunction, filed April 16, 1975, in
Lektro-Vend Corp. v. Vendo Co., No. 65 C 1755,
United States District Court for the Northern Dis-
te Oar STL Sib ens bene 6a eee beast os 219
Transcript of proceedings ruling on motion for pre-
liminary injunction, May 29, 1975, in Lektro-V end
Corp. v. Vendo Co., No. 65 C 1755, United States
District Court for the Northern District of Illinois 224
v
PAGE
Memorandum Opinion and Order, filed May 30, 1975,
in Lektro Vend Corp. v. Vendo Co., No. 65 C 1755,
United States District Court for the Northern Dis-
ef RR eer Tere, eee e TT 226
Defendant’s Objections To the Proposed Form of
Order Granting Preliminary Injunction as Sub-
mitted by the Plaintiffs, filed June 16, 1975, in
Lektro-Vend Corp. v. Vendo Co.,’No. 65 C 1755,
United States District Court for the Northern Dis-
Grlet CE TGS occ cccsccdcncsccteciccscecvecseens 243
Defendant’s Additional Memorandum Regarding Pro-
posed Injunction and Suggestion of Proposed Con-
sent Decree, filed June 17, 1975, in Lektro-Vend
Corp. v. Vendo Co., No. 65 C 1755, United States
District Court for the Northern District of Illinois. . 257
Transcript of proceedings, June 19, 1975 in Lektro-
Vend Corp. v. Vendo Co., No. 65 C 1755, United
States District Court for the Northern District of
IED oc vvccccecccdoseccsctocsvevedsccsesseses 260
Order Granting Preliminary Injunction, entered June
27, 1975, in Lektro-Vend Corp. v. Vendo Co., No.
65 C 1755, United States District Court for the
Northern District of Illinois ................2045. 266
Opinion of the United States Court of ‘Appeals for the
Seventh Circuit, filed May 28, 1976 ............... 276
Judgment of the United States Court of Appeals for
the Seventh Circuit, filed May 28, 1976 ............ 292
Order of the United States Court of Appeals for the
Seventh Circuit denying Petition for Rehearing, filed
Dally 16, 1976 2... cc rccccccccccivccvcvcesccesccees 293
CHRONOLOGICAL LIST OF RELEVANT
DOCKET ENTRIES
October 21, 1965
Filed complaint and one copy.
December 28, 1965
Filed defendant’s motions to dismiss or, in the alterna-
tive, for a more definite statement.
December 28, 1965
Filed suggestions in support of defendant’s motion to
dismiss, or in the alternative for a more definite state-
ment.
January 31, 1966
Filed plaintiffs’ memorandum in response to defend-
ant’s motion to dismiss the complaint.
February 11, 1966
Filed reply to plaintiffs’ suggestions in opposition
to motion to dismiss.
April 7, 1966
Defendant’s motion to dismiss the complaint herein
or, in the alternative, for a more definite statement
considered and denied. Defendant is directed to an-
swer complaint on or before twenty (20) days from
date of this order.
November 23, 1970
Filed motion of plaintiffs for summary judgment.
November 23, 1970
Filed brief of plaintiffs in support of their motion for
a partial summary judgment on the issue of liability.
January 15, 1971
Filed brief in answer to plaintiffs’ motion for partial
summary judgment; exhibits.
February 5, 1971
Filed reply brief of plaintiffs in support of their mo-
tion for summary judgment.
February. , 1971 |
Filed defendant’s motion for summary judgment, with
affidavit of Lambert M. Ochsenschlager and exhibits
attached.
February 12, 1971
Filed brief in support of defendant’s motion for sum-
mary judgment.
March 29, 1971
Filed brief of plaintiffs in opposition to motion of de-
fendant for summary judgment on the issue of liability.
April 12, 1971
Filed reply brief of defendant in support of defend-
ant’s motion for summary judgment.
June 1, 1971
Pursuant to memorandum opinion and order entered
this day, the motions of plaintiffs and defendant for
summary judgment are hereby denied. The parties are
ordered to brief the issue of whether plaintiff is now
precluded from asserting his federal anti-trust claim in
the federal court by the doctrine of res judicata on the
briefing schedule set out in the memorandum opinion.
June 22, 1971
Filed defendant’s memorandum.
July 1, 1971
Filed plaintiff’s reply memorandum in opposition to the
contention that they are precluded from asserting their
federal anti-trust claim by the doctrine of res judicata.
July 27, 1971
Filed motion for leave to file instanter its reply brief
by defendant; stipulation; and reply brief of defendant
regarding the preclusion of the plaintiffs from assert-
ing their federal ani:-trust claim by the doctrine of res
judicata.
October 21, 1971
Filed Judge’s Memorandum opinion.
e-
March 10, 1972
Enter order defendant’s motion to vacate order con-
tinuing status call to June 16, 1972 for a pretrial hear-
ing, and for oral arguments and decision on the motions
pending before the court is hereby denied.
June 28, 1973
It is ordered that this cause is hereby set for a pretrial
conference on August 10, 1973 at 10:30 a.m. in the
chambers of Judge McLaren, Room 1978.
August 10, 1973
Pretrial conference held. Cause is set for a further
pretrial conference on Octover 19, 1973 at 9:30 a.m. at
which time the parties are to submit a memorandum
scheduling remaining discovery and setting a cut-off
date thereon.
October 19, 1973
Pretrial conference held. Cause is continued to De-
cember 19, 1973 at 10:00 a.m. for a further report on
status.
October 1, 1974
Enter order dated 10-1-74: Cause is continued to No-
vember 7, 1974 for a pretrial conference at 1:30 p.m.
in the chambers of Judge McLaren, Room 1978.
November 1, 1974
Enter order dated 10-31-74: On the Court’s own motion,
it is ordered that this cause is hereby reset from No-
vember 7, 1974 to December 5, 1974 at 9:30 a.m. in the
chambers of Judge McLaren, Room 1978, for a pretrial
conference.
December 9, 1974
Enter order dated December 5, 1974: Pretrial confer-
ence held. The plaintiff is granted to January 21, 1975
(45 days) in which to amend complaint. The defend-
ants are granted to February 20, 1975, (30 days) in
which to file their answer or otherwise plead. Parties
4
are to serve a memorandum as to remaining discovery
upon each other. Cause is set for a further pretrial
conference on March 3, 1974 at 9:30 a.m.
January 2, 1975
Filed amended and supplemental complaint and one
copy.
January 20, 1975
Filed memorandum of further discovery to be con-
ducted by plaintiffs.
January 29, 1975
Filed plaintiffs’ H. B. Stoner and Stoner Investments,
Inc. motion for preliminary injunction.
January 29, 1975
Filed affidavit of Harry B. Stoner.
January 29, 1975
Filed additional affidavit of James E. S. Baker.
January 29, 1975
Filed counter-affidavit of L. M. Ochsenschlager to ad-
ditional affidavit of James E. S. Baker.
February 6, 1975
Filed defendant Vendo Co.’s answer to Amended and
Supplemental Complaint.
May 29, 1975
Filed defendant-appellant’s notice of appeal.
May 30, 1975
Enter order dated May 29, 1975. The court does this
day hereby enter its memorandum opinion order. The
plaintiffs’ motion for a preliminary injunction is
granted.
June 17, 1975
Filed defendant’s additional memorandum regarding
proposed injunction order and suggestion of proposed
consent decree.
June 30, 1975
Enter order dated June 27, 1975. The motion for pre-
liminary injunction is hereby granted.
July 16, 1975
Filed second notice of appeal on behalf of defendant-
appellant.
May 28, 1976
Opinion of United States Court of Appeals for the
Seventh Circuit.
May 28, 1976
Order and judgment of United States Court of Ap-
peals for the Seventh Circuit.
June 11, 1976
Filed defendant-appellant’s Petition for Rehearing
with Suggestion for Rehearing En Banc.
July 16, 1976
Order of United States Court of Appeals for the Sev-
enth Circuit, on rehearing.
August 4, 1976
Filed Petitioner The Vendo Company’s Petition for
Writ of Certiorari to the United States Court of 4p
peals for the Seventh Circuit.
October 4, 1976
Order of United States Supreme Court granting Peti-
tion for Writ of Certiorari to the United States Court
of Appeals for the Seventh Circuit.
6
Complaint in Vendo Co. v. Stoner (state court suit)
IN THE CIRCUIT COURT OF THE 16TH
JUDICIAL CIRCUIT, KANE COUNTY, ILLINOIS
No. 65-2134
THE VENDO COMPANY, a foreign corporation,
Plaintiff,
vs.
HARRY B. STONER and STONER INVESTMENTS, INC.,
a foreign corporation,
Defendants.
COMPLAINT
(Filed Angust 10, 1965)
Count I
Now comes the plaintiff, The Vendo Company, a foreign
corporation, by Reid, Ochsenschlager, Murphy and Hupp,
its attorneys, and for Count I of its Complaint against the
defendant, Harry B. Stoner, alleges as follows:
1. That the defendant, Harry B. Stoner, is a resident
of the City of Aurora, Kane County, Illinois.
29. That for many years prior to April 3, 1959, the de-
fendant, Harry B. Stoner, was the chief executive officer
and principal stockholder of Stoner Manufacturing Com-
pany, an Illinois corporation; that the aforesaid corpora-
tion was engaged in the manufacture and sale of vending
machines in the City of Aurora, Kane County, Illinois;
that by reason of mergers and changes of name the Stoner
Manufacturing Company, of which the defendant, Harry
B. Stoner, was the chief executive officer, has been suc-
ceeded by and is now known as Stoner Investments, Inc.,
a foreign corporation; that hereafter said company shall
be referred to herein as Stoner Investments, Inc.
7
3. That on April 3, 1959, the plaintiff, The Vendo Com-
pany, and the defendant, Stoner Investments, Inc., entered
into a contract by which the plaintiff purchased the assets
of Stoner Investments, Inc., including the good will inci-
dent thereto.
4. That said contract provided in part, (the word “Com-
pany” meaning the defendant, Stoner Investments, Inc.) :
“From and after the closing, the Company will not
own, directly or indirectly, manage, operate, join, con-
trol or participate in the ownership, management, op-
eration or control of, or be connected in any manner
with, any business engaged in the manufacture and
sale of vending machines under any name similar to
the Company’s present name, and, for a period of ten
(10) years after the closing, the Company will not in
any manner, directly or indirectly, enter into or en-
gage in the United States or any foreign country in
which Vendo or any affiliate or subsidiary is so en-
gaged, in the manufacture and sale of vending ma-
chines or any business similar to that now being con-
ducted by the Company. The Company also agrees
that during its corporate existence it will, without
incurring any financial obligation, cooperate with
Vendo to prevent the use by others of the names
‘Stoner’ and ‘Stoner Mfg. Corp.’ in connection with
any business similar to that now carried on by the
Company and also agrees not to disclose to others,
or make use of, directly or indirectly, any formulae
or process now owned or used by the Company.”
5. That incident to the aforesaid transaction plaintiff
entered into a contract with Harry B. Stoner on June 1.
1959, whereby Stoner was employed by the plaintiff for a
period of five (5) years from the date of the contract;
that the aforesaid contract provided in part as follows:
“During the term of this agreement and for a period
of five (5) years following the termination of his
employment hereunder, whether by lapse of time or
8
by termination as hereinafter provided, Stoner shall
not directly or indirectly, in any of the territories in
which the Company or its subsidiaries or affiliates is
at present conducting business and also in territories
which Stoner knows the Company or its subsidiaries
or affiliates intends to extend and carry on business by
expansion of present activities, enter into or engage
in the vending machine manufacturing business or
any branch thereof, either as an individual on his own
account, or as a partner or joint venturer, or as an
employee, agent or salesman for any person, firm or
corporation or as an officer or director of a corpora-
tion or otherwise, provided however that the Company,
its subsidiaries and affiliates shall be excluded from
the restrictions hereof and provided also that Stoner
shall be permitted to own, hold, acquire and dispose
of stocks and other securities which are traded in the
investment security market whether on listed ex-
changes or over the counter.”
6. That the plaintiff has fully performed on its part
all of its obligations and duties pursuant to the aforesaid
contract.
7. That the defendant, Harry B. Stoner, both during
the term of his employment by the plaintiff and thereafter,
but within the five (5) year period specified in the contract,
violated and breached his duties and obligations there-
under in that he has both directly and indirectly entered
into the vending machine manufacturing business indi-
vidually, as a partner, officer, stockholder, or joint ven-
turer, in the Lektro-Vend Corp., a foreign corporation;
that plaintiff is unaware of the exact nature and extent
of defendant Stoner’s interest therein.
8. That the aforesaid corporation engages in the manu-
facture of vending machines in competition with the plain-
tiff, and in territories in which the Company or its sub-
sidiaries or affiliates have been, or are, conducting business
at all times material herein.
3
:
:
g
d
9
9. That unless restrained by an Injunction of this
Court, the defendant, Harry B. Stoner, will continue at
his engagement in the aforesaid enterprises and cause con-
tinuing irreparable damages to the plaintiff, The Vendo
Company, and will cause the plaintiff irreparable damages
in the future.
10. That the plaintiff, The Vendo Company, has
been damaged by the defendant, Harry B. Stoner’s
breach in the amount of Five Hundred Thousand Dollars
($500,000.00), together with the costs of this suit.
Wherefore, the plaintiff, The Vendo Company, prays
as follows:
1. That it have judgment against the defendant, Harry
B. Stoner, in the amount of Five Hundred Thousand Dol-
lars ($500,000.00), together with the costs: of this suit.
2. That the defendant, Harry B. Stoner, be restrained
by an Order of this Court during the pendency of the liti-
gation, and thereafter by an Order of Injunction, restrain-
ing him from engaging in the vending machine manufac-
turing business, or any branch thereof, and particularly
from participating in the operations of Lektro-Vend Cor-
poration, a fore'gn corporation, as partner, stockholder,
joint venturer, employee, agent, salesman, officer, or di-
rector.
Count II
Now comes the plaintiff, The Vendo Company, a foreign
corporation, by Reid, Ochsenschlager, Murphy and Hupp,
its attorneys, and for its Complaint against the defendant,
Stoner Investments, Inc., a foreign corporation, alleges
as follows:
1-6. For paragraphs 1 through 6, inclusive, of Count
II, plaintiff repeats and realleges, and incorporates herein,
paragraphs 1 through 6, inclusive, of Count I of its Com-
plaint.
7. That the defendant, Harry B. Stoner, is still the
chief executive officer and principal stockholder of Stoner
Investments, Inc.
10
8. That the defendant, Stoner Investments, Inc., in
violation of its obligations and duties pursuant to the
aforesaid contract, has indirectly engaged and participated
in the ownership, management, operation and control of
the business of the manufacture and sale of vending ma-
chines by consenting to and actively permitting its facil-
ities, officers, agents and employees to be used by said
Lektro-Vend Corporation in the sale and manufacturing
of vending machines in competition with the plaintiff, The
Vendo Company. |
9. That the defendant, Stoner Investments, Inc., has
consented to and actively permitted the engagement of its
chief executive officer and principal stockholder, Harry B.
Stoner, in the vending machine manufacture and sale con-
trary to its duties and obligations pursuant to the afore-
said contract.
10. That the defendant, Stoner Investments, Inc., has
allowed and encouraged the use of the name “Stoner” in
connection with a business similar to that carried on by
the plaintiff, to-wit, the manufacturing and sale of vending
machines, in violation of its duties and obligations pur-
suant to the aforesaid contract.
11. That by virtue of the aforesaid breaches of con-
tract by the defendant, Stoner Investments, Inc., the
plaintiff has been deprived of its contractual benefits and
of the good will attendant upon the aforesaid sale of assets.
All to the damage of the plaintiff, The Vendo Com-
pany, in the amount of Five Hundred Thousand Dollars
($500,000.00), together with the costs of this suit.
Wherefore, the plaintiff, The Vendo Company, a foreign
corporation, demands judgment against the defendant,
Stoner Investments, Inc., a foreign corporation, in the
amount of Five Hundred Thousand Dollars ($500,000.00),
together with the costs of this suit.
/s/ Rew, OcusenscHiacer, Murpny & Hupp
Attorneys for Plaintiff
11
Docket Entries in The Vendo Co. v. Stoner,
et al., No. 65 C 1364, United States District
Court for the Northern District of
Illinois, Eastern Division
(Attempted Removal of State Case to Federal Court)
August 16, 1965
Filed Petition for removal, Copy of complaint and
summons from Circuit Court for the Sixteenth Judi-
cial Circuit Kane County, Illinois No. 65 C 2134
Filed Affidavit re General Rule 39
Filed Designation
Filed Notice by Defendant
Filed Removal Bond
August 20, 1965
Filed Objections to Petition for removal and petition
for remand
September 2, 1965
Filed Reply of defendants to Plaintiff’s Objections to
Removal
September 2, 1965
Filed Answer, Separate Defenses and Counterclaims
of defendants.
