Petition — Sargent-Welch Scientific Co. v. Ventron Corp.

IN THE

Supreme Court of the United States

Octoser TERM, 1977

_37-1566

SARGENT-WELcH Screntiric Company, Petitioner

No

vs.

VENTRON CORPORATION AND

VENTRON INSTRUMENTS CoRPORATION, Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Gerorce R. Kucrx

JAMES P. MERcURIO

ALAN R. Matasky

1815 H Street, N.W.

Washington, D.C. 20006

D. JEFFREY BADDELEY

7300 North Linder Avenue

Skokie, Illinois 60076

Counsel for Petitioner

Of Counsel:

ARENT, Fox, Kintner, Plorxin & KAHN

1815 H Street, N.W.

Washington, D.C. 20006

Press or Brson S. Avpams PRINTING, INC., WASHINGTON, D. C.

DAK, JR.,

CLERK

—_-—<

INDEX

Page

I a a ae 1

a ar cr ee ee eae es 2

Se I uo ind ues sea cecuekbadheusaes 2

ee ae ek nae 3

IIR a eee ee. Ae 3

1. The Proceedings Below ...............0.00:. 3

se a ee 4

3. The Prodmcte Involved ......cccccccccccccees 5

+. Cahn’s Termination of Petitioner’s Dealership 7

5. Cahn’s Dealer Reduction Program .......... 8

ee F RS ep, aor peer i)

Reasons ror GRANTING THE WRIT ..................-. 10

I a iii i ee ie ea es 15

APPENDICES

Uvwlskuebnettacesssiuddndneniaoeraaeres ls la

DP sucddeckcnedceme kien made endide en eee 3a

PE oe Bite BS ee ee eee a 4a

OF adkvididiense tbiei abe neddende ie te een 25a

i, eidscnutenecunandsedenwine heise seen ceawiaesl 32a

Ota gh Ts ON nA eral i end foe ere 33a

ii TABLE OF AUTHORITIES

CasEs: Page

Bragen v. Hudson County News Co., 321 F. 2d 864 (3rd

i i as een ee 14

Continental Ore Co. v. Union Carbide & Carbon Co., 370

IS TEES SS Re ae 14

Northern Pacific Ry. v. United States, 356 U.S.1 (1958) 13

Poster Exchange, Inc. v. National Screen Service Corp.,

431 F. 2d 334 (5th Cir. 1970), cert. denied, 401 U.S.

PET ah bbeuheanss Gas ueauneddubn veeeceees 14

SmithKline Corp. v. Eli Lilly & Co., Third Circuit, No.

o£. ¢ & | (ORS Ers ee 14

United States v. Crescent Amusement Co., 323 U.S. 173

RE Ee Ce AM SE ee ae ee 12

United States v. Griffith, 344 U.S. 100 (1948) ..11, 12, 13, 14

STaTures:

Clayton Act, Section 3, 15 U.S.C. §14................ 3

Clayton Act, Section 4, 15 U.S.C. §15................ 3,11

Sherman Act, Section 1, 15 U.S.C. §1................ 3, 11

Sherman Act, Section 2, 15 U.S.C. §2 .......... 2, 3, 4, 9,

10, 11, 12, 14

ICI a 2

OTHER:

Moody’s Indust. Manual (1977) ..................... 4

ee ——

oo ee | ee ee ——————

IN THE

Supreme Court of the United States

OctoBeR TERM, 1977

No.

SARGENT-WEtcH ScrentiFic Company, Petitioner

vs.

VENTRON CORPORATION AND

VENTRON INSTRUMENTS CorPoRATION, Respondents

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Sargent-Welch Scientific Company petitions for a

writ of certiorari to review the judgment of the

United States Court of Appeals for the Seventh Cir-

cuit entered in this cause on December 6, 1977, with

rehearing denied on January 31, 1978.

OPINIONS BELOW

The opinion of the court of appeals is reported

officially at 567 F.2d 701; it is reported unofficially

at 1977-2 Trade Cases 1 61,761; and it is reprinted as

Appendix C, infra, pp. 4a-24a. The court filed along

with its opinion an unpublished order which is re-

printed as Appendix D, infra, pp. 25a-31a.

The opinion of the district court has not been re-

ported officially; it is reported unofficially at 1976-2

2

Trade Cases 1 61,146; and it is reprinted as Appendix

F, infra, pp. 33a-56a.

JURISDICTION

The judgment of the court of appeals was entered

December 6, 1977, and it was corrected on December

21 nunc pro tunc the date of entry (Appendix B,

infra, p. 3a). On January 31, 1978, the court entered

an order modifying its opinion and denying rehearing

(Appendix A, infra, pp. la-2a). The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1).

QUESTION PRESENTED

Respondents (through their Cahn division) manu-

facture two separate and distinct lines of scientific

instruments. Their line of electromagnetic microbal-

ances is unique, and it is essential for performing

microweighing experiments; they have a monopoly in

that market. Their line of millibalances, however,

faces competition from substitute products. Respond-

ents deliberately combined these two diverse product

lines into a single ‘‘full line’; formulated a dealer re-

duction program under which ‘‘carrying the full Cahn

line’’ was an important criterion for determining which

dealers to retain; and used as one reason for termi-

nating the dealerships of petitioner and two other

dealers their refusals to handle the millibalances.

Every microbalance dealer who survived the dealer re-

duction program agreed to handle the millibalance line.

The question presented is whether the court of ap-

peals erred in refusing to hold as a matter of law that

respondents’ conduct constituted a misuse of monopoly

power in violation of Section 2 of the Sherman Act.

3

STATUTE INVOLVED

Section 2 of the Sherman Act, 26 Stat. 209, 15 U.S.C.

§ 2, as amended, reads as follows in pertinent part:

Every person who shall monopolize, or attempt

to monopolize, or combine or conspire with any

other person or persons, to monoplize any part

of the trade or commerce among the several

States, or with foreign nations, shall be deemed

guilty of a felony * * *.

STATEMENT

1. The Proceedings Below

Petitioner, the plaintiff in the trial court, com-

menced this private antitrust action in September

1972 in the United States District Court for the

Northern District of Illinois (A. 1).' The amended

complaint, filed under Section 4 of the Clayton Act,

15 U.S.C. § 15, alleged violations of Sections 1 and 2

of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 3

of the Clayton Act, 15 U.S.C. §14 (A. 32-45). After

trial on issues of liability only, the district court en-

tered judgment for respondents, the defendants below,

on all counts (App. E, p. 32a).

On appeal, the Seventh Circuit affirmed the district

court’s dismissal of petitioner’s claims under Section 1

of the Sherman Act and Section 3 of the Clayton Act

‘A. —’’ citations are to the parts of the record printed in

Plaintiff-Appellant’s Appendix in the Seventh Circuit. ‘‘Tr. —"’

refers to the unprinted trial! transcript ; ‘‘PTX —’’ refers to plain-

tiff’s trial exhibits. Unprinted deposition testimony is cited by the

deponent's name and the volume and page of the typed transcript.

4

(App. C, pp. 9a-lla, 13a-14a). It also affirmed the dis-

missa] of the monopolization claims under Section 2

of the Sherman Act, but only insofar as they were

based on allegations of resale price maintenance (td.

at 12a-13a).

Petitioner also claimed that respondents had ‘‘mis-

used monopoly power in violation of § 2 [of the Sher-

man Act]’’ by ‘‘full-line forcing’’ (id. at 12a, 22a).

The appellate court vacated the district court’s judg-

ment on that issue and remanded the cause for further

findings as to respondents’ anticompetitive ‘‘ purpose.”’

The question before this Court is whether the court of

appeals erred as a matter of law in not entering judg-

ment in petitioner’s favor on the full-line forcing issue.

2. The Parties

Cahn Instruments Company (‘‘Cahn’’) is an un-

incorporated division of respondent Ventron Corpora-

tion (‘‘Ventron’’) (App. C, p. 5a). Cahn ‘“‘is the

world’s leading producer of electromagnetic micro-

balances’’ (e.g., PTX 25, A. 80).’

The business of petitioner Sargent-Welch Scientific

Company (“Sargent-Welch”) includes the distribu-

tion of scientific and laboratory equipment (App. C,

p. 5a). Petitioner became an authorized dealer (or

distributor, as the Cahn dealers were sometimes

called) of Cahn electromagnetic microbalances in

* During August and September 1976, over 90% of Ventron’s

common stock was acquired by Thiokol Corporation, a huge, di-

versified manufacturing firm. Moody's Indust. Manual 3995 (1977).

— ee te ee ome

5

1963; its dealership was terminated by Cahn in April

1971 (ibid.).*

3. The Products Involved

(a) Cahn manufactures a complete line of electro-

magnetic microbalances for “use in a number of di-

verse and scientifically complex applications’’ (App.

C, p. 17a). “By and large, microbalances were pur-

chased by technically sophisticated customers who

needed them for microweighing applications’’ (ibid.).

Most of those applications, some 80%, ‘“‘would not be

feasible without an electromagnetic microbalance’”

(id. at 17a and fn. 15). ‘‘Thus an end-user who had

certain applications had little choice but to purchase

a microbalance’’ (id. at 18a).*

Anyone who needed (or wanted) a microbalance

had little choice but to purchase a Cahn model. Over

the years, Cahn made more than 90% of all domestic

electromagnetic microbalance sales (id. at 15a). Ven-

tron recognized that “[wJe are virtually alone in this

* Balances are scientific instruments that ‘‘are used to determine

accurately the weight and other characteristics of a sample’’ ( App.

F, p. 432). A microbalance is sensitive to—i.e., it can detect, mea-

sure and display—a change in weight as minute as 1/1,000,000

gram or one microgram (App. C, pp. 4a-5a and fn. 2). The balances

closest in sensitivity to microbalances are called semi-microbalances ;

they are ten times more coarse, with the capability of sensing a

weight change of 1/100,000 gram or ten micrograms (id. at 5a and

fn. 4; App. F, pp. 34a-35a).

*The importance of electromagnetic microbalances to a scientific

instruments dealer is illustrated by the district court’s finding that

petitioner’s injury from the termination included lost sales of re-

corders and ‘‘other products sold in conjunction with Cahn electro-

magnetic microbalances and accessories’’ (App. F, p. 542). Those

losses were substantial, amounting to 40% of petitioner's total lost

sales and 45% of its lost profits (PTX 572).

6

market’? (PTX 59, A. 92), and the court of appeals

“conclude[d] that Cahn held a monopoly in the elec-

tromagnetic microbalance submarket’’ (App. C, p.

19a).

(b) During 1969 and 1970 Cahn introduced ‘‘a new

family of instruments”’ called millibalances (PTX 235,

A. 135). Those balances ‘‘were less sensitive than the

microbalances and therefore were used in different

applications’’ (App. C, p. 5a, (fn. omitted) ). The milli-

balance applications were less sophisticated, e.g.,

** *hucket chemistry’ as opposed to microanalysis”’ (A.

299), and, as a result, the millibalances were designed

to be ‘‘considerably less expensive’’ than Cahn’s micro-

balances (App. F, p. 46a; A. 331, 333). ‘‘{W]hen Cahn

introduced the millibalances, it saw itself appealing to

a new end-user market’’ where it would be in ‘‘com-

petition with the coarser balances’’ (App. C, p. 19a).

Cahn’s recognition of the different end-user market

for its millibalances led it to attempt to franchise a

new set of dealers for those products alone. In its

letters soliciting prospective ‘‘industrial’’ dealers,

Cahn explained that in the past it had sold through

‘laboratory supply houses’’ but the millibalance was

‘so different that we feel we need to take on a whole

new set to dealers to help us sell it’? (PTX 222, A.

122). That effort was unsuccessful.

The millibalance line also was offered to Cahn’s ex-

isting microbalance dealers, and each resisted handling

it (PTX 912, p. 2 after third tab). The dealers

considered the millibalances too expensive to be resold

for an adequate profit (A. 141; Tr. 489, 502, 769-771,

773), and they were concerned about their ‘‘serious

quality problems’’ (A. 9), which included an inability

set ne fe eh eee

7

to meet specifications (E. Brown dep., pp. 8-11, 38-39,

42: Tr. 789-790; T. Watson dep., pp. 29-30). This re-

sistance troubled Cahn’s managers, who ‘‘wanted to

be sure that all the dealers handled that instrument

in order to keep the sales up” (A. 204). Toward that

end, throughout 1969 and 1970 Cahn’s managers dis-

cussed the dealers’ unfavorable reaction to the milli-

balance line and ways “‘to facilitate them handling

more millibalances’’ (A.203). A “‘policy’’ evolved—

to have the dealers handle the Millibalance. They

fCahn’s managers] wanted them to handle them

as part of the line just like they handled the other

instruments. [A. 204.]

By 1971 the policy of ‘‘carrying the full Cahn line’”’

had become an important factor in determining which

dealers to retain and which to terminate (Yablonka

dep., Vol. 3, pp. 50, 60-62).

4. Cahn‘s Termination of Petitioner's Dealership

As the court of appeals observed, Cahn’s termination

letter ‘“‘noted Sargent-Welch’s refusal to carry the new

millibalance line’? (App. C, p. 6a). Cahn’s candid

denial of petitioner’s request for reinstatement elabo-

rated upon that point (PTX 9, A. 70):

Second, the fact that you did not handle our Milli-

balance line was a very important consideration

in my evaluation.

The letter continued, ‘‘all but two of our dealers car-

ried the complete line’’; ‘‘the other dealer we termi-

nated was the second dealer who didn’t handle the

Millibalances’’; and ‘‘I don’t personally feel we should

make any special considerations for one of our dealers

unless the same considerations are offered to the

8

others’’ (ibid.). The author of that letter and his suc-

cessor both testified that Cahn would have continued

petitioner as a dealer for an additional ‘“‘trial period”’

had petitioner agreed to handle the millibalance line

(Yablonka dep., Vol. 3, pp. 66-67, Vol. 4, p. 156; Faley

dep., Vol. 1, pp. 99-101).

5. Cahn’s Dealer Reduction Program

Petitioner’s termination was part of ‘‘Cahn’s dealer

reduction program,’’ as the courts below found (App.

C, p. 6a). The purpose of that program was “ ‘to con-

solidate sales among Cahn’s more effective dealers,’ ”’

(tbid.), %.¢., those ‘‘who are receptive, who are inter-

ested, and who are inclined to respond positively when

presented with new products. . .’’ (A. 264; Lauenstein

dep., Vol. 1, pp. 54-55; Yablonka dep., Vol. 4, pp. 84,

156-165).

