Appendix — Ohio-Sealy Mattress Manufacturing Co. v. Sealy, Inc.

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OHiO-SEALY MATTRESS MANUFACTURING COM-

PANY, Sealy lattress Company of Houston, Sealy Mattress

Company of Puerto Rico. Inc., and Sealy Maitress Company

of Georgia, Inc., Plaintiffs- Appellants, Cross-Appellees,

SEALY, INCORPORATED, Sealy Spring Corporation - Indi-

ana, Sealy Spring Corporation-East, Sealy Spring Corpora-

tion- West, Sealy Mattress Company of Colorado, Inc., Sealy

Mattress Company of Northern California, Inc., Sealy

Mattress Company of Southern California, Inc., Schnorr Man-

ufacturing Company, Inc., Sealy Mattress Company of Flor-

ida, Inc., Sealy Mattress Company of Pittsburgh, Inc., and

Sealy Mattress Company of Philadelphia, Inc., Defendants-

Appellees, Cross-Appellants.

Nos. 81-1542, 81-1615.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 30, 1981.

Decided Jan. 29, 1982.

Before SPRECHER and BAUER, Circuit Judges, and FAIR-

CHILD, Senior Circuit Judge.

BAUER, Circuit Judge.

This is the second appeal in this antitrust suit. Ohio Sealy

Mattress Manufacturing Company (“Ohio”) filed suit against

Sealy, Incorporated (“Sealy”’) in 1971 alleging that Sealy was en-

gaged in a scheme to allocate markets in violation of Section | of

the Sherman Act, 15 U.S.C. § 1. Ohio sought legal and equitable

relief. After a four month trial, the jur - returned a $6,814,852

verdict for Ohio. Sealy filed post-t tal motions for judgment

notwithstanding the verdict and for a new trial. The district court

denied both motions, conditioning the denial of Sealy’s motion for

a new trial on Ohio’s acceptance of a fifty percent remittitur.

Ohio accepted the remittitur. The court then conducted hearings

on Ohio’s request for equitable relief and entered final judgment

denying all equitable relief and awarding Ohio trebled, remitted

damages of $10,222 278.

Both Ohio and Sealy appealed from the judgment of the cis-

trict court. We affirmed the remitted jury award and reversed the

court’s denial of equitable relief. We remanded with instructions

to the district court to reconsider whether equitable relief should

be awarded. Ohio Sealy Mattress Mfg. Co. v. Sealy, Inc., 585

F.2d 821, 844-45 (7th Cir. 1978), cert. denied, 440 U.S. 930, 99

S.Ct. 1267, 59 L. Ed. 2d 486 (1979).

On remand, Ohio moved the district court to reinstate the

remitted portion of the judgment. Ohio also requested that the

court award it supplemental damages. The district court denied

both motions. After conducting an evidentiary hearing at which

Sealy and Ohio introduced expert testimony concerning whether

equitable relief was warranted and, if so, what type of relief would

be appropriate, the district court enjoined Sealy from continuing

most of the conduct which Ohio claimed were components of

Sealy’s unlawful market allocation scheme.

Ohio appeals and Sealy has filed a contingent cross-appeal. We

affirm the judgment of the district court and dismiss Sealy’s cross-

appeal.

Defendant Sealy owns trademarks for the “Sealy” brand of

bedding products which it licenses independent manufacturers to

use. The license agreement assigns each licensee a geographic

area of primary responsibility (“APR”). The agreement provides

that no other licensee will be permitted to manufacture Sealy

products in a licensee’s APR. Additionally, the licensee is autho-

rized to manufacture Sealy products only at the location(s)

specified in the license agreement and at any additional locations

that Sealy might later approve in writing. The licensee is respon-

sible for promoting Sealy sales in its APR, but it is also permitted

to sell Sealy products in other licensees’ territories. If a licensee

sells Sealy products outside its APR, it must pay two types of out-

of-APR charges. First, it is required to pay passover payment

charges to cover its share of promotional expenses in the APR.

This payment is designed to prevent free-rider problems. The

licensee is further required to pay a warranty repair service

charge designed to cover the cost of repairs the invaded licensee

might have to make on the other licensee’s Sealy products. The

license agreement includes a clause granting Sealy the right of

first refusal should a licensee wish to sell its business. The

agreement also ſorbids the licensee from acquiring any interest in

a competitive organization.

Ohio claims that Sealy used the aforementioned license provi-

sions to achieve a division of markets. Ohio concedes that these

license provisions may be lawful in and of themselves, but argues

that they are unlawful if used as part of a scheme to allocate mar-

kets. Ohio claims that Sealy unlawfully exercised its right of first

refusal in 1972 to prevent Ohio from acquiring the Florida,

Philadelphia, and Pittsburgh licensces as part of the illegal mar-

ket allocation scheme. Ohio contends that the neighboring licens-

ees feared that if Ohio obtainea the three licensees it would en-

gage in vigorous intrabrand competition that the neighboring

licensees sought to avoid.

The jury was instructed that it could find for Ohio only if it

found that Sealy was engaged in an unlawful scheme to allocate

—

markets. The jury did so find and awarded Ohio more than $6

million damages. Although the jury returned a general verdict,

the amount of the verdict “makes it a mathematical certainty that

the jury found at least one of Sealy’s first-refusal acquisitiens . . .

to have violated the antitrust laws.” 585 F.2d at 844.

In the first appeal, Sealy claimed that the disti et court erred in

denying its motion for judgment notwithstanding the verdict

because Ohio had failed to introduce sufficient evidence from

which a reasonable jury could have found an antitrust violation.

After carefully reviewing the record, we concluded that there was

sufficient evidence to support the jury finding that Sealy had used

the challenged license provisions to achieve an unlawful division

of markets. We held that the district court did not err in denying

Sealy’s motion.

Sealy also claimed that the court erred in denying its motion

for a new trial on the condition that Ohio accept a fifty percent

remittitur. The district court held that remittitur was necessary to

cure the effects of Ohio's counsels’ prejudicial misconduct which

led the jury to award excessive damages. Sealy claimed on appeal

that the court should have granted a new trial because counsels’

misconduct may also have led the jury to err in finding an anti-

trust violation at all. Sealy argued that the effect of any prejudice

could not be said to have been confined solely to the damage

award.

In deciding Sealy’s claim, we noted that although Ohio was

foreclosed from seeking reinstatement of the 50% remitted now

that Sealy attacks (he remittitur on appeal,” Ohio could argue in

We further held, however, that the district court should have directed

a verdict in Sealy's favor concerning Ohio's claim that national

accounts program and collection of royalties for sale —

were unlawful. 585 F.2d at 839. Ohio claimed

error in failing to direct a verdict on these issues was harmless in view of

the court's remittitur of the damage award by $3 million. Id. at 836-39.

3 *

defense of its judgment that the district court erred in remitting

the verdict. Id. at 840. After reviewing the record, we concluded

that there had been no prejudicial misconduct. Id at 843. There-

fore, Sealy was not entitled to a new trial. We held that the court

did not err in denying Sealy’s motion for a new trial, and we

affirmed the remitted jury award.

We reversed the judgment, however, to the extent that the dis-

trict court had refused to award Oho equitable relief. In denying

equitable relief, the district court had assumed that the jury had

found only that at least one of Sealy’s right of first refusal acquisi-

tions was unlawful. Given that the jury was instructed that it

could find Sealy’s use of the right of first refusal unlawful only if it

found that the right was used as part of an unlawful scheme to

allocate markets, the jury must also have found that Sealy was

engaged in an unlawful market allocation scheme. /d. at 844. We

remanded with instructions to the district court to reconsider

“what total mix of equitabie relief, if any, might be just in the cir-

cumstances,’ given that Sealy had been found to have engaged in

an unlawful scheme to allocate markets. Id. at 845 n.34.

Ohio appeals the district court's denial of its motion for rein-

statement of the remitted portion of the judgment. Ohio claims

that the district court was bound on remand to enforce our man-

date and opinion, in which we held that there had been no

prejudicial misconduct necessitating a new trial or remittitur.

Ohio contends that the district court should have corrected its er-

roneous ruling by restoring the remitted portion of the judgment.

We disagree.

Indeed, on remand the district court was required to follow the

mandate of this court. Banker's Life & Casualty Co. v. Bellanca

Corp., 308 F.2d 757, 759 (7th Cir. 1962). Our opinion set forth

the law of the case to be enforced by the district court. Hayes v.

Thompson, 637 F.2d 483, 487 (7th Cir. 1980). Accord, SEC v.

Ors

2 « d

* !

. : “4

1 eS eee ey Ree ee a 2 —

Advance Growth Capital Corp. 539 F.2d 649, 650-51 (7th Cir.

1976). We held that Ohio was foreclosed “from seeking reinstate-

ment of the 50% remitted.” 585 F.2d at 840. We further held that

the final judgment, insofar as it awarded Ohio $10,222,278 the

remitted amount, was affirmed. We instructed the district court

to award post-judgment interest and to reconsider whether equi-

table relief should he awarded. /d. at 847. Thus, our mandate in-

structed the district court to enforce satisfaction of the remitted

judgment. The court was not empowered to reinstate the jury ver-

dict.

Moreover, even if our mandate had not specifically precluded

reinstatement of the remitted portion of the judgment, Ohio is es-

topped from seeking restoration of the full jury award. A plaintiff

who accepts a remittitur rather than risk a new trial may not late:

challenge the validity of the remittitur order. Donovan v. Penn

Shipping Co. Inc., 429 U.S. 648, 97 S.Ct. 835, 51 L.Ed.2d 112

(1977) (per curiam). This estoppel rule applies even where the

district court's grant of a new trial would have been reversed if the

plaintiff had refused to accept the remittitur and had appealed the

order granting the defendant a new trial. Lewis v. Wilson, 151

U.S. 551, 555, 14 S.Ct. 419, 420, 38 L.Ed. 267 (1894).

The district court did not err in denying Ohio’s motion for rein-

statement of the remitted portion of the judgment.

On remand, Ohio filed a motion requesting the district court to

award it supplemental damages. Ohio claims that some of the

damages it seeks were caused by Sealy’s pre-verdict antitrust con-

duct. The rest of the damages were allegedly caused by unlawful

post-verdict conduct. The district court denied the motion on the

ground that Ohio had two pending lawsuits against Sealy in

which it is seeking to recover these damages.’ Ohio claims that the

district court erred in denying its motion and erred in failing to

hold an evidentiary hearing.

The short answer to Ohio’s claim is that to the extent that its

causes of action against Sealy are not barred by res judicata,

Ohio may file new suits to recover the alleged damages. We agree

with the district court, however, that Ohio is not entitled to

recover the damages in this lawsuit.

In the context of a continuing scheme to violate the antitrust

laws, a cause of action accrues to the plaintiff each time the deien-

dant engages in antitrust conduct that harms the plaintiff. Zenith

Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338, 91

S.Ct. 795, 28 L.Ed.2d 77 (1971); Lawlor v. National Screen Ser-

vice Corp., 349 U.S. 322, 328, 75 S.Ct. 865, 868, 99 L.Ed. 1122,

reh. denied, 401 U.S. 1015, 91 S.Ct. 1250, 28 L.Ed.2d 552

(1955). At the time of accrual, the plaintiff is entitled to recover

all damages caused by the antitrust conduct, including damages

that will be suffered during and after trial. Zenith Radio Corp. v.

Hazeltine Research, Inc., 401 U.S. at 339, 91 S.Ct. at 806. If,

however, future damages that might be suffered after trial are

speculative or their nature and amount unprovable at the time of

trial, the cause of action for these damages has not yet accrued,

and the plaintiff may thereafter sue the defendant to recover these

future damages when they accrue. Id. On the other hand, if the

future damages are not speculative at the time of trial, the plain-

tiffs cause of action concerning those damages has accrued ad

he must seek to recover them at trial. Res judicata bars the plain-

tiff from splitting his cause of action; once he sues, he must seek

all the damages that have then accrued as a result of the defen-

dant’s antitrust conduct. /d.

*Ohio has two suits pending against the Sealy directors in the North-

ern District of Illinois: Ohio-Sealy Mattress Mfg. Co. v. Kaplan, 90

ee ne ee ee ee ee

If the defendant continues the same scheme to violate the anti-

trust laws after trial, a new cause of action accrues to the plaintiff

for any damages caused by the defendant's post-verdict antitrust

conduct. Lawlor v. National Screen Service Corp., 349 U.S. at

327-28, 75 S.Ct. at 868. In that instance, the plaintiff is entitled

to file a new lawsuit to recover these post-verdict damages. Id.

Part of the damages Ohio seeks were allegedly caused by

Sealy’s pre-verdict antitrust conduct. Ohio admits that it made a

“litigation choice” when it filed this suit not to seek future

damages caused by Sealy’s pre-verdict antitrust conduct. If these

alleged future damages could have been proven at trial, Ohio is

barred by principles of res judicata from attempting to recover

them in this or any other lawsuit. If, however, these alleged

damages were not provable at trial, Ohio has an independent

cause of action which it may now pursue in another, separate law-

suit. For those damages that Ohio seeks which were caused by

antitrust conduct occurring after the verdict in this case, Ohio has

an independent cause of action that it may pursue in another law-

suit. Lawlor v. National Screen Service Corp., 349 U.S. 322, 75

S.Ct. 865, 99 L.Ed. 1122 (1955).

We need not decide which, if any, of the supplemental damages

Ohio now seeks are barred by res judicata. We hold only that to

the extent Ohio has any valid causes of action against Sealy for

these damages, Ohio is required to seek their recovery in another

lawsuit. The district court did not err in denying Ohio’s motion

for supplemental damages. The court also did not err in failing to

conduct an evidentiary hearing on this issue since Ohio was not

entitled to supplemental damages in this suit as a matter of law.