September 3, 1965
Filed Notice of Deposition of The Vendo Co. Plaintiff
September 9, 1965
Filed Reply to defendants reply to plaintiffs objections
to removal (To Judge Will)
September 9, 1965
Filed Motion to strike notice of deposition by pltff.
September 22, 1965
Filed Stipulation
,
12
September 22, 1965
By stipulation order time for filing any responsive
pleadings or other documents, by any party hereto,
extended until 20 days following the entry of an order
on plaintiffs petition for remand—DRAFT Will, J.
Mld.Ntes. September 24, 1965
September 23, 1965
Plaintiffs’ petition for remand granted. Order cause
remanded to the Cireuit Court for the Sixteenth Judi-
cial Cireuit, Kane County, [llinois—Will. J.
Mld. Ntes. September 24, 1965
September 27, 1965
Letter mailed to Clerk of Cireuit Court, Geneva, Ill.
13
Reply to Plaintiff’s Objections to Removal
in Vendo Co. v. Stoner, et al. (state court suit)
(Filed September 2, 1965)
[CAPTION OMITTED IN PRINTING]
In reply to the Objections to Petition for Removal and
Petition for Remand filed by Plaintiff herein, there is no
question that the requisite jurisdictional amount exists in
this controversy and that there is diversity of citizenship
between Plaintiff and Defendants. As Plaintiff is well
aware, the filing of the subject lawsuit by Plaintiff again
raises the question as to the propriety of Plaintiff’s com-
mercial conduct under the antitrust laws of the United
States and the validity thereunder of the non-competition
covenants sought to be enforced in such suit.
Since the antitrust laws of the United States will be
involved, both in the way of defense to Plaintiff’s action
and as a separate cause of action on behalf of Defendants
against Plaintiff, the suit was removed to this forum in an
effort to avoid a needless duplication of lawsuits between
the parties.
The objection raised by Plaintiff as to the application
of Section 1441(b) is not jurisdictional.» In an action re-
moved from the state court, where diversity exists and the
requisite jurisdictional amount is involved, the objection
based on the second sentence of Section 1441(b) is an
objection that may be waived without adversely affecting
this Court's jurisdiction.
If Plaintiff, upon reflection, would prefer one lawsuit
in this Court, rather than separate actions in both State
and Federal Courts, it may waive its objections, and this
action may proceed here. If Plaintiff is not willing to
waive its objection based on Section 1441(b), and the Court
orders the removal of this case, then Defendants will be
SE
14
forced, by separate action, to enforce their rights under
the antitrust laws of the United States.
Respectfully submitted,
James FE. S. Baker
James E. S. Baker
Rosert A. Downina
Robert A. Downing
Of Counsel:
Sidley, Austin, Burgess & Smith
11 South LaSalle Street
Chicago, Illinois 60603
STate 2-5400
[CERTIFICATE OF SERVICE OMITTED
IN PRINTING]
—— tien ne ree, ae
15
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
LEKTRO-VEND CORP., a Delaware )
corporation, HARRY B. STONER,
and STONER INVESTMENTS, INC.,
a Delaware corporation,
Plaintiffs, | wo. 65 © 1755
COMPLAINT
(Filed October 21, 1965)
Plaintiffs, by their attorneys, James FE. S. Baker and
Rosert A. Downtna, complaining of defendant, Tue Venpo
Company, allege as follows:
1. These proceedings are instituted and the jurisdiction
of this Court is based upon Sections 4 and 16 of the Clay-
ton Act (15 U.S.C., 15 and 26) and Section 1337 of the
Judicial Code (28 U.S.C. 1337) against defendant, Tue
Venvo Company (hereinafter called “Venpo”’), for viola-
tions as hereinafter alleged of Sections 1 and 2 of the Sher-
man Act (15 U.S.C. 1 and 2).
2. Vewnpo transacts business within the Northern Dis-
trict of Illinois.
3. Plaintiff, Harry B. Stronger (hereinafter called
“Sroner”), is an individual, resident of Aurora, Illinois.
He has been in the business of designing and manufactur-
ing vending machines in Aurora, Illinois for more than 25
vears. Prior to 1959, he was the President and one of the
principal owners of Stoner Mre, Corp. (hereinafter called
C—O
16
“STONER Mre.”), which company was an Illinois corpora-
tion engaged in the manufacture and sale of vending ma-
chines. In 1959, said Stoner Mrc. sold substantially all of
its operating assets to Venvo pursuant to a contract of sale,
a true and correct copy of which is attached to this com-
plaint as Exhibit A.
4. Plaintiff, Sroner Investments, Inc., a Delaware cor-
poration, (hereinafter called “Stoner Investments”), is a
successor to the Illinois corporation, which prior to May,
1959, was named Stoner Mec. Corp., which Illinois corpo-
ration was a party to the contract of sale (Exhibit A),
which Illinois corporation, upon the sale of its principal
assets to Venpo, in 1959, changed its name to Stoner Iw-
VESTMENTS, Inc. In July, 1964, Stoner InvestmMENTs pur-
chased approximately 25% of the common stock of Lex rro-
y . .
Venp Corp., a Delaware corporation (hereinafter called
“LEKTRO-VEND”’),
5. Plaintiff, Lexrro-Venp, is and since September 1,
1963, has been a corporation organized and existing under
the laws of the State of Delaware, with its principal place
of business in Aurora, Illinois. This business was originally
started as a sole proprietorship under the name and stvle
R. W. Puituirs Company in November, 1960 and later did
business under the name and style Lextro-Venp Manvurac-
TURING Company. Prior to incorporation the business was
primarily that of research and design in the vending ma-
chine business. In and prior to November, 1962, as a result
of the extensive research, a new, novel and improved vend-
ing machine was designed and developed. Lextro-VEnp has
been engaged in the continued improvement of its new
machine and in the design, development, manufacture and
sale of automatic merchandising equipment (vending ma-
chines), particularly vending machines for candy, cookies
and crackers, packaged gum, pastry, potato chips, pretzels
and other multi-purpose food vending equipment. It is in
competition with VEeNpo.
a
17
6. Defendant, THe Venpo Company, is a Missouri cor-
poration with its principal place of business in Kansas City,
Missouri. It proclaims itself to be and it is the world’s
largest manufacturer of automatic merchandising equip-
ment (vending machines). Venpo has manufacturing plants
in Kansas City, Missouri; Aurora, Illinois; Pinedale, Cali-
fornia; and Westbury, New York. Venpo has subsidiaries
or affiliates in Mexico, Germany, Japan, Australia, Italy,
France, Canada, and Belgium. Venpo sells such machines
so produced in all 50 states and in more than 60 countries
and territories. Vexpo maintains offices for such sales in
Los Angeles, California; Dallas, Texas; Chicago, Illinois;
Cleveland, Ohio; Atlanta, Georgia; Hasbrouck Heights,
New Jersey; Toronto, Ontario; Duesseldorf, West Ger-
many; Paris, France; Milan, Italy; Sydney, Australia;
Brussels, Belgium; Johannesburg, South Africa. Venpo
has regional managers or representatives in California,
Colorado, Florida, Georgia, Illinois, Indiana, Massachu-
setts, Michigan, Mississippi, Missouri, New Jersey, New
York, North Carolina, Ohio, Oregon, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Wisconsin and San
Juan, Puerto Rico.
7. At the present time, Venpo has control of over 40%
of the entire business of the manufacture of vending ma-
chines in the United States. Venpo has control of between
50% and 100% of the manufacture of vending machines
for the vending of candy, pastry, milk and ice cream, and
of multi-purpose (refrigerated and non-refrigerated) food
vending machines, which is the field in which Lexrro-VEND
has attempted to compete with Venvo. In 1964, Venpo’s
sales of vending machines for hot and cold food, coffee,
milk, ice cream, candy, pastries, and cigarettes exceeded
$28,000,000, an increase of approximately 15% over the
preceding year and more than double the comparable sales
for the year 1959. In the year 1964, the sales of the above-
named products accounted for in excess of 40% of the total
sales of Venpo. In 1964, sales of vending machines for
18
confections and foods of all manufacturing companies
totaled approximately $31,915,000.
8. Venpo has monopolized, and attempted to monopolize,
the trade and commerce in the State of Illinois, among the
several states and with foreign countries, in the business of
manufacturing and selling vending machines, and has ac-
quired as the result of its unlawful activities, control over
so substantial a portion of such trade and commerce as
to obtain the power to remove or to exclude competitors
from the field. Venpo now possesses such power and has
possessed such power for a number of years and has
demonstrated its intent to remove or exclude competitors
from the vending machine manufacturing business. For
purposes of this complaint, the relevant geographic mar-
kets or parts of commerce and trade are:
(1) the entire United States;
(2) each of the six regional sales markets of Venpo,
which are its Eastern, Southern, Central, Midwestern,
Southwestern and Western Divisions;
(3) commerce with Canada;
(4) commerce with other countries than Canada;
(5) the State of Illinois; where the Sroner Mre.
division is located.
For the purposes of this complaint, the relevant products
or parts of trade or commerce are:
(1) vending machines for food, beverages, confec-
tions and cigarettes;
(2) vending machines for food, beverages and con-
fections ;
(3) vending machines for food and confections;
(4) vending machines for candy bars, excluding bulk
vending equipment;
19
(5) vending machines for packaged chewing gum;
(6) vending machines for pastries, such as vending
machines for sweet rolls, cupeakes and doughnuts;
(7) vending machines for hot canned foods and
soups;
(8) vending machines for snacks, excluding candy
bar vendors, such as machines for sale of cookies,
crackers, biscuits, popcorn, ice cream, potato chips,
pretzels, corn chips, or cheese sticks;
(9) Multi-purpose, refrigerated and non-refriger-
ated vending machines for food, such as machines for
sale of sandwiches and salads;
(10) vending machines for confections, such as
machines for candy, gum, mints, potato chips, corn
chips, cheese sticks, pastry, sweet rolls, pies, cupcakes,
doughnuts ;
(11) vending machines for coffee;
(12) vending machines for soft drinks;
(13) other vending machines for beverages, such as
machines for sale of milk, hot chocolate and/or hot
soup (except canned soup) not sold in a combination
machine with coffee.
9. Venpvo has engaged in numerous overt acts in an
effort to establish, maintain, use and increase its monopoly
power over the trade and commerce of vending machines in
the State of Illinois, the severa! states and foreign coun-
tries. The intent of these acts is and has been to eliminate
the competition of Lexrro-VeNnp and other companies and
to deter potential competitors from entering the field. These
overt acts referred to above are alleged in succeeding
paragraphs of this complaint.
10. On or about September 18, 1956, pursuant to its plan
of monopolization, Venvo acquired all the outstanding
20
capital stock, assets and business of VENDoRLATOR Manv-
FACTURING Company, a California corporation, including its
patents and good will, in exchange for 267,464 shares of
common stock of Venpo. Prior to the said acquisition,
Venpo and the VenporLatoR MANuFACTURING COMPANY
were competitors in the production and sale of coin op-
erated vending machines built to dispense bottled soft
drinks in the United States. Venpo is, and prior to the
said acquisition was, the largest manufacturer of coin op-
erated vending machines built to dispense bottled soft
drinks in the United States. The combined sales of VeNpo
and the VENporLATOR Manuracturine Company from 1955
to the present have accounted for and now account for in
excess of 40% of the market involved. The VeNpDoRLATOR
Manvuracturine Company is now a division of VeNnpo. In
1964 the sales of beverage vending machines by VENDo
exceeded $28,000,000. The above alleged acts of VENpDo
demonstrate an intent to obtain and increase its monopoly
power and to monopolize the vending machine manufactur-
ing business.
11. Since the fall of 1958, and continuing to the present
date, pursuant to its plan of monopolization, Venpo has
engaged in and actively participated in a conspiracy to
steal valuable trade secrets from a company now named
National ReJectrors, [xc., a subsidiary of the UNniversaL
Matcn Corporation. UniversaL Matcu CorPorATION is a
principal competitor of VENpo. Nationa Resectors, Inc.
manufactures slug rejectors, a device used in all or substan-
tially all coin operated machines, to detect, separate, and
reject spurious coins and accept legitimate coins. Prior to
VeNnbo’s participation in the conspiracy, VeNpvo was the
largest customer of NationaL Resectors, Inc. On or about
October 1, 1959, Venpo executed a contract with Corn Ac-
ceptors, Inc., a Missouri corporation, in which it was
agreed that certain employees of Corn Acceptors, Ine.
would design coin handling devices and VEnpo would manu-
facture them. VeNpo also obtained an option to purchase
50% of the Com Acceprors, Inc. stock for a price of
prnctces ———
21
$200,000. When Venpo ertered into the aforesaid contract,
it knew that the principal officers, employees and share-
holders of Corn Acceptors, Inc. were or had been former
employees of Nationa Resectors, Inc. and knew that
these employees had stolen the valuable trade secrets of
NationaL Resectors, Inc. The various agreements, con-
tracts and understandings between Venpo and Corn Ac-
ceptors, Inc. are in violation of Sections 1 and 2 of the
Sherman Act in that they unreasonably restrain trade and
constitute an attempt to monopolize the vending machine
manufacturing industry, consistent with its intent and
purpose as hereinbefore alleged. The aforesaid conspiracy
further demonstrates VENpo’s intent and purpose to mo-
nopolize the vending machine manufacturing industry and
to eliminate competitors.
12. On or about April 3, 1959, pursuant to its plan and
intent to monopolize, VeNpo acquired substantially all of
the assets of the Sronex Mre. Stoner INVESTMENTs is a cor-
porate snecessor to Stoner Mro. Unknown to the plaintiffs,
Harry B. Stoner and Stoner INVEsTMENTs, one of the
reasons for the acquisition of the assets of the Stoner Mra.
was to utilize the facilities of the Stoner Mre. for the
manufacture of coin rejectors, pursuant to the illegal
conspiracy between Venpvo and Corn Acceptors, Inc. which
has been alleged in the previous paragraph of this com-
plaint. The facilities of Stoner Mra. are now operated as
a division of Venpo. Stoner Mrce. at the time of the
acquisition of its operating assets by VENDo, was one of the
leading manufacturers of vending machines for the sale of
candy, pastry, cigarettes, coffee, hot food and other similar
_items. Sroner Mrs. division of Venpo has continued to
manufacture such machines. Largely as a result of these
monopolistic activities, VENDo now maintains control of
between 50 and 100% of the manufacture of vending ma-
chines for the vending of candy, pastry, milk and ice cream
and of multi-purpose (refrigerated and non-refrigerated)
food vending machines, which is the field in which Lexrro-
Venp has attempted to compete with Venvo. This acquisi-
22
tion was made pursuant to Venpo’s plan and scheme to
monopolize the vending machine manufacturing business.
13. The contract of sale between VeNDo and Stoner
Mre., Exhibit A attached hereto, contains an agreement
that Stoner Mrc. would not directly or indirectly compete
with Venpo in the United States or any foreign country in
which Venpo or any affiliate or subsidiary is operating for
a period of 10 years from the date of closing. The full text
of the non-competition covenant is set forth in section 15
of the agreement. The said non-competition covenant con-
stitutes an unreasonable restraint of trade, and the making
and entering into of said non-competition covenant is an
overt act of VENpo in monopolization and constitutes an
attempt to monopolize the trade or commerce among the
several states and foreign countries in the manufacture of
such vending machines. Said non-competition covenant is
not reasonably related to the sale of assets referred to.
14. On or about June 1, 1959, a contract was executed
between Harry B. Stoner and Venpo. The contract pur-
ported to employ the said Stoner for a period of five years
at a salary of $50,000 per year. The agreement also pro-
vided that for a period of five years after the termination
of the purported employment, Sroner would not enter into
or engage directly or indirectly in the vending machine
manufacturing business in any of the territories in which
Venpo or its subsidiaries or affiliates was conducting busi-
ness or in which Stoner knew VENDo may in the future
conduct business. Section 5 of the contract, attached hereto
as Exhibit B, contains the non-competition provision. The
said non-competition covenant is an unreasonable restraint
of trade in that it is not reasonably limited as to time or
geographical extent. The said purported employment and
election of Stoner as a director of VENpDo and as an officer
of the Stoner Mre. Co. division were devices of VEeNpDo to
prevent the said Stoner from engaging in competition with
the defendant, and for no other reason. During the term of
such purported employment, the said Stoner was neither
ee eee Ne eer ee
:
:
23
assigned nor permitted to perform any duties or responsi-
bilities of an executive or advisory nature. He was in-
formed that his employment by VENDo was a means or de-
vice to put him “on the shelf.” During the term 2f said
purported employment contract Stoner did not learn and
was not permitted to learn any trade secrets, know-how or
other details of the business which would be of any value to
a competitor or in the operation of a competitive business.
