# Appendix — Vendo Co. v. Lektro-Vend Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0385%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1977 - **Citation:** 433 U.S. 623 ## Text ‘ ‘ ' 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- phas [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0385%3A2. Public record. Not legal advice.