Three dealers were terminated pursuant to the dealer

reduction program: Petitioner, Curtin Scientific Com-

pany (‘‘Curtin’’) and Preiser Scientific, Inc. (‘‘Prei-

ser’’). Curtin was the ‘second dealer’? who had de-

clined to handie the millibalances (See PTX 9, A. 70).

And, in 1972, Preiser dropped the ‘‘Millibalance prod-

uct line’? and was terminated (PTX 13, A. 75-77).'

Every other Cahn dealer ultimately handled both

Cahn’s electromagnetic microbalances and its millibal-

ances (‘T'r. 2105-2106; Weil dep., Vol. 2, p. 60). Indeed,

by 1974 Curtin was included as a full line dealer; it

* Curtin’s termination letter pointed out that ‘‘since Curtin re-

cently re-declined handling our millibalances, you do not represent

the complete Cahn dealer product line’’ (PTX 12, A. 74). Preiser’s

termination letter referred to its ‘‘partial handling of our product

line’ (PTX 13, A. 76).

9

had been reinstated as an electromagnetic microbalance

dealer after it agreed to handle Cahn’s millibalances

(Tr. 2107; Yablonka dep., Vol. 4, p. 140).

6. The Decisions Below

The district court found that Cahn did not have a

monopoly and that, in those circumstances, its objec-

tive of having ‘‘full line’’ dealers was lawful. As the

court stated (App. F, p. 37a, emphasis added) :

Plaintiff’s refusal to handle the Millibalance may

have been one reason why defendant terminated

plaintiff’s dealership, but the motive was not to

enforce a monopoly of microbalances. It was to

have active and profitable dealerships which han-

dled the full line, a reasonable and lawful objective.

Earlier in its opinion, the court had concluded that

Cahn not only lacked a ‘‘monopoly of microbalances,”’

but that Cahn’s “share of the entire balance market

is small, perhaps 8 percent”’ (id. at 35a).

The court of appeals set aside the district court’s

market definition finding as ‘‘clearly erroneous,’’ hold-

ing that Cahn enjoyed an overwhelming monopoly

position, exceeding 90%, in the market for electro-

magnetic microbalances (App. C, p. 15a). The remain-

ing issue was ‘‘whether there was a misuse of the

monopoly power resulting in injury to [petitioner’s]

business or property’’ (id. at 20a, fn. omitted). The

court correctly recognized that ‘‘Section 2 is violated

upon a showing of the existence of monopoly power

... and the general intent to abuse that power”’ (¢d.

at 14a-15a). Elaborating upon that point, it held that

a “specific intent to monopolize need not be shown to

establish the offense of monopolization when the mo-

10

nopolist undertakes anticompetitive actions’’ such as

acts which have a ‘‘tendency to foreclose competitors

from access to markets or customers’’ (id. at 20a).

The court concluded, however, that the findings that

Cahn had monopoly power in the electromagnetic

microbalance market and ‘‘that Sargent-Welch’s ‘re-

fusal to handle the millibalances may have been one

reason why [Cahn] terminated’ the dealership’’ were

insufficient, as a matter of law, to support a judgment

for petitioner (id. at 22a). The Seventh Circuit there-

fore remanded the cause to the district court for fur-

ther findings as to whether Cahn’s anticompetitive

purpose extended to its ‘‘surviving dealers,”’ 1.e., as to

whether (ibid.) :

(a) a purpose of the dealer reduction program

was unilaterally to use Cahn’s market position in

microbalances to further sales of millibalances to

surviving dealers by causing them to fear that un-

less they handled millibalances they would not be

able to buy microbalances, or (b) that, although

the dealer reduction program did not have such a

pe Yate action in terminating Sargent-

elch did.

REASONS FOR GRANTING THE WRIT

This case presents a question of major significance

in the proper interpretation of Section 2 of the Sher-

man Act, 15 U.S.C. §2, the prohibition against uni-

lateral acts of monopolization. Respondents’ Cahn di-

vision has long manufactured a unique product, its

line of electromagnetic microbalances, and it has mo-

nopoly power in that market. In 1969, Cahn introduced

a new line of products called millibalances; they ‘‘ap-

peal[ed] to a new end-user market,’’ a market in which

Oe

a ee

11

Cahn faced competition (App. C, p. 19a). After meet-

ing dealer resistance to its millibalance line, Cahn com-

bined its two diverse product lines into one ‘‘full line”’

and, as the district court found, made a decision to

market through “active and profitable dealerships

which handled the full line’ (App. F, p. 37a). That

decision was implemented by means of a dealer reduc-

tion program. ‘‘[A]ll the Cahn dealers who survived

the dealer reduction program carried millibalances,”’

as the court of appeals found (App. C, p. 23a fn. 22);

and every dealer who declined the millibalances was

terminated, including petitioner.

The lower courts found that Cahn did not condition

the sale of its microbalances on the purchase of its

millibalances nor did it threaten or coerce its micro-

balance dealers into handling the millibalances (App.

C, p. 14a).° The court of appeals held that, in view of

those findings, Cahn’s unilateral dealer terminations

would violate Section 2 only if Cahn had a ‘‘purpose’”’

to cause its ‘“‘surviving dealers’’ to fear that they

too would be terminated if they declined the mil-

libalances (id. at 12a). That holding, if permitted

to stand, will seriously undermine the fundamental ra-

tionale on which monopolistic conduct has been con-

demned for thirty years, since this Court’s decision in

United States v. Griffith, 334 U.S. 100 (1948).

The defendants in Griffith were movie theatre own-

ers who operated in closed towns where they had a

monopoly as well as in open towns where they faced

* Those findings were the basis on which the courts ruled against

petitioner on its tie-in claims under Section 1 of the Sherman Act,

15 U.S.C. §1, and Section 3 of the Clayton Act, 15 U.S.C, § 14

(App. C, p. 14a).

12

competition. The defendants used ‘‘their circuit buying

power to obtain films. Their closed towns were linked

with competitive towns.”’ Id. at 109. That linkage, this

Court held, was a ‘“‘misuse of monopoly power’’ in

violation of the Sherman Act, § 2. Jd. at 108.

In reaching that result, the Court left untouched the

lower court’s findings that the defendants did not em-

ploy ‘‘threats or coercion,’ and that they ‘‘did not

condition the licensing of films in any competitive

situation on the licensing of such films in a non-com-

petitive situation, or vice versa.’”’ Id. at 104. The Court

also acknowledged that ‘‘[l]arge-scale buying is not,

of course, unlawful per se’’ and can be used to ‘‘yield

price or other lawful advantages to the buyer.”’ Id.

at 108. Moreover, the Court recognized that in an ear-

lier decision involving similar conduct, United States

vy. Crescent Amusement Co., 323 U.S. 173 (1944)—

the buying power was used for the avowed purpose

of eliminating competition and of acquiring a

monopoly of theatres in the several towns, while

no such purpose was found here. (Id. at 105, em-

phasis added. }

The Court ruled, however, that it is ‘‘not always

necessary to find a specific intent to restrain trade or

build a monopoly in order to find that the anti-trust

laws have been violated’’ (td. at 105) ; where there is

‘no intent or purpose’? to monopolize, the statute is

nonetheless violated if monopolization is ‘a necessary

and direct result’’ of the defendant’s acts (id. at 106).

Applying those principles to the facts in Griffith, the

Court concluded (id. at 107) :

Though [defendant] makes no threat to withhold

the business of his closed or monopoly towns un-

less the distributors give him the exclusive film

13

rights in the towns where he has competitors, the

effect is likely to be the same where the two are

joined. When the buying rower of the entire cir-

euit is used to negotiate films for his competitive

as well as his closed towns, he is using monopoly

power to expand his empire. And even if we as-

sume that a specific intent to accomplish that re-

sult is absent, he is chargeable in legal contem-

plation with that purpose since the end result is

the necessary and direct consequence of what he

did. [Emphasis added. ]

The same conclusion is compelled in the instant case.

Cahn linked its monopoly products and its competitive

products into one full line. Its competitive products

were undesirable and were resisted by the dealers, yet

every microbalance dealer who was not terminated

ultimately agreed to handle them. Cahn’s ‘‘motive,’’ as

the district court found, was to have ‘‘dealerships

which handled the full line’ (App. F, pp. 37a-38a),

and Cahn implemented that motive by establishing a

full line criterion for dealer retention (supra, pp- 6-7).

The surviving dealers did what Cahn wanted: they

agreed to handle its millibalances. Petitioner thus

established that the inevitable results of Cahn’s full

line policy did, in fact, come to pass. Those results

were necessarily anticompetitive—their tendency being

to ‘‘foreclose [millibalances] competitors from access

to markets or customers’’ (see App. C, p. 20a). See

Northern Pac. Ry. v. United States, 356 U.S. 1, 5

(1958).

The decision of the court of appeals to remand the

cause for a finding as to whether Cahn had a purpose

to accomplish the ‘‘necessary and direct’’ consequences

of its action improperly ignores the holding of Griffith

that a finding of monopolistic purpose or intent is not

14

essential to establish a violation of Section 2. The deci-

sion below also is in conflict with the decision in

Bragen v. Hudson County News Co., 321 F.2d 864, 869

(1963), where the Third Circuit squarely held that a

monopolist’s termination of a dealer ‘‘because he re-

fused to sell or display the unwanted items’’ would, on

those facts alone, violate Section 2. See also, Smith-

Kline Corp. v. Eli Lilly & Co., Third Circuit, No. 77-

1232 (April 3, 1978).

That Cahn’s dealer termination program may have

had some lawful aspects is, of course, no defense, as

the court of appeals apparently recognized (see App.

(, pp. 20a-21a). F.g., Continental Ore Co. v. Union

Carbide & Carbon Co., 370 U.S. 699, 702 (1962).

Equally irrelevant is the district court’s finding that

the program was undertaken ‘‘ ‘primarily for the

legitimate objective of maintaining sales and profits’ ’’

(App. C, p. 22a). The Fifth Circuit has correctly inter-

preted Griffith to mean that ‘‘monopolistic conduct ...

cannot be defended on the ground that it was only the

exercise of legitimate business judgment.’’ Poster Ex-

change, Inc. v. National Sereen Service Corp., 431 F.2d

334, 339 (5th Cir. 1970), cert. denied, 401 U.S. 912

(1971). Respondents’ conduct violates Section 2 as

interpreted in Griffith, and the Seventh Circuit’s re-

mand for additional findings should be reversed. The

cause should be remanded with instructions to enter

judgment in favor of Sargent-Welch on the issue of

liability.

15

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

Georce R. Kucrk

JAMES P. MERCURIO

ALAN R. MALASKY

1815 H Street, N.W.

Washington, D.C. 20006

D. JEFFREY BADDELEY

7300 North Linder Avenue

Skokie, Illinois 60076

Counsel for Petitioner

Of Counsel:

ARENT, Fox, KintNer, Ptotkin & Kann

1815 H Street, N.W.

Washington, D.C. 20006

May 1, 1978

la

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

January 21, 1978.

Before: Hon. Lutuer M. Swycert, Circuit Judge

Hon. Roperr A. Sprecuer, Circuit Judge

Hon. Purr W. Tons, Circuit Judge

No. 77-1082

Sarcent-Weicn Screntiric Compayy, Plaintiff-Appellant,

: vs.

Appendices — Corporation and Ventron InsTRUMENTS

orPoRATION, Defendants-A ppellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division

No. 72-C-2330

Thomas R. McMillen, Judge.

Order

The court having considered the petitions for rehearing

and plaintiff-appellant’s motion to correct opinion, the

opinion filed December 6, 1977, is modified as follows:

On page 13, in note 15, the second sentence and the

bracketed citation following it are deleted.*

On page 14, in line 22, ‘‘not’’ is deleted and ‘‘the’’

is changed to ‘‘hardly any’’; and in note 18 ‘‘efficient-

ly’’ is inserted at the end of the third line.°

On page 3, in line 15 and page 19, line 10, the word

‘*purchases’’ is substituted for the word ‘‘sales.’’ *

S These corrections have been incorporated into the Seventh Cir-

cuit’s opinion as reprinted in Appendix C, infra.

2a

The petitions for rehearing are Denmep. The motion of

plaintiff-appellant to correct opinion is Granrep.

On consideration of the suggestionfor rehearing in banc

filed in the above-entitled cause by defendants-appellees,

no judge in active service has requested a vote thereon,

and all of the judges on the original panel have voted to

deny a rehearing in banc. Accordingly,

Ir Is Onverzp that the aforesaid suggestion for rehear-

ing in banc be, and the same is hereby, Denrep.

eS

oe. << o-

3a

Opinion by Judge Tone

Unpublished Per Curiam Order

(Correctep as or Decemser 21, 1977)

UNITED STATZS COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

December 6, 1977.

Before: Hon. Luruer M. Swycenr, Circuit Judge

Hon. Rosext A. Sprecuer, Circuit Judge

Hon. Pamir W. Tone, Circuit Judge

No. 77-1082

Sancent-Wetce Screntiric Company, Plaintiff-Appellant,

vs.

Ventron Corporation and Ventron InstRUMENTS

Corporation, Defendants-A ppellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division

No. 72-C-2330

Thomas R. McMillen, Judge.

This cause came on to be heard on the transcript of the

record from the United States District Court for the

Northern District of Illinois, Eastern Division, and was

argued by counsel.

On consideration whereof, it is ordered and adjudged

by this court that the judgment of the said District Court

in this cause appealed from be, and the same is hereby,

ArrinMEep 1N Part; Vacatep anp Remainep in Part, in

accordance with the opinion of this court filed this date

and of the order of this court entered this date. Each party

shall bear its own costs on appeal.

ta

APPENDIX C

[Caption Omrrtep in Printinc]

Arovep June 10, 1977—Deciwep Decemser 6, 1977

Before Swycert, Sprecner and Tons, Circuit Judges.

Tone, Circuit Judge. This is an action under the Sher-

man Act, 15 U.S.C. §§1 and 2, and §3 of the Clayton Act,

15 U.S.C. §14, for wrongful cancellation of a dealership.

After a bench trial on the issue of liability, the District

Court found in favor of the defendants. We affirm in part

and vacate and remand in part.

The gravamen of the complaint, as amended, is, in the

words of plaintiff’s brief,

that defendants (through their Cahn division) un-

lawfully terminated plaintiff’s ‘‘electromagnetic mic-

robalance’’ dealership in furtherance of Cahn’s resale

price fixing and tie-in arrangements, and as part of

a dealer reduction plan which was intended to di-

minish the competition faced by Cahn and its favored

dealers so as to maintain or improve Cahn’s dominance

in the market for electromagnetic microbalances and

to enhance Cahn’s position in the market for a new

line of products called ‘‘millibalances.’’