We remanded this case to the district court with instructions to

decide “what total mix of equitable relief, if any” should be

awarded. 585 F.2d at 845 n.34. After conducting an additional

equity hearing, the district court entered a decree enjoining Sealy

from: (1) collecting passover payments and warranty repair

charges for out-of-APR sales; (2) enforcing the piant-location

clause; (3) enforcing the no-competitive-interests clause; (4) us-

ing the right of first refusal clause for an anticompetitive purpose;

(5) placing any additional restrictions on approval of license

transfers; and (6) tying mattress components to the Sealy

trademarks. Ohio appeals from this decree, claiming that the

court erred in failing to order divestiture of the Florida, Philadel-

phia, and Pittsburgh licensees to Ohio and in failing to enjoin

Sealy from enforcing the exclusive manufacturing territory

clause.

An equitable decree in a private antitrust suit should award the

plaintiff injunctive relief only to the extent necessary to protect it

from future damage likely to occur if the defendant continues the

unlawful antitrust conduct. 15 U.S.C. § 26.’ The key to the whole

question of an antitrust remedy is of course the discovery of mea-

sures effective to restore competition.” United States v. DuPont &

Co., 366 U.S. 316, 326, 81 S.Ct. 1243, 1250, 6 L.Ed.2d 318

(1961). The decree should be designed to ensure that the defen-

dant will not continue the specific illegal practice. /nternational

Salt Co., Inc. v. United States, 332 U.S. 392, 401, 68 S.Ct. 12, 17,

90 L.Ed. 20 (1947). The “specific illegal practice” found in this

case was a scheme to allocate markets. Thus, the decree in this

case should t _ designed to restore competition by preventing Sea-

ly from continuing to divide its bedding sales markets. After care-

ful review of the record we are convinced that the district court’s

decree will effectively restore competition and protect Ohio from

any further “threatened loss or damage” caused by Sealy’s mar-

ket allocation scheme.

First, Ohio claims that the court erred in failing to order dives-

titure of the Florida, Philadelphia, and Pittsburgh licensees which

*15 U.S.C. § 26 makes injunctive relief available to a private antitrust

plaintiff to prevent “threatened loss or damage by a violation of the anti-

trust laws.”

Al0

Sealy acquired by exercising its right of first refusal when Ohio

sought to pi:cchase these licensees.‘ Ohio's plea for divesiiture

presents an issue of first impression in this circuit. To the best of

our knowledge, only two district courts in the Ninth Circuit have

ordered divestiture as part of the equitable relief in a private anti-

trust suit. In both instances, the award was reversed on appeal.

See Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d

674, 692 (9th Cir.), cert. deniea, 429 U.S. 940, 97 S.Ct. 355, 50

L.Ed.2d 309 (1976); HTT Corp. v. GTE Corp. 518 F.2d 913, 920

(9th Cir. 1975), on remand, 449 F. Supp. 1158 (D. Hawaii 1978).

We note that the Ninth Circuit, after carefully reviewing the

legislative history of section 16 of the Clayton Act.“ held that

Congress did not intend to include divestiture as part of the in-

junctive relief available in a private suit. TV Corp. v. GTE Corp.

518 F. ad at 92124. We need not decide today, however, whether

divestiture is ever available in a private antitrust suit. We hold

Vn remand Ohio sought leave to introduce a document purported to

be an itemization of the jury's verdict in support of its contention that

Ohio is entitled to divestiture of the Florida and Philadelphia licensees.

Ohio claims that the court erred in denying its motion.

It is axiomatic that a jury's deliberations are confidential and the

court must not permit either party to challenge the validity of a verdict

by examining individual jurors “as to any matter or statement occurring

during the course of the jury's delit rations. Rule 606, Fed.R.Evid.

Ohio claims thai rule 606 is not dispositive of its motion because it was

not challenging the validity of the verdict; rather it was seeking clarifica-

tion concerning precisely what the jury decided. If Ohio wished to know

precisely which issues the jury found in its favor, it should have request-

ed a special verdict. Rule 49, Fed. R. Civ. P. In fact, Ohio initially did

suggest that the court request a special verdict on which equitable relief

could be predicated, but at the close of trial, Ohio's counsel did not sub-

mit special verdict forms. “Neither a trial court nor an appellate court

has the authority to inquire into the jury's decisional processes, even

when information pertaining to the deliberations is volunteered by one

of the jurors.” Domeracki v. Humble Oil & Refining Co. 443 F.2d 245,

1247 (3d Cir.), cert. denied, 404 U.S. 883, 92 S.Ct. 212, 30 L. Ed. 2u 165

(1971). The district court did not err in denying Ohio's motion to admit

the document in question.

*15 U.S.C. § 26. See note 3 supra.

All

only that the district court did not err in refusing to award divesti-

ture in this case.

After Sealy acquired the Florida, Philadelphia, and Pittsburgh

licensees, Ohio acquired the Randolph, Massachusetts and the

Atlanta, Georgia licensees. The APRs of these two licensees are

near the Philadelphia and Florida APRs respectively. Similarly,

Ohio’s Medina, Ohio plant is located near the Pittsburgh APR.

As it now stands, Sealy and Ohio are able to engage in vigorous

intrabrand competition in these markets areas. If we ordered

divestiture, Ohio would be the exclusive Sealy manufacturer in

these areas and the amount of intrabrand competition would like-

ly decrease. Given that the remedy in this case should restore

competition, not diminish it, divestiture would be inadvisable.

The district court did not err in failing to order divestiture of these

three licensees.’

Ohio also claims that the district court erred in failing to enjoin

Sealy from enforcing its exclusive manufacturing territory clause.

The district court was required to enjoin enforcement of this

“We realize that ordering divestiture of the Florida, Ph nde elphia, and

Pittsburgh licensees to Ohio would not necessarily caus: a total lack of

intrabrand competition since other Sealy licensees could still make out-

of-APR sales in these territories. We believe, however, tnat divestiture

would cause an overall decrease in intrabrand competition in these

areas, a result we wish to avoid.

Ohio claims that it is entitled to monetary relief ¶ divestiture is de-

nied. We disagree. Ohio presented its claim for money damages caused

by Sealy’s acquisition of the three licensees to the jury. In fact, the

amount of the jury verdict establishes as a “mathematical certainty”

that the jury did indeed award damages for at least one of Sealy’s first

refusal acquisitions. 585 F.2d at 844. To the extent that any future

damages caused by these acquisitions were speculative at trial, Ohio

may sue Sealy for their recovery in a separate lawsuit when the damages

accrue. To the extent that these damages were provable at trial, Ohio is

estopped to seek them now or in a subsequent lawsuit. See discussion in

subsection III, supra.

wiles

. *

clause only if necessary to prevent future allocation of sales mar-

kets. In our first decision in this case we noted that

the local nature of the mattress business and the exclusive

manufacturing areas used by Sealy really do little more than

set the stage for the balance of the restraints attacked. Any

licensee could, e.g., engage in significant intrabrand competi-

tion at least with his neighboring licensees if Sealy’s res-

traints went no further.

585 F.2d at 828. The district court’s decree enjoined Sealy from

enforcing all the other challenged license restraints. In so doing,

the district court opened the market to permit at least “significant

intrabrand competition among neighboring licensees.” Of course,

permitting Sealy to enforce the exclusive manufacturing clause

may prevent Ohio from competing effectively in every APR. Our

goal in framing an equitable decree, however, is not to ensure that

Ohio attains every competitive advantage it seeks. Rather, we

seek only to ensure that our decree will restore intrabrand compe-

tition as a whole. We are convinced that the decree in this case

will achieve this result.

For the reasons stated in this opinion, we affirm the judgment

of the district court and dismiss Sealy’s contingent cross-appeal.

AFFIRMED.

Al3

United States Court of Appeals

For The Seventh Circuit

219 South Dearborn Street

Chicago, Illinois 60604

Thomas F. Strubbe

Clerk

312-435-5850 February 18, 1982

Howard R. Koven

Friedman & Koven

208 S. LaSalle Street

Chicago, IL 60604

James E. Hastings

Chadwell, Kayser, Ruggles,

McGee & Hastings

8500 Sears Tower

Chicago, IL 60606

Appeal Nos. 81-1542 & 81-1615

In Re: OHIO-SEALY MATTRESS

MANUFACTURING COMPANY,

et al., plaintiffs-appellants, cross

appellees, vs. SEALY, INC., et al.,

defendants-appellees, cross appellants.

Dear Sirs:

The Court has directed the Clerk to notify counsel for SEALY,

INC., et al., in the above entitled appeals to file an answer to Part

I of the petition for rehearing with suggestion for rehearing in

banc filed herein by counsel for OHIO-SEALY MATTRESS

MANUFACTURING COMPANY, et al. Twenty-five copies of

that answer will be required; they will be due by March 1, 1982.

TFS/sls

oc: Frederic F. Brace, Jr.

Brace & North Sincerely yours,

55 E. Monroe

Suite 3425 Thomas F. Strubbe,

Chicago, IL 60603 Clerk

iv FS

Al4

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois 60604

June 3, 1982

Before

Hon. WILLIAM J. BAUER, Circuit Judge

Hon. THOMAS E. FAIRCHILD, Senior Circuit Judge

OHIO-SEALY MATTRESS

MANUFACTURING

COMPANY, et al.,

Plaintiffs-Appellants, Cross-

Appellees,

Nos. 81-1542 & 81-1615 vs.

SEALY, INC., et al.,

Defendants-Appellees, Cross-

Appellants.

ORDER

Appeal from the United

States District Court for

the Northern District of

Illinois, Eastern Division.

No. 71 C 1243

James B. Parsons, Judge.

On consideration of the petition for rehearing and sr-ggestion

for rehearing en banc filed in the above-entitled caus vy Plain-

tiffs-Appellants, Cross-Appellees Ohio Sealy Mattress Manufac-

turing Company, et al., no judge in active service has requested a

vote thereon, and as of April 21, 1982 all of the judges on the

original panel have voted to deny a rehearing. Accordingly,

It is ordered that the aforesaid petition for rehearing be, and

the same is hereby, denied.

Honorable Robert A. Sprecher, Circuit Judge, did not participate in

the voting on this petition.

Al5

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 71 C 1243

OHIO-SEALY MATTRESS MFG. CO.,

et al., Plaintiffs,

SEALY, INC., et al., Defendants.

RULING ON DEFENDANT'S POST TRIAL MOTIONS

(MAY 19, 1976)

[PST 372] The Court: * * * This civil action was commenced

on May 20th, 1971. Selection of a jury for the trial of both the

amended complaint and revised supplemental complaint, as

amended, and the third amended counterclaim, as amended, was

begun on November 25, 1974.

Verdicts were returned on April 2nd, 1975. Judgment thereon

was entered the next day. The jury found for the plaintiffs on the

complaint and assessed damages in the amount of approximately

$6.8 million dollars, and found for the counter-defendant on the

counterclaim.

[PST 373] Presently pending are the defendants’ motion for

the entry of an order granting them judgment notwithstanding

the verdict on the complaint and the defendants’ and counter-

claimants’ motion for the entry of an order granting them a new

trial on the complaint and counterclaim.

In its motion for a judgment notwithstanding the verdict, the

defendants have in substance restated their motion for a directed

verdict which was made at the end of the plaintiffs’ case in chief

and renewed at the close of their own defense.

They contend that the evidence on any one of several major

allegations within the complaint was insufficient and that any one

Al6

such insufficiency is fatal to the jury’s general verdict on the com-

plaint.

ihey further contend that the verdict is contrary to the mani-

fest weight of the evidence and contrary to law.

In support of the motion for a new trial numerous contentions

are made alternatively. It is urged that a fair trial was denied

because of

(1) The Court’s failure to preclude any, or at least cer-

tain, references to the case of United States v. Sealy, and

(2) The plaintiffs’ improper references to a prior suit

between one of the defendants and the Sealy Mattress Com-

pany of Southern California, among others; and

[PST 374] (3) the Court’s error in denying the defen-

dants’ motion for a mistrial, and

(4) The improper, inflammatory and/or prejudicial re-

marks of one of plaintiffs’ counsel during trial, and

(5) The improper raising of matters in the presence of the

jury which properly were issues for consideration by the

Court only, and

(6) The improper use of deposition testimony by one of

plaintiffs’ counsel, and

(7) One of plaintiffs’ counsel’s improper interrogation

and/or argumentation with various witnesses, and

(8) The Court’s error in not precluding some or all of the

testimony of an expert witness called by the plaintiffs, and

(9) The Court’s error in giving certain jury instructions

and in refusing to give others, and

(10) The introduction of irrelevant evidence, relating to

certain patents held by one of the defendants, and

(11) The cumulative effect of the improper and prejudi-

cial conduct by plaintiffs’ counsel, and

Al7

(12) The jury’s return of verdicts which were both con-

trary to law and contrary to the weight of the [PST 375]

evidence.

SECTION I.

JUDGMENT NOTWITHSTANDING THE VERDICT

With respect to the first motion, plaintiffs contend the defen-

dants were disabled from seeking judgment n.o.v. because they

waived their motion for directed verdict.

If only because I know that there was no probability that any

evidence presented during rebuttal and/or surrebuttal could have

prompted this Court to grant any motion for a directed verdict, I

feel that this is a proper case for the liberal construction com-

mended by Federal Rule of Civil Procedure | in the interests of

justice. Citing Bayamon Thom McAn, Inc. v. Miranda, 409 F. 2d

968, 972, the First Circuit, in 1969.