In 1964, Stoner was not re-elected as a director of VENDOo
and the relationship was terminated in June, 1964. The
said non-competition covenant constitutes an unreasonable
restraint of trade, and the making and entering into of the
non-competition covenant is an overt act of VeNpo in mo-
nopolization and constitutes an attempt to monopolize the
trade or commerce in the State of Illinois, among the sev-
eral states and with foreign countries in the manufacture of
vending machines, particularly food vending equipment.
15. In the period immediately preceding the negotia-
tions for the sale of Stoner Mrc., Stoner was seriously ill
and unable to participate actively in the business. His
physical condition was such that he could not be certain
that he would ever to able to return to active business.
In order to assure continued success of the business and
to protect the interests of his family and other share-
holders of Stoner Mrc., it was necessary for him to sell
the assets of Stoner Mra. In the negotiations, Venpo
originally proposed a five-year covenant not to compete but
during the final stages of negotiation, VENDo insisted that
Stoner Mre. agree not to compete with Venpo in any area
where VeNvo was doing business or intended to de busi-
ness for a period of ten years. VENpo also insisted that
Stoner individually enter into an employment contract,
containing a similar ten-year covenant not to compete. Be-
cause of the compelling necessity to Stoner of completing
the sale, Stoner and Stoner Mrc. were forced to accede to
Venvo’s demands. The primary purpose of said employment
contract, Exhibit B, was to prohibit the said Stoner from
competing with VeNnpo not only while payments were made
24
thereunder but for five years thereafter, which purpose was
concealed from Stoner at the time said contract was exe-
cuted and for a substantial period thereafter. In fact, repre-
sentations were made to Sroner after said contract was
executed assuring him that Venvo would not attempt to
prevent him from entering into a competitive business
which representations were calculated to conceal VEnvo’s
true intent from Stoner and others. Said representations
were relied upon by Stoner. Stoner, in or about December
1962, and on other occasions, requested Venpo to release
him from the illegal covenant not to compete, which release
was refused by Venpo. On each such occasion, Stoner in-
formed VeENnpo that said covenant not to compete was invalid
and unenforcible. Non-competition agreements world wide
in geographic scope and for extended periods of time, are
and have been weapons in Vendo’s arsenal of power and
have been used to limit and eliminate competition and to
extend and perpetuate its monopoly.
16. Since leaving Venpo in June, 1964, Stoner has, with-
out compensation, devoted some time and effort to assist
LexkTro-VEND, particularly in the area of the research and
development of vending machines designed for use in the
vending of candy bars, mints, and gum, which LexTro-VeNnp
has sought to market in the State of Illinois and elsewhere
under its name. Stoner Invesrments purchased approxi-
mately 25% of the common stock of Lexrro-Venp in
July, 1964.
1. On or about August 10, 1965, Venpo filed suit in the
Cireuit Court for the Sixteenth Judicial Cireuit of Tllinois
against Stoner and Stoner Investments. The full text of
the complaint is attached to this complaint as Exhibit C.
The complaint alleges that Stoner had breached his agree-
ment not to compete of June 1, 1959 and that Sroner
INvesTMENTs had breached that portion of the April 3, 1959
contract of sale which sought to eliminate competition for
10 years throegkoutethe world. As has been previously
alleged, the world-wide non-competition covenants contained
ee a 7 he
25
in the said contracts are illegal and in violation of the
antitrust laws of the United States, particularly Sections 1
and 2 of the Sherman Act. The purpose of the said law suit
is to unlawfully harass Stoner and Stoner INVESTMENTS
and to eliminate the competition of Stoner, Stoner [Nvest-
mMENTs and Lextro-Venp. The lawsuit is part of VENDo’s
plan to monopolize the vending machine manufacturing
business. The threats to enforce such non-competition cove-
nants and the bringing of a suit in an attempt to enforce the
illegal covenants are overt acts of VENDo in monopolization
and constitute an attempt to monopolize the trade or com-
merce in the State of Illinois among the several states and
foreign countries in the manufacture of such vending
machines. LextTro-VeNp, Stoner and Stronger INVESTMENTS
have been injured in their business and property as a direct
and proximate result of these overt acts of VENDo.
18. Pursuant to its plan of monopolization within the
past year, VEeNpo’s sales representatives and employees
have spread false and malicious rumors to the effect that
LexTro-Venp was in financial difficulties, was unable to
perform its contracts for the manufacture and sale of vend-
ing machines or to service such machines after delivery and
was actually insolvent and on the verge of bankruptcy, and
by other means of unlawful trade interference and unfair
competition. Lextro-Venp’s sales of vending machines
substantially decreased as a proximate result of the false
statements made by Venpo’s employees and by other types
of unlawful harassment. The purpose and intent of the
Venpo’s activities is and has been to eliminate competition
in the manufacture of vending machines and, specifically,
to eliminate the competition of Lextro-VEND.
19. Pursuant to its plan of monopolization and with the
intent to monopolize, Venvo has threatened to sue and has
sued competitors for alleged violations of contracts and
alleged patent infringement. In great part these threats
and suits have been without merit and solely for the pur-
pose of harassment. The purpose and intent of the threats
26
to initiate expensive and time-consuming litigation with
regard to certain narrow and weak patents held by VEnvo
and to enforce illegal non-competition covenants is and has
been to eliminate competition and drive competitors out of
business.
20. Pursuant to its plan to monopolize and with the in-
tent to monopolize, on or about July 31, 1964, Venpo’s
wholly owned subsidiary, Venno Manuracturine Corp. of
. ew York, a New York corporation, organized on July 30,
1964, acquired all of the vending machine manufacturing
assets and patents of ContinentaL VENDING Macutne Corp.
an Indiana corporation, and ContrnentaL APCO, Inc. pe
New York corporation, and wholly owned subsidiary ‘of
ConTINENTAL Venpinc Macutne Corp. The manufacturing
facilities of the ContinentTAL Venpinc Macutne Corp. were
at the time of purchase and are sufficient to assemble vari-
ous types of automatic coin operated vending machines
which dispense soft drinks, coffee, cigarettes, and ice
cream. The trustees in bankruptcy from whom such assets
were purchased were prepared to sell the assets to the
Kevsty-Hayes Corp. a Delaware corporation, which is a
major manufacturer of automobile and aircraft parts. In
order to prevent Ke_sry-Hayes Corp. or any other corpora-
tion from entering into competition with it, Vewnpo, to
extend its monopoly and eliminate competition, outbid the
prospective purchaser, thereby avoiding the entrv of an
additional competitor into the market. .
21. Largely as a result of Venpo’s unlawful monop-
olistic activities and practices as previously alleged, its
net profit has increased from approximately $840,000 in
1955 to $3,500,000 in 1964. During the same period, VENDO’s
net sales increased from approximately $20,800,000 to
$63,540,000, and its total assets increased from approxi.
mately $10,950,000 to $50,460,000. During the first six
months of 1965, the Venpo’s total sales were $38,969,153
a BD Je increase over the same six month period for the
prior year. During the first six months of 1965, earnings
~ ae me ee ee ee) ae Ml a, a a Ne ede er einai tal Pa Bate Ee ts em
27
were $2,456,150, an increase of 66% over the same period
from the prior year. Sales made by the ConTINENTAL
Vexpinc Macutxe Corp. division made a substantial con-
tribution to such sales and earnings. In or about July, 1965,
Venpo put in effect a broad-based price increase, averaging
around 10%. The purpose and intent of the aforesaid
monopolistic practices is and has been to acquire sufficient
economic power to exclude competitors from trade and
commerce among the several states and foreign countries,
to eliminate competition in the State of Illinois, and to deter
potential competitors from beginning the manufacture of
vending machines in the State of Illinois and elsewhere.
22. Largely as a proximate result of Venpo’s unlawful
monopolistic activities and practices and its attempts to
monopolize the manufacture and sale of vending machines
as previously alleged, Venvo has made it substantially more
difficult to enter the vending machine manufacturing busi-
ness and competition has substantially lessened, and elimi-
nated in some instances, and there has been a dangerous
probability of a monopoly in the manufacture of vending
machines. In 1958, there were approximately 120 vending
machine manufacturers. In 1963, this was substantially re-
duced to 76 such manufacturers, and in 1964, the number of
manufacturers had been further reduced to 66. Of these 66
companies, 47 had sales in excess of $100,000. In 1964, ap-
proximately 31 companies manufactured vending machines
for confections and food, but only 16 of them had sales in
excess of $100,000. In 1964, twelve companies manufactured
vending machines for candy bars; eight of these had sales
in excess of $100,000. Lextro-Venp has been seriously in-
jured as a proximate result of Venpo’s unlawful monop-
olistie practices, activities, and its exercise and attempted
exercise of its monopoly power.
23. Asa result of the commencement of the action in the
Sixteenth Judicial Circuit of Illinois and of the other acts
as alleged previously, the plaintiffs, Stoner and Stoner
IxvesTMENTs have not been able to participate to the fullest
28
and have been unlawfully prevented from constructively
utilizing their knowledge and abilities in the industry, to
the damage of the industry as a whole, the consuming public,
Le Venxp, and themselves. The enforcement of the
world-wide non-competition covenants contained in the con-
tracts with Venpo should be enjoined as a violation of the
United States Antitrust Laws, particularly Sections 1 and
2 of the Sherman Act, and plaintiffs should be awarded
their costs and reasonable attorney’s fees.
24. Stoner has been unable, because of the existence of
said non-competition covenant, to obtain suitable employ-
ment in the business of manufacture and sale of vending
machines, since the termination of payments by Venpo in
June, 1964, and will be unable to secure any such suitable
employment in the industry, or to use his extensive knowl-
edge and ability in the industry, until the threat of such
unlawful covenant is removed. Stoner could reasonably
expect to earn upwards of $75,000 per year in such employ-
ment. As a direct consequence thereof, and of the pendency
of the Ill*nois action, for the defense of which Stoner has
been forced, and will in the future be forced, to make sub-
stantial expenditures, Stoner has sustained damages of in
excess of $100,000 to date.
25. Stoner Investments has been unable, because of the
existence of said world-wide non-competitive covenant, to
invest in or otherwise participate in the business of the
manufacture and sale of vending machines. Had it been
free to participate in such business and to invest funds
therein, it could have realized a profit from such participa-
tion and investment of in excess of $200,000 per year. It
requested its release from the illegal covenants not to
compete in or about December, 1962, which release was
refused by Venpo. As a proximate result thereof, and as a
direct result of the pendency of the Illinois action, for the
defense of which it has been forced, and in the future will
be forced, to make substantial expenditures of money and
tot eee
29
utilize the time of its employees, Stronger InvEsTMENTS has
been damaged in an amount in excess of $500,000.
_ As a direct and proximate result of the violations
Ran An set forth Lexrro-Venp has been substantially
injured in its business and property, to wit: Lexrro-VEND
has been deprived of the services of STONER and the finan-
cial assistance of Sroner InvesTMENTs; its sales and profits
have been seriously impaired and reduced ; it has suffered
an immense loss of good will and reputation; and the value
of its business has been substantially reduced; all to the
damage of Lexrro-Venv. The precise amount of damage is
not presently known to Lextro-VEND, but is believed to be
in excess of $3,000,000.
27. Plaintiffs, and each of them, allege that the forego-
ing violations of the antitrust laws by Venpo are presently
continuing, and further irreparable loss and damage are
threatened to plaintiffs, and each of them, unless Venpo is
restrained by this Court.
Wuenrerorg, the plaintiffs pray:
1. That this Court adjudge and decree that the acts of
Venvo as hereinabove described have been and continue
to be in violation of the antitrust laws, including Sections
1 and 2 of the Sherman Act;
9. That this Court issue a permanent injunction against
Venpo restraining it from continuing the unlawful practices
alleged herein ;
3. That Sroner be awarded damages against Venvo in
the amount of $100,000 to be trebled to $300,000 as provided
by law;
4. That Sroner Investments be awarded damages
against Venvo in the amount of $500,000 to be trebled to
$1,500,000 as provided by law;
5. That Lexrro-Venp be awarded damages against
VeEnpo in the amount of $3,000,000 to be trebled to $9,000,000
as provided by law;
30
6. That plaintiffs, and each of them, be awarded attor-
neys’ fees, costs and interest as provided by law.
7. That plaintiffs, and each of them, have such other,
further and different relief as the Court shall deem just.
Lexrro-Venp Corp., a Delaware
corporation, Harry B. Sronkr,
and Stoner Investments, Ino., a
Delaware corporation,
Robert A. Downing
Their Attorneys
Of Counsel:
Siwotey, Austr, Burcess & Smiru
11 South La Salle Street
Chicago, Illinois 60603
STate 2-5400
31
Answer, Separate Defenses And
Counterclaim In
Vendo Co. v. Stoner (state court suit)
(Filed October 25, 1965)
[CAPTION OMITTED IN PRINTING]
eo e o eo a
SIXTH SEPARATE DEFENSE
The non-competition covenants referred to in para-
graphs 4 and 5 of the complaint sought to be enforced by
the complaint are invalid and unenforcible because they
are in violation of the United States antitrust laws (Title
15, U.S. Code, See, 1-8, et seq.), particularly Sections 1 and
2 of the Sherman Act, in that such covenants are not rea-
sonably related to the sale of assets referred to, nor to the
employment of the individual defendant. The plaintiff, The
Vendo Company, has monopolized, and attempted to mo-
nopolize, the trade and commerce among the several states
in the business of manufacturing and selling automatic
coin merchandising machines, generally known as vending
machines, and has acquired as the result of its activities
control over so substantial a portion of such trade and
commerce as to obtain the power to remove or to exclude
competitors from the field of manufacture of vending ma-
chines. That it now possesses such power and that its bring-
ing of this suit in an attempt to enforce the non-competition
covenants referred to in paragraphs 4 and 5 of the com-
plaint, demonstrates its intent to exercise its power to
remove or exclude competitors from competition in the
vending machine manufacturing business. At the present
time plaintiff has control of over 40% of the entire vending
machine manufacturing business of the United States and
has control of the manufacturing of between 50% to 100%
of the vending machines for the vending of candy, pastry,
milk, and ice cream, and of multi-purpose, refrigerated and
non-refrigéTated, food vending machines, which is the field
in which Lektro-Vend Corp. has attempted to compete with
32
plaintiff. The making and entering into of the purported
non-competition covenants referred to in paragraphs 4 and
5 of the complaint, the reiteration of threats of enforcement
of such covenants, and the bringing of the present action
in an effort to enforce such covenants, are overt acts of
plaintiff in monopolization and attempts to monopolize the
trade or commerce among the several states in the field of
manufacture of such vending machines. Such purported
non-competition covenants constitute contracts in unreason-
able restraint of trade or commerce among the several
states and are, therefore, invalid and unenforceable.
Wherefore, defendants, and each of them, demand that
the complaint and each Count thereof should be dismissed
and that they should be awarded their costs.
Mideees whe ——
33
Amendment To Complaint In
Vendo Co. v. Stoner (state court suit)
(Filed January 28, 1966)
[CAPTION OMITTED IN PRINTING]
Count I
7. That the defendant, Harry B. Stoner, both during the
term of his employment by the plaintiff and thereafter,
but within the five (5) year period specified in the contract,
violated and breached his duties and obligations thereunder
in that he has both directly and indirectly entered into the
vending machine manufacturing business individually, as
a partner, officer, stockholder, or joint venturer, in the
Lektro-Vend Corp., a foreign corporation; that plaintiff is
unaware of the exact nature and extent of defendant
Stoner’s interest therein; that the defendant, Harry B.
Stoner, during the term of his employment, stole valuable
trade secrets of the plaintiff, including design concept for
vending machines, which he appropriated during the term
of his employment and thereafter to his own use and that
of the Lektro-Vend Corp.; that during the term of his
employment, and thereafter, through the provision of
financing, advice and the use of facilities, entered into the
vending machine manufacturing business with Lektro-Vend
Corp., a foreign corporation.
8-1%4. That the defendant, Harry B. Stoner, is a man of
substantial means and has income from investments in
excess of Fifty Thousand Dollars ($50,000.00) per year;
that compliance with the terms of his contract with the
plaintiff, heretofore referred to, will not in any way prevent
him from earning a livelihood or from enjoying the stand-
ard of living to which he has hecome accustomed.