Cahn Instruments Company was formed in 1956 to de-

velop and manufacture a device for precision weighing,

the electromagnetic microbalance.’ The company succeeded

‘In a pre-trial stipulation, the parties described the electromag-

netic weighing principle as one

whereby a sample of unknown weight is balanced by the force

produced by an electric current in a coil in a magnetic field.

The weight of the unknown sample is determined by measur-

ing the amount of electrical energy used in balancing the

sample, and calibrating this measurement against known weight

standards.

5a

in making and selling a line of balances that could be

used to weigh small samples to one microgram precision

or even a fraction thereof.’ In 1967 the company was ac-

quired by Ventron Corporation, which operates Cahn as

an unincorporated division.’ In 1969 Cahn introduced a

line of less expensive balances called ‘*millibalances,’’

which also operated electromagnetically but were less sen-

sitive than the microbalances and therefore were used in

different applications.‘

In 1971 Cahn sold a total of 500 balances in the United

States for a total of $608,400. Its total sales in that year

were $1,400,000.

From the beginning, Cahn balances were marketed

through dealers who also sold a variety of other scientific

and laboratory equipment. One of them was E. H. Sargent

Company, which became a dealer in 1963 and continued

as such after it merged with Welch Scientific Company in

1968 until it was terminated by Cahn in April 1971. At the

time of termination, Sargent-Weich had twelve branches

in the United States and Canada and represented approxi-

mately 3,000 manufacturers of various types of scientific

and laboratory equipment. Its annual sales are approxi-

* A microgram is one-one millionth of a gram (0.000001 or 10°

grams) ; a gram is equal to 0.035 ounces.

* Until 1974 Cahn operated as a division of Ventron’s wholly-

owned subsidiary Ventron Instruments Corporation, which accounts

for the latter being named as an additional defendant in this case.

In that year Ventron liquidated Ventron Instruments and has since

held Cahn’s assets directly. Both defendants, including the Cahn

Division, are collectively referred to in this opinion as ‘‘Cahn’’ or

**defendant.’’

* The original millibalances, introduced in 1969, had ranges that

varied with the size of the sample: they could weigh 1 gram to a

1 milligram (one-one-thousandth of a gram) precision, a 100 milli-

gram sample to 100 micrograms, and 10 milligrams to 10 micro-

grams. The last and most sensitive range was later deleted from

the balances’ specifications.

6a

mately $60,000,000. Its annual purchases of Cahn balances

at the time of termination were less than $40,000.

In his letter terminating Sargent-Welch as a dealer,

Cahn’s Director of Marketing stated that Cahn was un-

dertaking a careful evaluation of its ‘‘dealership cover-

age’’ for the purpose of ‘‘optimizing the number of dealers

handling the Cahn product line.’’ He then pointed out that

Sargent-Welch’s purchases from Cahn had been decreas-

ing each year since 1968 and that first quarter sales indi-

cated that 1971 would also be a disappointing year. He also

noted Sargent-Welch’s refusal to carry the new millibal-

ance line. As a final reason for Sargent-Welch’s termina-

tion, the letter referred to ‘‘a definite lack of exposure of

Cahn products in Sargent-Welch advertising and in your

booths at trade shows.’’ In the next year Cahn gave

similar explanations in terminating two other dealers.

Cahn’s dealer reduction program for ‘‘optimizing the

number’’ of its dealers was adopted primarily, the Dis-

trict Court found, ‘‘to consolidate sales among its [Cahn’s]

more effective dealers.’? The court also found that the

Sargent-Welch termination was based on this plan as well

as on that company’s sharp decline in... . performance

on behalf of Cahn’’ and the absence of any prospect of

improvement of that performance. Further, the court

found,

Cahn’s termination of Sargent-Welch was not anti-

competitive in either purpose or effect. Plaintiff’s dis-

tributorship contract was terminated because of its

poor performance. Neither an attempt at tying sales

nor an attempt to enforce illegal resale priee main-

tenance, nor a plan to monopolize, attempt to monopo-

lize or eliminate competition was proved to be a factor

in the termination.

Elsewhere in his findings, however, the judge said that

‘«fp]laintiff’s refusal to handle the millibalances may have

re es oe ee

ee ee oe ee

7a

been one reason why defendant termi —

dealership... .”’ erminated plaintiff's

Findings bearing specifically on the theory of a tie-in

or full line foreing between microbalances and millibal-

lances were that Sargent-Welch had “‘failed to prove that

defendant attempted to coerce plaintiff into handling [its]

new products by, for example, threatening termination’’;

that Cahn ‘‘did not require its dealers to handle the milli-

balance models as a condition to continuing to be a dealer’’;

= b yom oe had not proved that ‘‘Cahn re.

used to sell its microbalanc

Soniye bier es to a dealer who would not

All Cahn dealership agreements contained fair trade

clauses requiring dealers to adhere to fixed resale prices

in fair trade jurisdictions. Sargent-Welch alleged that it

had been terminated because of its price-cutting activities

and also because the dealer reduction program was de-

signed to eliminate price-cutting among Cahn dealers in

general.

Approximately one month before Sargent-Welch was ter-

minated, its branch in Anaheim, California, submitted a

bid to the University of California offering Cahn balances

at 6 percent below the list price. California at that time

was a fair trade state. Cahn’s Director of Marketing wrote

a letter to the Sargent-Welch home office describing the

University of California bid as ‘‘an obvious price cut and

a clear violation of our Fair Trade Agreement” and ask-

ing for an explanation ‘‘(b]efore we take any action.’

Sargent-Welch replied by disclaiming knowledge of the

situation and referring Cahn to the branch manager.

The District Court found that, because Cahn sold bal-

ances directly to end-users in California in competition

with its dealers, it could not claim the protection of the

fair-trade exemptions from Sherman Act coverage, the

8a

Miller-Tydings Amendment * and the McGuire Act,’ which

were in effect at that time.’ Cahn’s fair trade program in

California was therefore held to be horizontal price-fixing

in violation of § 1 of the Sherman Act. The court continued.

However, since defendant did not terminate plaintiff

for price-cutting, the point is unavailing. Furthermore,

plaintiff has failed to prove that defendant’s price

maintenance agreements caused a loss of sales or prof-

its or other injury to its business in any state where

the agreements were invalid.

The District Court made the following additional find-

ings with respect to the price-cutting charges :

Cahn carried out its fair trade program in good

faith and, to the best of its knowledge, in accordance

with the requirements of the applicable statutes. Cahn

dealers from time to time communicated to Cahn their

concern about fair trade violations. But Cahn never

agreed with any of its dealers to fix or control prices,

except where authorized by applicable fair trade laws,

and all Cahn dealers, including plaintiff, knew and

understood that the minimum selling prices established

by Cahn need only be adhered to in those states and

as to those sales where fair trade was applicable. All

Cahn dealers, including plaintiff, in fact sold Cahn

balance products at less than the minimum retail sell-

ing prices established by Cahn on certain occasions,

usualiy when necessary to meet competition.

* Act of August 17, 1937, 50 Stat. 693 (formerly a part of 15

USC §1).

*Act of July 14, 1952, 66 Stat. 632 (formerly in 15 U.S.C.

§ 45(a)).

* Both were repealed by the Act of December 12, 1975, 89 Stat.

801.

9a

In ruling on the monopolization charge, the court found

that the relevant market was not microbalances, as Sar-

gent-Welch contended, but all ‘‘precision balance[s],’’ i.e.,

balances weighing only 1/100,000 of a gram (see note 4,

supra), and that, because Cahn possessed only an 8 per-

cent share of that market, it did not have a monopoly. The

court also found,

[E]ven assuming that Cahn had monopoly power,

plaintiff . . . failed to show that Cahn grew as a con-

sequence of anything other than superior products,

business acumen or historic accident, or that Cahn

used such power in furtherance of the alleged mo-

nopoly.

I. Price-Fixing

Sargent-Welch’s price-fixing theory is predicated on the

contention that Cahn sold balances in competition with

its dealers, thereby forfeiting the benefit of the exemption

of fair trade laws from antitrust prohibitions. In United

States v. McKesson and Robbins, Inc., 351 U.S. 305, 310-

311 (1956), the Supreme Court held that enforcement of a

fair trade program under these circumstances was illegal

per se.

Cahn did not solicit direct sales of products sold through

dealers or hold itself out as a dealer in these products.

Customers who asked Cahn for assistance in selecting a

balance were referred to a dealer. Cahn did fill unsolicited

orders for these products, paying a commission to a dealer

who had influenced the sale. Because of a number of such

direct sales in California, the District Court held that

Cahn’s fair trade program was illegal in that state.’ The

* The court’s findings with respect to Cahn’s competition with its

dealers are somewhat ambiguous. In paragraph 40 of its findings,

the court described the Cahn policy on unsolicited orders; in para-

graph 41 it noted Cahn’s direct sales of two types of specialized

balances that were never sold through dealers; and in paragraph

10a

Court declined, however, as we have observed, to hold the

company’s nationwide fair trade program illegal. Although

the court failed to articulate a basis for this distinction,

defendant points out that Sargent-Welch failed to prove

the volume of direct sales in other states or even to point

out which states recognized fair trade at that time. Sar-

gent-Welch argues that the Cahn invoices of direct sales to

end-users, which were introduced along with approximately

1600 other trial exhibits, were sufficient proof of the il-

legality of Cahn’s entire fair trade program. But dumping

into the record evidence of such dubious intelligibility,

without a showing of which sales, if any, were made in

competition with dealers, ef Snap-On Tools Corp. v. FTC,

321 F.2d 825, 833-835 (7th Cir. 1963), and apparently with-

out tabulation, analysis, or explanatory testimony, was

hardly sufficient to require the court to decide the issue in

favor of plaintiff, especially ii the absence of active soli-

citation of business in comipetition with the dealers. More-

over, as the District Court found, Sargent-Welch failed

to prove that it suffered injury from Cahn’s resale price

maintenance. Cf. Kestenbaum v. Falstaff Brewing Corp.,

42 it noted Cahn’s sales to original equipment manufacturers who

incorporated modified Cahn balances into other equipment, which

was then resold. The court made no finding—and we can see no

evidence in the record—that the non-dealer items referred to in

paragraph 41 were competitive in some other way with dealer items

or that dealers also sold to OEM accounts. Ordinarily, there is no

fair trade violation unless this type of competition exists, see Snap-

On Tools Corp. v. FTC, 321 F.2d 825, 833-835 (7th Cir. 1963) ;

Esso Standard Oil Co. v. Secatore’s, Inc., 246 F.2d 17, 20 (1st Cir.),

cert. denied, 355 U.S. 834 (1957) ; Upjohn Co. v. Charles Labs, Inc.,

277 F.Supp. 445, 450 (S.D.N.Y. 1967). Nevertheless, the court held

that ‘‘[t]he activities described in part in pars. 40, 41 and 42

rendered defendant’s fair trade agreement with plaintiff unen-

forceable in California ... .’’ While this holding appears to be

open to challenge, defendants do not press an argument on the

point, and our disposition of the case makes it unnecessary to de-

cide it.

es

lla

a, 690, 694 (5th Cir. 1975), cert. denied, 424 U.S. 943

Sargent-Welch also argues that Cahn attempted to en-

force an illegal resale price maintenance program in non-

fair trade states. The evidence was that Cahn maintained

a policy of taking action against price-cutting only in fair

trade jurisdictions. [Weil, Tr. 1918, 1973; Cassiano Dep.

79; cf. Preiser, Tr. 862.] The District Court found that

Cahn suggested resale prices and exhorted its dealers to

adhere to them but took no further action in non-fair trade

states, and held that this conduct did not violate the law.

We cannot say that this was error.

We have examined the conflicting evidence on the other

price-fixing issues, viz., whether price cutting by Sargent-

Welch was a reason for its termination and whether Cahn’s

dealer reduction program was administered in furtherance

of an illegal price-fixing scheme. With respect to these

issues, the District Court found that Cahn did not termi-

nate Sargent-Welch for price-cutting, and that

Cahn never agreed with any of its dealers to fix or

control prices, except where authorized by applicable

fair trade laws, and all Cahn dealers, including plain-

tiff, knew and understood that the minimum selling

prices established by Cahn need only be adhered to

in those states and as to those sales where fair trade

was applicable.

These findings are not clearly erroneous. Our detailed re-

view of the evidence supporting them, being of no value

as precedent, appears in an unpublished order filed with

this opinion.

12a

Il. Tie-in and Monopolization

Because Cahn’s strength in the market is relevant to

both the issues of tie-in, or full-line forcing,’ and monopo-

lization, it is convenient to treat these issues together.

Sargent-Welch’s misuse-of-power argument includes the

theory that Cahn used its market power to accomplish

resale price maintenance. We dispose of this theory and

the tie-in-by-agreement theory first, because we can do

so without determining Cahn’s market position. We then

turn to the remaining monopolization question, which re-

lates to full-line forcing.

A. Misuse of Power for Resale Price Maintenance Pro-

gram

Sargent-Welch argues that a purpose of Cahn’s dealer

reduction program was to eliminate price competition

among the remaining dealers and promote their adher-

ence to resale prices established by Cahn, in violation of

§§1 and 2 of the Sherman Act.’® We think that the facts

found by the District Court based upon the resale price

maintenance evidence, in findings we have sustained as

not clearly erroneous, are inconsistent with the existence

* Requisite elements of a § 1 violation are the presence of market

power sufficient to enable the seller ‘‘to raise prices or to require

purchasers to accept burdensome terms that could not be exacted

in a completely competitive market,’’ United States Steel Corp. v.

Fortner Enterprises, Inc., 97 S.Ct. 861, 867-868 (1977) (Fortner

II); and sales of the tied product resulting from the tie-in that

are not insubstantial, Fortner Enterprises, Inc. v. United States

Steel Corp., 394 U.S. 495, 502 (1969) (Fortner I). While the

presence of either is enough under § 3 of the Clayton Act, § 1 of

the Sherman Act requires both. See Moore v. Jas. H. Mathews &

Co., 550 F.2d 1207, 1214 (9th Cir. 1977).

1° As we point out in part II, C, infra, the use of monopoly power,

even though lawfully acquired, for an unlawful purpose is a viola-

tion of § 2 of the Sherman Act. If the misuse results in an agree-

ment or understanding, § 1 of that Act is also violated

et ee eee

ro a ee

13a

of such a purpose. We therefore do not disturb the judg-

ment on this ground.