In my opinion, to reach any other result would be to enshrine

form over substance. Citing Moran v. Raymond Corp., 484 F. 2d

1008 at 1014, Seventh Circuit, 1973, cert. denied at 415 U.S.

Reports 932 in 1974.

Accordingly, the judgment n.o.v. motion is deemed to have

been properly filed.

In arguing the verdict in question is contrary to law, defendants

in part assert that the complaint fails to properly state a cause of

action. They find it “difficult to imagine how, under any circum-

stances, Sealy’s entire system of licensing the manufacture of

Sealy products could be deemed unlawful,” and suggest that the

affirmance of the jury’s findings of [PST 376] antitrust law viola-

tions “would be a large step, requiring wholly novel antitrust law

and having wide repercussions on large segments of industry.”

When presiding over the trial on the complaint, I proceeded

upon the basis that the plaintiffs had sufficiently stated a proper

cause under the statute; I do not now reverse that finding.

Als

While this is indeed a rather novel case, I believe such an

affirmance would not require wholly novel antitrust law. See, for

example, U.S. v. Topco Associates, Inc., 1973-1 Trade Cases, Sec-

tion 74,185 at 94,156, Northern District of Illinois. 1973 and

1973-1 Trade Cases, Section 74,391, Northern District of Illinois,

1973, affirmed, 414 U.S. Reports, and Hobart Brothers Co. v.

Malcolm T. Gilliland, Inc., 471 F. 2d 894, Fifth Circuit in 1973,

and cert. denied in that case at 412 U.S. Reports 923, 1973.

Plaintiffs did allege and contend at trial that the defendants

committed both so-called “per se” and “rule of reason” violations

of the antitrust laws. Plaintiffs claimed that the defendants and

their co-conspirators violated these laws by maintaining an ag-

gregation of trade restraints and that none of the violations could

be justified simply as a reasonable step toward implementing an

otherwise valid trademark licensing system. Citing Fontana Avia-

tion, Inc. v. Beech Aircraft Corporation, 432 2d 1080 at 1084,

Seventh Circuit in 1970, cert. denied at 401 U.S. Reports 923 in

1971.

[PST 377] In arguing the verdict in question is contrary to law,

defendants further assert that the instructions relating to the anti-

trust laws were erroneous. The jury was instructed that certain

business practices are illegal in and of themselves. Such practices

were said to include market allocation, group boycott, tying and

price fixing.

The jury was also instructed that if no such practices were

found to have occurred, it must then consider whether or not there

occurred any restraints of trade unreasonable in actual effect or

purpose. Citing U.S. v. Citizens & Southern National Bank, 422

U.S. Reports 86 in 1975.

Because the per se and rule of reason instructions were essen-

tially agreed upon by the parties, defendants’ assertions seem in

large part to be improper. Rule 51 of the Federal Rules of Civil

Procedure: Washington State Bowling Property Association v.

Pacific Lanes, Inc., 356 F. 2d 371 at 377, Ninth Circuit, in 1966,

cert. denied at 384 U.S. Reports 963 in 1966; citing further

Greinke v. Yellow Cab Company, 250 F. 2d 865, 866-7, Seventh

Circuit, in 1958.

The charge to the jury was not clearly erroneous. Citing

Hobart, supra, 471 F. 2d at 904.

An objection was voiced to instructing the jury that certain

practices are illegal. That objection was properly overruled since

antitrust doctrine establishes “certain business relationships are

per se violations [PST 378] of the Act.” See U.S. v. Topco As-

sociates, 405 U.S. 596 at 607, 1972.

The jury was instructed by agreement on which of the certain

practices were alleged in this case and on what each of those prac-

tices meant. All the practices which were alleged have long been

recognized as per se unreasonable, which were so instructed in the

instructions to the jury, and thus capable of being violations of the

antitrust laws.

Consistent with my earlier denial of plaintiffs’ motion for sum-

mary judgment on the complaint, it became the jury's task to

make factual determinations about the deſenda ts’ activities and

thereafter to determine whether or not any of those activities

sufficiently constituted any of the illicit business practices. Citing

Washington State, supra, 356 F. 2d at 376.

Even if the defendants properly had assigned as error the giving

or failure to give instructions relating to the antitrust laws, judg-

ment n.o.v. would still be inappropriate.

I continue to find the instructions in question adequate expres-

sions of the law in the case, and even if there were both proper as-

signments of errors and errors-in-fact in the instructions, it would

still seem to me to be inconsistent with substantial justice to the

plaintiffs to enter judgment n.o.v. on the complaint. See Rule 61

of the Federal Rules of Civil Procedure.

4 * *

183

A20

[PST 379] in arguing that the verdict in question is contrary to

the evidence, defendants assert that the evidence, taken in the

light most favorable to the plaintiffs, fails to establish either viola-

tions of the Sherman Act, whether the multitude of alleged

offenses are viewed separately or in the aggregate, or any injury to

the plaintiffs. assuming there were antitrust violations.

Since issues of fact are jury matters and since the Court thus

should not substitute its own opinions or findings for that of the

jury, defendants’ motion for judgment notwithstanding the ver-

dict should only be allowed if there were no substantial evidence

whatsoever upon which the verdict and any essential finding there-

under could be based. ‘

The task of reviewing the evidence on the complaint here was

quite difficult. The amount of evidence put forth during the course

of trial was voluminous. As one court has recognized, “Where a

trial is long and complicated and deals with a subject matter not

lying within the ordinary knowledge of jurors, a verdict should be

scrutinized more closely by the trial judge than is necessary where

the litigation deals with material which is familiar and simple, the

evidence relating to ordinary commercial practices.” Lind v.

Schenley Industries, Inc., at 278 F. 2d 79, 90 to 91, Third Circuit

in 1960, cert. denied, 364 U.S. Reports 835 in 1960.

[PST 380] The trial herein certainly was lengthy and com-

plicated and dealt with many matters unfamiliar to the lay per-

son. However, after carefully reviewing all relevant evidence on

the complaint, I find that there was sufficient evidence at trial to

support the jury’s general verdict on the complaint.

Accordingly, although the judgment on the complaint might

well have been different had the trial proceeded without a jury,

the verdict on the complaint and the judgment thereon cannot

now be overturned as being contrary to the evidence.

A2l

SECOND, ITEM II, THE MOTION FOR A NEW TRIAL.

With respect to the second motion, the movants urge me to con-

sider all grounds put forth in support of the first motion. In

accordance with my decision to entertain the first motion notwith-

standing the plaintiffs’ objections, such a considera on is now ap-

propriate. Yet, in view of my ruling on the motion for judgment

notwithstanding the verdict, those grounds I have just mentioned

could be found each in of itself to be insufficient to justify the

entry of an order granting the ovants a new trial on either the

complaint or the counterclaim.

Movants urge me to consider as a ground for a new (trial the

introduction of irrelevant evidence relating to two particular

patents held by one of the defendants.

[PST 381] While techuically I need not consider this because

of the movants untimeliness under Rule 59(b), such a considera-

tion should now be made in the interests of justice and notwith-

standing the fact that the respondents may not have received

proper notice of this ground and certainly have not had the oppor-

tunity to be heard on it.

However, though the lack of notice and opportunity to be heard

is a procedural deprivation, I find it insufficient for the motion or

the objection since I am of the opinion that this ground alone

would not support the granting of a new trial motion.

It is urged that a new trial is necessary because of the Court's

errors in giving at least four improper instructions and in refusing

to give at least six properly tendered instructions. Upon due con-

sideration, | believe that I should not reverse my earlier determi-

nation that the instructions as a whole should serve to guide a

“model jury,’ if there be such, to a correct understanding of the

questions which it was to decide and of the pertinent principles of

the law it was to apply to the issues of fact. Riley v. Layton, 329 F.

2d 53 at 58, Tenth Circuit in 1964.

3 > bt

rt oe. © | J ~~ ~~ £ se * in . * 2 0

A22

Another asserted basis for a new trial order is the Court's errors

in allowing the testimony of Dr. Mueller, an economic expert wit-

ness, and in admitting into evidence during plaintiffs’ rebuttal

certain exhibits prepared by him. This was unfair to [PST 382]

the defendant, but, again, upon due reflection, I find this, standing

alone, no reason to reverse my earlier determinations.

A new trial is urged to be necessary because of both the ir-

relevant nature and highly prejudicial effect of the testimony and

commentary at trial regarding the case of Sealy Mattress Com-

pany of Southern California v. Sealy, Inc., 346 Fed. Supp. 353,

Northern District of Illinois,. 1972. On the matter of relevance, I

remain convinced that matters with relation to the California case

were woven into the fabric of the case before me, and that refer-

ences to such matters were appropriate.

Prejudice, however, could lie by the manner in which such

references were made.

For example, I was unsuccessful in keeping out information to

the effect that I was the judge in that case, thus leaving to the jury

the impression that I earlier had myself found defendants to be

antitrust violators.

The question is whether the probative value of the references to

the case outweigh the possible prejudicial effect on the defendant-

counterclaimant or others.

After carefully reviewing those portions of the record involving

the irrelevant references, I find that whatever prejudice may have

occurred itself standing alone for this reason would be insufficient

for granting a new trial. Rule 61 of the Federal Rules of Civil

Procedure.

[PST 383] Similar claims of irrelevance and prejudice are

voiced regarding the case of United States v. Sealy, 338 U.S.

Reports 350, 1967. Again, I remain convinced that evidence of

A23

certain circumstances surrounding this earlier case was relevant

to the case at bar and that if such references were carefully han-

died they properly should be allowed. Here, again, I tried hard to

keep the references within non-prejudicial limits.

But a reading of the transcript reveals a spreading over of such

references to include inferences to the jury that the Supreme

Court had found the defendants to be persistent antitrust vio-

lators.

On the whole, the admission of evidence concerning this case it-

self and these inferences that were left into the evidence standing

alone would not so deny the defendants and counterclaimants a

fair trial to the end that a new trial would be warranted.

The final and most compelling contention in support of the new

trial motion involves the cumulative effect of the improper and

prejudicial conduct by plaintiffs’ counsel during trial. Said con-

duct can be said to include, inter alia, the asserted improprieties

in making use of certain deposition testimony; in interrogating or

arguing with certain witness; in raising various non-jury issues in

the presence of the jury, and in making disparaging comments

about certain adverse witness, [PST 384] opposing counsel and

defendants.

In my opinion this contention presents the most serious ar-

gument in favor of overturning the jury’s verdicts. It is clear that

there was much improper and prejudicial conduct during the

course of the trial. Plaintiffs admit as much when they argue that

“Many of the ‘venomous remarks’ complained of were made in

response to improper statements by counsel for National Sealy.”

The question is whether or not the cumulative effect of all such

conduct was so great as to affect the result of the trial and to thus

deny the litigants a fair trial on the merits of their claims. At this

moment | will leave that issue open.

A24

SECTION III. JURY TRIAL.

Neither party raises, but sua sponte I should raise, the issue of

the propriety of the trial of this case before a jury. Under our local

rule a civil case is tried before a six-person jury.

This is a statutory cause of action for which I am of the opinion

that a jury right is not necessarily mandated by the Constitution.

There are differences of opinion on this issue which I recognize.

Perhaps I should have overruled both parties and refused to per-

mit a jury. To have done so, however, I would [PST 385] have had

to have been, prior to trial, in a position to find and hold that this

case would be beyond the practical abilities and limitations of ju-

ries and thus this case is one that would fall gutside the scope of

the Seventh Amendment.

Let me footnote a quote from a compelling argument by the na-

tional authority in antitrust litigation, Attorney Francis R. Kirk-

ham in his article on Complex Civil Litigation, written for the

National Conference on the Causes of Popular Dissatisfaction

with the Administration of Justice.

He said:

“Let me turn to a final topic which, at first glance, may

seem to shake old foundations the use of juries in complex

civil litigation.

“And since one picture is sometimes better than a thou-

sand words, let me give you this picture:

“Recently an antitrust suit charged conspiracy by three

large grocery chains. The attorneys discussed the case,

defendants’ attorneys pointed out why they felt this suit was

without merit. After what must be assumed was a fair ap-

praisal of his case by plaintiffs’ attorney, the largest of three

defendants settled for less than $40,000, another for less

than $50,000—each a typical nuisance settlement, as anyone

familiar with antitrust litigation will recognize. The third

A25

defendant had the opportunity to make even a smaller settle-

ment, but convinced of its [PST 386] innocence and unwill-

ing to pay Danegeld, went to trial. The jury returned a ver-

dict against it, trebled, of $30 million dollars.

“It is difficult,” he goes on to state, “to imagine a less ap-

propriate mechanism for the determination of facts in a pro-

tracted and complicated suit than the civil jury. Because of

the quantitative scale of most antitrust, securities and class

action cases, and because the intellectual effort called for

defies comprehension by a jury wholly inexperienced in the

resolution of such matters, a jury is simply unqualified to

participate in such cases.

7 . >

“While the civil jury is enshrined with constitutional status in

this country, the United States is the only major industrial.

country in the world which has preserved jury trial in civil cases.

Juries are unknown in the European civil code countries, and in

England, where the jury system originated and to whose great his-

tory we turn for a definition of our fundamental rights, trial by

jury is discretionary with the judge in all but a few types of civil

cases, such as libel and slander. It can hardly be concluded, there-

fore, that the civil jury is an indispensable element in a fair

judicial system.

Nor can it reasonably be supposed that the founding fathers,

when they ‘preserved’ the right to [PST 387] trial by jury in ‘suits

at common law, where the value shall exceed $20,’ intended to

mandate a jury in a modern antitrust or securities case, extending

over months of trial, with complicated issues totally beyond the

jury’s comprehension.