Count II
8. That the defendant, Stoner Investments, Inc., in
violation of its obligations and duties pursuant to the afore-
34
said contract, has indirectly engaged and participated in the
ownership, management, operation and control of the busi-
ness of the manufacture and sale of vending machines by
consenting to and actively permitting its facilities, officers,
agents and employees to be used by said Lektro-Vend Corp.
in the sale and manufacturing of vending machines in
competition with the plaintiff, The Vendo Company; that
the defendant, Stoner Investments, Inc., in violation of its
contractual obligations, managed, operated, controlled and
participated in the ownership, management, operation and
control of the Lektro-Vend Corp., a foreign corporation, by
the provision of financing, advice and the use of facilities
afforded the aforesaid Lektro-Vend Corp.; that through
its officer and agent, Harry B. Stoner, the defendant, Stoner
Investments, Inc., stole valuable trade secrets of the plain-
tiff, The Vendo Company, including the design for certain
vending machines, which it appropriated to its own use and
that of Lektro-Vend Corp.
/s/ Rep, OcusenscnHLacer, Murpny & Hupp
Attorney for Plaintiff
[CERTIFICATE OF SERVICE
OMITTED IN PRINTING]
PONE ee Oe i ee a ee eR Si ens re ore ee See
ne
en
35
Amendment To Complaint In
Vendo Co. v. Stoner (state court suit)
[CAPTION OMITTED IN PRINTING)
MOTION TO AMEND
(Filed June 26, 1966)
Now comes the plaintiff, The Vendo Company, a foreign
corporation, by Reid, Ochsenschlager, Murphy and Hupp,
its attorneys, and moves the Court for leave to amend the
Complaint instanter upon its face for the purpose of adding
the following language at the end of Count IT:
The plaintiff, The Vendo Company, a foreign cor-
poration, further prays that the defendant, Stoner
Investments, Inc., be restrained by an Order of this
Court during the pendency of this litigation and there-
after by an Order of Injunction from owning, directly
or indirectly, managing, operating, joining, controlling
or participating in the ownership, management, opera-
tion or control of, or from being connected in any
manner with, and from directly or indirectly entering
into or engaging in the manufacture and sale of vend-
ing machines in the United States or- any foreign
country in which Vendo, or any affiliate or subsidiary,
is so engaged until June 1, 1969.
/s/ Rem, OcHSENSCHLAGER,
Murpeny & Hupp
Attorneys for Plaintiff
[CERTIFICATE OF SERVICE OMITTED
IN PRINTING]
36
ORDER
This matter coming on to be heard on th inti
e plaintiff’s Mo-
tion to Amend the Complaint on its face, instanter, and the
Court being fully advised in the premises,
It Is Hereby Ordered, Adjudged and Decreed as follows:
1.) That the plaintiff is hereby granted to leave to
file the amendment pro int i
posed to the Co -
stanter and on its face. _—
2) That the defendants are hereby granted 10 davs
within which to answer or otherwise plead. .
Enter This 23 day of J une, 1966.
/s/ CHartes G. Semen
Judge
37
Opinion Of The Trial Court In
The Vendo Co. v. Stoner, et al., No. 65-2134,
In The Circuit Court For The 16th Judicial
Circuit, Kane County, Illinois
[The trial court, on December 16, 1966 after hearing
closing arguments, delivered the following oral opinion
from the bench and ruled on the case, as follows :]
The Court: Well, this has been a lengthy case, but it
is not the only lengthy case that I have just concluded. I
am reminded of the common instruction that we give all
juries, that we are to exercise our common sense and good
judgment gained from our observation and experience in
the affairs of life.
I take it that applies to judges who try cases involving
corporation against corporation and their various methods
of buying their competitors’ products for the purpose of
analysis and comparison, and duplication, and many other
things that had never occurred to me, perhaps, prior to
having such litigation presented in front of me.
But in this case I have had the benefit of competent coun-
sel who have worked hard and diligently in preparing the
Briefs. I did read some of the actual testimony previously.
But, as I requested you gentlemen during the summer to
collaborate and come up with an Abstract of testimony
which would eliminate a great deal more work on my part,
I am most grateful for your having done so. It was very
illuminating to me to read and reread certain portions of
that Abstract.
I think I should also comment on one other feature that
is apparent in every case and that is: The Court or the
Jury has the sole responsibility of judging the credibility
of the witnesses and the manner in which they testify, their
interest, lack of candor, and general appearance in the
courtroom, where I am sure that the appeals courts are
never fully aware of the facemaking or head shaking that
goes on during the course and conduct of a trial.
38
I am also aware that as counsel sit at the counsel table
that they are not always aware of what goes on in back of
them, whether it is to their favor or to their disfavor. But
the Court quite frequently follows the witnesses in their
spoken word as well as observing the expressions that
appear and mannerisms in the courtroom.
I have been thoroughly interested in the Briefs that you
have prepared and the material covering the law.
I think as the record now stands I have previously ruled
that I didn’t think your Affirmative Defenses of the anti-
trust phase of this case, either the application of the Fed-
eral act or the State act, had any applicability in this case.
I don’t know whether that is reflected in an Order or not,
but it should be.
Mr. Baker: We had no Order dismissing it.
The Court: Well, I wanted to repeat myself so there
would be no doubt about the status of the record.
Now, in reviewing the testimony that was given, there
are a number of conflicting statements. Mr. Ochsenschlager
has characterized the conduct of Mr. Stoner—or the theory
of the Stoner defense as unbelievable. I presume everyone’
has the prerogative of using whatever descriptive language
he sees fit to use, but it is a little amazing to me.
I might say that IT have had the experience of being a
corporate director and also being a corporate president.
So I think I have some understanding of what is the respon-
sibility of an officer, and I am sure I am fully aware of the
responsibility of a director.
It was always my feeling that I was acting in a fiduciary
capacity for the benefit of all stockholders. And even
though I, in one instance, wanted to make a complete dis-
bursal of all of the assets of a company, I felt that I couldn’t
undertake to do this because if I were to do it I’d be assum-
ing a personal responsibility to a very contingent creditor
that I just couldn’t afford to assume.
39
But in this case when you consider the testimony as to
the entering into of this agreement of sale and the employ-
ment agreement, I take into consideration that neither
counsel engaged in the trial of this case were present or
participated in these agreements. And as has been pointed
out, each case must stand upon its own particular set of
facts.
The very case which Mr. Baker has cited in the prior
arguments which I recall and have had occasion to reread
a number of times was the Parish v. Schwartz case. There
they cite with approval the Lanzit case, which, again, Mr.
Baker commented on. And you will find in that case the
statement which says that a contract which is only in par-
tial restraint of trade will be held valid if it is reasonable
and has a valuable consideration to support it.
I don’t remember whether Counsel cited the case or
whether the Court did, but I have always been conscious
of Justice Schaefer’s opinion in the case of Bauer v. Saw-
yer. That was the doctors’ case where he had agreed to
practice medicine in Kankakee and the one doctor saw fit
to withdraw. And as I remember the language there, the
Justice said that he didn’t think it would make too much
difference if there was one less doctor practicing in Kan-
kakee.
It is my understanding that these agreements are en-
forceable if they are reasonable both as to area that they
purport to cover and as to the time that they purport to
cover.
In this case, the time was fixed, it is my recollection, for
a ten-year period. Counsel cite the case of Reuben H. Don-
nelly Corporation v. United States, 257 F. Supp. 747,
and it is my understanding that in that case a ten-year
period was held not to be unreasonable.
Now, there have been many discussions in the last year
in seminars that I have attended, both here in Illinois and
elsewhere, about perhaps changing the dead-man statute to
40
permit testimony if someone is deceased. In this particular
case, Mr. Stoner has seen fit to characterize these contracts
as void and not worth the paper they are written on. But
having been admitted to the Bar of the State of Illinois with
the late Ed Streit, never having tried a case with him but
having tried enumerable cases on the opposite side of the
counsel table from him, I recognize his ability and his
integrity as an attorney.
But even in that statement if we were to accept that
statement as being truthful, I think I should also point out
the absolute contradictory statement of Mr. Stoner when
he goes to the Vendo corporation according to his testimony
and states that some of the men thought that he would be
released from his contract. But then he appeared at the
last board of directors’ meeting that he did attend and
requested the release of his employment contract and was
told by Mr. Pierson that perhaps that was a matter that
the board would have to pass on and that it would be his
recommendation as the president that he not be released
from the terms of his employment contract, which to me is
only consistent with an obligation that a president would
have in any corporation. While it wasn’t spelled out letter
for letter, I take it the consensus of the Board meeting was
that Mr. Stoner was not released from his agreement.
So you have those inconsistent statements in the record.
Then you have the conduct of the defendant, Mr. Stoner,
himself. And it is coincidental, the men who were employed
by Mr. Stoner in the Stoner Manufacturing Company;
namely, Mr. Jack Stewart, who was well known to, I think,
all of the lawyers in Aurora having been the operator of a
downtown clothing store for many years and a rather
affable gentleman. Some of the other men were unknown to
us, Mr. Lazzara, Mr. Phillips, Jr. and Sr. Mr. Kaman was
only there a short while, but did not go with the Stoner
Investments, Inc., but went with the Skil Corporation it was
my recollection.
ee ee EE 1 Ee A -
41
And then when you consider the testimony in the light of
the Phillips going into the business of making a coin
changer and vending machine and the several meetings that
took place between the planing department of Vendo and
those engaged in the Stoner Company and the similarity of
the devices, which was apparent to me—I am not a patent
lawyer—, it didn’t seem to me to take any great ingenuity to
come up with an idea of making something that would be
usable and, perhaps, saleable.
As to the loans by Mr. Stoner to the Phillips, Mr. Baker
will say, “A mere loan is not violating the terms of an
agreement.” And I take it that that would be a correct
statement of the law if it were strictly a personal loan not
for the purpose of engaging in a like or similar business
venture of one you had just sold your business to.
Another factor that I think is somewhat amazing is the
fact that Mr. Stoner knew of this undertaking of the
Phillips to put together a vending machine and his discus-
sion with The Vendo Company as to the possibility of their
acquiring this particular machine.
I have searched this record and the evidence to ascertain
whether I had missed something; but nowhere, did I find
out any disclosure by Mr. Stoner that he had financed this
undertaking, unless, perhaps, if at ali, I think Mr. Stoner’s
words were that he didn’t think that he told anyone.
But I asked myself the question: What is the responsi-
bility of a man who is in a position of trust and a fiduciary
capacity to the stockholders? Some of these stockholders
were members of his own family at one time or another. I
find it most difficult to come up with an answer that that
sort of conduct is conducive and in compliance with the
responsibility as a director of a corporation.
Now, there is another matter of evidence which none of
you gentlemen have touched on today. I doubt that you did
before because I am sure the witness had not previously
testified. And that was the witness Mr. Cayne, whose testi-
42
mony was to the efiect that he had represented Stoner. He
said, “Stoner”; he didn’t say, “company.” But it is my
understanding that he also represented Mr. William
Phillips, Mr. Rod Phillips, and Mr. William Callahan, who
was, likewise, an employee of Stoner and Vendo, in pro-
secuting and procuring a patent for an electrically operated
merchandise vending machine. That was found at page
1331 of the testimony and page 288 of the Abstract.
On page 299 of the Abstract and at page 1384 of the testi-
mony, Mr. Cayne testified that he had known Harry Stoner
since 1930, and he knew Rod Phillips, and he worked for
Stoner, and he knew William Phillips, and he handled the
prosecution of the electronic coin detecting device for Bill
Phillips. (Reading )
“I did it for him, he was the one who came to me, and
I think it was for the Phillips Company. He did not
tell me when he first came to me that this was going to
be assigned to Stoner Investments, Inc. I prepared the
document of assignment of the patent from William
Phillips to Stoner Investments, Inc., having been told
of the assignment by either Bill Phillips or Rod
Phillips.”
Now, I don’t think that a Judge or a Jury can put their
head in the sand and ignore statements in the evidence that
you hear.
But the fact of these loans, the fact of the sale of a
business—or not of a business, but of a building, the
testimony of a disinterested witness of the visits of Mr.
Stewart, and Mr. Lazzara, and the Phillips to the building
before it was completed, I think in one case the statement
was made it was being erected for the Phillips Company
which apparently is known as Lektro-Vend—TI find myself
asking a number of questions of myself:
Whether or not the conduct of the individual defendant
is consistent with his obligations as a director in a corpora-
tion which wasn’t paying him a nominal salary. In fact,
en ee oe
eee
5 A 8 ew
howe —
43
it is a solary that is much more than you find in other like
endeavors, although I guess today some corporate presi-
dents and sales managers are paid astronomical figures.
But $50,000.00 a year is not exactly a nominal salary. And
as one of the men from Missouri stated—I like to refer to
those individuals as show-me boys because I guess that is
what they call the people that come from that state—one
of them said, “We sort of felt we ought to get a quid pro
quo,” which comes back to some of our basic concepts of
contractual duties.
Being mindful that this is an equity case in which the
burden of proof is not the same as in a criminal case or
perhaps in a strict case of law, but it is addressed to the
equitable conscience of the Court, I have pointed out that
I didn’t think a ten-year period was out of line based upon
decisions. I have pointed out that the restraint of trade
—partial restraint of trade, if any, is something that I
don’t find myself giving too much concern.
I think you gentlemen can understand the reasoning for
that because in the record here it is replete with various
names, many of which I can’t recall at this moment; but
there was Seeburg, there was U-Select-It, there was Rowe,
there was Canteen I believe. And, again, as I say, you don’t
set aside your observation and experience in life. And as
you drive around the streets of a town or village, sometimes
you see signs of buildings that advertise people who are
making canteens or vending machines. So that I don’t be-
lieve that I should bother myself with the possibility of
the public being injured in such a case as has been pre-
sented to me.
Again, Mr. Stoner in his testimony referred to the fact
that Vendo was making a lot of money. And if you are
to follow his suggestion or innuendo, they would have made
more money.
But again you can’t overlook the testimony of Mr. Popp,
whose testimony as I recall it was that he received a tele-
44
phone call from Mr. Stoner and that he stopped at Mr.
Stoner’s mother’s home. And quoting the words of Mr.
Popp, “Mr. Stoner felt that he had made a bad deal and
he wanted to get out of it.”
Then within a week as I recall, Mr. Popp received a
telephone call from the late Edward Streit that they were
taking out various items of tools or equipment out of the
Stoner then Vendo Company and that he, Popp, went to
the company and that he, Popp, called the Vendo Corpora-
tion in Kansas City to inquire of them what, if anything,
they were going to remove and as I recall the testimony it
was a shear.
Now, in these cases, I think both in the Parish case and
in the doctor case, the Court commented upon the fact that
it was a difficult question to arrive at a damage figure. And
I have asked myself the question, “What would twelve peo-
ple do if they had heard this case and they were called
upon to arrive at a damage figure?”
We have valuations placed on this machine by Mr. Stoner.
In fact, he recommended the payment of a million and a
half dollars to Vendo for the Phillips machine. On the
other hand, I think it was Mr. Andrews who testified that
in his judgment it would cost somewhere between three
and four hundred thousand dollars to do the tooling and
designing to produce this particular machine. I am satisfied
the record is replete with statements. I believe Mr. Childers
made the statement that they were interested in this ma-
chine as an adjunct to their existing line of equipment, but
not at the figure of a million and a half dollars.
Mr. Ochsenschlager has suggested the loans by Mr.
Stoner of $250,000.00 for the tooling and designing to put
this machine together. Those are figures that a Jury might
take into consideration.
I think while I am commenting on it, I should also com-
ment that it is unusual that you do find people who loan
money without interest. I have never been in that category.
45
And then coupled with that, the sale of this building and
the sale to a new corporation with no sales experience and
the guarantee—I have forgotten whether that was the per-
sonal guarantee of Mr. Stoner or the guarantee of Stoner
Investments, Inc.
But taking those factors into consideration together with
the payment of the salaries to these men while they were
working on this machine which the defendant Stoner at-
tempted to sell to the company that he was a director in to
me just seems to run contrary to my concept of equity and
good conscience and my concept of what constitutes a legal
and binding agreement, an agreement for the sale of a
business and an employment agreement.
Mr. Baker pointed out that this agreement was world-
wide and that that was primarily for the benefit of Vendo
corporation. But in the same breath in fairness to Mr.
Baker, he did point out in fairness to me that the Stoner
corporation was doing business throughout the United
States and had had some foreign negotiations. Whether
they had ripened into licensing agreements from which
there was money coming, I am not certain from a reading
of the record.
I take it first I should grant the prayer to amend your
Complaint for a’ damnum. My understanding is under the
Practice Act that can be done either before or after a jury
verdict or after the Court’s decision.