B. Tie-in by Agreement

Sargent-Welch does not contend that there was a tie-in

arrangement between itself and Cahn but that Cahn’s

‘“scheme of getting tie-ins’’ violated the law." To estab-

lish a tying arrangement violative of §1 of the Sherman

Act or of §3 of the Clayton Act the plaintiff must first

prove an agreement or understanding between the seller

and the buyer conditioning the seller’s sale of one product

upon the buyer’s purchase of another. See Northern Pa-

cific Ry. Co. v. United States, 356 U.S. 1, 5, 6 (1958) :

[A] tying arrangement may be defined as an agree-

ment by a party to sell one product but only on the

condition that the buyer also purchases a different (or

tied) product, or at least agrees that he will not pur-

chase that product from any other supplier.

See also Ungar v. Dunkin’ Donuts of America, Inc., 531

F.2d 1211, 1223-1224 (3d Cir.), cert. denied, 97 S.Ct. 74

(1976); McElhenney v. Western Auto Supply Corp., 269

F.2d 332, 338-339 (4th Cir. 1959). Coercion has been viewed

as an essential element.* Times-Picayune Publishing Co.

v. United States, 345 U.S. 594, 614 (1953); Ungar v. Dun-

kin’ Donuts of America, Inc., supra, 531 F.2d at 1224; Re-

sponse of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d

1307 (Sth Cir. 1976). Of course, the agreement or under-

- Counsel for Sargent-Welch so stated in oral argument, adding

that ‘‘this was a § 1 violation.’’ We shall assume that counsel! in-

a to rely on § 3 also, since his brief argues that § 3 was vio-

ated.

“* The existence in a sales agreement of a condition which is

initially desired by both buyer and seller should be sufficient. C/.,

€.9-y Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961),

in which no significance was attached to the absence of coercion in

the formation of the agreement.

l4a

standing need not be express but may be inferred from the

circumstances. Ungar v. Dunkin’ Donuts of America, Inc.,

supra, 531 F.2d at 1224. It is for the trier of fact to draw

the inferences, however, and the district judge in the case

before us found not only that Sargent-Welch ‘‘failed to

prove that defendant attempted to coerce plaintiff into

handling [its] new products by, for example, threatening

termination,’’ or that Cahn ‘‘refused to sell its microbal-

ances to a dealer who would not handle the millibalance,’’

but also that Cahn ‘‘did not require its dealers to handle

the millibalance models as a condition to continuing to be

a dealer.’’ There was evidence to support these findings,

including testimony of the Chairman of the Board, the

President, and the Technical Director of Sargent-Welch

that Cahn had made no threats to them and they knew

of no threats to their company, and testimony of another

terminated Cahn dealer called as a witness by Sargent-

Welch that Cahn did not condition sales of its micro-

balances upon an agreement to purchase millibalances.

Because the essential element of agreement or understand-

ing is missing, Sargent-Welch has failed to establish a

violation of §1 of the Sherman Act or §3 of the Clayton

Act.

C. Monopolization

The findings just referred to do not dispose of the con-

tention that Cahn violated 42 of the Sherman Act by uni-

laterally using monopoly power in microbalances to force

unwanted millibalances on its dealers; for that section,

unlike §1, proscribes unilateral conduct. Section 2 is vio-

lated upon a showing of the existence of monopoly power,

18 The theory that the termination was pursuant to a plan to use

monopoly power over microbalances to monopolize the entire field

of precision-weighing devices was disposed of by the District Court's

finding that intent to monopolize the larger market was not proved.

That theory is not urged in this court.

l5a

whether lawfully or unlawfully acquired,"* and the general

intent to abuse that power. United States v. Griffith, 334

U.S. 100, 105-107 (1948). A private plaintiff relying on § 2,

however, must demonstrate that he has been ‘‘injured in

his business or property’’ by the defendant’s conduct in

order to obtain relief. Clayton Act § 4, 15 U.S.C. § 15. Thus

we must determine not only whether monopoly power exist-

ed but, if so, whether there was evidence tending to show

that Sargent-Welch suffered injury by reason of a misuse

of that power by Cahn in the manner alleged. Cf. United

States v. Griffith, supra, 334 U.S. at 107. We hold that, con-

trary to the District Court’s holding, Cahn did have mo-

nopoly power, and that a remand is therefore necessary

for findings on issues that court did not reach.

1. The Relevant Market

If electromagnetic microbalances constitute a relevant

submarket for antitrust purposes, Cahn had a monopoly

in that submarket, for despite its 8.2 percent share of the

sales of all precision balances it accounted for over 90

percent of the sales of electromagnetic microbalances. The

District Court, however, rejected Sargent-Welch’s sub-

market contention, finding,

The Cahn Execrrosatance line has competed with a

wide variety of products, including many balances with

different designs and specifications which are not re-

ferred [to] as ‘‘microbalances’’ or ‘‘millibalances’’,

and many products that are not balances.

We hold this finding clearly erroneous. Cf. Telex Corp. v.

International Business Machines Corp., 510 F.2d 894, 915

(10th Cir.), cert. dismissed, 423 U.S. 802 (1975).

"The District Court found that Cahn's market position was

lawfully acquired. Sargent-Welch does not seriously challenge that

finding, and we do not disturb it.

l6a

In determining what constitutes a relevant market for

antitrust purposes, the goal is to ‘‘delineate markets which

conform to areas of effective competition and to the reali-

ties of competitive practice.’’ L. G. Balfour Co. v. FTC,

442 F.2d 1, 11 (7th Cir. 1971). The ‘‘aree of effective com-

petition’? may be a small submarket supplying specialized

products or services. See Beatrice Foods Co. v. FTC, 540

F.2d 303, 307-309 (7th Cir. 1976); Cass Student Advertis-

ing, Inc. v. National Educational Advertising Services, Inc.,

516 F.2d 1092, 1095 (7th Cir.), cert. denied, 423 U.S. 986

(1975). See also United States v. Connecticut National

Bank, 418 U.S. 656, 664 (1974). In delineating a relevant

submarket, we are to look at

such practical indicia as industry or public recogni-

tion of the submarket as a separate econo’n:c entity,

the product’s peculiar characteristics and uses, unique

production facilities, distinct customers, distinct prices,

sensitivity to price changes, and specialized vendors.

Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).

The most important of these factors is uniqueness of the

product’s functions and therefore its uses. If two products

are ‘‘reasonably interchangeable by consumers for the same

purposes,’’ they are considered to be in the same market.

United States v. E. I. duPont de Nemours € Co., 351 U.S.

377, 395 (1956); United States v. Continental Can Co., 378

U.S. 441, 447-456 (1964). See Bendix Corp. v. Balaz, Inc.,

471 F.2d 149, 161 (7th Cir. 1972), cert. denied, 414 U.S.

819 (1973). We have said on two relatively recent occasions,

however, that a market definition ‘‘which ignores the buy-

ers and focuses on what the sellers do, or theoretically can

do, is not meaningful.’’ Cass Student Advertising, Inc. v.

National Educational Advertising Service, Inc., supra, 516

F.2d at 1095, quoting from L. G. Balfour Co. v. FTC, supra,

442 F.2d at 11, which in turn quotes from United States v.

Bethlehem Steel Corp., 168 F.Supp. 576, 592 (S.D.N.Y.

1958).

17a

Electromagnetic microbalances are used in a number

of diverse and scientifically complex applications. Most

would not be feasible without an electromagnetic micro-

balance."* Others could be performed, though !ess efficiently,

with a less sensitive balance, or by the use of non-gravi-

metric techniques employing other types of laboratory

equipment.”* The extent of competition with microbalances

in the latter type of application is far from clear. Testi-

mony as to non-gravimetric techniques was largely hypo-

thetical, and testimony as to balance sales lost to other

manufacturers often failed to describe the characteristics

of the competing balance or the frequency with which it

was encountered. Yet the unmistakable imprint of the evi-

dence is that competition was not significant. By and large,

microbalances were purchased by technically sophisticated

customers who needed them for microweighing applications.

[See Gaskins, Tr. 593; J. Weil, Dep. Vol. 1, 56-58; Pl. App.

297-298.] A customer would ordinarily not buy a micro-

balance if he intended to use it for tasks a much less ex-

pensive, coarser balance could perform.” [J. Watson Dep.

84-85; Pl. App. 365-366. ]

** Pat Gaskins testified that 80 percent of the weighings for

which microbalances are used would have been impossible or im-

practicable before those instruments were developed. [Tr. 701-

702]. Defendant has not called our attention to any contrary evi-

dence and we have found none.

** For example, for magnetic susceptibility analysis, it would be

possible to use one technique employing a conventional balance,

another using a Cahn microbalance and still another using a nu-

clear magnetic resonator, a very expensive device. [P. Gaskins, Tr.

659-665, 720-724; Pl. App. 103-104, 228-229. }

*' The District Court found that there was a functional overlap

between Cahn microbalances and coarser balances, presumably be-

cause a Cahn balance could also be used to perform less precise

weighings. But the evidence indicates that, in practice, such under-

utilization of a Cahn balance would be unusual: apart from being

more expensive, the Cahn balances are unable to weigh large

18a

Microweighing is beyond the maximum sensitivity of

most conventionally designed balances. Originally, balances

designed to weigh into the microgram range had to be used

in an artificial environment on a foundation isolated from

vibration, shielded even from the heat of the operator’s

body. The sample, in transit to and from the weighing de-

vice, could change weight sufficiently to upset the results.

{Gaskins, Tr. 699-700.] Microbalances, on the other hand,

are relatively impervious to vibration and temperature

changes, are portable, and do not have to be set up on a

level plane. (Gaskins, Tr. 583-584, 587; Leonard, Dep. 31,

234; G. Brown, Tr. 295-300; Pl. App. 180-182.] They can

also be used in a vacuum and can be used with a recorder

to measure weight changes over time—two more capabili-

ties possessed by hardly any mechanical balances. [G.

Brown, Tr. 316; Pl. App. 188.] The evidence showed that,

because of these differences, mechanical balances were used

only where microbalances could not be, as, for example,

when the sample weight exceeded the capacity of a micro-

balance.” [See Brinkman, Dep. 80-83; Pl. App. 349-350;

Pl. Ex. 201; Pl. App. 119.] Thus an end-user who had cer-

tain applications had little choice but to purchase a micro-

balance.

Examination of other factors outlined in Brown Shoe

supports the conclusion that microbalances constitute a

submarket. First, the evidence shows that Cahn viewed

microbalances as a distinct market and itself as the market

samples (capacities vary from one gram to 100 grams) and are

more difficult to operate than a standard analytical balance. The

exception would be the unusual situation in which another quality

of the Cahn balance, such as its relative ability to withstand vibra-

tion, was needed.

** The evidence showed thai Mettler’s M-5 micro or semi-micro-

balance was used primarily for the weighing of Pregl absorption

tubes, a function which Cahn balances could not efficiently per-

form. [Gaskins, Tr. 582; Leonard Dep. 50; Pl. Ex. 86; Pl. App. 97.]

19a

leader: in 1969 the president of Ventron gave a speech in

which he stated, ‘‘We are virtually alone in this market.

Our products are patented. They are the recognized stand-

ard Microbalances for research use... .’’ [Pl. Ex. 59; Pl.

App. 91.] Other documents indicate that Cahn retained this

perspective throughout 1971, considering itself unaffected

by competition from manufacturers of coarser balances or

even mechanical balances weighing in the range of its mic-

robalances [Yablonka, Dep. Vol. I, 87; Pl. App. 307; PI.

Ex, 21, 201, 234, 348], except with respect to the millibal-

ances, which were viewed as a ‘‘small incursion’’ invo the

larger balance market. [G. Brown, Tr. 359; see also Faley

Dep. Vol. I, 191; Pl. Ex. 230, 234.] A marketing analysis

done for Cahn in 1969 came to the same conclusion. [Gol-

dish Dep. 66; Pl. App. 368. ]

Second, while Cahn shared a majority of its customers

with other balance manufacturers [Gaskins, Tr. 702; PI.

App. 222], it did not sell to the whole spectrum of balance

customers. [Goldish Dep. 108-109; Pl. App. 372.] Thus,

when Cahn introduced the millibalances, it saw itself ap-

pealing to a new end-user market. [Pl. Ex. 222, 227; Pl.

App. 122; Gaskins, Tr. 606-607; Pl. App. 217; see also

Barthel Dep. Vol. II, 28; Pl. App. 293.] Later, when the

millibalances developed a number of repair problems, Cahn

attributed some of the difficulties to the lower level of tech-

nical sophistication possessed by its customers in the new

market. [G. Brown Dep. 39-41.] Finally, Cahn’s pricing

structure was apparently unrelated to that of coarser bal-

ances. Moreover, because of Cahn’s preeminence in the

micro-weighing field, the demand for its microbalances was

relatively insensitive to price changes. [Gaskins, Tr. 608;

Faley Dep. Vol. II, 123.] This was not true with respect

to the millibalances, which, as we have said, were in com-

petition with the coarser balances. [Faley Dep. Vol. II,

123.] We conclude that Cahn held a monopoly in the elec-

tromagnetic microbalance submarket.

20a

2. Misuse of Power Over Microbalances to Gain Sales of

Millibalances

Finding that Cahn holds a lawfully acquired monopoly ”

in the microbalance submarket is only the first step in re-

solving the §2 issue. It must also be determined whether

there was a misuse of the monopoly power resulting in in-

jury to the plaintiff’s business or property.”

A specific intent to monopolize need not be shown to es-

tablish the offense of monopolization when the monopolist

undertakes anticompetitive actions, United States v. Grif-

fith, supra, 334 U.S. at 105, 108; 1 J. von Kalinowski, Anti-

trust Laws and Trade Regulation § 8.02[4], p. 8-43 (1977

rev.) (hereinafter von Kalinowski). There are kinds of acts

which would be lawful in the absence of monopoly but,

because of their tendency to foreclose competitors from

access to markets or customers or some other inherently

anticompetitive tendency, are unlawful under §2 if done

by a monopolist, e.g., the leasing practices in United States

v. United Shoe Machinery Corp., 110 F.Supp. 295, 343 (D.

Mass. 1953), aff’d per curiam, 347 U.S. 521 (1954) ; see also

1 von Kalinowski § 8.02[4] [b], p. 8-55. The anticompetitive

quality of an act may depend, however, upon the purpose

with which it was done. E.g., Eastman Kodak Co. v. South-

ern Photo Materials Co., 273 U.S. 359, 375 (1927). The

termination in this case is, we believe, such an act. Its law-

fulness depends upon Cahn’s purpose, which includes the

purpose of the dealer reduction program pursuant to which

the District Court found the termination was carried out.

Cahn offered evidence tending to prove that, because

its balances were sophisticated instruments, a dealer’s

salesman needed training to sell them effectively. When

Cahn’s $600,000°in United States sales was divided among

See note 14, supra.

#° See text following note 14, supra.