“The most recent views of the Supreme Court recognize this

and hold that a case beyond the ‘practical ability and limitations

of juries’ is a case which falls outside the scope of the Seventh

Amendment, just as at common law complex issues of accounting

were triable without a jury.

A26

SECTION IV. CONDUCT OF COUNSEL.

The conduct of counsel for Ohio-Sealy during the trial went

well beyond that zeal that should have been permitted. There

were remarks and acts of appeal to passion and prejudice of the

jury.

There were inferences of intentional suppression of facts by

defense counsel made by counsel for the plaintiff. This is one of

the most unfair comments that can be made, particularly in a case

in which the jury is permitted to know that the role of the plaintiff

is that of a private attorney general authorized under the law to

act on behalf of the general good of all the people.

[PST 388] What happens is that the jury that is expected to find

compensatory damages if they find violations, build up an execu-

tor’s distaste for the defendant, and not only more easily find

violations but also find punitive damages in place of compensatory

damages.

This in turn is of particular importance in a case in which

Congress so expects damages to be realistic that it provided by

statute a tripling of the damages to be found and preempted the

act of punishment.

This record shows what may or may not have been a stratagem,

but what continued to be a problem with which the Court sought

endlessly to work. What I refer to is the numerous remarks made

by plaintiffs’ counsels that were disparaging of the defendant, its

witnesses and its counsel. Characteristic of such remarks is that

recited in defendants’ brief regarding the statment made during

the course of the testimony of the witness Claire v. Hansen:

“It is a lot harder to crack a phony story than to tell it in

the first place, Judge.”

Another that is also recited:

“If the Sealy organization is in favor of it it is most prob-

ably illegal.”

A27

This record is exceptional as trial records go because of these

types of remarks by plaintiffs’ counsel in the presence of the jury.

[PST 389] A trial judge has difficulty managing a protracted

case before a jury. Where prejudicial remarks begin to come in

from counsel on one side or the other, he seeks to prevent their

having an effect upon the jury’s determination to be fair. He does

this by being what may be called an equalizer. He calls as little at-

tention to it as he can, while seeking to keep counsel in line.

If he speaks too severely about it he may cause the jury to dis-

like the attorney in error; if he speaks too easily about it, he lends

value to the disparaging remarks.

When a protracted trial is punctuated by such remarks over a

substantial period of time, the judge who hasn't granted a new

trial and started all over reaches a point of no return, beyond

which it is wiser to try to see the matter to its conclusion, and hope

that the prejudice engendered by these things is not reflected in

the verdict. He hopes that the determination of the jury is not so

grossly in error or unjustified that the case cannot be salvaged.

In my re-reading the entire file and reconsidering my instruc-

tions to the jury, | am convinced that a substantial impact was

made on the jury by these and other similar matters, to the end

that the jury was unduly convinced that the defendant Sealy was

a company which over the years had always been found and was

here being again found to be an “habitual” antitrust violator.

[PST 390] A Jury with its mind so set could not easily distin-

guish between per se violations and the exercise of a contractual

right which would violate law only if exercised as a part of an un-

lawful scheme to restrain competition.

The right of first refusal is just such a awful contractual right

as ought not be found to be an antitrust violation unless the jury is

clearly satisfied from a preponderance of the evidence that in each

A28

instance of its exercise it was used as a part of an unlawful scheme

to restrain competition.

This is the area of the case in which the plaintiffs’ evidence,

though sufficient to go to the jury, was so close than any non-

evidentiary disposition or extra-evidentiary bias could suffice to

cause it to be treated like a per se violation.

At the same time, this is the area to which the plaintiff attaches

its largest claim for damages, in the amount of $6,227,294. And

the jury’s general verdict as to damages was less than six hundred

thousand dollars more.

A careful analysis of the evidence to support the claim that

with relation to the defendant's exercise of the contractual right

of first refusal, the subject matter of the claim for which plaintiffs

request the largest sum of damage, reveals that as to one of the

[PST 391] incidents the evidence offered to support plaintiffs’

claim was speculative.

As to another incident there was no direct evidence to sustain

plaintiff's claim that the defendant was acting under the contract

for the express purpose of defeating the plaintiff's right and op-

portunity to compete.

As to the third the evidence was such that reasonable men

might differ, but here again the determination of damages, if any,

called for speculation.

What happened was that there was a carry-over by the jury of

extra-evidentiary bias against the defendant created by these

matters which I have heretofore discussed.

This trial reached the jury in the form of a competition

between the personalities of lead counsel for each side. Plaintiffs’

counsel was a very good counsel; he was young, brash, explosive,

dramatic, exciting and at center stage at all times, even when his

opponent had the floor.

eee

A29

Defendants’ counsel is a very good counsel. He was mature,

cautious, calm, matter-of-fact, and except at rare moments, cour-

teous, even when abuse drove him to plead for help from the

Court.

In a brief trial before a large jury, as in criminal cases, unless

the trial court effectively keeps the jury [PST 392] onto the facts

and the law, this kind of competition can bring about many mis-

carriages of justice.

When you are talking about a protracted, highly specialized

litigation before a six-person jury, it is the instance of an accident

when the result is, as to both violations and damages, devoid of a

gross miscarriage of justice.

In the case at bar I find that as to violation a general verdict in

favor of the plaintiff was by accident not a miscarriage of justice;

but the impediments and irresponsibilities of the system emerged

to contaminate the jury's decision on the damages. Such is a cir-

cumstance which presents itself in this case.

The size of the jury's verdict was shocking. At the time it was

returned I considered it shocking and asked, “How did it hap-

pen?” I am convinced that had I been skillful enough to immunize

the jury over its eighteen weeks of trial against the prejudicial and

disparaging colloquy of plaintiffs’ counsel, the amount of the ver-

dict would have been substantially less and perhaps the antitrust

violation as it related to the use of franchisor-franchisee contracts

carrying the right of first refusal clauses would possibly have not

been considered in arriving at a verdict as to damages.

I am not convinced by the defendants that the case should be

taken away from the jury nor a new [PST 393] trial granted on

any one of the many other grounds that are raised.

I acknowledge that this was a most difficult case to handle on

trial and one that defies practicality when necessarily left to the

A30

ultimate determination of six men and women without experience

or expertise in fields of endeavor which would indicate a capacity

to understand the complexities of business competition and anti-

trust law. They tried hard and it seems to me that, except for the

excessive size of their verdict, by sheer accident they properly

found antitrust violations.

But, equally, I am convinced that the excessiveness of their ver-

dict is due entirely to extra-evidentiary bias and the other matters

which I have discussed before

SECTION V. REMITTITUR.

On the motion for a new trial it is, as has often been quoted, the

duty of the judge to set aside the verdict and grant a new trial

when it will result in a miscarriage of justice, even though there

may be substantial evidence which would prevent the directing of

a verdict. Citing Charles v. Norfolk and Western Railway, 188

F.2d 691 at 695, Seventh Circuit, cert. denied, 342 U.S. Reports

831, in 1951; citing Moist Cold Refrigerator Company v. Lou

Johnson Company, 249 F.2d 246 at 256, Ninth Circuit, 1957;

Altrichter v. Shell Oil Company, 263 F.2d 377, 380, Eighth

Circuit in 1959.

[PST 394] The trial court must always act to prevent a gross

miscarriage of justice. Here I find no need to grant a new trial

where the result of the prejudice is directly traceable to excessive

verdict damages. There is no question about the duty of the Court

to use remittitur to cure an excessive verdict resulting from error

of this nature.

Most courts will uphold a verdict unless it is “grossly excessive”

or “shocks the Court’s conscience.” Some courts have set aside a

verdict in less extenuating circumstances than those recited here.

See 6 Moore’s Federal Practice, Section 59.05(3) 59-53.

A31

Remittitur is a device to correct the injustice of an excessive

verdict without the necessity of a new trial. Its function is to take

the place of a new trial when the jury has arrived at a verdict that

would allow the Court to order a new trial. See Glazer v. Glazer,

278 Fed. Supp. 476 at 482, District of Louisiana. See also Bucher

v. Krause, 200 F.2d 576 at 586, Seventh Circuit, with cert. denied

at 345 U.S. Reports 997 in 1953.

See Goss v. Gamble-Skogmo, Inc. 357 F.2d 215, Seventh Cir-

cuit, cert. denied at 384 U.S. Reports 943, 1966.

I cannot impose a remittitur upon the plaintiff but I can offer it

in lieu of the granting of a new trial. Northern Pacific Railway

Company v. Herbert, [PST 395] 116 U.S. Reports 642, 1886.

Accordingly, and in view of all of the foregoing, it is ordered

that upon plaintiffs’ acceptance of a remittitur in the amount of

50 percent of the jury’s verdict, that is, $3,407,426, the defen-

dants’ motion for a new trial also will be denied.

The parties will return before me on the tenth day hence, on, to-

wit, May 27th, 1976, at ten a.m., to receive plaintiffs’ answer. If

plaintiffs so accept, plaintiffs also on that occasion will wish to

present their proposed order for further relief as prayed for in

their complaint. At that time final orders of this Court will be en-

tered.

Mr. Brace: Thank you, your Honor.

A32

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

No. 71 C 1243

OHIO-SEALY MATTRESS MFG. CO.,

et al., Plaintiffs,

SEALY, INC., et al., Defendants.

MEMORANDUM OPINION AND ORDER

(JANUARY 25, 1977)

Generally, in a case such as this the final orders of the Court are

incorporated in a formal and published opinion. It is a case that

has occupied much of the time of the lawyers in it for a number of

years. The many briefs they have filed in it reflect the excellence

of their commaad of the field of antitrust law, and ought them-

selves be bound in a single volume that would serve well as a text

book in this highly specialized area of the law.

My review of the authorities on the issues involved in this con-

cluding decision, however, has caused me to approach this task in

another manner. I am convinced that the law involved is uncer-

tain and difficult to marshal and that a published opinion by me

may well not serve the best interests of the state of the law. For

that reason, I have determined to discuss rather informally with

the parties, over the bench and on the record, my determirations

and the reasons for them. A more formal recitation of them, how-

ever, shall be separately typed and filed in the case.

That, I believe, will satisfy the requirements of Rule 52, Feder-

al Rules of Civil Procedure.

When in an action at law damages are awarded for an injury

for all harm—past, present, and future visited or to be visited

upon the complainant as a result of that injury—equity will not

itd

A33

enter to exercise its powers unless the circumstances justify the

conclusion that without its intervention the same injury will occur

again. It is not enough if the contemplated future injury is of a

similar nature or will occur between the same parties or between

parties similarly situated. The criterion is that the injury that will

occur again must be the same injury between the same parties;

and the occurring again must be a reoccurring, and not otherwise

a continuation of the effect of the original injury. Of course, if the

transaction we label an injury is itself a continuing on-going trans-

action, as differing from the on-going effect of the injury sued

upon, it is enjoinable.

Equity does not enjoin the future commission of a wrong where

there is no basis upon which to determine that the wrong will be

committed, and the fact that one has committed a wrong in the

past and has the capability of committing it in the future will not

serve to be such a basis. Thus equity will not enjoin the commis-

sion of a crime, even though the one to be enjoined has committed

the crime before and has the capacity to commit it again. For

each crime there is a legal remedy sufficient unto itself. So for

each civil wrong, where there is a civil remedy, equity may not be

used today to preclude the use of the civil remedy tomorrow. It is

where the civil remedy for tomorrow's wrong is inadequate or no

longer exists that equity will come to the aid of him who will be

wronged tomorrow.

When plaintiffs commenced this antitrust action, they asked

for both money damages and equitable relief, and they have per-

sisted in their demand for both types of relief throughout the

case. After a trial on the issues, a six-person jury rendered a ver-

dict for the plaintiffs and against the defendants in an amount

which when tripled by operation of law measured in round figures

almost twenty and one-half million dollars. In lieu of a new trial,

plaintiffs accepted a remittitur of 50%. I now have completed an

evidentiary hearing and extensive arguments on the question of

equitable relief, and finally must answer whether under the

‘iit

434

circumstances of this case plaintiffs are entitled to any equitable

relief, and if so, to what extent and in what manner must defen-

dants be enjoined.

The complaint alleged that defendants violated Sections | and

2 of the Sherman Act by virtue of and by conduct growing out of

defendants’ pursuit of various provisions of a licensing agreement

between defendant and its licensees, of whom plaintiff was one.

For example, defendants exercised a contractual right of first

refusal, and as a result, acquired three of its licensees which plain-

tiffs had wanted and had sought to acquire. Def ndant required

its licensees to purchase certain specific component parts to be

used by them in their manufacture of Sealy mattresses. These

parts were available only from specified manufacturers or com-

panies owned in whole or in part by defendants. These are just

two of the numerous matters of which plaintiffs complained.

When the case went to the jury, the jury was given forms for a

general verdict only. Thus, without its being able to inform the

parties and the Court of what specific acts of the defendants it

considered to have been in violation of law, the jury was permitted

to find liability based on any one or more of several theories of

wrongdoing, le., market allocation, group boycott, price fixing,

and tying.

There was the theory that this conduct involved per se viola-

tions of law, to which, if established to the satisfaction of the jury,

there could be no defense.

Then there was the theory that the exercise of the contractual

right of first refusal called into play the Rule of Reason test for

liability, and that the evidence was sufficient for the jury to find

that the defendants did not act in good faith in any of the acquisi-

tions.

These theories were given the jury in the alternative with

authority to apply the applicable test as to each of the claimed

violations.