So that it is my finding that an injunction will issue
against Harry Stoner and against Stoner Investments, Inc.
There will be a judgment of $250,000.00 against Harry
Stoner personally and a judgment of $1,100,000.00 against
Stoner Investments, Inc., and Harry Stoner.
If you gentlemen will, collaborate on the order. When
you have done that, prepare it and it will be signed.
Mr. Ochsenschlager: Okay; suppose we continue it for
the draft order. Or do you want that done today? ~
46
The Court: Whatever your pleasure is.
Mr. Baker: I’d like to have a chance to look it over and
see it.
Mr. Ochsenschlager: Your Honor, we’d like to ask it be
continued for the order. And we will submit it to Mr. Baker
in the meantime.
The Court: All right; you want it continued to a day
certain?
Mr. Ochsenschlager: A week from today?
Mr. Baker: A week from today is the day before the
Christmas Holiday. I suggest it not be a week from today.
Sometime the first week in January, maybe that would be
reasonable or between the holidays.
Mr. Ochsenschlager: Judge, let us continue it until sup-
posing next Wednesday. Mr. Baker, by that time we will
agree. We will submit it to you and whatever time we can
agree on after that; but you won’t have to be out here on
that day.
Which Were All Of The Proceedings Had On The
Hearing Of Said Cause.
[CERTIFICATE OF COURT REPORTER
OMITTED IN PRINTING]
ee me
et ee
ee ee ine oe
OAL Ae a
47
First Judgment In Vendo Co. v. Stoner
(Entered December 27, 1966)
IN THE CIRCUIT COURT FOR THE
SIXTEENTH JUDICIAL CIRCUIT
KANE COUNTY, ILLINOIS
THE VENDO COMPANY )
vs.
HARRY B. STONER
and STONER INVESTMENTS, INC.
> No. 65-2134
JUDGMENT
This matter coming on for a hearing on the merits, and
the Court having heard testimony and having received
evidence, and having heard the arguments of counsel, and
being fully advised in the premises,
It Is Hereby Ordered, Adjudged And Decreed as follows:
1. That the plaintiff, The Vendo Company, a Mis-
souri corporation, do have and recover of and from
the defendant, Harry B. Stoner, the sum of Two Hun-
dred Fifty Thousand Dollars ($250,000) and costs, and
have execution therefor.
2. That the plaintiff, The Vendo Company, a Mis-
souri corporation, do have and recover of and from
the defendant, Harry B. Stoner and Stoner Invest-
ments, Inc., a Delaware corporation, the further sum
of One Million One Hundred Thousand Dollars
($1,100,000) and costs, and have execution therefor.
3. That defendant Harry B. Stoner be, and he is
hereby, restrained and enjoined from engaging, di-
rectly or indirectly, in the vending machine manufac-
turing business, individually or as a partner, em-
ployee or agent, anywhere in the United States or in
48
any foreign country in which The Vendo Company
engaged in such business (as of June 1, 1959), until
June 1, 1969.
4. That defendant Stoner Investments, Inc., be and
it hereby is, restrained and enjoined from engaging,
directly or indirectly, in the manufacture and sale of
vending machines in the United States and in any
foreign country in which The Vendo Company engaged
in such business (as of June 1, 1959), until June 1, 1969.
5. That the issuance of any execution or writ of
injunction pursuant hereto is stayed for a period of
30 days from the date hereof.
Enter this 27th day of December, A.D., 1966.
/s/ John S. Petersen
Judge
49
Opinion of the Illinois Appellate Court for the
Second Judicial District in Vendo Co. v. Stoner,
105 Ill. App. 2d 261, 245 N.E. 2d 263 (1969)
THE VENDO COMPANY, a Foreign Corporation, Plain-
tiff-Appellee, v. HARRY B. STONER and STONER
INVESTMENTS, INC., a Foreign Corporation, Defend-
ants-Appellants.
GEN. NO. 68-1.
Second Judicial District.
January 30, 1969.
Rehearing denied March 24, 1969.
Mr. Justice Seiwenretp delivered the opinion of the
court.
Defendants, Harry B. Stoner and Stoner Investments,
Inc., appeal from judgments in a suit for breach of a sales
and employment contract and for injunctive relief, heard
without a jury.
Judgment was entered in favo: of the plaintiff and
against the defendants as follows: (1) against Harry B.
Stoner in the amount of $250,000; (2) against Harry B.
Stoner and Stoner Investments, Inc., in the amount of
$1,100,000; (3) against Harry B. Stoner, restraining him
from “engaging, directly or indirectly, in the vending ma-
chine manufacturing business, individually or as a partner,
employee or agent, anywhere in the United States or in any
foreign country in which the Vendo Company engaged in
such business (as of June 1, 1959), until June 1, 1969; and
(4) against Stoner Investments, Inc., restraining it in simi-
lar terms.”
50
A question is also raised on the pleadings, arising out of
the court’s order striking certain defenses and counter-
claims based upon the Federal and State Antitrust laws.
In April, 1959, the defendant corporation was princi-
pally engaged in the business of manufacturing and selling
candy vending machines throughout the United States, and
was about to license a company to sell its machines in
England. This corporation will herein be referred to as
Stoner Investments, its present name, notwithstanding that
it was named Stoner Mfg. Corp. in 1959. The corporate
shares of Stoner Investments were owned in 1959 by de-
fendant Harry B. Stoner, his wife, his mother and his
sister-in-law, Ruth Netrey. Mr. Stoner was, without dis-
pute, the principal officer and in control of the management
of the corporation.
The Vendo Company, in 1959, had been one of the lead-
ing manufacturers and sellers of v« .ding machines for hot
and cold beverages, ice cream and certain other products.
The company did not manufacture or sell vending machines
for candy, cigarettes, hot sandwiches and instant coffee and
tea at that time, but such machines had been considered
and were in various stages of research and development.
Vendo machines were then being sold in 58 countries in
every continent. Clearly, Vendo was a considerably larger
and more diversified company than Stoner Investments.
On April 3, 1959, a contract was executed by which Vendo
agreed to purchase Stoner Investments’ assets, excluding
real estate and improvements thereon, cash on hand or on
deposit, and receivables. In essence, Vendo was to pay
$3,400,000 in cash, subject to certain adjustments, deliver
60,000 shares of its fully paid and nonassessable common
stock, pay a portion of its profits in excess of $250,000 in
any calendar year from the assets being purchased for a
period of ten years, pay 25% of monies received from sales
outside the United States of Stoner Investments’ products,
also for a period of ten years, assume responsibility for the
collection of accounts receivable, and pay all debts, obliga-
ee A oe
= ee
51
tions and liabilities of Stoner Investments. The sales agree-
ment imposed the folowing restriction on the selling cor-
poration:
“Section 15. From and after the closing, the Com-
pany [Stoner Investments] will not own, directly or
indirectly, manage, operate, join, control or participate
in the ownership, management, operation or control
of, or be connected in any manner with, any business
engaged in the manufacture and sale of vending ma-
chines under any name similar to the Company’s pres-
ent name, and, for a period of ten (10) years after
the closing, the Company will not in any manner,
directly or indirectly, enter into or engage in the
United States or any foreign country in which Vendo
or any affiliate or subsidiary is so engaged, in the
manufacture and sale of vending machines or any busi-
ness similar to that now being conducted by the
Company.”
In addition to the sales agreement, an employment con-
tract was executed whereby Mr. Stoner would serve Vendo
in an executive capacity for five years, or until June 1,
1964, at an annual salary of $50,000. This agreement also
contained a noncompetition clause which reads as follows:
“5. During the term of this agreement and for a period
of five (5) years following the termination of his em-
ployment hereunder, whether by lapse of time or by
termination as hereinafter provided, Stoner shall not
directly or indirectly, in any of the territories in which
the Company or its subsidiaries or affiliates is at pres-
ent conducting business and also in territories which
Stoner knows the Company or its subsidiaries or affili-
ates intends to extend and carry on business by expan-
sion of present activities, enter into or engage in the
vending machine manufacturing business or any
branch thereof, either as an individual on his own
account, or as a partner or joint venturer, or as an
52
employee, agent or salesman for any person, firm or
corporation or as an officer or director of a corporation
or otherwise, provided however that the Company, its
subsidiaries and affiliates shall be excluded from the
restrictions hereof and provided also that Stoner shall
be permitted to own, hold, acquire and dispose of
stocks and other securities which are traded in the
investment security market whether on listed ex-
changes or over the counter.”
The employment contract provided that Mr. Stoner “shall
regulate his own hours of employment and shall determine
the amount of time and effort which he shall devote” to
Vendo, and that the value of his services are not to be
measured by the time and effort he devotes to the business,
but by his advice, counsel, know-how and experience. The
contract further provided, inter alia, that Vendo “shall
have the right to terminate this agreement upon thirty (30)
days’ notice in the event of the substantial violation of the
terms hereof by Stoner.”
There was evidence offered to show that Mr. Stoner,
after the signing of the sales agreement but before the
closing of the transaction, had second thoughts about the
wisdom of the sale. He made statements to this effect
to the business representative of the union for the plant’s
employees, intimating at the time that many of the em-
ployees would be losing their jobs and that equipment was
being moved out of the plant. It does not appear that the
union took any action—other than to investigate—as a
result of these conversations.
Almost immediately after the take-over by Vendo, sev-
eral points of friction developed between Mr. Stoner and
certain of Vendo’s other executives. Essentially, Mr. Stoner
complained that his services were not being utilized, that
he was being treated as nothing more than a “figurehead,”
and that the procedures and employees of Vendo were
ineffectual.
53
For several years prior to the sale to Vendo, R. W.
Phillips (Rod) had been the Stoner plant superintendent,
and his son, William Phillips (Bill), had been assistant
superintendent. Rod was liaison engineer between the
engineering and production departments, and participated
in design work on a day-to-day basis. Bill had a degree
in aeronautical engineering and Navy training in elec-
tronics.
Bill resigned from Vendo in June or July of 1960, os-
tensibly because he was no longer in line to become the
plant manager, and because he purportedly disagreed with
Vendo’s philosophy and attitude concerning product qual-
ity. Within two months of his resignation, Bill met with
Mr. Stoner and proposed that the latter finance the develop-
ment by Bill of an electronic coin detecting device which
he had conceived, and which would be of considerable value
in the ve “ng machine as well as in other industries. That
discussion concluded with the agreement that Stoner In-
vestments would pay Bill a salary of $650 per month to
develop such a device, and any patents thereon would be-
long to Stoner Investments. Bill’s father, Rod Phillips,
was present at the time of this conversation.
Working primarily in his basement at home, Bill nearly
completed the coin detector by the end of 1960. A patent
was issued in October of 1961, and was assigned to Stoner
Investments. Except for a “breadboard” model, the coin
detector was never produced. Bill received a total of
$3,250 as salary from Stoner Investments for his work on
the coin detector, and in addition was reimbursed nearly
$1,000 for expenses.
Rod Phillips also resigned from Vendo in mid-1960, at
about the same time as Bill resigned. Rod’s stated reason
for leaving was that he resented “spying” on the prog-
ress of another company which manufactured slug-
rejectors. Rod spent approximately six months after his
resignation in retirement, and it was during this period
54
of time that his son, Bill, was designing the electronic coin
detector with the financial aid of Stoner Investments.
In late 1960 or early 1961, when Bill’s design of the coin
detector was virtually completed, Rod approached Mr.
Stoner with the request that Stoner provide sufficient funds
to enable Rod to engineer and develop a particular type
of vending machine. Mr. Stoner agreed to have Stoner In-
vestments make noninterest bearing loans to Rod for that
purpose. According to the testimony of defendants, neither
Mr. Stoner nor Stoner Investments was to have any owner-
ship or control in Rod’s venture, it being their position that
Rod was entitled to this consideration for his many years of
loyal service to Stoner Investments. During 1961 and 1962,
Stoner Investments loaned Rod Phillips a total of $206,000.
In addition to making the above loans to Rod, Mr. Stoner
made available to Rod and Bill in early 1961 an old milk
plant building known as the Middle Avenue Building. Rod
was charged no rent, but made repairs to the building with
materials purchased by Mr. Stoner.
In August of 1961, two other former employees of Stoner
Investments — and then employees of Vendo — resigned
from Vendo and joined Rod and Bill. Their combined
salaries of $1,150 per month were paid by Stoner Invest-
ments until December of 1962. One of these men had be-
tween fifteen and twenty years of design experience with
Stoner Investments prior to the sale to Vendo, and the
other had served as a toolmaker.
The vending machine developed by Rod and Bill Phillips
was to be used for the vending of candy. There were three
characteristics of this machine which contributed to its
eventual popularity and acceptance, namely: (1) positive
stock rotation, known as first-in first-out, or FIFO, where
the first product stocked in the machine would be the first
one sold, thus reducing the chance of vending or discarding
stale candy; (2) continuous display through a window of
the actual product next to be vended; and (3) capacity for
55
stocking mixed products in a single conveyor, and con-
sequent elimination of the usual necessity to seil out the
product before restocking with a different product. Al-
though machines having those features had been on the
market for many years, none had incorporated all three of
the above characteristics, and in fact no practical machine
with all these characteristics had ever been developed
previously.
It is one of Vendo’s contentions herein that Mr. Stoner’s
financial participation in the development of this machine
amounted to the appropriation of a trade secret of Vendo.
It is uncontroverted that Vendo, before the acquisition
of the Stoner plant, had been taking steps with a view
toward the development of a FIFO candy vending machine
that incorperated a window displaying the actual product
to be vended, and which would permit the stocking of mixed
products in a single conveyor. The authority for an ex-
penditure on such a project was first assigned by Vendo in
December of 1958. This project led to the fabrication of
two “developmental mechanisms.” Neither of these models
included the vend-the-bar-you-see window, although an
artist’s sketch of a complete machine, having such windows
in front of each conveyor, was prepared. There was evi-
dence to show that artist’s sketches of Vendo’s contem-
plated machine were shown to Mr. Stoner and Rod and Bill
Phillips in early June, 1959, almost immediately after
Vendo’s acquisition of the Stoner plant.
One of these models was exhibited at a products planning
meeting at the Stoner plant on August 3, 1959, at which
Mr. Stoner and Rod Phillips were present. At that meeting,
the Stoner Division sales manager said the machine was
deficient in three respects: (1) the product would have to
be stocked upside down; (2) the machine could tip over
during loading because all of the conveyors would have
to be swung out; and (3) production of the machine would
be unduly expensive. The minutes of that meeting stated
that the Sales Department “feels the objectives of stock
56
rotation and visual display are sound but the particular
design in question is not acceptable because of loading and
inventory problems.” These minutes went on to state that
Vendo’s Research and Engineering Department “is to con-
tinue research as to how to basically improve the stock
rotation idea so that it can be made practical.”
In January, 1960, Vendo’s Vice-President in charge of
Research and Engineering made a handwritten notation on
an interoffice memorandum, stating: “I agree on the need
for rotation of stock, but not on [this] unit. I think a
better one could be devised.” Neither of these models was
patented, and a Vendo executive had written patent counsel
that “we do not intend to commercialize” these models.
In September and October of 1960, Vendo sent both models
to Vendo’s “morgue” which, according to our reading of the
record, is the destination for nonactive—but not neces- -
sarily abandoned—projects.
The machine developed by Rod and Bill Phillips was
called the Lektro-Vend machine, and while incorporating
the three characteristics of first-in first-out, a vend-the-bar-
vou-see window, and mixed stock in a single conveyor, it
differed in many basic respects from the models developed
by Vendo. For example, the Lektro-Vend machine was
electrically powered while Vendo’s was to be mechanically
powered; Vendo’s machine required approximately 4,000
serews for the shelving mechanism, while the Lektro-Vend
machine eliminated these by using a series of L-shaped
shelves interconnected with pins; the conveyor in the
Lektro-Vend machine moved in a track guided by plastic
wheels, while Vendo’s conveyor unitized bicycle chain affair
with hooks; and the Lektro-Vend machine was loaded by
tilting out the conveyor within the machine’s center of
gravity, thus avoiding the objectionable swing-out loading
requirement of Vendo’s machine. More significantly, the
Lektro-Vend machine was functionally and economically
successful, while many undesirable features of the Vendo
machine rendered its production impractical.
:
57
The first prototypes of the Lektro-Vend machine were
exhibited in October, 1962, at a trade show in San Fran-
cisco. This machine was accepted so well that another
company took its own stock rotation (FIFO) machine off
display. In fact, certain officers and directors of Vendo
were so impressed with the machine that one of them ap-
proached Kod Phillips at the show and discussed the pos-
sibility of Vendo purchasing the machine.