}

~

“

2la

too many dealers, each dealer’s share of those sales was

insufficient to provide an incentive for that needed train-

ing. Moreover, Cahn itself had only three salesmen, so its

ability to train and assist dealer salesmen was limited.

Reducing the number of dealers, according to Cahn, would

ameliorate these difficulties with the result, in the words

of Ventron’s president, that ‘‘Cahn would get more sales

per unit of sales effort.’’

Improvement of the efficiency of Cahn’s marketing ma-

chinery in the manner just described would not be an im-

proper purpose. While the possessor of lawfully acquired

monopoly power may not use that power as leverage to de-

prive competitors of access to customers, to force custo-

mers to maintain resale prices, or in any other coercive

manner, see United States v. Griffith, supra, 334 U.S. at

107-108, he is not forbidden from improving his efficiency

in manufacturing or marketing, even though the effect of

doing so will be maintain or improve his sales. Although

the line between ‘‘superior skill, foresight, and industry”’

on the one hand, and conscious conduct evidencing ‘‘a per-

sistent determination to maintain’’ a monopoly by ‘‘antici-

pat[ing] and forestall[ing] all competition,’’ United States

v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir.

1945), is sometimes difficult to draw, we think the kind

of conduct we have described would not be unlawful.”

** The 1955 Report of the Attorney General's Committee to Study

the Antitrust Laws states:

The Alcoa case is not to be interpreted as penalizing enter-

prise; instead it declares illegal monopoly maintained by pol-

icies intended to discourage, impede or even prevent the rise

of new competitors. (Footnote omitted) Att’y Gen. Rep. 60

(1955).

Von Kalinowski expresses the opinion that

{e]areful analysis ... of [the Alcoa] holding indicates that

monopoly power will be condemned by the courts only when

such power is maintained by policies intended to limit or pre-

vent the entry of new competitors, or to exclude present com-

petitors.

22a

The District Court made no specific findings as to the

purpose of the dealer reduction program, although it did

find that it was a ‘‘program to consolidate [Cahn’s] sales

among its more effective dealers,’’ and that the ‘‘activi-

ties complained of in this case were primarily for the legi-

timate objective of maintaining sales and profits.’’ The

judge found that the termination of Sargent-Welch was

based on ‘‘the sharp decline in plaintiff’s performance on

behalf of Cahn and the lack of any indication that plain-

tiff’s performance would improve in the future,’’ i.e., ‘‘ poor

performance,’’ and on the dealer reduction program. Fur-

ther, as we have noted, he found a failure of proof that

Cahn refused to sell its microbalances to a dealer who

would not handle millibalances; he found too that Cahn

did not require its dealers to handle millibalances as a con-

dition to continuing as a dealer. Also, however, he found

that Sargent-Welch’s ‘‘refusal to handle the millibalances

may have been one reason why defendant terminated”’ the

dealership.

These findings, especially because they include the one

described last, do not logically exclude the possibility that

either (a) a purpose of the dealer reduction program was

unilaterally to use Cahn’s market position in microbal-

ances to further sales of millibalances to surviving dealers

by causing them to fear that unless they handled milli-

balances they would not be able to buy microbalances, or

(b) that, although the dealer reduction program did not

have such a purpose, Cahn’s action in terminating Sar-

gent-Welch did. In either event, Cahn would have misused

monopoly power in violation of 42. Cf. United States v.

1 von Kalinowski § 8.02[4], p. 8-62, n. 146. Cf. also United States

v. Griffith, supra, 334 U.S. at 107; United States v. Grinnell Corp.,

384 U.S. 563, 570-571 (1966); Telex Corp. v. International Busi-

ness Machines Corp., 510 F.2d 894, 927-928 (10th Cir.), cert dis-

missed, 423 U.S. 802 (1975).

23a

Griffith, supra, 334 U.S. at 106-107; Lorain Journal Co. v.

United States, 342 U.S. 143, 153-154 (1951); 1 von Kali-

nowski, § 8.02[4], p. 8-54.

These possibilities must be the subject of further find-

ings, which the judge who tried the case is in the best posi-

tion to make.” We therefore remand for those findings.

Appropriate conclusions of law and a supplemental judg-

ment are to be entered on the remanded § 2 issue.

In its arguments, Cahn places considerable emphasis on

the fact that its gross sales of balances are relatively small

in amount, $608,400 in the United States and $1,400,000 in

total in 1971, while Sargent-Welch is a large scientific sup-

ply house, representing over 3,000 vendors and selling an-

nually over $60,000,000, whose purchases of Cahn products

had dwindled to a level below $40,000 when it was ter-

minated. The implication is that Sargent-Welch is cynically

exploiting the antitrust laws although it has suffered little

or no harm from the conduct complained of. It may be

anomalous and even ironic that the antitrust laws may

afford relief to the giant dealer against the small supplier.

Yet we know of no exceptions to those laws based on the

relative size or affluence of the parties. If the additional

findings of the District Court lead to a determination that

§ 2 was violated, but Sargent-Welch has suffered little in-

*2 Sargent-Welch argues that an inference not only of purpose

to coerce but achievement of that purpose should be drawn from

the evidence that milkibalances were poor products and yet all the

Cahn dealers who survived the dealer reduction program carried

millibalances. That conclusion, however, may be negatived by other

evidence, such as that indicating that the millibalances were greatly

improved after their initial debut, that one model became very

successful [Weil Dep. Vol. II, 84; Pl. Ex. 253], and that the dis-

count schedule was improved [Yablonka Dep. Vol. III, 77; Vol. IV,

21). Of some relevance is the court’s finding that Sargent-Welch

declined to handle millibalances ‘‘to attempt to pressure Cahn to

improve the discounts’’ on microbalances.

24a

jury as a result of the violation, the damages it will recover

will be commensurately small.[*]

AFFIRMED In Pant; VACATED AND REMANDED IN Past.

{* Occasional citations to the record and briefs of the parties are

included in brackets in this slip opinion for the convenience of

counsel and other representatives of the parties in their study of

the opinion. Since the materials cited will ordinarily not be avail-

able to others, these bracketed citations will serve no further pur-

pose when the opinion is published in the Federal 2d reports, and

they, as well as this bracketed explanation, will therefore be deleted

before the opinon is submitted to the publisher. }

oe ee -

Bie HES ke een A Oe eee Ne NE hee eS ao we cme

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25a

APPENDIX D

Unpublished Order Not to Be Cited Per Circuit Rule 35

[Caption DeLerep in Paintinc]

Order

This order, filed with and supplementing the published

opinion in this case, deals with the evidence on the price-

fixing issue. Discussion of that evidence in the published

opinion would occupy space in the Federal Reporter, Sec-

ond without materially increasing the value of the opinion

as precedent. The matter is therefore covered in this un-

published order.

A. Sargent-Welch’s Price-Cutting

The District Court’s finding that Sargent-Welch failed

to prove that its price-cut in a bid to the University of

California was a factor in the termination of its Cahn

dealership was not clearly erroneous. First, there was suffi-

cient evidence to support the sincerity of Cahn’s explana-

tion in its termination letter to Sargent-Welch. The author

of the letter, Robert Faley, testified that his main reason

for terminating Sargent-Welch was the dramatic decline in

its sales volume from 1968 through the first quarter of

1971, together with his impression that nothing was being

done to improve the company’s performance. Cahn’s gen-

eral manager expressed the same view on a memorandum

circulated after a visit to Sargent-Welch’s corporate head-

quarters in the fall of 1970: in that memo, he characterized

Sargent-Welch’s attitude as ‘‘[g]lenerally . . . apathetic.

They didn’t know what Cahn was doing or what their sales

of Cahn products were or what the trend was.’’* [Def. Ex.

‘ Plaintiff points to a statement in a market research report done

for Cahn that Will Scientific had been terminated for price-cutting.

This was clearly hearsay, however, gathered from unidentified Cahn

employees. Moreover, the researcher who prepared the report testi-

26a

82.] These weaknesses, Faley testified, were all the more

important because Sargent-Welch’s volume per branch was

extremely low and the large number of salespeople in-

volved would make it extremely difficult to improve that

volume. [Faley Dep. Vol. I, 92.] Sargent-Welch’s refusal

of the millibalance line was viewed as simply another ex-

ample of its bad attitude toward Cahn products in gen-

eral. [Faley Dep. Vol. I, 15, 50; see also Lauenstein Dep.

at 74.]

Second, while the correspondence outlined above indi-

cates that termination could have been the ‘‘action’’ Cahn

was threatening when it first inquired about the University

of California price-cut, Cahn’s treatment of its other deal-

ers does not support that inference. A review of plaintiff’s

exhibits leads to the conclusion that the letter to Sargent-

Welch was a routine part of Cahn’s efforts to maintain its

fair trade program. When, after investigation, Cahn found

that a fair trade violation had occurred, it would ordinarily

seek withdrawal of the offending bid or, if the sale had

already been made, would require the dealer to purchase

its next balance at list price, without the customary dis-

count. [Yablonka Dep. Vol. V, 29.] There is no credible

evidence that a dealer was ever terminated, or threatened

with termination, for its failure to adhere to fair trade

prices.? Nor was there evidence indicating that Cahn viewed

fied that the information had been included merely as background,

not as an indication of Cahn’s current practice, and that at the

time the report was written (1970) the episode with Will was con-

sidered ‘‘ancient history.’’ [Brose Dep. 93.]

There was also some evidence that Cahn salesmen had raised the

possibility of terminating or threatening termination in order to

bring the worst price-cutter, Scientific Products, in line. But, as

we note below, there was no evidence that his advice was ever acted

upon.

2 Sargent-Welch’s Annaheim [sic] branch manager, Billy McKay

wrote a letter to the company’s president before submitting the

27a

the price-cutting record of Sargent-Welch as more of a

problem than that of the average dealer; in fact, there was

testimony that Cahn considered Sargent-Welch average in

that regard [Faley Dep. Vol. ITI, 106, 109], and that

Sargent-Welch’s own policy was to adhere to fair trade

prices on Cahn products whenever possible.’

Faley’s testimony that the University of California price-

cut was not a factor in his decision to terminate Sargent-

Welch [Faley Dep. Vol. I, 40] is supported by an internal

memorandum from Cahn’s general manager to Ventron’s

president giving the same reasons for the termination as

those given by Faley in his letter to Sargent-Welch. [PI.

Ex. 10.] Faley’s unequivocal testimony on this point was

not fatally impeached by his later statement on which plain-

tiff relies, in which speaking of dealer terminations gen-

erally, he said that a dealer’s price-cutting ‘‘if it was a

consideration it was less than one percent.’’ [Faley Dep.

Vol. ITI, 118.]}

Faley’s testimony that the decision to terminate Sar-

gent-Welch had been made several months before the

price-cut, and that he had simply waited to see if Sargent-

Welch’s first quarter sales indicated a continued down-

trend before writing the termination letter [Faley Dep.

Vol. III, 109], seems plausible.‘

University of California’s bid [Pl. Ex. 354], because, as he testified,

Sargent-Welch’s general policy was to quote list prices on Cahn

balances. [Tr. 1102.]

* See also Jerry Weil’s testimony that Sargent had been the best

dealer in his territory, but that, after its merger with Welch,

‘things went to hell in a basket.’’ [Weil Dep. Vol. I, p. 48.]

* Sargent-Welch’s Annaheim [sic] branch manager testified that

no one from Cahn ever contacted him about the bid. [Tr. 1110.] He

did, however, draft a proposed reply to Cahn, justifying the price-

cut as necessary to meet unfair competition by Scientific Products,

which he claimed was being unduly favored by Anthony Cassiano,

Cahn’s Western Regiona! salesman.

28a

Plaintiff relies on the testimony of Cahn’s Western Re-

gional salesman, Anthony Cassiano, to the effect that Faley

told him to let it be known ‘‘on the sly’’ that Sargent-Welch

had been terminated because of the University of Califor-

nia price-cut. [Cassiano Dep. 6.] But this testimony was

contradicted by Faley, who stated that, although he could

not remember the particular conversation with Cassiano,

he had never used Sargent-Welch as an example to keep the

other dealers from price-cutting. [Faley Dep. Vol. I, 37, 41,

118.] Jerry Weil, Cahn’s Eastern Regional salesman, testi-

fied that Faley’s instructions to him were exactly the op-

posite and that he was under the impression that it would

have been improper (as he said, a ‘‘no-no’’) to tell other

dealers that Sargent-Welch had been terminated because

of a price-cut, inasmuch as the reason for the termination

was the company’s low sales volume. [ Weil, Tr. 1969, 1970,

Dep. Vol. II, 154, 163-165.] In the face of such conflicting

testimony, the District Court was entitled to credit Faley

instead of Cassiano, who had left to form a new bal-

ance company, which received its first purchase order from

Sargent-Welch.°

B. Cahn’s Dealer Reduction Program

Sargent-Welch also alleged that Cahn’s dealer reduction

program was administered in furtherance of an illegal

price-fixing scheme and that Cahn eliminated any dealers

who refused to participate in a price-fixing conspiracy,

after threatening all of them with termination if they did

not do so. We think there was sufficient evidence to support

the District Court’s finding that the dealer reduction pro-

gram was not designed or used for price-fixing.

In support of its theory that the program had price-

fixing as an objective, Sargent-Welch points to testimony

by Cahn officers that the dealers were very concerned about

’ Weil was still with Cahn at the time he testified, but Faley had

left the company tt) «*e a more promising job elsewhere.

LE

29a

price-cutting and that in particular Fisher Scientific,

Cahn’s largest dealer, urged it to cut back the number of

dealers in order to end the price competition. [E.g., Faley

Dep. Vol. I, 166.] In response to this suggestion, Cahn’s

general manager, Jerry Yablonka, testified that he had

‘‘made clear our intent to hold prices to all dealers, by

pointing out that three dealers had been cancelled this

year and that we were prepared to cut back further.’’* [P1.

Ex. 11; Yablonka Dep. Vol. IV, 130-133.] Sometime later,

Fisher decided to attempt unilaterally to hold the line on

prices, and Cahn agreed to help ‘‘get the word out”’ to

other dealers about Fisher’s new position. Yablonka testi-

fied that he told Fisher, ‘‘if we had to lean on the dealers

and cut back to a limited number, we would do it because

we were serious about endorsing our fair trade posture.’’

[Yablonka Dep. Vol. V, 42.]

Sargent-Welch argues that by aiding Fisher in this

manner, Cahn was engaging in a conspiracy to fix prices.