A35

A monopolization instruction also was given the jury, and |

then instructed the jury of the eight categories into which the

plaintiffs’ claims fell. ;

It was against this backdrop of multiple theories and claims of

liability that the jury was permitted to determine 2 general ver-

dict. Plaintiffs acquiesced in this general verdict. No demand

was made for special verdicts, for special findings, or for answers

to specific interrogatories.

It is worth repeating that the most difficult task in looking to

the question of equitable relief is coordinating specific injunctive

orders, if these are to be such orders, with the jury’s verdict; for

equitable relief must not “do violence to the jury’s verdict.

Rather, it must be consistent with the verdict. Florists Nation-

wide Telegraph Delivery Network v. Florists Telegraph Delivery

Associations, 371 F. 2d 263, 271 (7th Cir. 1967), cert. denied,

389 U.S. 909.

If the injury found by the jury is of a continuing nature, or may

be found from the great’ weight of the evidence to be an injury

that will in the same manner occur again in the future, very defi-

nitely, whatever it is, it must be enjoined.

Specifically, plaintiffs request three kinds of equitable relief.

(1) They seek to stop the defendants henceforth from maintaining

the various provisions of the licensing agreement, almost all of

which plaintiffs claim by virtue of the general verdict to have been

found to have been illegal. (2) They seek to have me restrain

defendants from buying component parts for the Sealy products

from suppliers approved by or owned by the defendants. And (3)

they seek of me an order of divestiture to cause the defendants to

turn over to the plaintiffs the Florida, Pittsburgh, and Philadel-

phia licensees.

The question here is whether the piaintiffs are entitled to any

type of equitable relief under the circumstances of this case,

436

and, if so, what should be its nature and extent. But this question

is preempted by a preliminary question, i.e., can a general verdict,

under the circumstances of this case, be the basis for the

equitable relief requested. The plaintiffs urge that all disputed is-

sues of fact are deemed to have been decided in favor of the

recipients of a general verdict. They cite Wong v. Swier, 267 F.2d

749, 757 (9th Cir. 1959); Bank of America National Trust and

Savings Association v. Hayden, 23 F.2d 599, 602 (9th Cir. 1956).

Incidentally, while these cases recite the proper test rule for

sustaining a verdict attacked on apral, they do not address them-

selves to the equity problem of this case. Cf. Security Insurance

Company of New Haven v. Johnson, 276 F.2d 182, 188-9 (10th

Cir. 1960).

Logic and fundamental fairness dictate that a general verdict

in a multiple issue case cannot be construed as a finding of il-

legality with respect to each and every allegation of wrongdoing

found in the complaint, and neither statutory provision authorizes

nor compelling public interest dictates such a finding as a matter

of law. This conclusion is even more inescapable where the in-

structions of the law given the jury include alternative theories for

testing liability.

Consistent with my observation of August 13, 1976, the verdict

in this case can be deemed neither to have established that any

one of the specific contractual provisions in and of itself was

illegal, nor to have determined that any particular combination of

them constituted illegality under the Act. In the same vein, I find

that the general verdict cannot, for the purposes of my decision

here, be deemed to have determined that any one or combination

of the practices of the plaintiffs constituted price-fixing, or consti-

tuted group boycott, or constituted tying, or market allocation.

The most that can be surmised from the verdict is to be found

not from the form of the verdict, but from the amount of

damages. It is a strong supposition—not determination. It is that

„„ CO

A37

the jury found some liability with respect to the acquisition by the

defendants of the Florida, Pittsburgh, and Philadelphia licensees.

However, it cannot be determined from the verdict and the

amount of damages whether it was the existence of the right of

first refusal clause in the contract, or the manner in which in one

or more of these acquisitions the contract clause was exercised

that was in violation of the Act.

We must recognize that even if civil liability in an antitrust ac-

tion is clearly established, whether or not in the exercise of sound

discretion the Court should grant a request for equitable relief

must be predicated upon the traditional principles of equity, as

they apply to the antitrust laws, including a threatening future in-

jury, the convenience and effectiveness of court administration of

the relief, and a balancing of the public’s interest with the private

needs of the complainant. Zenith v. Hazeltine, 395 U.S. 100, 130-

131 (1968); Bray v. Safeway Stores, Inc., 395 F. Supp. 351, 867-

868 (N.D. Cal. 1975).

The evidentiary hearing on equitable relief has as its primary

function the investigation of these fundamental equitable con-

siderations. In this case, such investigation should assist the Court

in making equitable determinations about the licensing agree-

ment itself, the continuing or future practices of the plaintiffs

with relation to such matters as component parts, the determina-

tions to be made regarding the location of plants, passover

payments, warranty charges, national accounts, and, of course,

the future acquisitions by the defendants of other licensees, as

well as the future operation by the defendants of the Florida,

Pittsburgh, and Philadelphia licensees.

Plaintiffs’ request that I enjoin defendants from enforcing the

provisions of the licensing agreement relative to plant location,

exclusive manufacturing territories, the provision restricting the

manufacture of non-Sealy label mattresses, the right of first

refusal, passover payments, warranty repair charges, royalties on

non-Sealy products, and national accounts.

r eam

A38

Considering both the jury verdict on the evidence presented in

the case before the jury and the evidence presented in the hearing

on equitable relief, I am unable to find either future illegality in

the pursuit by the defendants of any one of these provisions, or il-

legality in the future pursuit of any combination of them.

Each of these several provisions of the licensing agreement, I

find from the facts before me for this determination, is a legi-

timate and accepted business practice, used extensively through

the business community, important to the promotion of inter-

brand competition. I find from the evidence that may be con-

sidered in this phase of the case, that the nature of the mattress

industry dictates the priority of inter-brand competition over in-

tra-brand competition from the perspective of the public interest,

and that with relation thereto the needs of the plaintiffs are not

unduly threatened in the future by pursuit by the defendants of

the provisions of the licensing agreement, except such combined

pursuit of them or certain of them as a part of a deliberate scheme

and design to frustrate the plaintiffs’ opportunity to engage in in-

tra-brand competition, in such manner as must have been found

by the jury to have been followed in the case they decided. The

judicial administration of a general injunction, if any were dictat-

ea under these circumstances, would be impracticable, unman-

ageable, and for the purpose of saving for the plaintiffs the cost

and time of a future litigation for damages, it would be totally un-

warranted. I am unable to find from the verdict of the jury and the

evidentiary hearing on equitable relief, facts supporting plaintiffs’

position to the effect that the continued pursuit of these contrac-

tual provisions, or any combination of them, absent an intentional

purpose to completely deprive plaintiffs of the opportunity to

compete, will result in irreparable injury to plaintiffs. If, in fact,

Sealy, Inc., were to use these contractual provisions for the clear

purpose of visiting injury upon plaintiffs, plaintiffs’ remedy at

law, i.e., damages, would be more adequate than would be a gen-

eral injunction or a series of specific injunctions. Since neither

A39

the jury verdict nor the hearing on equitable relief has established

the unlawfulness of the contractual provisions, an attempt at in-

junctive relief would be a serious error.

My position on this matter is further strengthened by the very

nature of this action. Significantly, it is a suit on behalf of a

private party and not on behalf of the general public. As stated

before, the public interest will not be served by this court's re-

writing the licensing agreement and reorganizing the defendants’

structure. In addition to the inappropriateness of a general in-

junction and the unavailability of a series of specific injunctions,

is the fact that the general public, which includes plaintiffs, has

the benefit of an injunction against the defendants that is still via-

ble. That injunction is in the earlier case in this district of United

States v. Sealy, 60 C 844.

By their second form of requested equitable relief, plaintiffs

would have me enjoin defendants from continuing certain prac-

tices whereby defendant has required its licensees to purchase

component parts from approved suppliers. My findings with rela-

tion to the contractual provisions relate equally to component

parts.

Plaintiffs ask for divestiture in the matter of the acquisitions.

But here the unascertainable nature of the basis for the jury’s ver-

dict leaves the Court without a guide as to which of the acquisi-

tions need be set aside and to what extent. Plaintiffs say that this

remedy constitutes restitution and is called for to rectify and

prevent unjust enrichment.

Initially, I observe that there is a considerable question of

whether or not this court or any other court is empowered to order

divestiture in a private antitrust suit under Section 16 of the Clay-

ton Act. See e.g., International Telephone and Telegraph Cor-

poration v. General Telephone and Electronics Corporation, 518

F.2d 913 (9th Cir. 1975); Calnetics Corporation v. Volkswagen

A40

of America, Inc., 532 F.2d 674 (9th Cir. 1976), cert. denied. 45

U.S. Law Week 3345 (Nov. 8, 1976); but cf. N.B.O. Industries

Treadway Companies, Inc. v. Brunswick Corporation, 523 F.2d

262 (3rd Cir. 1975).

Even assuming arguendo that divestiture would be proper

under Section 16 of the Clayton Act, it is such a drastic remedy

that it need not necessarily be applied where other remedies will

provide sufficient relief to the plaintiffs. N.B.O. Industries, supra.

Plaintiffs have been fully compensated by the jury verdict for any

harm they have suffered as a result of the acts complained of in

the pleadings herein. The statutory trebling of damages carries

the inference that the full size of the injury is to be compensated

for in money damages.

Ironically, were I to grant plaintiffs request for divestiture,

plaintiffs, not defendants, would be unjustly enriched. Plaintiffs

would be awarded both the assets it sought to purchase and the

damages assessed by the jury.

Moreover, restitution is not available under Section 16 of the

Clayton Act for the harm that may have been experienced when it

already has been compensated for by damages given under Sec-

tion 4 of the Sherman Act. See e.g., In re Multidistrict Vehicle

Air Pollution; 538 F.2d 231, 234 (9th Cir. 1976).

In view of all the foregoing, I am denying each of the requests

of plaintiffs for equitable relief in this case. And it is so ordered.

Wherefore, I am entering of record the following findings of fact

and conclusions of law.

FINDINGS OF FACT

1. Plaintiffs are Ohio-Sealy Mattress Manufacturing Com-

pany, and four of its wholly-owned subsidiaries, Sealy Mattress

Company of Houston, Sealy Mattress Company of Puerto Rico,

Inc., Sealy of the Northeast, and Sealy Mattress Company of

A4l

Georgia. Each plaintiff is a licensee of defendant Sealy, Incorpo-

rated, and each is engaged in the manufacture and marketing of

mattresses and boxsprings.

2. Defendant, Sealy, Incorporated, is a Delaware corporation

engaged in the business of licensing mattress manufacturers to

manufacture and sell mattresses, boxsprings and related bedding

products under Sealy’s trade names and marks. It has three whol-

ly-owned subsidiaries engaged in the business of manufacturing

and selling innerspring units and six wholly-owned subsidiaries

and one subsidiary engaged in the business of manufacturing and

selling mattresses, boxsprings and related bedding products.

3. The plaintiffs’ complaint alleged numerous violations of the

antitrust laws based on various provisions in the defendants’

license agreement with its licensees, on the exercise by defendants

of a so-called right of first refusal to acquire three of its licensees,

and on certain practices of defendant with respect to components

purchased by plaintiffs for use in the manufacture of mattresses.

The complaint sought both damages and equitable relief.

The Jury Verdict

4. After an eighteen-week trial, the case was submitted to a six

person jury under instructions that permitted the jury to hold

defendants liable on the basis of any of a number of different

theories of violation of the antitrust laws and with respect to any

of a number of different categories of claimed damages.

5. The theories of liability submitted to the jury included mar-

ket allocation, group boycott, price-fixing, and tying, all as possi-

ble per se violations of the antitrust laws; the use of a right of first

refusal as part of an unlawful scheme; the foregoing grounds of

liability considered alternatively as possible unreasonable re-

straints of trade rather than per se violations; and monopolization.

6. With respect to six specific provisions of the defendants’

A42

not in and of themselves unlawful but that they would be unlawful

if used in such a way as to achieve or maintain an arrangement

which limits or restricts in any substantial way the geographic

areas in which products may be sold. Under the instructions the

jury could have determined (1) that one or more of those license

provisions, or some combination of them had been used in such a

way as to constitute a per se violation; or (2) that one or more of

such license provisions, or some combination of them had been

used in such a way as to constitute an unreasonable restraint of

trade; or (3) that none of them had been used in such a way as to

constitute either a per se violation or an unreasonable restraint.

7. The instructions did not require the jury, in order to hold

defendant liable, to conclude that the license provisions or any

one or any combination of them had been used in such a way as to

constitute a violation of the antitrust laws.

8. The jury was instructed that plaintiffs’ damage claims fell

into eight different categories. The summary of damage claims

presented by the plaintiffs to the jury included approximately

twenty different items. The jury was not instructed that it was

required to award damages with respect to any category or item

of claimed damages if it did so with respect to any other category

or item. It was not instructed that it must base liability on any

particular theory of violation in order to award damages on any

particular category or item of claimed damages.

9. The case was submitted to the jury with instructions to re-

turn a general verdict and without any request for special findings

or answers to interrogatories.

10. The jury returned a general verdict in favor of plaintiffs on

the complaint and awarded plaintiffs damages in the amount of

$6,814,852. On motion of the defendant for Judgment Notwith-

standing the Verdict or for New Trial, the Court on May 19,

1976, ordered the granting of a new trial unless the plaintiffs

A43

consented to a remittitur in the amount of 50% of the verdict. The

plaintiffs filed its acceptance of the remittitur on May 27, 1976.

11. Plaintiffs’ total damage claims as submitted to the jury

amounted to $9,233,563.

12. There is no combination of items of damage as subsnitted

by plaintiffs which equals the amount of damages as awarded by

the jury.

13. The largest items of damage claimed by plaintiffs were

those respecting the acquisition claims. Those claims totalled ap-

proximately $6.9 million. The amount awarded by the jury could

not logically have been arrived at without including some portion

of those acquisition claims. It need not have included all of those

claims.