It appears that, prior to the show, Rod Phillips had in-
tended to sell the Lektro-Vend design and tooling, but the
industry’s response to the machine led to Rod’s and Bill’s
decision to manufacture and sell the machine themselves.
After returning from the show, Rod discussed the response
to his machine with Mr. Stoner, and invited Stoner to join
with him in his plan to manufacture and sell the Lektro-
Vend machine generally.
In December of 1962, immediately before the Vendo
Board of Directors’ meeting, Mr. Stoner told the Board
Chairman that he, Stoner, would like a release from his
employment contract, for the reason that he had an oppor-
tunity to invest in the Lektro-Vend machine and to par-
ticipate with Rod Phillips in its manufacture and sale. He
was requested to submit his request in writing for the
Board to consider. Mr. Stoner made no mention of his
previous financial aid toward the development of the
Lektro-Vend machine. In short, Mr. Stoner was told that
with his capital and experiences, he would be a formidable
competitor, and that part of the consideration for the sales
and employment contracts was that Vendo would not be
competing with Mr. Stoner or his company.
While his release from his contract was denied, he was
requested to act on behalf of Vendo in looking into the
purchase of the Lektro-Vend machine from the Phillipses.
Stoner discussed the matter with Rod Phillips, and then
arranged a meeting in January, 1963, which was attended
by Stoner, Rod Phillips and certain of Vendo’s officers. The
Lektro-Vend machine was demonstrated and explained at
58
that time, with Stoner taking no active part. Although price
was not discussed at the meeting, Stoner later reported to
Vendo that Rod Phillips was asking $1,500,000. Stoner tes-
tified that the Seeburg Corporation had shown an interest
in purchasing the Lektro-Vend machine at that price.
Although Stoner recommended that Vendo purchase the
machine, Vendo would not agree to pay such an amount.
Instead, in March of 1963, in reply to an inquiry from
Stoner, Vendo’s Vice-President in charge of operations
wrote that Vendo would only pay for out-of-pocket costs,
“plus a fair profit to Rod and his associates; taking into
consideration the amount of time, money and ingenuity
which they had expended on the project, but that it was my
feeling that this wouldn’t add up to anything like $1,500,-
000.”
Back in December, 1962, at about the time that Stoner
was asking to be released from his employment contract
with Vendo, his sister-in-law, Ruth Netrey, made a loan of
$350,000 to Rod Phillips on his personal note bearing 414%
interest. Defendant’s evidence is that Stoner in no way
persuaded or influenced Mrs. Netrey to make this loan,
which within one year was increased to $525,000. Mrs.
Netrey had been one of the shareholders of Stoner Invest-
ments at the time of the sale of assets to Vendo, but had
since sold her stock in that corporation, as did Mr. Stoner’s
mother, leaving only Mr. Stoner and his wife as share-
holders of the defendant corporation.
In March or April of 1963, Stoner Investments had com-
pleted the construction of a genera) purpose office and man-
ufacturing building on Sullivan Road in Aurora, where it
had owned 370 acres of vacant land. The original purpose
for constructing this building was allegedly to enable Stoner
to prefabricate homes in the winter and to start the devel-
opment of an industrial park. Its first and only occupants,
however, were Rod and Bill Phillips who used the building
for the manufacture of the Lektro-Vend machine. There
was evidence tending to show that Stoner and the Phillipses
59
knew before the end of 1962 that the Sullivan Road Plant
would be used by them for this purpose.
Admittedly, Mr. Stoner never advised Vendo until the
Spring of 1963 as to his arrangements with Bill and Rod
Phillips. He testified that while he made no attempt to con-
ceal these arrangements, he did not regard them as being
of consequence to Vendo.
The Lektro-Vend Corporation was organized on Septem-
ber 18, 1963, at which time its shareholders and the number
of shares owned by each were as follows: Rod Phillips—
2,875 shares; Glen Phillips—750 shares; Bill Phillips—
1,125 shares; William Callahan (one of the former Stoner
and Vendo employees who resigned from Vendo in August,
1961, and helped in the development of the Lektro-Vend
machine)—7250 shares; Ruth Netrey—5,000 shares.
On March 21, 1964, Stoner Investments contracted with
Lektro-Vend Corporation to sell the Sullivan Road Plant to
the latter. To finance the purchase, Lektro-Vend made a
100% short-term loan from a Chicago bank, which the bank
would do only upon Stoner Investments’ guarantee to re-
purchase the property in the event of a default. The loan
had since been extended on several occasions, with Lektro-
Vend paying the interest thereon.
Mr. Stoner’s employment contract with Vendo terminated
by lapse of time on June 1, 1964, and was not renewed al-
though Stoner was retained on Vendo’s Board of Directors
until the Spring of 1965. In that same month, Mr. Stoner’s
wife was issued 5,000 shares of stock in Lektro-Vend Cor-
poration, and in the following month Mr. Stoner himself was
issued an additional 5,000 shares. On June 30, 1964, Stoner
made a personal loan of $100,000 to Lektro-Vend, and this
was repaid in 1965 from the proceeds of a $185,000 loan to
Lektro-Vend from Stoner Investments. During 1965 and
1966, a total of $402,000 was loaned to Lektro-Vend from
Stoner Investments and Stoner Shopping Center, Inc., all
evidenced by demand notes bearing 414% interest.
60
In March, 1965, Lektro-Vend salesmen reported that
Vendo’s salesmen were circulating rumors to the effect that
Lektro-Vend was about to go out of business. When this
was reported to Stoner, he wrote a letter on Lektro-Vend
stationery to fifty vending machine operators. This letter,
referred to throughout these proceedings as the “Dear
Operator” letter, stated that Stoner was “now interested
in the new Lektro-Vend Corp.,” and “if Lektro-Vend can
depend on your confidence . .. I guarantee that Lektro-Vend
Corp. will be here for a very, very long time.”
It appears from the evidence that Mr. Stoner has never
been active in the day-to-day management of Lektro-Vend,
and that he does not maintain a desk or office on the corpora-
tion’s premises. The frequency with which he comes onto
the premises varies—-sometimes every day for a week, and
sometimes not at all for a month. He is, however, con-
sulted on financial and other matters.
Vendo filed its complaint herein on August 10, 1965,
charging that Stoner and Stoner Investments breached
their respective covenants against competition, which cove-
nants are set forth above. An amendment to the complaint
was filed on January 28, 1966, alleging that both defendants
stole valuable trade secrets of Vendo, including the design
for certain vending machines, which they appropriated for
their own use and for the use of Lektro-Vend Corporation.
The complaint, as amended, prayed for damages of
$1,500,000 and for injunctive relief prohibiting defendants
from engaging in the vending machine business. Neither
Lektro-Vend nor either of the Phillipses was made a
defendant. ‘
At the conclusion of a bench trial, the court entered
judgment against Stoner in the amount of $250,000, and
against both Stoner and Stoner Investments in the amount
of $1,100,000. In addition, both defendants were enjoined
from engaging, directly or indirectly, in the business of
manufacturing (and, in the case of Stoner Investments,
61
selling) vending machines until June 1, 1969 in the United
States and in any foreign country in which Vendo was en-
gaged in such business on June 1, 1959.
In support of this appeal, defendants urge the following
grounds: (1) that Vendo did not possess a trade secret; (2)
that in any event there was no appropriation of such a trade
secret, assuming it existed; (3) that the covenants against
competition are invalid; (4) that in any event the covenants
were not violated; (5) that damages were improperly
assessed; (6) that the injunctive relief granted was unwar-
ranted because of an insufficient showing of irreparable
damage, and because it was vague and beyond the prayer
of the complaint; and (7) that the trial court erred in strik-
ing the affirmative defenses and counterclaim based on the
plaintiff's alleged violation of the Federal and Illinois Anti-
trust laws.
The “Trade Secrets”
[1] We agree that plaintiff has not proven the appropria-
tion of a trade secret, if indeed it has been shown that
plaintiff even possessed a trade secret. Plaintiff had noth-
ing more than a goal in mind—the goal of economically pro-
ducing a FIFO machine with a see-the-bar-you-vend fea-
ture. However, plaintiff had not discovered a means of
achieving this goal, and without this discovery plaintiff
had nothing. There was no evidence offered to show that
Vendo’s goal or overall desire to produce such a machine
was novel. Furthermore, the individual features which
Vendo wanted to combine in a single machine were long
and widely used in the industry.
If Vendo had discovered the means for achieving its
goal, we might well have had a different view as to whether
Vendo had a trade secret. But trade secrets evolve from
the means—not the end. According to the American Law
Institute Restatement, Torts, § 757, Comment b, a trade
secret may consist “of any formula, pattern, device or com-
pilation of information. .. .” Schulenberg v. Signatrol, Inc.,
62
33 Ill2d 379, 385, 212 NE 2d 865 (1965), cert den, 383 US
959, states:
“The controlling definition of a trade secret in Ilinois
is supplied by Victor Chemical Works v. Iliff, 299 Ill
532, 540, 132 NE 806, where this court said that it is
a secret plan or process, tool, mechanism or compound
known only to its owner and those of his employees to
whom it is necessary to confide it.” (Emphasis added.)
We know of no authority for the proposition that an
ultimate goal or purpose, as distinguished from the means
of achieving it, can be classified as a trade secret. On the
contrary, the authorities teach us that the trade secret must
be in the plaintiff’s “know-how,” and Vendo simply did not
“know how” to construct the particular machine it desired.
This is evident from the record, where we see minutes of a
Vendo meeting stating that the machine design “is not
acceptable because of loading and inventory problems,” and
that the corporation “is to continue research as to how to
basically improve the stock rotation idea so that it can be
made practical.” (Emphasis added.)
[2] Apart from our conclusion that Vendo could not
claim a trade secret in its models, the vast difference be-
tween these models and the Lektro-Vend machine, in terms
of technology and design, is in itself sufficient to preclude
recovery on the theory of the appropriation of a trade
secret. The more essential differences are set forth above,
and the success and acceptance of the Lektro-Vend machine,
compared to the unacceptability of Vendo’s speak for the
materiality of these differences. And Vendo’s theory of ap-
propriation can hardly stand in the face of its previous at-
tempts to purchase the Lektro-Vend machine and pay some
amount of money for the “ingenuity which [the Phillipses
had expended on the project.” The fact that the Phillipses
worked for approximately eigtheen months on the Lektro-
Vend machine before their prototypes were ready is, in
itself, evidence that they did not “steal” Vendo’s methodiecs.
63
[3, 4] A final observation should be made on the ques-
tion of whether defendants appropriated a trade secret.
Before such a cause of action will lie, it must be shown that
the secret was disclosed to or learned by the defendant
while in a position of trust and confidence. Victor Chemical
Works v. lliff, 299 Ill 532, 548, 132 NE 806 (1921). In our
opinion, the record before us falls far short of showing
wherein the Vendo design was disclosed to or learned by
Mr. Stoner. Sometime after the acquisition of the Stoner
plant, Mr. Stoner was shown pictures of a manual FIFO
candy machine which did not have a stock display window.
Stoner replied that this machine was similar to an Orange
Crush machine which his corporation had built in 1940.
While Mr. Stoner was present at the products planning
meeting on August 3, 1959, where the Vendo model was
shown, he was at the meeting for no longer than a few
minutes. One witness, who is no longer employed by any of
the parties, testified that Mr. Stoner was at that meeting
for somewhere between thirty seconds and three minutes.
It further appears that Mr. Stoner’s presence at the meet-
ing was for other purposes, and that the meeting was in
fact suspended during his brief appearance. In the words
of a Vendo employee, it was then and there that the Vendo
machine was “kind of” explained to Stoner.
[5] It cannot seriously be contended that these brief
glimpses and glances could be the foundation for the de-
velopment of a revolutionary design that would take several
skilled people eighteen months to develop. The only other
evidence of disclosure relates to the Phillipses, not to
Stoner. Thus, Rod and Bill Phillips were shown artists’
sketches of the machine at about the time of the acquisition,
or about one year prior to the Phillipses resignations from
Vendo, and fully 114 years before Rod began work on what
was to become the Lektro-Vend machine. While Rod was
at the products planning meeting on August 3, 1959, he was
there only to help answer the question of whether such a
machine could be produced at the Stoner plant. Neither the
Phillipses nor the Lektro-Vend Corporation was made
64
party to this suit. Although that, standing alone, would be
no defense to Stoner, for one may not employ others to ap-
propriate trade secrets which he himself might not appro-
priate (e.g., Colgate-Palmolive Co. v. Carter Products, Inc.,
230 F2d 855, 864 (4th Cir 1956), cert den, 352 US 843
(1956), reh den, 352 US 913 (1956), we simply fail to see
where sufficient information was disclosed to or learned by
the Phillipses to enable them to design and develop the
Lektro-Vend machine. The evidence does not indicate that
they were shown measurements, tolerances, materials, and
the like, nor is there evidence that they made or were given
pictures or drawings of what they were briefly shown.
The Covenants Not To Compete
Defendants next contend that the covenants against com-
petition by Stoner and Stoner Investments are invalid and
unenforceable as constituting unreasonable restraints of
trade, and that these covenants, even if valid, were not
breached by defendants.
[6, 7] The general rule is that a covenant against com-
petition, ancillary to the sale of a business or an employ-
ment contract, will be upheld if the restraint on trade is
reasonable in terms of time and territory, with the question
of reasonableness depending on the circumstances of each
ease. E.g., Storer v. Brock, 351 Ill 643, 184 NE 868 (1933) ;
Parish v. Schwartz, 344 I] 563, 176 NE 757 (1931) ; Lanyon
v. Garden City Sand Co., 223 Ill 616, 79 NE 313 (1906) ;
Andrews v. Kingsbury, 212 Ill 97, 72 NE 11 (1904); Union
Strawboard Co. v. Bonfield, 193 Tll 420, 61 NE 1038 (1901) ;
Lanzit v. J. W. Sefton Mfg. Co., 184 Ill 326, 56 NE 393
(1900); Hursen v. Gavin, 162 Ill 377, 44 NE 735 (1896).
This general rule has been interpreted in Illinois by a line
of cases beginning with Parish v. Schwartz (supra), to
mean that any such restraint covering the entire State of
Illinois is, on its face, unreasonable and therefore void. The
rationale of this rule is that no person should be required to
leave the state in order to pursue his regular occupation,
65
nor should the people of the state be totally deprived of his
labors. It is on this proposition which defendants rely.
However, in spite of the widespread acceptance of this
general rule, the courts of this and other jurisdictions have
come to recognize an exception, which we believe applicable
here, where the restraint lasts during the contractual rela-
tionship of the parties. Stated differently, the territory
covered by a covenant against competition, otherwise un-
reasonably broad, will not invalidate the covenant to the
extent that it exists during the terms of the employment,
lease, franchise agreement, etc.
The earliest case known to us which recognizes this
exception to the general rule is Harrison v. Glucose Sugar
Refining Co., 116 F 304 (7th Cir 1902). There the defendant
had agreed that during the term of his employment he
would not work for any glucose manufacturer other than
the plaintiff within a 1,500 mile radius of Chicago, an area
encompassing practically the entire United States. The
court held the covenant valid and enjoined its violation. In
distinguishing this in-term covenant case from those involv-
ing post-term covenants—i.e., covenants not to compete
after employment or after the sale of a business—the court
said (at p 310):
“Here the restriction is limited to the period of service
engaged for. The appellant left without cause and to
enter the service of a rival. There was no aquiescence
by appellee .... Clearly, under such circumstances no
public policy would be violated in upholding the cove-
nant. He is not deprived of the opportunity to obtain
the means of subsistence or of giving to the public the
benefit of his skill in the business to which he has been
accustomed. He has only to perform the duty which he
engaged to perform to render himself and his family
comfortable. We know of no public policy which
requires us to sanction the bald violation of a contract
lest the public should be deprived of the peculiar skill
66
of the appellant because he will not exercise that skill
where he has engaged to exercise it.”
The distinction between in-term and post-term covenants
was similarly recognized in Sau! v. Thalis, 156 F Supp 408,
411 (DCDC 1957), where the court stated:
“. . . this case involves an agreement of employment
for a fixed term containing a covenant which restricts
the employee from engaging in a competing business
during the term of employment fixed by the agreement.
The validity of such covenant cannot be questioned so
long as the employee remains in the employ of the
employer.”