It also argues that there was evidence of a similar con-

spiracy with another dealer, Scientific Products. In June

1970 an internal Cahn memorandum, purportedly from

Jerry Weil’ to Faley’s predecessor as Director of Market-

* Yablonka’s testimony about this statement, which was made in

a memorandum to the president of Ventron, was somewhat con-

fused. At first he stated that he assumed he had conveyed this mes-

sage to the dealers as a group,

as a bit of bravado to get the dealers to stop cutting each other's

throats in the fair trade areas and creating continuing prob-

lems of supervision back and forth.

{Yablonka Dep. Vol. III, 78.] Later in his deposition, however, he

testified that the statement had probably been made to Fisher

alone, and that it was unlikely that Fisher considered the state-

ment a threat, inasmuch as it was Cahn’s largest dealer, and would

not be terminated for any reason. [Id. Vol. IV, 130-133.]

* Weil denied writing the memo and testified that it did not re-

flect Cahn policies. [Tr. 1964.]

30a

ing, recommended taking action against Scientific Products:

S/P can be hurting our entire operation and since

they are doing very little creative selling, we may not

be doing ourselves any good by keeping them as a

dealer. If we went through the motions of cutting them

off, I am sure they would then shape up. If we did cut

them off, we would probably be able to recover at least

75% of the business that S/P is now giving us.

[Pl. Ex. 388.] There was no evidence that either of these

recommendations was ever followed, but Cahn’s general

manager did note after a visit to Scientific Products’ home

office in the fall of 1970 that ‘‘[t]hey had always been the

outstanding price cutters but are now cedicated to firming

the pricing situation on the market.’’ [Def. Ex. 82.] At the

University of California, Scientific Products, which had

supplied Cahn products in 1970, withdrew its low bid on

Cahn’s products in 1971. According to notes made by

Sargent-Welch’s Annaheim [sic] branch manager, however,

Scientific Products made a belate’ attempt to reinstate

their prior bid. [Def. Ex. 92.] And, as of August 1972 a

Cahn internal memorandum was still recording price-cuts

by Scientific Products, as well as complaints that they re-

mained ‘‘the biggest price cutter in the business.’’ [Pl. Ex.

405; Def. App. 41.]

We agree with defendants that the circumstantial evi-

dence of a conspiracy between Cahn and Scientific Products

is not compelling. Moreover, although Yablonka may have

used the dealer reduction plan as a club to induce fair trade

compliance, he did not begin working for Cahn until a

week after Sargent-Welch was terminated. His prede-

cessor, Faley, the evidence indicates, did not use it for that

purpose at the time of Sargent-Welch’s termination. Faley

testified that, although price-cutting was a constant topic

of conversation with the dealers, he never led dealers to

believe they could be terminated for price-cutting. [Faley

— ce nee ei

3la

Dep. Vol. I, 117-118, 123.] He specifically denied that the

dealer reduction program was in any way designed to elim-

inate price-cutting, although he admitted that a ‘‘fringe

benefit’’ of having fewer dealers would probably be a cessa-

tion of price-cutting activity. [Id. at 167.]

Even if the elimination of price-cutting in fair trade

jurisdictions was a subsidiary goal of the plan, Cahn’s

fair trade program was not shown to be illegal outside

California. A program to enforce a legal fair trade program

would not be a violation of the Sherman Act’s prohibition

of price-fixing.

C. Price-Fizing While Sargent-Welch Was a Dealer

Sargent-Welch also alleged that it was injured by Cahn’s

enforcement of its fair trade program while Sargent-

Welch was still a dealer. The District Court, while finding

the program illegal in California, held that Sargent-Welch

had failed to show that it was injured by the enforcement

of that program. Even in a bifurcated trial on liability,

such proof is necessary to satisfy the plaintiff’s burden.

See Response of Carolina, Inc. v. Leasco Response, Inc.,

537 F.2d 1307, 1320-1321 (5th Cir. 1976). Plaintiff’s argu-

ment that the court’s ruling was erroneous is based on its

argument, rejected above, that Cahn’s entire fair trade

program, as well as its suggestion of retail prices in non-

fair trade states, was illegal. Plaintiff presented no evi-

dence of a causal linkage between Cahn’s illegal fair trade

program in California and a loss of sales or other injury.

Thus, the District Court did not err in finding for the de-

fendant on this claim as well.

In summary, we affirm the judgment of the District

Court insofar as it denies relief on the price-fixing charges.

Although the evidence on that subject consisted largely of

documents and depositions, which we are of course able to

evaluate for ourselves, we cannot say that the District

Court’s evaluation or findings based thereon were clearly

erroneous.

32a

APPENDIX E

JUDGMENT ON DECISION BY THE COURT

UNITED STATES DISTRICT COURT

FOR THE

NORTHERN DISTRICT OF ILLINOIS—EASTERN DIVISION

Crvm. Action Fie No. 72 C 2330

Sancent-Wetcx Screntiric Co., etc. Plaintiff

vs.

Ventron Corp., etc. et al, Defendants

Judgment

This action came on for trial before the Court, Honor-

able Thomas J. McMillen, United States District Judge,

presiding, and the issues having been duly tried and a

decision having been duly rendered,

It is Ordered and Adjudged that judgment is entered for

defendants, with costs.

33a

APPENDIX F

[Caption OmitTEp IN Printinc]

Decision

Plaintiff is a former distributor of some of defendant’s

products and as such was terminated by a written notice

effective May 6, 1971. It has sued defendant for violation

of Sections 1 and 2 of the Sherman Act, and Section 3 of

the Clayton Act, claiming in substance that the termina-

tion was to enhance defendant’s dominant or monopolistic

position in a relevant market.

In a lengthy bench trial, plaintiff introduced evidence in

an attempt to prove that defendant. unlawfully terminated

it as a dealer because (1) defendant was attempting to

create or further a monopoly in a relevant market; (2)

plaintiff would not market defendant’s new products named

Milibalances and thereby plaintiff conditioned or tied the

sale of its microbalances to the Millibalances; and (3) plain-

tiff did not follow defendant’s recommended resale prices

in states where fair trade contracts were illegal.

Defendant introduced evidence that it terminated plain-

tiff in accordance with a plan to reduce the number of

distributors and that plaintiff was selected because of a

failure to sell defendant’s products effectively. On the

basis of the evidence and the post-trial arguments of the

parties, we find and conclude that plaintiff has failed to

prove by a preponderance of the evidence that the defend-

ant violated the Federal anti-trust laws in terminating the

plaintiff as a dealer and that defendant has proved a valid

business justification for this act.

Trial was held on the issue of liability only. This involved

merely a prima facie examination of the issue of damages

as it related to proof of liability. The court ruled provi-

sionally during trial that plaintiff had been damaged by

the termination, although this was subject to reexamina-

34a

tion in more detail if liability had been established. Neither

party was allowed to submit more than a prima facie case

on damages, and we find that plaintiff proved such a case.

Since we have found no liability, we need go no further

into the question of damages.

MoNoPOLIZATION AND ATTEMPT TO MONOPOLIZE

A central issue on which plaintiff also has the burden of

proof under Section 2 of the Sherman Act is the existence

of a relevant product market which defendant allegedly has

monopolized or has attempted to monopolize. On this issue,

plaintiff contends that the relevant market consists of the

manufacture and sale of devices often described as electro-

magnetic or electronic microbalances. These are electrically

activated weighing instruments with a sensitivity of

1/1,000,000 of a gram (a microgram). Defendant makes

several models of such balances, partly covered by patents,

and sells more than 90 percent of those purchased in the

United States. The parties do not contest that the market

area is nationwide.

However, we find and conclude that the electronic or

electromagnetic microbalance does not constitute a rele-

vant market. First other companies compete with electro-

magnetic microbalances by selling microbalances which

operate on a mechanical principle, often referred to as ‘‘an-

alytical’’ microbalances. The mechanical models do have

certain disadvantages, particularly when used under un-

favorable environments involving vibration, pollution or

noise. However, they also have advantages not found in

the use of electromagnetic microbalances.

Secondly, in our opinion there is no reason to limit the

relevant market to those balances with a sensitivity of one

microgram. Balances are sold in the United States which

measure particles with a sensitivity of 1/10,000,000 of a

gram, usually called ultramicrobalances, and others whose

sensitivity measures only down to 1/100,000 of a gram, e.g.

35a

defendant’s Millibalances. The functions served by these

other balances overlap those performed by the micro-

balances and, as such, they stand in competition with one

another. All constitute the generic product known as a pre-

cision balance. The defendant’s share of this entire balance

market is small, perhaps 8 percent.

Finally, non-gravimetric devices may be utilized to per-

form some of the measurement functions for which certain

balances are used, e.g. measurements of the surface area

or size of particles. The devices utilizing these alternative

techniques to make such measurements are not balances,

but they nevertheless compete in the same market. All of

these products can perform comparable functions with

various advantages and disadvantages, depending largely

upon the particular end use involved. They compete for

the same general class of customers—primarily scientific,

industrial and educational laboratories—and the manu-

facturers of these various products view themselves as in

competition with each other.

Plaintiff contends, alternatively, that the national micro-

balance market as a whole is a relevant one, although de-

fendant does not mannfacture or sell a mechanical or an-

alytical balance. Plaintiff contends that by attempting to

monopolize the microbalance market, defendant would

eliminate the mechanical ones. There is no persuasive evi-

dence that this has happened, however, and the mechani-

cal’s share of the microbalance market was larger in 1971

(23.6 percent) than it was in 1968 (17.7 percent).

Taking all of these factors into consideration, we find

and conclude that no one product in the precision balance

field constitutes a relevant market within the holding of

such cases as United States v. E.1, DuPont DeNemours, 351

U.S. 377 (1956); Brown Shoe Co. v. United States, 370

U.S. 294 (1962); and United States v. Continental Can Co.,

378 U.S. 441 (1964).

36a

Plaintiff’s attempt to define the market by the particular

models which defendant manufactures has little to support

it except to serve as a springboard for a charge of at-

tempted monopolization. Defendant’s position in the micro-

balance field, particularly those based on the electromag-

netic principle, is due, in our opinion, to its patents, its

skill and knowledge, and its aggressiveness. The evidence

demonstrates that plaintiff’s activities complained of in

this case were primarily for the legitimate business objec-

tive of maintaining sales and profits. ef. United States v.

Grinnell Corp., 384 U.S. 563, 570-1 (1966).

To prove an attempt to monopolize, plaintiff must show:

(1) specific intent to obtain monopoly power in the relevant

market; and (2) power to monopolize. Holleb & Co. v.

Produce Terminal Cold Storage Co., 532 F.2d 29, 33 (7th

Cir. 1976). There is no persuasive evidence of intent on the

defendant’s part to monopolize the relevant market, as

distinguished from a legitimate program to increase sales

of electronic microbalances. Furthermore, defendant was

without the power to monopolize any relevant market. The

same charge made by terminated distributors has been re-

jected for similar reasons in Mullis v. Arco Petroleum

Corp., 502 F.2d 290, 295-97 (7th Cir. 1974) ; and Tire Sales

Corp. v. Cities Service Oil Co., 410 F.Supp. 1222, 1229-32

(N.D. Ill. 1976).

ALLEGED Tyinc ACTIVITIES

In 1970, defendant developed a less-sensitive weighing

instrument which it named ‘‘Millibalance’’. These have a

sensitivity of 1/100,000 of a gram and operate on the elec-

tronic principle, as do all of defendant’s balances. Because

tying arrangements have a pernicious effect on competition,

they are per se unreasonable if the plaintiff can prove: (1)

that the defendant possesses sufficient power in the market

for the tying product (electronic microbalances) to impose

an appreciable restraint in the market for the tied product

37a

(Millibalances); and (2) that a ‘‘not insubstantial’’ vol-

ume of commerce in the tied product has been restrained.

Fortner Enterprises, Inc. v. United States Steel Corp., 394

U.S. 495 (1969); Northern Pacific Railway Co. v. United

States, 356 U.S. 1 (1958). Under the Clayton Act, plaintiff

need only prove one of these two elements, whereas the

Sherman Act requires proof of both. Times-Picayune Pub-

lishing Co. v. United States, 345 U.S. 594 (1953); Tire

Sales Corp. v. Cities Service Oil Co., supra p. 6.

The weight of the evidence proves that plaintiff refused

to handle the Millibalances because defendant would not

sell it to dealers on as liberal a discount schedule as was in

effect for microbalances. Also, since it was a new product,

it had serious quality problems about which plaintiff was

wary. The contract between the parties did not require

plaintiff to purchase the new product, yet the evidence does

not show that defendant’s attempt to sell its Millibalances

to the plaintiff tended to solidify its dominant electromag-

netic microbalance position.

Nor do we find persuasive evidence that the two products

were illegally ‘‘tied’’ or that defendant refused to sell its

microbalances to a dealer which would not handle the

Millibalance. Plaintiff’s refusal to handle the Millibalance

may have been one reason why defendant terminated plain-

tiff’s dealership, but the motive was not to enforce a monop-

oly of microbalances. It was to have active and profitable

dealerships which handled the full line, a reasonable and

lawful objective. cf. McGeorge Car Co. Inc. v. Leyland

Motor Sales Inc., 504 F.2d 52 (4th Cir. 1974), cert. den.

420 U.S. 992 (1975). Indeed, if defendant were truly at-

tempting to monopolize a microbalance market, it would

hardly do so by terminating dcalers who were successfully

selling that product but who refused to sell a new product

which has not been a success and which plaintiff contends

is in a different relevant market.

38a

Plaintiff has also failed to prove that defendant at-

tempted to coerce plaintiff into handling these new prod-

ucts by, for example, threatening termination. Pressure by

the seller is critical to the existence of a tie-in. See Capital

Temporaries, Inc. of Hartford v. Olsten Corp., 506 F.2d

658, 661-63 (2d Cir. 1974). Nor does the evidence show that

competition in the market for the allegedly tied product,

i.e., Millibalances, was lessened. Defendant did not limit

plaintiff’s ability to carry other manufacturers’ products

which competed with the Millibalances. Indeed, Sargent-

Welch served at least seven other balance manufacturers

as a distributor according to its own Catalog 119. Defend-

ant merely sought to have plaintiff carry its full line of

balances. Such a desire is not, in and of itself, anti-competi-

tive. McGeorge Car Co. Inc. v. Leyland Motor Sales Inc.,

supra p. 8; Colorado Pump & Supply Co. v. Febco, Inc.,

472 F.2d 637 (10th Cir. 1973), cert. den. 411 U.S. 987

(1973).

We recognize that plaintiff’s failure to make out a per se

violation does not obviate the need to consider defendant’s

conduct under the Rule of Reason. Fortner Enterprises,

Inc. v. United States Steel Corp., supra p. 7 at 499-500;

Moraine Products v. ICI America, 538 F.2d 134 (7th Cir.