14. It is not possible to determine from the jury verdict what

violation or violations of the antitrust laws were necessarily deter-

mined by the jury in arriving at its verdict. The most that can be

determined is that the jury must liave believed that there was

some liability in connection with the defendant’s acquisition of

one or more of the three licensees. Assuming such a violation was

determined, it is not possible to ascertain on what theory of liabili-

ty such a violation was determined or whether such a violation

affected one, two, or three of the acquisitions It is not possible to

ascertain from the jury verdict that the jury determined any viola-

tion with respect to any of the specific provisions of the defen-

dant’s license agreement or any combination of them. It is not

possible to ascertain from the verdict that the jury determined

any violation with respect to the components part of plaintiffs’

case.

The Hearing on Equitable Retief

15. After the Court’s ruling on the motions for Judgment

Notwithstanding the Verdict or for New Trial, plaintiffs filed

Fae

A44

proposed findings and a proposed decree granting equitable relief,

and in connection therewith requested an evidentiary hearing for

the purpose of adducing additional evidence bearing on equitable

relief. Defendant opposed the granting of equitable relief and

filed proposed findings in support of its position. The Court direct-

ed that an evidentiary hearing be held and such a hearing was

held, covering nine trial days.

16. At the outset of the hearing on equitable relief, plaintiffs’

counsel stated that he accepted for purposes of equitable relief the

court’s ruling that the jury verdict could not be taken as having

established any violations of the antitrust laws with respect to the

provisions of the license agreement or the components claims.

Plaintiffs’ counsel further stated thet for purposes of the request-

ed equitable relief he would assume that the challenged license

provisions and practices with respect to components were viola-

tions of the antitrust laws as a matter of law. In effect, plaintiffs

proposed to rely on the position they had asserted in their motion

for summary judgment made in advance of the trial to the jury,

which motion the Court had denied.

17. With respect to the acquisitions portion of the case, plain-

tiffs’ counsel stated that for purposes of equitable relief he would

assume that violations of the antitrust laws had been determined

by the jury verdict.

18. The evidence adduced at the evidentiary hearing on equi-

table relief consisted generally of evidence as to the present

license provisions and practices of the defendant, evidence as to

the present conditions of competition in the industry, especially

with reference to intra-brand competition among the Sealy licens-

ees, and expert testimony as to the probable effect on the parties

and on the public interest of each of the various kinds of equitable

relief requested by the plaintiff.

A45

The License Agreement

19. Plaintiffs have requested the elimination from the license

contract of seven provisions, dealing respectively with (a) exclu-

sive manufacturing territories; (b) plant location; (c) passover

payments and warranty-repair charges; (d) ownership of compet-

ing brands; (e) royalties on products not bearing Sealy labels; (f)

the so-called right of first refusal; (g) National Accounts.

20. For the reasons previously noted the verdict cannot be

deemed to have determined that any of the foregoing license

provisions constitutes a violation of the antitrust laws, or that all

of them together constitute a violation of the antitrust laws, or

that any combination of them constitutes a violation of the anti-

trust laws.

21. I am unable to find that there has been established any past

violation of the antitrust laws which could be the basis for injunc-

tive relief with respect to these license provisions.

22. For similar reasons, I am unable to find in these license

provisions any threatened future violation of the antitrust laws

which could be the basis for injunctive relief.

23. I find on the basis of the evidence presented to the jury and

the additional evidence presented to me in the evidentiary hearing

on equitable relief that each of the license provisions in question

is, a reasonable and appropriate means of protecting the legi-

timate interests of the defendant as a trademark owner in promot-

ing the exploitation of the Sealy trademarks through its licensees.

I further find that the public interest would not be promoted by

enjoining the defendant from using any or all of such contractual

provisions in its business, and that such an injunction could, by

weakening the effectiveness of the defendant as a competitive

force in the mattress market, have adverse effects upon the pub-

lic’s interest in vigorous competition.

A46

24. Passover payments are a method of dealing with the “free

rider” problem. They do not constitute a prohibitive or significant

barrier to inter-area sales. The royalty structure under the Sealy

license is a significant incentive to any licensee to sell additional

units inside and outside its area of primary responsibility. The

“Product Service Repair Charge” on sales of Sealy label mat-

tresses and boxsprings shipped outside a licensee’s area of

primary responsibility insures that Sealy licensees will stand

behind the Sealy Warranty and that a defective mattress or

boxspring will be repaired under the Sealy Warranty outside that

licensee s area of primary responsibility.

25. Paragraph IV:9 of Sealy’s 1968 license agreement, limit-

ing a licensee’s interest in a competitive bedding company to 5%,

serves to prevent conflicts of interest or divided loyalties with the

licensee. The paragraph was amended in 1972 expressly to permit

a licensee to engage in a competitive mattress business anywhere

in or out of its area of primary responsibility through a subsidiary

using a brand name or private label owned by the subsidiary or its

customers. There are ordinary business reasons for such a restric-

tion from an economic viewpoint.

26. A royalty on non-Sealy label products encourages a licen-

see to exploit the Sealy label. Under the license agreement, Ohio-

Sealy can manufacture private label products in a non-Sealy

plant and not be subject to paying any royalties to Sealy.

27. Sealy’s national accounts program is a means of enabling

Sealy licensees to compete for the business of large purchasers

who prefer to buy from a single source. It increases the number of

competitors who can bid for such orders and is not a restraint of

competition.

28. The right of first refusal in the Sealy license contract is an

appropriate contractual right in an organization like the Sealy or-

ganization. Sealy, as a licensor, has an ordinary interest in having

A47

an opportunity to acquire a licensee who desires to sell and should

be allowed to bid against another prospective purchaser and to

purchase one of its licensees. The right of first refusal provision al-

lows competitive bidding for the purchase of Sealy licensees; the

seller-licensee may withdraw his offer to sell after Sealy has

matched the offer, decline to sell to Sealy, and thereafter receive

29. Plaintiffs have also requested an injunction in general

terms forbidding the defendant from maintaining or enforcing

any “contract, combination or conspiracy which directly or in-

directly has a purpose or effect of achieving or maintaining

exclusive territories.” No such general injunction would be appro-

priate in this case since the defendant is already subject to an in-

junction in substantially the same terms, entered against the

defendant as part of the final decree in the case of United States v.

Sealy, United States District Court for the Northern District of

Illinois, No. 60 C 844.

Components

30. Plaintiffs have requested injunctive relief with respect to

various alleged practices concerning mattress components, in-

cluding price-fixing, the granting o any supplier of all or any

share of an exclusive market with respect to components, and col-

lecting any payments from any supplier of components.

31. For the reasons stated above, the jury verdict cannot be

deemed to have determined that any one or another of defen-

dant’s practices with respect to components constituted a viola-

tion of the antitrust laws.

32. I am unable to find that any violation with respect to com-

ponents has been established as a matter of law on undisputed

facts.

33. I am unable to find that there has been established any past

violation of the antitrust laws that could be the basis for injunc-

tive relief with respect to components.

A48

34. I am likewise unable to find in defendant's practices with

respect to components any threatened future violation of the anti-

trust laws which could be the basis for injunctive relief.

35. Plaintiffs have requested that defendant be divested of its

three spring-manufacturing subsidiaries. No evidence in support

of that request was presented at the evidentiary hearing on equi-

table relief. I find no past or threatened future violation of the an-

titrust laws that could be the basis for any such relief, even if such

relief would be an appropriate remedy for any such violations if

they were found. No evidence or legal theory has been offered to

establish why the defendant may not, consistent with the antitrust

laws, engage in the manufacture of mattress components, and I

find that the public interest would not be served by divesting the

defendant of its spring-manufacturing plants.

Acquisitions

36. Plaintiffs have requested that defendant be ordered to

divest to plaintiffs each of the three licensees (the Florida,

Philadelphia, and Pittsburgh licensees) acquired by defendant as

a result of :s exercise of the right to meet plaintiffs’ offers for

those licensees (the so-called right of first refusal), at the price at

which in each case the plaintiff initially contracted to purchase

those licensees.

37. The jury verdict awarding damages in the amount of

$6,814,852 must be deemed to have included damages for any

violation of the antitrust laws that the jury may have considered

in connection with these three acquisitions, even though it is

impossible to determine from the general verdict whether the jury

considered one, two, or all three of such acquisitions to have been

wrongful as to plaintiffs or which of the acquisitions, if less than

all three, was or were wrongful as to plaintiff.

38. Accordingly, plaintiffs must be deemed to have been fully

compensated by the verdict for any harm it suffered as a result of

A49

any past wrongful acts considered by the jury in connection with

the three acquisitions. The compensatory damages awarded by

the jury (as reduced by the remittitur accepted by the plaintiffs)

will be trebled, under the mandate of the statute, in the money

judgment to be entered by the Court.

39. The divestiture requested by plaintiffs would result not in

“restitution” but in the double remedy for the same wrong and a

double recovery, thereby unjustly enriching the plaintiffs. Such a

remedy would give plaintiffs both (1) the assets it would have

acquired liad its proposed purchases been successful, and (2) the

damages the jury determined the plaintiffs have suffered as a re-

sult of its failure to consummate the purchases.

40. For the reasons stated above, I find that there is no basis

for ordering divestiture on the theory of remedying past wrongs to

the plaintiffs.

41. I find that there is no other basis for requiring divestiture,

either to the plaintiffs or otherwise.

42. I find that there is no other relief necessary or appropriate

with respect to possible future acquisitions by the defendant. The

circumstances under which the right of first refusal might be

exercised at some possible time in the future would necessarily

differ from the circumstances in which the past acquisitions were

made. The so-called “no-sell” agreement in the Duff, Anderson

program, which prohibited participating licensees from selling

their businesses during the valuation phase of the program, is no

longer in effect. At the hearing on equitable relief, plaintiffs pre-

sented no evidence of threatened future harm from any impend-

ing or threatened acquisitions or exercises of the right of first

refusal by the defendant. Since the commencement of this lawsuit

in 1971, plaintiffs have acquired two licensees, the Atlanta and

Randolph licensees, without the exercise of the right of first re-

fusal by defendant. The evidence at the hearing on equitable

ASO

relief demonstrates that Ohio-Sealy’s out-of-area sales are in-

creasing every year, that its plants are more profitable than

Sealy’s owned and operated plants, that it has expanded the most

of any Sealy licensee in the last 20 years, that its sales have almost

doubled since 1970 and net profits have risen 92%, that it con-

siders itself to be selling in all areas east of the Rockies, and that it

has been a successful organization before, during, and after the

lawsuit tried to the jury; its net worth has increased more than

60% from 1969 to 1975.

CONCLUSIONS OF LAW

1. The Court has jurisdiction of the plaintiffs and the defen-

dants actually served, i e., Sealy, Incorporated, Sealy Spring Cor-

poration-Indiana, and Sealy Spring Corporation-East, and has

jurisdiction of the subject matter of this action.

2. No present or threatened future violations of the antitrust

laws have been established with respect to the provisions of defen-

dant's license agreement and no equitable relief is required with

respect thereto.

3. No present or threatened future violations of the antitrust

laws have been established with respect to mattress or foundation

unit components and no equitable relief is required with respect

thereto.

4. Plaintiffs’ remedy at law is adequate and plaintiffs have

been fully compensated in damages for any past wrongs related to

the acquisitions by defendant of three of its licensees.

5. Divestiture to plaintiffs or to any other person is not an ap-

propriate remedy.

6. No other equitable relief is required or appropriate.

ASI

OHIO-SEALY MATTRESS MANUFACTURING COM-

PANY, Sealy Mattress Company of Houston, Sealy Mattress

Company of Puerto Rico, Inc., Sealy of the Northeast, Inc.,

and Sealy Mattress Company of Georgia, Inc., Plaintiffs-

Counterdefendants Appellants-Cross-Appellees,

SEALY, INCORPORATED, Sealy Spring Corporation Indi-

ana, Sealy Spring Corporation East, Sealy Spring Corpora-

tion— West, Sealy Mattress Company of Colorado, Inc., Sealy

Mattress Company of Northern California, Inc., Sealy

Mattress Company of Southern California, Inc., Schnorr Man-

ufacturing Company, Inc., Sealy Mattress Company of Flor-

ida, Inc., Sealy Mattress Company of Pittsburgh, Inc., Sealy

Mattress Company of Philadelphia, Inc., Defendants-Counter-

plaintiffs Appellees-Cross-Appellants.

Nos. 77-1239, 77-1240.

United States Court of Appeals, Seventh Circuit.

Argued April 20, 1978.

Decided Oct. 11, 1978.

As Amended Oct. 12, 1978.

Before FAIRCHILD, Chief Judge, MOORE, Senior Circuit

Judge,* and PELL, Circuit Judge.

PELL, Circuit Judge.

Sealy, Incorporated (Sealy) owns trademarks for the “Sealy”

brand of mattresses, mattress foundations, and other bedding

Senior Circuit Judge Leonard p. Moore of the United States Court

of Appeals for the Second Circuit is sitting by designation.

AS2

products. The Sealy brand enjoys substantial national consumer

popularity, and Sealy licenses its trademarks to fifteen indepen-

dent manufacturers, each of which has the primary responsibility

to make and sell Sealy products in a defined territory or terri-

tories. Sealy receives license royalties, provides uniform product

specifications, and also provides for the benefit of its licensees sub-

stantial national advertising, product development services, engi-

neering ass de, sales training, and a means of central negotia-

tion for se. g to national retail organizations and purchasing

certain mattress components. In addition, Sealy itself manufac-

tures and sells mattresses in seven territories, and it also manu-

factures spring units through three wholly-owned subsidiaries.'