In Good v. Modern Globe, Inc., 346 Mich 602 78 NW2d
199 (1956), an employment contract provided that the
employee, “for the above specified period |the term of
employment] . .. will not, without prior written consent
of the company, become employed, directly or indirectly,
by any manufacturer of knitted goods or products presently
manufactured by the company ... .’”’ The Michigan Supreme
Court sustained the validity of this covenant, even though
Michigan had a sweeping statute invalidating all contracts
not to engage in business.* The court stated (at p 204):
“The plain language of this contract indicates that it
is a contract of employment, not a contract whereby
Good undertook not to engage in employment. A provi-
sion therein which forbade Good to become employed
by any knitted goods manufacturer of products com-
petitive to Globe’s, is a provision which any employer
* Mich. Stats. Ann. § 28.61 (1948): “All agreements and con-
tracts by which any person, co-partnership or corporation pro-
mises or agrees not to engage in any avocation, employment,
pursuit, trade, profession or business, whether reasonable or un-
reasonable, partial or general, limited, or unlimited, are hereby
declared to be against publie policy and illegal and void.” (Em-
phasis added. )
67
would certainly have a right to contract for from any
employee for the duration of his employment. The
contract is not void under CL 1948, § 445.761, Stat Ann
28.61.” (Emphasis supplied.)
In 1963, this court was squarely faced with the question of
whether to follow or reject the “in-term—post-term” dis-
tinction, and we chose to follow it. McDonald’s Systems,
Ine. v. Sandy’s Ine., 45 Ill App2d 57, 195 NE2d 22 (1963).
In MeDonald’s, the individual defendants had been granted
a ten-year franchise by the plaintiff to operate a single
drive-in restaurant in Urbana, Illinois. Paragraph 8 of the
franchise agreement provided essentially as follows:
“During the effective term of this agreement, Second
Party [defendants] shall not, except with the consent
of First Party [plaintiff], engage in any business the
same as or similar to the business covered by this
agreement at any place other than the premises here-
tofore described in the State in which said premises
are located or at any place in a state contiguous to said
State ....” (Emphasis added.)
Notwithstanding this covenant, the defendants, during the
term of the franchise, organized a corporation to own and
operate a similar drive-in restaurant in Peoria. In a suit
brought by the plaintiff to enjoin the continued violation
of the covenant and for damages, the trial court held that
the restraint was unreasonably broad and that the covenant
was therefore void. The opinion of this court reviewed the
authorities discussed above (Harrison v. Glucose Sugar
Refining Co. (supra); Saul v. Thalis (supra), and Good v.
Modern Globe, Inc. (supra, at p 75)) and reversed the trial
court, stating:
“Under these and other authorities the extent of the
territorial restriction is a factor which affects the
validity of a post-term covenant only. In the instant
ease the covenant is an in-term, not a post-term, cove-
68
nant, and as long as appellees seek to avail themselves
of the beneficial provisions of their franchise contract,
they shoulc not be permitted to disregard or refuse to
abide by the several obligations they assumed. The
contract was not of unlimited duration, and when the
franchise term is ended, either by cancellations, or by
the expiration of time, appellees are free to engage in
similar business elsewhere without any franchise.
There is nothing illegal in such an agreement, and the
obligations of the respective parties should be re-
spected and enforced.” (Emphasis added.)
Other Illinois decisions have recognized the distinction
between in-term and post-term covenants not to compete.
In Ellis Electrical Laboratory Sales Corp. v. Ellis, 269 Tl
App 417 (1933), the court upheld the agreement of a sup-
plier of goods not to sell such goods to others during the
term of the agreement. In Southern Fire Brick & Clay
Co. v. Garden City Sand Co., 223 Tl 616, 79 NE 313 (1906),
the Illinois Supreme Court upheld a lessor’s covenant not to
compete with his lessee during the term of the lease, not-
withstanding that the restriction was statewide. In Match
Corp. of America v. Acme Match Corp., 285 Ill App 197,
1 NE2d 867 (1936), the court enforced the defendant’s
promise that it would not, during the term of the contract,
sell hook matches in competition with the plaintiff, with no
area limitation.
[8] Under the precedent thus established, we are con-
strained to hold that the covenant before us is valid and
enforceable. The covenant of Mr. Stoner was unquestion-
ably in-term during the first five years, since that was the
duration of his employment contract with Vendo. It was
within that period of time that he violated his covenant.
During the post-employment period, or the additional five
vears, Stoner’s activities were simply an affirmation of his
prior violation—a retention of the fruits of his breach—
and upholding his post-employment activities would be tan-
tamount to our sanctioning his earlier breach. That the
69
post-term aspects of the covenant might, if standing alone,
be unnecessarily broad, is therefore irrelevant to the dispo-
sition of this appeal. In any event, Stoner Investments, the
corporation through which Stoner chose to exercise his
breach, was his alter ego, and Stoner Investments en-
tered into a covenant of its own which we characterize
as in-term. The sale of assets to Vendo contemplated a ten-
year relationship with Stoner Investments as well as with
Mr. Stoner. The contract required Vendo to pay Stoner
Investments, for a period of ten years from January, 1959,
all profits in excess of $250,000 earned by Vendo from the
assets sold. In addition, Stoner Investments was to be paid
during this same ten-year period 25% of all monies Vendo
was to receive from foreign production of products then
under development by Stoner Investments. As we said in
McDonald’s (supra at p 75), during that period of time
which defendants “seek to avail themselves of the beneficial
provisions of their . . . contract, they should not be permitted
to disregard or refuse to abide by the several obligations
they assumed.” Surely under these facts, and in view of
the complete ownership of Stoner Investments by Stoner
and his wife, and Stoner’s complete dominion of the corpor-
ation, we must consider the covenants of each to be coex-
tensive to be meaningful. In short, the sale of assets to
Vendo represented a transaction which .the parties con-
templated would take ten years to consummate. The ten
year restraints are therefore “in-term” under the teaching
of MeDonald’s and other cases, and are valid and enforce-
able.
Defendants argue that the noncompetition clauses were
not in fact violated by their conduct. They reason that
the conduct complained of consisted only of paying salaries,
making loans, furnishing sites and facilities, and holding
stock, and that such activities, since not specifically pro-
hibited, are authorized. Indeed, cases are cited for the
proposition that the lending of money to plaintiff’s com-
petitor does not violate the lender’s covenant not to com-
pete (Battershell v. Bauer, 91 Ill App 181, 182 (1900);
70
Sineath v. Katzis, 218 NC 740, 12 SE2d 671, 681 (1941).
Gallup Elec. Light Co. v. Pacific Improvement Co., 16 NM
86, 113 P 848, 850 (1911)), that the granting of a lease to
a competitor is likewise not tantamount to engaging in
competition (Wineter v. Kite (Mo App), 397 SW2d 752,
759 (1965); Erieson v. Jayette, 149 Fla 82, 5 So2d 453, 454
(1942), and that both lending and leasing is not a violation
of such a covenant (MecKeighan Wachter Co. v. Swanson,
138 Wash 682, 245 P 10, 11 (1926)), affd 141 Wash 694,
250 P 353.
[9] Defendants, however, have done considerably more
than merely make loans and leases to a competitor. They
literally paid the salaries of the competitor and its em-
ployees, they furnished a building rent-free and guaranteed
the loan by which the competitor cou!d purchase another
building from them, they took a sizeable amount of stock
in the competing venture within days of the time they
thought they could legally do so, and they made several
large loans at no or low interest. Clearly, these activities
show that defendants were closer than arm’s length to the
development of the Lektro-Vend machine. To suggest other-
wise attributes a great deal of naiveté to this court. Even
the cases cited by defendants are expressly limited to those
situations where the defendant lender or defendant-lessor
does not encourage and has no interest in the business of
the competitor. E. g., Gallup Elec. Light Co. v. Pacifie Im-
provement Co. (supra at p 851); Sineath v. Katzis (supra) ;
McKeighan Wachter Co. v. Swanson (supra); Wineteer v.
Kite (supra).
We sustain the trial court’s finding that defendants’
activities amounted to the direct or indirect entering into
or engaging in the vending machine business.
The Assessment of Damages
As noted above, the trial court entered judgment against
Stoner and Stoner Investments for $1,100,000, and against
Stoner alone for $250,000. The larger judgment was based
71
upon evidence tending to show that the value of the Lektro-
Vend machine was approximately $1,500,000 that Stoner
himself believed this to be what the machine was fairly
worth and that the approximate cost necessary to develop
such a machine would be $400,000. The machine thus
represented a potential profit to its developers, as it then
stood, of $1,100,000. The $250,000 judgment represented a
return of the entire salary Stoner received during his five
years of employment by Vendo.
Although the judgment order did not specifically apply
these judgments between the two theories of recovery set
forth in Vendo’s complaint, as amended, the briefs and
arguments of the parties in this court have treated the
$1,100,000 judgment as arising out of the trade secret
theory, and the $250,000 as applicable to the breach of the
covenants not to compete. We agree that this appears to
have been the reasoning of the trial court.
Our conclusion that Vendo has not proven a theft or
appropriation of a trade secret precludes any recovery on
that theory. We are thus limited to ascertaining the proper
measure of damages for the breach of the covenants not to
compete.
[10] At the outset, we agree that such a breach of
Stoner’s fiduciary undertaking as an employee in the instant
case requires a forfeiture of salary during the period that
the breach was occurring. Ely v. King-Richardson Co., 265
Ill 148, 153, 106 NE 619 (1914); National Lock Co. v. Al-
deen, 271 Ill App 37, 40 (1933); Evangelista v. Queens
Structure Corp., 27 Mise2d 962, 212 NYS2d 781 (1961);
Harry R. Defler Corp. v. Kleeman, 19 App Div2d 396, 243
NYS2d 930, 938 (1963). In fact, none of the parties seri-
ously question this general rule, their main dispute being to
define the period of the breach. Plaintiff contends that the
breach began immediately after the signing of the sales
and employment agreements, but before the take-over, when
Stoner spoke to the business representative of the union
representing the plant employees for the alleged purpose of
72
frustrating the sale. Plaintiff thus urges that all of Stoner’s
salary during his five-year employment, or $250,000, should
be recoverable. Defendants, on the other hand, contend that
even if a breach existed, it cannot be traced prior to about
January, 1961, the time when defendants began making
loans to Rod Phillips. It is our opinion that defendants’
view is the more reasonable in this respect.
Nothing came of Stoner’s brief conversations with the
union representative, even construing them in their worst
light, and we attach no legal significance to them. We have
more trouble justifying the events of mid-1960, when Bill
Phillips began receiving financial aid from defendants to
develop his electronic coin detecting device. Even here,
however, we cannot conclude that Stoner’s activtites were
a part of his overall breach. A coin detecting device has so
many uses outside the vending machine indugtry (slot ma-
chines, coin counters for busses and telephone companies,
toll road collectors, parking meters, ete.), that its develop-
ment is not necessarily a step toward “engaging” in such
industry. In any event, this detector was never built or put
to use, ard its development, as far as the record discloses,
did not contribute materially to the evolution of the Lektro-
Vend machine. Defendants’ breach, therefore, originated
at the end of 1960 or in the beginning of 1961, when the ex-
tensive loans to Rod Phillips started, when defendants be-
gan paying salaries to Rod Phillips’ employees, when the
Middle Avenue Building was made available for the Phil-
lips’ use, and, in short, when the first breaths were blown
into the Lektro-Vend machine.
When did the breach end? Defendants say the breach,
assuming it existed at all, ended in December, 1962. But
defendants would have us overlook the fact that in 1963
they gave the Phillipses the use of the Sullivan Road Plant,
and in 1964 they in effect guaranteed the loan which enabled
the Phillipses to purchase this plant. This transaction was
completed within a few weeks of the end of Stoner’s em-
ployment contract.
73
In view of the foregoing, we are of the opinion that the
defendants’ breach lasted throughout 1961, 1962, 1963, and
through May, 1964, a total of approximately three years and
five months. Inasmuch as this cause will be remanded for
reasons stated below, the trial court will be in a position to
make a more precise determination as to the period of the
breach and salary forfeiture, having this opinion in mind.
[11, 12] In addition to the recovery of the salary paid
Stoner during the breach, Vendo would be entitled to re-
cover any damages to its business occasioned thereby. This
would be the measure of lost profits to Vendo during the
period of the breach, plus the diminution of its business at
the end of the period covered by the covenants. Mirkovich
v. Maravich, 206 Ill App 463 (1917) (Abst). Other Illinois
decisions holding that the measure of damages in such a
case is the provable loss to the covenantee, and not the gain
accruing to the covenantor by reason of his breach, include
Henry’s Drive-In, Inc. v. Anderson, 37 Ill App2d 113, 125,
185 NE2d 103 (1962) ; Stewart v. Challacombe & Ramsey, 11
Ill App 379, 383 (1882); Bauwens v. Goethals, 187 Ill] App
563, 567, 568 (1914). See also the annotation in 127 ALR
1152 (1940), where cases from all jurisdictions are cited in
support of this general rule.
Conceding the difficulty of ascertaining such damages, we
repeat what was said in Stewart v. Challacombe & Ramsey
(supra, at p 382):
“This difficulty [of ascertaining damages] has long
been recognized, and it is for this reason that courts of
equity interfere by injunction to restrain parties from
entering into trade in violation of such contracts, and
for the same reason it has become usual to insert in
such agreements a sum certain to be paid in case of
violation, as liquidated damages. Such considerations,
however, cannot authorize a change of the fundamental
rules of law. As was said in Terry v. Eslora, 1 Porter,
273, such difficulties ‘are intrinsic in the subject about
74
which the parties have chosen thus loosely to con-
tract.’ ”
The foregoing language was cited favorably in Bauwens v.
Goethals (supra. at p. 569), where the court added:
“A party may not sell a prospect for a valuable con-
sideration received and on breach of his contract defend
on the ground that the subject-matter is of too un-
certain value to permit its measurement in a court of
law.”
Applying these precedents to the case before us, we see
that the value of the Lektro-Vend machine, which the trial
court found to be $1,100,000 after deducting estimated de-
velopment costs, is neither an element nor a yardstick of
damages for a breach of the noncompetition convenants.
While this figure may represent the gain to Stoner and his
associates, it does not necessarily reflect the damage to the
plaintiff. We hold instead that Vendo should be permitted to
recover an amount equal to the net profits it lost and might
reasonably be expected to lose, plus the amount by which the
value of its business will have been diminished as of June 1,
1969, because of defendants’ wrongful competition.
[13] On remand, the trial court should determine the
extent of these damages. To the extent that the record is
wanting of proof on this issue, the court below will entertain
further evidence of such damages. A similar situation de-
veloped in the appeal of Henry’s Drive-In, Inc. v. Anderson
(supra, at p. 128), where it was said:
“Where a material question is in controversy upon a
material issue and the record discloses that all the
evidence on that issue has not been produced, this court
has the power to reverse the judgment and remand the
cause for the taking of further evidence, on the part of
either or both of the parties, upon the issues. [Citing
eases.] In this case the judgment must be reversed and
the cause remanded to the trial court in order that loss
of net profits may be proved.’
75
[14] Defendants argue that no damages whatsoever can
be assessed against Mr. Stoner, even if he were found to
have breached a valid noncompetition covenant, because the
employment contract provided that Vendo “shall have the
right to terminate this agreement upon thirty (30) days’
notice in the event of the substantial violation of the terms
hereof by Stoner.” Thus, defendants maintain that this pro-
vision constitutes an implied waiver by Vendo of its right to
damages in the event of a breach, and that Vendo in effect
agreed that its only remedy for a substantial breach would
be termination of the employment contract. We cannot
accept this argument. We see nothing in the contract to
suggest that Vendo intended to waive its remedial rights
by expressing its right to terminate an employment contract
breached by its employee, a right that it would have even
without such a provision. Suppose Stoner had literally
stolen a large amount of cash from Vendo; would de-
fendants argue that Vendo’s only remedy would be to
discharge Stoner, and that it would have no right to recover
the stolen cash?
The Injunctive Relief
The injuctions granted below restrained Stoner and
Stoner Investments “from engaging, directly or indirectly”
in the vending machine business until June 1, 1969, in the
United States or any foreign country in which Vendo en-
gaged in such business as of the date of the acquisition of
the Stoner plant.
[15] In opposition to this injunctive relief, defendants
first argue that there were no allegations or proof as to
Vendo’s irreparable damage. As respects defendant Stoner,
however, we believe a sufficient allegation of irreparable
damage is made in paragraph 9 of the complaint, which
provides:
“9 That unless restrained by an Injunction of this
Court, the defendant, Harry B. Stoner, will continue at
his engagement in the foresaid enterprises and cause
76
continuing irreparable damages to the plaintiff, The
Vendo Company, and will cause the plaintiff irrepa-
rable damages in the future.”
The complaint also prays for injunctive relief against de-
fendant Stoner.