1976). However, since no effective restraint on trade in the

allegedly tied product was shown, but merely pursuit by the

defendant of a reasonable and lawful business policy, we

conclude that plaintiff is also not entitled to recovery under

this more general analysis.

Resa.te Price MAInrENANCE

Defendant also had a suggested resale price and wanted

its dealers to abide by it. This was for mutual protection

of profits. This is not a violation of the anti-trust laws if

a dealer is not terminated for price-cutting or if the manu-

facturer does not have the requisite market power to

threaten monopolization. United States v. Grinnell Corp.,

supra p. 6. Defendant tolerated price-cutting when neces-

39a

sary to meet competition. It did not like it and tried to

discourage it, but we do not read the exhortatory language

of defendant’s sales manuals to constitute a contract or a

cause for termination.

Although we do not agree with defendant that the price

maintenance language in various of its documents was

limited to valid fair trade contracts situations, we do not

find evidence that the termination of plaintiff was due to

its isolated offer of a discount to the University of Cali-

fornia in February 1971. Defendant did not terminate other

dealers for price cutting which came to its attention. We

find that the weight of the evidence does not show that it

did so to plaintiff, and that the termination was for the

business reasons already referred to.

We find that defendant’s fair trade program was unlaw-

ful in California, albeit a fair trade state at the time of

plaintiff’s termination. See former Calif. Bus. @ Prof. Code

§§ 16900-16905. The record reveals that the defendant made

a substantial number of direct sales of dealer-handled

products to end-user customers in California between 1968

and 1971 and therefore competed with plaintiff and certain

other dealers as a retailer. Consequently, defendant’s fair

trade program amounted to horizontal price-fixing, which

is not exempted from the proscription of Section 1 of the

Sherman Act by the Miller-Tydings and McGuire Amend-

ments. United States v. McKesson & Robbins, 351 U.S. 305

(1956) ; Ar-Ex Products Co. v. Capital Vitamin & Cosmetic

Corp., 351 F.2d 938 (1st Cir. 1965).

However, since defendant did not terminate plaintiff for

price-cutting, the point is unavailing. Furthermore, plain-

tiff has failed to prove that defendant’s price maintenance

agreements caused a loss of sales or profits or other injury

to its business in any state where the agreements were in-

valid. See Rea v. Ford Motor Co., 497 F.2d 577, 589 (3d

Cir. 1974), cert. den. 419 U.S. 868 (1974).

40a

The foregoing decision is an attempt to simplify an un-

necessarily complicated case. Plaintiff’s deposition testi-

mony has been given weight where based upon a witness’

personal knowledge or experience, but many of the ques-

tions and answers involve argument, hearsay or opinions

about documents prepared by other persons. This type of

testimony is not sufficiently probative, in our opinion, to

sustain the charge of violating the anti-trust laws. Other

depositions are cumulative or merely discursive. We have

ruled on objections to deposition evidence and exhibits to

the extent encountered and will assume that all objections

and rulings in this case have been satisfied or waived un-

less, within ten (10) days hereof, a party requests a ruling

on sp: cific objections which have not been ruled on.

Plaintiff has presented its evidence in such manner and

in such detail that it is difficult to describe concisely why

we find that the weight of the evidence lies where it does.

In an attempt to particularize our Decision, however, we

adopt the defendant’s Proposed Findings of Fact and Con-

clusions of Law, submitted January 6, 1976 and overrule

the plaintiff's objections thereto, submitted February 2,

1976, as follows:

I. Fryprycs or Fact

1. The plaintiff is Sargent-Welch Scientific Company

(‘*Sargent-Welch’’), a corporation incorporated under the

laws of the State of Illinois, with its principal place of

business in Skokie, Illinois. Sargent-Welch was formed by

a merger between E. H. Sargent Co. and Welch Scientific

Co. in May 1968. Plaintiff is, and for many years has been

engaged in the business of manufacturing, distributing, and

selling educational equipment, scientific equipment, labora-

tory instruments, and scientific instruments, among other

products. Plaintiff’s business is and has been carried on in

interstate and foreign commerce from sales and distribu-

tion branches located in Skokie, Illinois; Anaheim, Cali-

fornia; Birmingham, Alabama; Cincinnati, Ohio; Cleve-

4la

land, Ohio; Dallas, Texas; Denver, Colorado; Detroit,

Michigan; and Springfield, New Jersey; and in Weston,

Ontario; Montreal, Quebec; and Vancouver, B.C., Canada.

[Defendant’s proposed par. 1].

2. Defendant Ventron Corporation (‘‘Ventron’’) is a cor-

poration incorporated under the laws of the Common-

wealth of Massachusetts, with its principal place of busi-

ness in Beverly, Mass. Ventron is, and for many years has

been, engaged in the business of manufacturing, distribut-

ing and selling chemicals and electronic materials. Ventron

also is engaged in the business of manufacturing, distribut-

ing and selling sophisticated research, laboratory and scien-

tific instruments. Prior to January 1, 1974, the business

described in the preceding sentence was conducted by Ven-

tron’s wholly-owned subsidiary, defendant Ventron In-

struments Corp. (‘‘VIC’’). Ventron’s business is and has

been carried on in interstate commerce. VIC’s business

was carried on in interstate commerce. [Defendant’s pro-

posed par. 2].

3. Cahn Instruments Co. (‘‘Cahn’’) was founded in 1956

by Lee Cahn, and it was engaged in business throughout

the United States until November 1967. In November 1967,

Ventron acquired all of the stock of Cahn from the estate

of Lee Cahn and from Pat Gaskins. Thereafter, and up to

the present, Cahn was and is operated as an unincorporated

part of Ventron. Ventron operated Cahn through its

wholly-owned subsidiary, defendant VIC, from 1967 through

December 31, 1973, at which time Ventron acquired the

assets of VIC. Cahn’s business is and has been carried on

in interstate and foreign commerce. [Defendant’s proposed

par. 3, modified].

4. Defendant’s proposed paragraph 4 is stricken as

surplusage.

42a

5. E. H. Sargent Co., one of plaintiff’s predecessor com-

panies, was an authorized Cahn dealer (or distributor)

from 1963 until May, 1968 when it merged with Welch

Scientific Co. Hereafter plaintiff Sargent-Welch was an

authorized Cahn dealer (or distributor) until it was noti-

fied by a letter dated April 6, 1971, that its dealership

agreement was terminated by defendant’s Cahn Division

effective May 6, 1971. [Defendant’s proposed par. 5).

6. In 1971, Sargent-Welch was a dealer (or distributor)

for well over 3.000 vendors. It had two basic customer

groups: 1) industrial and collegiate; and 2) elementary and

secondary education. Prior to the merger in 1968, the for-

mer group had been served by E. H. Sargent Co. and the

latter group by Welch Scientific Company. As previously

indicated, Cahn’s products had beer handled by E. H. Sar-

gent Co. They were sold primarily to industrial and colle-

giate customers and listed in the general catalog directed

to that group. In 1971 that catalog was Sargent-Welch Cat-

alog 119 (PTX 511). Approximately 20,000 to 22,000 dif-

ferent products and over 1,000 different vendors including

Cahn are listed in Catalog 119. Cahn is identified as a

vendor of balances. The following companies are also iden-

tified as balance vendors: Mettler, Ohaus, Sargent-Welch,

Sauter, Seederer-Kohlbusch, Torsion, Roller-Smith. [De-

fendant’s proposed par. 6.]

7. Defendant’s proposed par. 7 is stricken as surplusage.

8. Cahn’s total sales and income before federal but after

state income taxes and before extraordinary items has been

as follows:

43a

Year Sales Income

1968 $1,640,000 — ($561,000 before cor

y , porate charge

1969 $1,590,000 — ($447,000 before corporate aon

1970 $1,473,000 $181,637 ($241,637 before corporate char

1971 $1,425,331 $182,900 ($236,560 before rn jane

1972 $1,535,576 $125,981 ($178,401 before corporate charge)

1973 $2,098,469 $251,437 ($323,450 before corporate charge)

1974 $2,146,952 loss $81,222 ($169,462 before corporate charge)

[Defendant’s proposed par. 8.]

9. Weighing instruments are used to determine accu-

rately the weight and other characteristics of a sample.

‘Weighing instruments’’ is usually used synonomously

with balances. [Defendant’s proposed par. 9, modified. ]

10. and 11. Defendant’s proposed paragraphs 10 and 11

are stricken as surplusage.

12, Since January 1, 1968, Cahn has offered for sale and

sold in the United States the following balance models (ex-

cluding the Caratron and systems) in order of their intro-

duction: M-10, GRAM, G-2, RG, RH, RTL, DTL, RM-2,

R-100, 4100, 4400, 4600 and 4700. All of these models are or

have been covered by the following patents: Patent Office

Reg. Nos. 3,106,978 ; 3,224,512 and Re: 26,100. Cahn markets

and has marketed all of these models (except the Caratron)

under the registered trademark ‘‘E.ectropaLance’’ (Pat-

ent Office Reg. No. 675,209). In addition, Cahn markets and

has marketed models RTL, DTL and RM-2 under the regis-

tered trademark ‘‘Mrmurmatance’’ (Patent Office Reg. No.

907,965). Cahn models RTL, DTL and RM-2 are the only

models to which Cahn has applied the trademark ‘‘ Mru1-

BALANCE’’. [Defendant’s proposed par. 12.]

13. All of the Cahn models employ an electromagnetic

weighing principle, whereby a sample of unknown weight

is balanced by the force produced by an electric current in

a coil in a magnetic field. The weight of the unknown sam-

ple is determined by measuring the amount of electrical

44a

energy used in balancing the sample, and calibrating this

measurement against known weight standards. [ Defend-

ant’s proposed par. 13.]

14. Each Cahn Exectrropatance model is characterized

by a set of features somewhat different from each other

model in such respects as capacity, sensitivity, precision

(reproducibility), readability, type of read-out, mode of

operation and source of power. The chart which follows

shows the principal features of each of the models in the

Cahn Evecrropatance line as of April 6, 1971 (the abbrevi-

ation ug. stands for microgram, 1/1,000,000 gram) :

Gram

Manual ELEecTROBALANCE

Maximum Capacity 1.5 gm.

Maximum Sensitivity 0.1 ug.

Available in battery or line-operated version

Manual ELecTRoBALANCE

Maximum Capacity 2.5 gm.

Maximum Sensitivity 0.05 ug.

Employing advanced beam position sensor for

ease of operation

DTL

Top-loading ELEcTROBALANCE

Maximum Capacity 10 gm.

Maximum Sensitivity 100 ug. (optional 10 ug.)

Fully automatic electronic digital readout

0-10V analog output; optional BCD output

Built-in calibration

RTL

Top-loading ELECTROBALANCE

Maximum capacity 10 gm.

Maximum Sensitivity 10 ug.

Mechanical digital readout

Built-in calibration

45a

RH

Recording ELecTropaLaNnce

Maximum Capacity 100 gm.

Maximum Sensitivity 2.0 ug.

Available with or without vacuum capability or

with ultra-high vacuum capability

RG

Recording ELEcTRoBALANCE

Maximum Capacity 2.5 gm.

Maximum Sensitivity 0.1 ug.

Available with vacuum, high vacuum, and ultra-

high vacuum capabilities

RM-2

Recording ELEcTROBALANCE

Maximum Capacity 5 gm.

Maximum Sensitivity 5.0 ug.

Built-in recorder range expander and

electrical notch filter

[Defendant’s proposed par. 14A, modified.]

15. All Cahn balances are usable and used for a variety

of diverse research, quality control, environmental and

other testing applications. Each model has some applica-

tions to which it is better suited than others but no model

is exclusively suited to any specific set of applications. [De-

fendant’s proposed par. 15, modified.]

16. On April 6, 1971, Cahn notified Sargent-Welch that

it was being terminated as an authorized dealer for Cahn

ELectroBaLaNnce products, effective May 6, 1971. [Defend-

ant’s proposed par. 16, modified.]

17. Plaintiff’s termination as an authorized Cahn Exzc-

TROBALANCE dealer was based upon the sharp decline in

plaintiff ’s performance on behalf of Cahn and the lack of

any indication that plaintiff’s performance would improve

in the future. It was also based on defendant’s program to

46a

consolidate sales among its more effective dealers. [De-

fendant’s proposed par. 17, modified.)

18. Plaintiff’s orders of Cahn products (i., Cahn’s

bookings to plaintiff) for all ten of its branches (i.e., Sar-

gent-Welch’s nine branches in the United States and its

Weston, Ontario branch in Canada) had fallen from

$148,000 in calendar year 1968 to $68,272 in calendar year

1969 to $39,728 in calendar year 1970. Its orders for the

first quarter of calendar year 1971 were indicative of an-

other low volume year; plaintiff’s total orders from Cahn

in the first quarter of calendar year 1971 were $12,253; in

calendar year 1970 plaintiff’s orders in the same period

were $12,052. [Defendant’s proposed par. 18, modified. ]

19. Defendant’s proposed par. 19 is stricken as irrelevant

and in part as surplusage.

20. As an authorized Cahn dealer (or distributor) plain-

tiff purchased Cahn models GRAM, G-2, RG and RH, and

accessories, and stocked, offered and sold them. In Novem-

ber 1969, Cahn introduced two new models, RTL and DTL,

named Millibalances. In 1970 Cahn introduced another new

Millibalance, model RM-2. The three new models valied

‘‘Millibalances’’ were considerably less sensitive than de-

fendant’s other balances. They were also considerably less

expensive. Plaintiff declined to handle these models. [ De-

fendant’s proposed par. 20, modified. ]

21. Defendant did not require its dealers to handle the

Millibalance models as a condition for continuing to be a

dealer. [Defendant’s proposed par. 21, modified.]

22. There were a number of factors contributing to the

substantial deterioration in plaintiff’s performance which

resulted in the termination. None of these factors were at-

tributable to defendant. [Defendant’s proposed par. 22,

modified. }

47a

| 23. Sargent-Welch’s management was well aware that

its performance on behalf of Cahn had deteriorated sub-

stantially. [Defendant’s proposed par. 23, modified.]

24. Various individuals and companies have used the

terms ‘*microbalance’’ and ‘‘electromagnetic microbalance’?

in different ways. The same is also true of terms such as

‘‘millibalance’’, ‘‘electromagnetic balance’’, ‘‘electrobal-

ance’’, ‘analytical balance’’, ‘‘laboratory balance’’, ‘‘pre-

cision balance’’, ‘‘semi-microbalance’’, ‘‘ultra-microbal-

ance’’, and terms such as ‘‘microweighing’’ and ‘‘micro-

analysis’’. [Defendant’s proposed par. 24, modified. ]

25. According to T.M. Mints, Jr., Sargent-Welch’s Presi-

dent and Board Chairman, Catalog 119 is Sargent-Welch’s

‘‘most important selling tool’’ (Trial Transcript p. 178).