Over 98% of the stock of Sealy is owned by its licensees, only

licensees (or their nominees) are eligible for 11 of the 14 seats on

Sealy’s Board of Directors, and the Board’s Executive Committee

is composed exclusively of licensees.

Ohio-Sealy Mattress Manufacturing Company (Ohio) is a

Sealy licensee with primary responsibility for six territories. Ohio

is the largest and one of the best of the Sealy licensees, producing

a high quality product efficiently, selling it effectively, and com-

piling an enviable profit record.’

In United States v. Sealy, Inc., 388 U.S. 350, 87 S.Ct. 1847, 18

L.Ed.2d 1238 (1967), the Supreme Court invalidated the system

of exclusive manufacturing and sales territories on which Sealy

then predicated its licenses. (Sealy at the time was not itself en-

gaged in manufacturing mattresses.) Looking at “substance

rather than form,” id. at 352, 87 S.Ct. 1847, the Court thought it

clear that the exclusive territories were restraints imposed by a

The subsidiaries through which Sealy makes and sells mattresses in

its seven territories and makes spring units were also named as parties to

this action.

*Ohio services five of the territories through four subsidiaries, which

are also parties herein.

—-} . S

AS3

horizontal combination of potential competitors, because Sealy

was obviously “a joint venture of, by, and for its stockholder-

licensees [who are] themselves directly, without even the sem-

blance of insulation, in charge of Sealy’s operations,” Id. at 353,

87 S.Ct. at 1850. Because the exclusive territory system operated

to give each licensee an enclave free from the competition of other

Sealy ticensees, it amounted to an allocation of markets per se

violative of Section | of the Sherman Act, 15 U.S.C. § 1,’ without

regard to asserted justifications for the system.‘

After the Supreme Court’s decision, Sealy revised its licensing

agreement, eliminating exclusive selling territories. In 1971, Ohio

initiated this action, complaining that Sealy had continued to

effect the evils the Supreme Court condemned, albeit by more

subtle means, that Sealy’s methods of dealing with national retail

customers also violated the Sherman Act, and that Sealy was en-

gaged in illegal tying and price-fixing arrangements regarding

certain mattress components. Damages well in excess of

$6,000,000 were claimed, and declaratory and injunctive relief

was sought. Sealy counterclaimed, seeking substantial damages

and other relief.

The damage claims of the parties were tried before a jury over a

period of four months in 1974 and 1975. Although both Sealy and

As pertinent, § I provides:

Every contract, combination or conspiracy, in restraint of trade

or commerce among the several States, or with foreign nations, is

declared to be illegal.

The district court in Sealy had found and enjoined a conspiracy to fix

minimum retail prices, and no appeal was taken from its judgment order

in that respect. While the Supreme Court pointed out the nexus between

this price-fixing and the allocation of markets, 388 U.S. at 355-58, 87

S.Ct. 1847, it is clear that the latter element is illegal per se even though

the former element is absent. See id. at 357 n.5, 87 S.Ct. 1847; United

States v. Topco Associates, Inc., 405 U.S. $°6, 609 n.9, 92 S.Ct. 1126,

31 L.Ed.2d 515 (1972).

AS4

Ohio had several objections to the jury's instructions, no com-

plaint thereof is made on appeal. Ohio’s evidence indicated

damages on its complaint of $9,233,563 (before trebling, see Sec-

tion 4 of the Clayton Act, 15 U.S.C. § 15). Sealy’s counterclaim

evidence indicated damages of $14,701,479. The jury rendered a

general verdict for Ohio on its complaint, awarding damages of

$6,814,852, and against Sealy on its counterclaim. Thereafter,

the district court denied Sealy’s motion for judgment n. o. v., and

denied its motion for a new trial conditionally on Ohio’s accepting

a remittitur of 50% of its $20,444,556 trebled damages. Ohio ac-

cepted the remittitur. After later hearings on equitable relief, the

district court denied it. The court also ruled that Ohio was not en-

titled to interest on its judgment for the twenty-month period

between the jury's verdict and the court's entry of final judgment

in the case. Ohio appeals from the judgment’s denial of equitable

relief and interim period interest, and Sealy cross-appeals from

the denial of its motions for judgment n. o. v. and for a new trial.

A fuller statement of the vertinent facts of the case will be

given in the context of the issues presented for decision.

I. Sealy’s Motion for Judgment Notwithstanding the Verdict

If Sealy is correct that the district court should have granted its

motion for judgment n. o. v., most of the rest of the issues on ap-

peal will be academic.’ Accordingly, we consider this possibility

first. In doing so, we are guided by the “well established” rule that

a motion for a directed verdict or for judgment n. o. v. is

properly denied where the evidence is such that reasonable

An exception would be Ohio's prayer for equitable relief. All of the

elements of Ohio's complaint were in issue in the jury trial, so if there

was insufficient evidence of antitrust violations to warrant submission of

the case to the jury, equitable relief would obviously be foreclosed. If, on

the other hand, judgment n. o. v. should have been granted on the

ground that no recoverable damages were proved, equitable relief could

nonetheless be appropriate.

ASS

men in a fair and impartial exercise of their judgment may

draw different conclusions therefrom.

Hannigan v. Sears, Roebuck and Co., 410 F.2d 285, 287 (7th Cir.

1969), cert. denied, 396 U.S. 902, 90 S.Ct. 214, 24 L.Ed.2d 178;

see also Fontana Aviation, Inc. v. Beech Aircraft Corporation.

432 F.2d 1080, 1084 (7th Cir. 1970), cert. denied, 401 U.S. 923,

91 S.Ct. 872, 27 L.Ed.2d 826 (1971). We are

bound to view the evidence in the light most favorable to

[Ohio] and to give it the benefit of all inferences which the

evidence fairly supports, even though contrary inferences

might reasonably be drawn.

Continental Ore Co. Union Carbide & Carbon Corp., 370 U.S.

690, 696, 82 S.Ct. 1404, 1409, 8 L.Ed.2d 777 (1962) (footnote

omitted); accord, Hannigan, supra at 288. This is particularly

true in complex antitrust cases such as this one “where motive

and intent play leading roles,” Poller v. Columbia Broadcasting

System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458

(1962), because “[f]indings as to the design, motive and intent

with which men act depend peculiarly upon the credit given to

witnesses” by the trier of fact. United States v. Yellow Cab Co.,

338 U.S. 338, 341, 70 S.Ct. 177, 179, 94 L.Ed. 150 (1949); Lam-

bert Corporation v. Evans, 575 F.2d 132, 136 (7th Cir. 1978).

Ohio argues, as a threshold matter, that judgment n. o. v. was

absolutely precluded by Sealy’s failure to file a motion for direct-

ed verdict “at the close of all the evidence,” which Rule 50(b),

Fed.R.Civ.P., makes a necessary predicate of a later motion for

judgment n. o. v. Sealy’s directed verdict motion was made at the

close of its case, i. e., after all but certain rebuttal evidence was

taken. The motion was not thereafter renewed, but we agree with

the district court that Sealy adequately preserved its right to a

ruling on the sufficiency of Ohio’s evidence. The application of

AS6

Rule 50(b) in any case “should be examined in the light of the

accomplishment of [ts] particular purpose as well as in the

general context of securing a fair trial for all concerned in the

quest for the truth.” Pittsburgh-Des Moines Steel Co. v. Brook-

haven Manor Water Co., 532 F.2d 572, 576 (7th Cir. 1976); and

see Rule l. Fed. R. Civ. P.

Rule 50(b) serves the important purpose of ensuring that a mo-

tion for judgment n. o. v. is used only to invite the district court to

reexamine its decision not to direct a verdict as a matter of law,

and not, in contravention of the Seventh Amendment, to reex-

amine facts found by the jury. Pittsburgh-Des Moines, supra at

576. Where the court's attention is directed to a party s conton-

tion that the pertinent evidence presented entitles it to judgment

as a matter of law, the motion’s purpose is served. Moran v.

Raymond Corp., 484 F.2d 1008, 1014 (7th Cir. 1973), cert. de-

nied, 415 U.S. 932, 94 S.Ct. 1445, 39 L.Ed.2d 490 (1974). Nor

does the introduction of additional evidence after a directed ver-

dict motion necessarily call for a different conclusion, especially

where, as here, the district court expressly determines that “there

was no probability that any evidence presented during rebuttal

and/or surrebuttal could have prompted this Court to grant any

motion for a directed verdict.” See Moran, supra at 1012; Gillen-

tine v. McKeand, 426 F. 2d 717, 722 (Ist Cir. 1970).

Another purpose of Rule 50(b) is avoidance of making a trap of

a motion for judgment n. o. v. where, e. g. a directed verdict

motion would point out a defect in proof that the opposing party

might remedy thereafter. Pittsburgh-Des Moines, supra at 576.

There was no possibility of any such trap here, where the directed

verdict motion came after both parties rested their cases in chief.

Any additional proof which Ohio could properly introduce on

rebuttal was in no way foreclosed, and no suggestion is made that

the motion for judgment n. o. v. hinged in any material way on

AS7

Ohio's lack of rebuttal evidence or Sealy’s surrebuttal proof. We

conclude, as did the district court, that under this court’s “liberal

view of what constitutes a motion for directed verdict in deciding

whether there was a sufficient prerequisite for the motion for

judgment,” Moran, supra at 1014, Sealy is entitled to have its at-

tack on the sufficiency of Ohio’s evidence heard on the merits.

A. Market Allocation

The evidence in the case would clearly have allowed a jury to

find the following facts with reference to Ohio’s claim that Sealy

was engaged in a scheme of market allocation. Soon after the Su-

preme Court’s decision in United States v. Sealy, Inc., Sealy’s

Board of Directors met to consider Sealy’s future operations.

Concern was expressed over the invalidation of the exclusive ter-

ritory system, and the resulting dangers from the competition of

“renegade,” “out of control,” “predatory” licensees, and from re-

tailers which might attempt to play licensees off against each

other to obtain lower prices. In conjunction with antitrust coun-

sel, Sealy bega ihe process of working out alternatives to pre-

serve as much of the perceived benefit of its former system as the

Department of Justice and the courts would allow in the light of

the Supreme Court decision.

The final decree entered in United States v. Sealy, Inc., 1967

Trade Cases J 72,327 at 84,855 (N. D. Ill. Dec. 26, 1967) enjoined

Sealy and its licensees from any arrangement “to limit or restrict

any manufacturer in any substantial way to sales of Sealy

products within a prescribed territory.” Id. at 84,856. At the

“Ohio argues that a trap was created, because Sealy agreed to instruc-

tions inconsistent with legal arguments made in this court. This ar-

gument, even if true, bears no relationship to the question under con-

sideration. Rule 51, Fed.R.Civ.P., forecloses objections on appeal to

agreed instructions and unless, as Sealy argues, the controlling law has

clearly changed, Sealy can gain no advantage from the “trap” Ohio says

it attempted to lay.

AS8

proceeding during which the decree was signed, John Sarbaugh,

Chief of the Midwest Office of the Antitrust Division of the

Department of Justice, made the following statement about the

pertinent language of the decree:

We do not interpret this language as prohibiting per se the

employment of manufacturing location clauses, areas of

primary responsibility clauses, or passover provisions. In so

saying, we are in no way implying any view as to the legality

of such clauses under the antitrust laws, nor, of course, are

we suggesting that such clauses would not violate the decree

if they have the effects proscribed by [its] language.

With this background, Sealy developed a new license

agreement (including each of the provisions mentioned by Mr.

Sarbaugh, and more) which was signed by all of Sealy’s licensees,

with one exception.’ The new 1968 license agreement’ maintained

the same territories as had been used before, with Sealy promis-

ing not to license anyone else to manufacture Sealy products in a

licensee’s territory. The territories, however, were no longer to be

exclusive as to sales. While each licensee was assigned primary re-

sponsibility to promote Sealy sales in his area, it also had the right

to sell Sealy products in the territories of other licensees. Each

licensee was to be held accountable for satisfactory performance

in its area of primary responsibility (APR), and, as an incentive

thereto, the contract provided that once the licensee achieved a

certain sales quota in its APR, its royalties on all subsequent Sea-

ly sales that year (inside or outside his APR) would be halved.

Licensees were authorized to manufacture Sealy products only at

The southern California licensee successfully maintained a declara-

tory judgment action before the same district court judge who tried the

present action, establishing that invalidation of the exclusive territory

system did not nullify his prior contract in toto. Sealy Mattress Co. of

Southern California v. Sealy, Inc., 346 F.Supp. 353 (N. D. Ill. 1972).

Sealy thereafter acquired the licensee 's business.

The agreement was revised in 1971 and subsequently without

changes pertinent to the present discussion.

AS9

the location(s) specified in their agreements and such additional

locations as Sealy might thereafter approve in writing. Licensees

were obliged to pay royalties on all products manufactured in

licensed plants, whether or not the products were sold under a

Sealy name. Products bearing the Sealy name, not surprisingly,

were subject to higher royalty rates. In addition to the normal

royalties, if a licensee sold Sealy products outside its APR it was

subject to two additional charges. First, it would pay Sealy (and

Sealy would thereafter pay the licensee whose APR was “invad-

ed”) pass-over payments equal to the percentage of the out-of-

APR sales corresponding to the invaded licensee’s prior year ad-

vertising and promotion expenses divided by that licensee 's total

sales. The precise amount of pass-over payments could not be

predicted in advance in any given instance, but testimony indicat-

ed the range of payments could be from 2.2% to 11%. An addi-

tional charge was made for product service repairs on out-of-APR

sales, amounting to 1% at the time of trial.’ Scaly was to have a

right of first refusal should a licensee wish to sell its business.