[16] On the other hand, Count II of the complaint, di-
rected against Stoner Investments, is totally silent both as
to an allegation of irreparable damage and as to a prayer
for injunctive relief. As long as decisions of this court have
been reported, it has been held that “a party ... seeking re-
lief by way of injunction, must specifically pray for such
relief, otherwise the court will not aid him.” Willett v.
Woodhams, 1 Ill App 411, 413 (1877). Inasmuch as plaintiff
has made no motion to amend either the allegations or the
prayer of its complaint in these respects, the court erred in
ordering an injunction against the corporate defendant.
[17,18] As against the individual defendant, Mr. Stoner,
we conclude that the injunctive relief was justified. The
evidence showing that Lektro-Vend machine’s impact on
the vending machine industry, coupled with the proof of
Stoner’s influence in the development of that machine, is
ample to warrant the finding, implicit in the issuance of the
injunction, that Vendo suffers actual or threatened irrepa-
rable injury from Stoner’s wrongful activities. Further, we
are of the opinion that the scope of the injunction granted
is reasonable in light of the evidence adduced at the trial,
and is consistent with the allegations and prayer of the com-
plaint. The restraint imposed by the injunction is no more
broad than the restraint imposed by Stoner’s employment
contract, and since we have already concluded that the
latter is reasonable in view of the facts before us, we must
conclude that the injunction is equally reasonable.
In any event, the injunction is not now in force by reason
of the failure to file a bond, and by its terms is to terminate
on June 1, 1969. In these circumstances, further comment
on this aspect of the appeal is at best gratuitous.
77
The Antitrust Defenses and Counterclaim
By way of affirmative defense, it was alleged that the
contracts sued upon violated the Illinois and Federal Anti-
trust laws and were therefore invalid and unenforceable.
Defendants also counterclaimed under the Illinois Anti-
trust laws for treble damages. The trial court, reasoning
that a state court has no jurisdiction to hear a federal
antitrust defense, struck the defense founded on the federal
statutes. The defense and counterclaim based on the IIli-
nois Antitrust law of 1891, which was in force at the time of
the contract between the parties, was stricken on the theory
that the statute related only to agreements to fix prices and
production, neither of which was alleged in these proceed-
ings, and also hecause the commerce involved was inter-
state rather than intrastate. The 1965 Illinois Antitrust
law was held inapplicable for the additional reason that it
had not been enacted until after execution of the agree-
ments sued upon.
In our review of the striking of these pleadings, we shall
consider first the defense asserting the federal laws, and
thereafter the defense and counterclaim based on the
Illinois statutes.
The Federal Antitrust Defense
[19] It was held below that the Illinois courts are with-
out jurisdiction to consider a defense created by the federal
antitrust statutes. We are aware of no Illinois precedent
which would support this holding. On the contrary, it ap-
pears that the Illinois courts have on more than one occa-
sion passed upon the merits of a defense based on the
federal antitrust laws.
In Corn Products Refining Co. v. Oriental Candy Co.,
168 Ill App 58 (1912), a contract provided that the plaintiff
would, on December 31, deliver a price rebate to the defend-
ant if the latter purchased all of its annual requirements
of unmixed corn syrup from the plaintiff. On December
78
24, the defendant unilaterally deducted the amount of such
rebate from a payment due plaintiff. The plaintiff brought
suit for the amount of the deduction, alleging that the
defendant had purchased certain of its syrup requirements
from others, and that in any event the rebate was not
earned until December 31. As a defense, defendant alleged
that the plaintiff was a monopoly in restraint of trade in
violation of federal and Illinois law. Although affirming a
decision in favor of the plaintiff, the court observed at
page 589:
«if it be a fact that defendant in error was and
is an unlawful combination and had violated the Fed-
eral Anti-Trust Laws, as charged by plaintiff in error,
such fact would not defeat the defendant in error in
its suit for the recovery of the purchase price of prop-
erty sold by it under a contract collateral to such wrong
committed by it. In order for such a defense to pre-
vail, the contract sought to be enforeed must have been
made to further the objects of the illegal combination.
This was the rule under the common law, and it is also
the rule under The Federal Anti-Trust Law, as de-
clared by the Federal Courts, and by those decisions
the courts of this state are bound.”
The holding of the Corn Products case is that where the
contractual provision sued upon is itself a violation of the
federal statutes, the Illinois courts will entertain such a
defense, but that the antitrust defense does not afford a
defense where it is collateral to the provision sued upon.
In any event, the mere fact that the defense is predicated
on the federal statutes does not in itself deprive the state
court of jurisdiction to hear and pass upon it.
Merchants Service Corp. v. Libby, McNeill & Libby, 314
Ill App 121, 40 NE2d 835 (1942), is another case supporting
our view that the court below erred in striking the federal
antitrust defense on the pleadings. There, in a suit for
unpaid brokerage commissions, the defense asserted that
79
the payment of the commissions would violate the Robinson-
Patman Act, the federal law prohibiting certain pricing
discriminations. While the contract between the parties
predated the federal act, the sales giving rise to the dis-
puted commissions were made after the legislation. The
court stated that the principal question was the applica-
bility of the statute where the sales contracts were initiated
before the sales completed after the effective date of the
act. After holding that Congress intended to cover such
transactions, and that this would not violate the Constitu-
tional prohibition against the impairment of contracts, the
court reversed the trial court and entered judgment in
favor of the defendant, saying at page 129:
“... defendant could not pay and plaintiff could not
receive or accept the commissions or price discounts
for which this action is brought without violating the
plain provisions of the Robinson-Patman Act.”
See also, Cummings-Landau Laundry Mach. Co. v. Koplin,
316 Ill App 306, 44 NE2d 613 (1942) (Abst). affd in part
and revd in part on other grounds, 386 Tll 368, 54 NE2d
462 (1944).
On the strength of the foregoing Illinois authorities, in
opposition to which the plaintiff has not cited a single
Illinois case, we hold that the trial court erred in striking
the federal antitrust defense without a hearing. Plaintiff’s
reliance on Bruce’s Juices, Inc. v. American Can Co., 330
US 743 (1947), is misplaced, since that decision in no way
considered a state court’s jurisdiction to hear and adjudi-
cate a federal antitrust defense to a contract action. In-
stead, that case dealt only with the specific remedies
afforded by the Robinson-Patman Act, and in no way dis-
tinguished between the jurisdiction of the federal and state
courts.
The Illinois Antitrust Defenses and Counterclaim
[20] The principal question here is not whether the
Illinois Antitrust laws have been violated, but instead
80
whether the interstate nature of the parties’ businesses
renders these state laws inapplicable under the doctrine
of federal preemption. If the question be resolved in the
negative, it would be necessary to consider the merits of
the defenses and counterclaim based thereon.
We believe that Kosuga v. Kelly, 27 F2d 48 (7th Cir
1958), affd 358 US 516 (1959), rehearing den, 359 US 962, is
dispositive of this question in favor of plaintiff. In Kosuga,
the plaintiff brought suit for the purchase price of onions
sold by it to the defendant. The allegation that the contract
violated the Illinois Anti-trust laws was pleaded as an
affirmative defense. The District Court struck this as well
as other defenses, and entered judgment in favor of the
plaintiff. In affirming the striking of this defense, the Court
of Appeals announced at page 55:
“The Illinois Act as the substantive law of the State
is applicable only to intrastate commerce. Defendant
apparently so recognizes and argues that such com-
merce was involved inasmuch as the contract of sale
was made and was to be performed in the State of Ili-
nois. Defendant makes this argument in spite of the
apparently so recognizes and argues that such com-
frequent allegations in his pleadings that ‘said onions
which were the subject of said agreement and contract
were a part of interstate commerce.’ In 15 CJS Com-
merce § 133(b), it is stated that ‘state anti-trust laws
do not apply to transactions involving interstate com-
merce ....’ It is hardly open to doubt but that the
transaction in issue involved interstate commerce. It
is, therefore, our view that the Illinois Act is without
application.” (Emphasis added.)
Nowhere have defendants pleaded or argued that the com-
merce involved here is anything but interstate. Indeed, the
business covered by the contracts before us is not only
interstate, it is international. It follows, under the doctrine
announced in Kosuga, that the trial court properly struck
81
the affirmative defenses and counterclaim founded on al-
leged violations of the Illinois Anti-trust laws.
It should be noted that defendants attempted without
success to distinguish Kosuga by arguing in their brief that
“the only reason the Seventh Circuit held the Illinois Anti-
Trust Act inapplicable was because it was not pleaded as a
defense to the action.” (Emphasis in original.) Not so.
The opinion of that court specifically states in at least two
passages that the defendant’s reliance on the Illinois Anti-
trust laws was before the court by way of “affirmative
defense.” (See pages 50, 55.) We read nothing in the opin-
ion to suggest that this defense was not pleaded, contrary
to defendants’ assertion without citation.
Our conclusion that the Illinois Antitrust laws are in-
applicable renders unnecessary any discussion as to the
interpretation of these laws and the remedies which they
provide either by way of counterclaim or affirmative de-
fense.
For the above reasons, the judgment of the trial court is
affirmed in part, reversed in part, and remanded for further
proceedings consistent with the views expressed herein.
Affirmed in part, reversed in part, and remanded.
Moran, P. J. and Apranamson, J., concur.
82
Transcript Of Proceedings In
Vendo Co. v. Stoner (state court suit)
[Trial hearings (second trial) before Judge John S.
Petersen began April 9, 1971.]
[CAPTION OMITTED IN PRINTING)
[3003] (Pursuant to notice previously served on plaintiff’s
attorneys, Mr. Sheridan moved to dismiss without preju-
dice defendants’ sixth affirmative defense as amended, that
is, the federal anti-trust defense. There being no objection,
the Court entered its order that the motion be granted.)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
LEKTRO-VEND CORP., a Delaware
HARRY B. STONER, and
NER INVESTMENTS, INC.,
Plaintiffs, | No. 65 C 1755
MEMORANDUM OPINION AND ORDER
(Filed June 1, 1971)
On August 10, 1965, suit was instituted in the state court
by the Vendo Company, charging Harry B. Stoner and the
Stoner Investments Company with breach of contract. The
specific grievance concerns two non-competition for ten
year clauses, which formed the part of a sale of business
between these parties. The complaint alleged a breach in
that Stoner and the Stoner Investments Company had
given financial aid and advice to the Lektro-Vend Corpora-
tion. Lektro-Vend and Vendo sell vending machines. As
part of their answer, Stoner and Stoner Investments as-
serted a federal anti-trust defense. 15 U.S.C. Sections 1
and 2.
On October 21, 1965, Stoner and Stoner Investments, plus
Lektro-Vend, instituted a federal anti-trust suit in this
court. The facts and issues are substantially identical with
the state court proceeding.
Cireuit Court Judge Peterson struck the federal anti-
trust defense on the grounds that he had no jurisdiction
over the defense. This decision was reversed by the Appel-
late Court. The Vendo Co. v. Stoner, 105 Ill. App.2d 261,
84
296-7 (1969). The case was reversed and remanded to the
trial court for a determination of the contract cause of
action in light of the federal anti-trust defense. The case
now presents a conflict in the comity between our bipartite
judicial system. A single issue is now before two courts for
resolution, the only ostensible difference being that dam-
ages are sought in this court on the anti-trust claim, while
the anti-trust allegation in the state court is raised as a
defense.
I
The plaintiffs have moved for summary judgment based
on the theory that the two non-competition clauses, since
they apply wherever Vendo does business, are unreasonable
and thus a per se violation of the Sherman Act. 15 U.S.C.
Section 1. However, even if they are unreasonable, this
may not be a per se violation of the Sherman Act. Snap-On
Tools Corp. v. F.T.C., 321 F.2d 825, 837 (7th Cir. 1963). In
this case, we have the further problem that plaintiffs want
the court to presume the required motive and intent from
the scant evidence it presents. But summary procedures
should not be used to dispose of a complicated anti-trust
case, especially where motive and intent play a leading role.
Poller vy. Columbia Broadcasting System, 368 U.S. 464, 473
(1962); Granader v. Public Bank, 417 F.2d 75, 83 (6th Cir.
1969). The court is of the opinion that there are still triable
issues concerning the alleged violation of 15 U.S.C. Section
1, and summary judgment is not appropriate.
II
Defendant has moved for summary judgment based on
three theories.
The first theory is that the Illinois Appellate Court
decided that the clauses in question were not in restraint
of trade. The Vendo Co. v. Stoner, supra. The defendant,
therefore, asserts that the plaintiffs are barred by the doc-
trine of collateral estoppel. But as is clear from the opinion,
the Illinois court never reached the merits of the federal
anti-trust issue. Rather than that, the court remanded the
issue to the trial court. Vendo, supra, pp. 297, 299. There-
fore, the doctrine of collateral estoppel does not apply.
The second ground asserted is that the president of
Lektro-Vend, Mr. Phillip, stated that his company is not in
competition with the defendant. While this is seemingly a
damaging admission, this court cannot hold that it is con-
clusive. This issue will be better resolved by a trial on
the merits.
Finally, the defendant attacks the standing of the plain-
tiffs to bring this suit. The defendant alleges that there is
no proof of any damages since Lektro-Vend received fi-
ancial aid and advice from Stoner. This defense goes to
the merits and is an inappropriate basis for summary
judgment.
Therefore, the plaintiffs’ motion and the defendant’s
motion for summary judgment are hereby denied.
Counsel for the plaintiffs have recently brought to our
attention the fact that they have withdrawn their federal
anti-trust defense in the state court. This was undoubtedly
done in consideration of this court’s expressed reluctance
to consider the cause of action here while the same issue
was pending between the same parties in the state court
case. But this withdrawal of the issue does not completely
eliminate the problem of res judicata. A time honored
United States Supreme Court opinion by Justice Field
stated:
In the former case, the judgment, if rendered upon
the merits, constitutes an absolute bar to a subsequent
action. It is a finality as to the claim or demand in
controversy, concluding parties and those in privity
with them, not only as to every matter which was
offered and received to sustain or defeat the claim or
demand, but as to any other admissible matter which
might have been offered for that purpose.... Such de-
mand or claim, having passed into judgment, cannot
again be brought into litigation between the parties in
proceedings at law upon any ground whatever. Crom-
well v. County of Sac, 94 U.S. 351, 352-53 (1876).
(Emphasis added)
See also Granader v. Public Bank, supra.
This court views the theory of res judicata as an attempt
“to require a plaintiff to try his whole cause of action and
his whole case at one time.” Baltimore S.S. Co. v. Phillips,
274 U.S. 316, 320 (1927). This duty is equally encumbent
upon the defendant, for he should not split up his alleged
claim and assert part of it as an affirmative defense and
another part of it for affirmative relief. Clearly, Vendo
could not do this as plaintiff in the state court, so neither
should the defendants. Phillips, supra.
The court views the facts of this case as a bipartite litiga-
tion of one cause of action. The one element which separates
this from the normal situation is that plaintiffs are de-
fendants in the state court. What we have here is a single
contract which the plaintiffs Stoner and Stoner Investments
claim violates their legal rights. Thus, they claim, the con-
tract should be declared null and void, or if enforced, then
damages are due them. This is one cause of action because
“a cause of action does not consist of facts, but of the un-
lawful violation of a right which the facts show.” Phillips,
supra, at 321. See «!30 Hurn v. Oursler, 289 U.S. 238 (1933).
Therefore, under the present fact situation, Stone and
Stoner Investments had an alleged right to not only seek
to defend against the contract, but also to seek recompense
for any actual damages sustained, through the state court
proceeding.
Rather than decide this issue sua sponte, the court directs
the parties to brief the issue of whether plaintiff is now
precluded from asserting his federal anti-trust claim in the
87
federal court by the doctrine of res judicata. Therefore,
defendant The Vendo Company is given fifteen (15) days
from the date of this order to submit a brief on this issue,
plaintiffs Harry B. Stoner and Stoner Investments fifteen
(15) days to answer, and defendant ten (10) days to reply.
ENTER:
/s/ Franx J. McGarr
United States District Judge
DATED: June 1, 1971
MINUTE ORDER
(Entered June 1, 1971)
[CAPTION OMITTED IN PRINTING]
Pursuant to memorandum opinion and order entered this
day, the motions of plaintiffs and defendant for summary
judgment are hereby denied. The parties are ordered to
brief the issue of whether plaintiff is now precluded from
asserting his federal anti-trust claim in the federal court
by the doctrine of res judicata on the briefing schedule set
out in the memorandum opinion. —DRAFT
/s/ McGarr, J.
Second Judgment In Vendo Co. v. Stoner (state court suit)
IN THE CIRCUIT COURT FOR THE SIXTEENTH
JUDICIAL CIRCUIT, KANE COUNTY, ILLINOIS
THE VENDO COMPANY,
a foreign corporation,
v.
H
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