In the introduction to Catalog 119 Sargent-Welch refers to

the ‘‘extraordinary thoroughness’’ of its indexing and

states that ‘‘[e]ach item in the general index is entered by

every probable terminology ....’’ There is a reference in

the catalog’s general index to ‘‘ Micro balances’’; however,

only Mettler models M5, M5 S/A and UM-7 are listed

there. The Cahn models are indexed under the terms ‘‘bal-

ance’’ and ‘‘Electrobalance’’ and the name Cahn. [Defend-

ant’s proposed par. 25, modified. ]

26. The Cahn Evecrrosaance line has competed with a

wide variety of products, including many balances with

different designs and specifications which are not referred

to as ‘‘microbalances”’ or ‘‘millibalances’’, and many prod-

ucts that are not balances. [Defendant’s proposed par. 26,

modified. }

27. The term ‘‘electromagnetic’’ refers to the principle

on which all Cahn balance models and some of the balance

models manufactured by its competitors operate. Cahn

balances and other balances which operate according to the

electromagnetic principle have competed with mechanical,

mechanical-optical, electronic, electrical-mechanical, quartz

48a

fiber and other kinds of balances. [Defendant’s proposed

par. 27, modified. }

28. In 1971 in the United States, Cahn competed against

the following balance companies in varying extents:

a) Mettler Instruments Corp.

b) Sartorius (distributed in the United States by

Brinkmann Instruments)

c) Beckman Instruments

d) Ainsworth

e) Sierra Technology

f) Torsion Balance Co. (Torbal)

g) C.I. Electronics

h) Roller Smith

i) Sauter

{Defendant’s proposed par. 28, modified. ]

29. The reetgnized leader in the balance business well

before 1971, in 1971 and in subsequent years, has been

Mettler. In 1971, Mettler offered approximately 50 balance

models. This constituted the most complete line of balances

offered in the United States by any company. Mettler well

before 1971, in 1971, and in subsequent years, has been the

leading manufacturer and seller of balances in terms of

sales volume and pricing. [Defendant’s proposed par. 29,

modified. ]

30. Defendant manufactured only about 8.2 percent of

all precision balances in the United States in 1971, although

it manufactured more than 90 percent of the electromag-

netic balances sold in this country that year.

31. Cahn has been an innovator in the electromagnetic

balance business and it has long been known for the high

49a

quality and reliability of its ELecrropaLance products.

Cahn was the first company to develop and market a com-

mercially acceptable electromagnetic balance which oper-

ated on the electromagnetic, null-restoring principle. In

1965 and 1966, it obtained patents on certain aspects of its

electromagnetic balances ; features of all of the Cahn models

are or have been covered by these patents. The Cahn elec-

tromagnetic balance was a technological breakthrough and

it was several years before other larger competitors offered

commercially acceptable electromagnetic balances which

operated on the same or similar principles. [Defendant’s

proposed par. 31, modified.]

32. Cahn has emphasized selling by applications. Very

often a variety of techniques is available (each utilizing

different instruments or equipment) to solve a particular

applications problem or achieve a given result. As the

available techniques differ from one application to another,

the products against which one or another Cahn Execrro-

BALANCE model competes may also differ from one applica-

tion to another.

A gravimetric technique involves the measurement of a

weight, i.e, the force of gravity acting on a mass; gravi-

metric techniques employ balances (Trial transcript at

page 650). In many instances, a person with an applica-

tions problem who is a potential customer for a Cahn bal-

ance will also have a number of non-gravimetric techniques

available to him, which i1.volve measurements of properties

other than weight and can employ other kinds of scientific

instruments or equipment. Cahn balances compete with the

non-gravimetric instruments in several respects.

The third and fourth paragraphs on p. 46 of the Defend-

ant’s proposals are stricken as surplusage. [Defendant’s

proposed par. 32, modified.]

33. Cahn is well known for its efforts in disseminat-

ing technical information and research findings relating to

50a

gravimetric techniques. Cahn has by its efforts created and

expanded demand for its products. It has fostered the de-

velopment of new uses of Cahn ELecTRoBALANCES and has

demonstrated that many measurements and analyses that

have been made and are made using other kinds of balances

or scientific instruments can be accomplished more quickly,

more accurately, or more safely using a Cahn balance.

[Defendant’s proposed par. 33, modified.]

34. Cahn’s sales volume has always been small. In 1971,

its total sales of balances in the United States were $608,400

or 500 units; its total United States sales of those balances

which plaintiff contends are part of the ‘electromagnetic

microbalance market’’ were $495,900 or 359 units. [ Defend-

ant’s proposed par. 34, modified.]

35. Cahn has never exercised the power to exclude com-

petition illegally. It has never been dominant enough to do

this in a relevant market. [Defendant’s proposed par. 35,

modified. }

A. Plaintiff’s objection to Defendant’s proposed par. 35A

is sustained.

B. In 1971, Mettler began marketing the first of a new

group of electromagnetic balances which include, among

other models, the ME21 and ME22. The ME21 and ME22

are highly versatile balances which compete with many of

the models in the Cahn line. [Defendant’s proposed par.

35B, modified. ]

C. In addition, a new company called Sierra Instruments

Corporation (first named Sierra Technology) began pro-

ducing a line of balances in competition with Cahn in 1971.

Sierra was started that year by two former Cahn em-

ployees; it was put in business by an initial $25,620 order

from the plaintiff, Sargent-Welch, in November of 1971.

In 1972, Sierra was acquired by one of the recognized

leaders in the scientific instruments business, Perkin-Elmer

Corporation. In 1972, Sierra/Perkin-Elmer sold 38 bal-

5la

ances. In 1973, Perkin-Elmer sold 85 Sierra balances. In

the eight month period ending August 1974, Perkin-Elmer

sold 102 Sierra balances as compared with Cahn’s sale of

265 balances of the same general type. Sierra’s success dem-

ore = absence of any significant barrier to entry

nto the balance market i - .

sun. Sth eect n 1971-72. (Defendant’s proposed

; 36A. Cahn has attempted to control the prices at which

its products are sold at retail by fair trade agreements

with dealers and suggested resale prices. Cahn has never

controlled the prices of its products at the retail level in

= _— respect. [Defendant’s proposed par. 36A, modi-

ed.

B. Cahn has been dependent upon scientific equipment

dealers for marketing its products, including Sargent-

Welch, because (in addition to the foregoing factors) such

dealers are much larger than Cahn, because Cahn Execrro-

BALANCE products have represented only a small fraction of

the ‘ otal volume of products handled by such dealers; and

a — we lacked a large sales force capable of sell-

its products on a nationwi ,

a ypc ide scale. [Defendant’s pro-

C. Plaintiff declined to handle Cahn Execrro

BALANCE

models RTL, DTL and RM2 to attempt to pressure Cahn to

improve the dealer discounts applicable to the Cahn Exec-

en line. [Defendant’s proposed par. 36C, modi-

ed.

D. The plaintiff’s objection to defendant’

36D is sustained. ant's proposed par.

37. Cahn has never restrained, or attempted to restrain

any dealer from handling products that compete with Cahn

ELECTROBALANCE products. Cahn never prohibited or tried

to prohibit plaintiff from carrying competitive products.

38. Commencing in 1966 and durin i

g all relevant periods,

Cahn had a fair trade program. Pursuant to this program,

Cahn entered into annual fair trade contracts with all of

52a

its dealers (or distributors), including plaintiff. [Defend-

ant’s proposed par. 38, modified.]

39. Cahn carried out its fair trade program in good faith

and, to the best of its knowledge, in accordance with the

requirements of the applicable statutes. Cahn dealers from

time to time communicated to Cahn their concern about

fair trade violations. But Cahn never agreed with any of

its dealers to fix or control prices, except where authorized

by applicable fair trade laws, and all Cahn dealers, includ-

ing plaintiff, knew and understood that the minimum sell-

ing prices established by Cahn need only be adhered to in

those states and as to those sales where fair trade was

applicable. All Cahn dealers, including plaintiff, in fact sold

Cahn balance products at less than the minimum retail sell-

ing prices established by Cahn on certain occasions, usually

when necessary to meet competition. [Defendant’s proposed

par. 39, modified.]

40. Cahn did not solicit direct sales of its authorized

dealer products, did not hold itself out as a dealer for

such products, and did not maintain its own dealer outlets.

However, to insure that sales were not lost to other balance

manufacturers, Cahn accommodated end user customers by

filling unsolicited purchase orders when they were sent

directly to Cahn. In such instances, if a dealer had in-

fluenced the customer who submitted the direct order to

purchase the Cahn product, the dealer received its dealer

purchase discount as a sales commission. If a customer

communicated with Cahn to request assistance in selecting

an EvecrropaLance product, Cahn referred the customer

to an authorized dealer. [Defendant’s proposed par. 40,

modified. ]

41. During the period prior to the termination of plain-

tiff, Cahn solicited sales of and sold certain products direct

to end users en a regular basis. These products were the

Cahn magnetic susceptibility system and the Cahn model

FA tablet weighing system. After the termination, Cahn

53a

continued to sell these products on a direct basis. The mag-

netic susceptibility system and the FA tablet weighing sys-

tem have never been handled by Cahn dealers.

42. During the period prior to Cahn’s termination of

plaintiff, Cahn sold to OEM (original equipment manu-

facturer) customers who, like dealers, purchase for resale.

Customarily, some OEM customers purchase in large quan-

tities (generally larger than those purchased by dealers)

and specify substantial modifications from the standard

designs of the Cahn ExectrospaLance models for inclusion

in their integrated systems. [Defendant’s proposed par. 42,

modified. }

A. The activities described in part in pars. 40, 41 and 42

rendered defendant’s fair trade agreement with plaintiff

unenforceable in California where plaintiff violated the

agreement by contracting to sell certain of defendant’s

products at a discount to the University of California in

February 1971. However, defendant did not terminate

plaintiff on account of this violation.

43. Cahn’s dealer agreement with plaintiff provided:

‘‘Dealer is not authorized to sell Cann Propvcts

outside the United States of America nor to domestic

distributors for shipment outside the United States of

America, except with the specific written permission

of Cauwn for each separate transaction.’’

This provision permitted Cahn to insure that foreign cus-

tomers received adequate technical assistance and service.

Plaintiff never sought Cahn’s permission to make a foreign

sale or a sale to a domestic customer for shipment outside

the United States and was never restrained from making

such sales. Plaintiff, with Cahn’s knowledge, stocked and

sold Cahn ELEcrropaLance products at its Weston, Ontario,

Canadian branch during the period when plaintiff was a

Cahn dealer.

54a

44. According to its prima facie case and without preju-

dice to defendants’ ability to overcome this case by the

weight of the evidence, plaintiff was injured in its busi-

ness and property as a direct and proximate result of Cahn’s

termination of plaintiff’s distributorship. As a result of

the termination, plaintiff was deprived of product sales

and profits it would have been able to make but for the

action of Cahn. Those products included Cahn electro-

magnetic microbalances, Cahn accessories, plaintiff’s re-

corders sold in conjunction with Cahn recording electro-

magnetic microbalances, and other products sold in con-

junction with Cahn electromagnetic microbalances and ac-

cessories. [Plaintiff’s proposed par. 44, modified. ]

The plaintiff’s proposed subparagraphs to its finding 44

are not adopted.

45. Plaintiff’s objection to defendant’s proposed par. 45

is sustained.

II. Frypines or Uttmmate Fact

1. Cahn’s termination of Sargent-Welch was not anti-

competitive in either purpose or effect. Plaintiff’s distrib-

utorship contract was terminated because of its poor per-

formance. Neither an attempt at tying sales nor an attempt

to enforce illegal resale price maintenance, nor a plan to

monopolize, attempt to monopolize or eliminate competi-

tion was proved to be a factor in the termination. [Defend-

ant’s proposed par. 1, modified. ]

2. Plaintiff has failed to show that Cahn combined or

conspired with anyone to restrain trade or monopolize in

violation of the antitrust laws.

3. Neither ‘‘electromagnetic microbalances’’ nor ‘‘micro-

balances’’ constitute a relevant market. [Defendant’s pro-

posed par. 3, modified in that balance of this paragraph be-

comes par. 4.]}

ca aaa

55a

4. Plaintiff has failed to show that Cahn had monopoly

power or that there was ever a dangerous probability that

Cahn would achieve such power in any relevant market.

Moreover, even assuming that Cahn had monopoly power,

plaintiff has failed to show that Cahn grew as a conse-

quence of anything other than superior products, business

acumen or historic accident, or that Cahn used such power

in furtherance of the alleged monopoly.

5. Plaintiff has failed to show that Cahn’s fair trade

program was unlawful, except to the extent found on pages

10-11 supra. It has been established that Cahn was in com-

petition with its dealers in California. In all other respects,

plaintiff has failed to establish that Cahn’s fair trade pro-

gram was unlawful.

6. Plaintiff has failed to show that Cahn engaged in a

scheme to require an unlawful tying agreement.

7. It has not been shown that plaintiff was restricted

from selling Cahn products to any customer to whom it

otherwise would have sold them.

III. Conciusions or Law

1. This court has jurisdiction over the subject matter

of this action and over the parties.

2. Plaintiff has failed to establish a claim for relief under

Count I of the Amended Complaint. (Section 2 of the Sher-

man Act.)

3. Plainitff has failed to establish a claim for relief under

Count II of the Amended Complaint. (Section 1 of the

Sherman Act and Section 3 of the Clayton Act.)

4. Plaintiff has failed to establish a claim for relief

under Count III of the Amended Complaint. (Section 1 of

the Sherman Act.)

56a

5. Plaintiff has failed to establish a claim for relief under

Count IV of the Amended Complaint. (Section 1 of the

Sherman Act.)

6. Plaintiff has failed to establish a claim for relief

under Count V of the Amended Complaint. (Section 2 of

the Sherman Act.)

7. Moreover, pursuant to Section 4B of the Clayton Act

(15 U.S.C. §15b) plaintiff would be barred from damages

arising out of any period prior to September 20, 1968, under

any Count of the Amended Complaint. [This paragraph is

adopted assuming defendants amend their answer to the

Amended Complaint to conform to the evidence. ]

8. Accordingly, plaintiff is not entitled to any recovery.

9. Defendants are entitled to their costs in defending

this action. [Defendant’s proposed par. 9, modified. ]

ENTER:

/3/ THomas R, McMruen

Juvez, U.S. Distarcr Courr

Dated: Nov. 1, 1976