Licensees were forbidden to acquire any interest in any competi-

tive organization, although this provision apparently would not

preclude a licensee from manufacturing and selling competitive

private brand merchandise through a subsidiary.

Ohio’s theory of its case was that although many or all of the

provisions to which we have just referred might be legal in and of

themselves, they were designed and used by Sealy in per se viola-

tion of the Sherman Act to achieve a division of markets. In addi-

tion to receiv ng a Rule of Reason instruction pertaining to all

aspects of Ohio’s case, the jury was told that market allocation

is per se illegal, and that the above restrictions were not them-

selves per se illegal unless used to achieve a market allocation, i. e.

to limit or restrict “in any substantial way, the geographic areas

in which products may be sold.” Because the jury awarded

The 1968 contract had set the charge at 50 cents per piece on all mat-

tresses and box springs sold outside the APR.

A60

damages vastly in excess of those claimed for the other aspects of

Ohio’s case, it necessarily found that Sealy had allocated mar-

kets. Deferring for later consideration Sealy’s arguments that the

evidence shows no injury and no antitrust damages to Ohio, we

think it plain that the district court did not err in allowing the jury

to decide whether or not Sealy had illegally divided markets.

In assessing the evidence making a jury question of market

allocation, we bear in mind the horizontal nature of the restraints

involved. As we have pointed out, the Supreme Court’s decision in

United States v. Sealy, supra, expressly held that the structure of

the Sealy organization mandated the conclusion that its arrange-

ments were horizontal ones. That structure, as pertinent, stands

unchanged now. Sealy half-heartedly argues that the fact that it

now itself manufactures and sells in certain territories introduces

elements of verticality to the picture, but we cannot agree. What-

ever may be said about the way Sealy conducts its business in

those territories, it is indisputably clear that any restraints ap-

plied to the independent businesses which are licensees result di-

rectly from the concerted action of their horizontal potential com-

petitors. Accordingly, as Sealy agreed by accepting the district

court’s instructions on market allocation, if Sealy’s license

agreement and its conduct thereunder amounted to substantial

limitations on manufacturers’ sales territories, a per se violation

existed. See Topco, supra; Sealy, supra; Timken Roller Bearing

Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199

(1951); United States v. National Lead Co., 332 U.S. 319, 67

S.Ct. 1634, 91 L.Ed. 2077 (1947); Addyston Pipe & Steel Co. v.

United States, 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136 (1899).

We also emphasize that Sealy’s approach to the alleged re-

straints misses the mark. Repeatedly, Sealy argues that, e. g.

areas of primary responsibility, exclusive manufacturing licenses,

location clauses, pass-over payments, rights of first refusal, etc.,

have all been held at one time or another not to violate the

SS Cie

antitrust laws. That is certainly true enough, but we know of no

authority holding that these devices, alone or in conjunction, do

not violate the antitrust laws even though they have effects plainly

within the ambit of those laws. On the violation issue, Sealy con-

sistently refuses to address what was obviously Ohio's case

theory, on which the jury was appropriately instructed in agreed

language. It is thoroughly established that a lets which may be

legal and innocent in themselves, standing alone, lose that char-

acter when incorporated into a conspiracy to restrain trade.” Kur-

ek v. Pleasure Driveway and Park District of Peoria, 557 F.2d

580, 587 (7th Cir. 1977), judgment vacated, 435 U.S. 992, 98

S.Ct. 1642. 56 L.Ed.2d 81 (1978), judgment reinstated, 574 F.2d

892 (7th Cir. 1978) (per curiam); see Simpson v Union Oil Co. of

California, 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed2d 98 (1964);

Poller v. Columbia Broadcasting System, Inc., supra, 368 U.S. at

468 69, 82 S.Ct. 486. Moreover, in antitrust cases

plaintiffs should be given the full benefit of their proof with-

out tightly compartmentalizing the various factual compo-

nents and wiping the slate clean after scrutiny of each. “The

character and effect of a conspiracy are not be judge by dis-

membering it and viewing its separate parts, but only by

looking at it as a whole.”

Continental Ore Co. v. Union Carbide & Carbon Corp., supra,

370 U.S. at 699, 82 S.Ct. at 1410 (citation omitted).

Ohio proved that the mattress business is substantially local in

nature, because of the bulk and weight of the product, the fact

that retailers typically do not care to warehouse the product, and

the need for frequent customer sales calls. As Sealy concedes, the

great majority of mattress sales are made within 200-300 miles of

a manufacturing plant. Exclusive manufacturing territories in the

mattress industry thus tend to have the effect of limiting to some

degree the areas in which any licensee can effectively compete.

The jury was not instructed, however, that this effect alone would

suffice to constitute an antitrust violation, and, indeed, Ohio does

9 N

A62

not attack Sealy’s exclusive manufacturing area system, except in

those limited cases where a significant market is left inadequately

served by a licensee’s refusal to locate a plant in proximity there-

to.”

The local nature of the mattress business and the exclusive

manufacturing areas used by Sealy really do little more than set

the stage for the balance of the restraints attacked. Any licensee

could, e. g. engage in significant intrabrand competition at least

with his neighboring licensees if Sealy’s restraints went no

further. But Sealy did go further, as we have said. It limited its

licensees to manufacturing at specified locations. While no one

from Sealy squarely admitted it, the jury could have found from

Ohio’s evidence that the purpose of this provision—which did not

exist at the time of the Supreme Court’s decision— was to prevent

aggressive licensees like Ohio from locating plants near the

periphery of their APR’s, from whence they could compete

effectively against neighboring licensees. The evidence also sup-

ported the conclusion that Sealy used the clause against Ohio in

1970 and 1973 to achieve exactly that purpose, when Ohio twice

sought permission to locate a plant at Toledo, and Sealy twice

denied it, at least partly in order to protect the interests of the

Detroit licensee.

The degree to which Sealy licensees could effectively compete

with each other from their fixed centra! locations was necessarily

reduced by the charges Sealy imposed on out-of-APR sales. Tak-

ing the less onerous charge first, Sealy required licensees to pay

1% of out-of-APR sales to cover product service repairs made by

“invaded” licensees. Although the original conception of this

charge involved its being paid to Sealy to hold in a fund from

which to compensate licensees who actually provided such

repairs, in execution the charge was paid over to “invaded”

“Evidence indicated that the St. Louis market, currently served by the

Memphis licensee from a plant in Memphis, is such an instance.

A63 *

licensees whether or not they ever repaired a single mattress.

Ohio’s evidence indicated that any such repairs were typically

made by the selling licensee, and Sealy’s president admitted that

quality control on Sealy products was so good there were seldom

product service repairs required, and that he saw little legitimate

purpose in the 1% charge. The jury could have found it exacted a

1% tax on exercise of the “right” to sell outside a licensee’s APR.

Sealy also imposed pass-over payments, supposedly designed to

prevent an out-of-territory licensee from taking a “free ride” on

an APR licensee’s efforts and expenses to develop the Sealy name

in its APR. Like the product service repair charge, pass-over

payments have a plausible theoretical justification. The jury

could nonetheless have found from the evidence that the pay-

ments unjustifiably served as a barrier to intrabrand competition.

Ohio's economic expert, Dr. Willard F. Mueller of the University

of Wisconsin, formerly and for many years the Chief Economist

and later the Chief of the Bureau of Economics at the Federal

Trade Commission, told the jury that the function of developing

consumer preference for Sealy products was almost exclusively

performed by Sealy’s national advertising program, and that local

advertising was designed primarily to increase local sales. A

prime example of the type of advertising expense incurred locally

was a cooperative advertising program for retailers, who ran local

newspaper advertisements to attract customers to a bedding sale,

very possibly featuring other brands as well as Sealy products.

Even if there were some “free rider” effect from such advertising,

the jury could easily have found that compensating an “invaded”

licensee to the full proportionate extent of all his advertising and

promotion expenses went much further than needed for the limit-

ed articulated purpose. The possible dampening effects on compe-

tition of pass-over payments that could run as high as 11% must

have been obvious to the jury. Dr. Mueller testified that in fact the

pass-over payments and the product service repair charges creat-

ed barriers that made it every difficult to compete effectively

A64

outside the APR. He also testified that the expectation derived

from his substantial experience would have been that significant

intrabrand competition would have developed after the Supreme

Court invalidated Sealy’s exclusive territories, but that no sig-

nificant amount of such competition exis

As we have indicated, Sealy inserted in its license agreements a

provision giving it a right of first refusal before a licensee sold its

business. Cnce again, this is a contract term inoffensive in itself,

that the jury, however, could have found to have been used to per-

petuate enclaves relatively free from intrabrand competition.

Sealy had a right to veto a proposed sale of a licensee’s business on

objective business grounds, but it never invoked that provision

when Ohio sought to acquire another licensee’s business, because

Ohio is obviously a well-qualified licensee. Instead, although the

right of first refusal had never been exercised against anyone else,

it was exercised five times against Ohio. In late 1970 and early

1971, Ohio contracted to acquire the Philadelphia licensee.

After the neighboring Baltimore licensee (a member of Sealy’s

Board of Directors, and of the Board’s Executive Committee)

complained, Sealy exercised its right of first refusal, and the

"Indeed, as much as Sealy emphasizes its figures on the amount of

sales out-of-APR to show that such sales were in fact quite possible, the

figures do not contradict Dr. Mueller's conclusions. Between 1969 and

the first six months of 1976, Ohio did make millions of dollars of out-of-

APR sales, but the record would amply support the conclusion that Ohio

was the kind of licensee that was likely to make the best of even a very

restrictive situation. The fact that Ohio overcame the obstacles to some

degree in no way proves that it was not significantly impeded in making

even more sales in intrabran’ ompetition. Moreover, analysis of out - of-

APR sales by licensees othe: .aan Ohio is quite telling. Notwithstanding

that in at least one extended market area, the densely populated north-

east, there are many city markets within less than 200 miles of numerous

licensees’ plants, less than .0042 of Sealy sales were made in the

1969-1976 period out-of-APR. Although, as Sealy points out, there ap-

pears to be a trend to increased amounts of such sales, the pertinent

figures for 1974, 1975 and the first six months of 1976 were only less

than .009, less than .012, and approximately .007, respectively.

A65

Philadelphia licensee withdrew the business from sale, as was its

right. In 1972, the scenario was repeated, but this time Sealy

succeeded in acquiring the business. In mid-1970, Ohio sought to

acquire the Florida licensee. Sealy announced its intention to

exercise its right of first refusal (after complaint by a neighboring

licensee director), and the business was withdrawn from sale. In

1972, Ohio again sought the Florida business. Despite feelings

that the price was too high, Sealy blocked Ohio’s efforts to

acquire the Pittsburgh licensee and acquired it for itself. In all

three instances, the businesses acquired have lost money since

Sealy bought them.

To be sure, Sealy had a more legitimate explanation of its exer-

cises of the right of first refusal. It took the position at trial that

the Supreme Court decision spurred bona fide interest in reconsti-

tuting Sealy as a national integrated vertical manufacturer / dis-

tributor of bedding.” (The Court had distinguished White Motor

Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738

(1963), where it held that vertically imposed territorial limits

were not subject to the per se rule, 388 U.S. at 354, 87 S.Ct. 1847;

and see Continental T. V., Inc. v GTE Sylvania, Inc., 433 U.S.

36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977), and such limits prac-

ticed by a vertically integrated supplier would seem to be an a for-

tiori case if, indeed, the threshold requirement of a combination

or conspiracy could somehow be met in suck a case.) The short

answer to this theory is that Ohio introduced evidence that a

desire to stop Ohio from intrabrand competition was the true rea-

son for Sealy’s acquisitions, e. g., that influential neighboring

"Sealy’s position derived some evidentiary support from proof that

Sealy explored the possibilities of vertical integration with two different

business consulting firms, and that Sealy and a number of its licensees

entered a valuation program conducted by one of the consulting firms to

appraise the licensees’ businesses. Ohio took the position that the pro-

gram, with its corollary restriction that no participating licensee could

sell its business during the course of the valuations, was at least in part a

move to limit intrabrand competition by removing licensees from the ac-

quisitions market in which Ohio was interested.

ott

A66

licensees complained, that Sealy paid a price it considered too

high for Florida, and that it persisted in acquiring licensees Ohio

sought to buy despite the fact Sealy could not operate them

profitably. The choice between the conflicting evidence and the

differing inferences was for the jury, not for the district court in

considering Sealy’s motion for judgment n. o. v., and not for us in

reading a cold record on appeal.

Sealy advances one additional argument on the issue of a mar-

ket allocation violation that we believe deserves brief attention.

Although Sealy agreed to the district court’s per se allocation

instruction, it argues now that the Rule of Reason was the only

possible basis of its liability and that Ohio did not satisfy the rule

Sealy says that its acquiescence in the per se instruction does not

bar this argument because it does not seek reversal on the basis of

improper instructions, see Fed.R.Civ.P. 51, but rather asserts that

under the law truly and properly applicable to the case Ohio’s

case should never have been submitted to the jury. It insists that

this is particularly true where the law has changed after the trial,

because an appellate court is bound to render decision on the

issues before it on the basis of currently applicable law. As Sealy’s

argument derives from Continental T. V., Inc. v. GTE Sylvania,

Inc., supra, decided after final judgment was rendered below, we

agree that the argument should be considered, see Bradley v.

School Board of the City of Richmond, 416 U.S. 696, 711, 94

S.Ct. 2006, 40 L.Ed.2d 476 (1974), but we reject it on the merits.

Sylvania overruled United States v. Arnold, Schwinn & Co.,

388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), and held,

as had the White Motor case, supra, decided only four years

before Schwinn, that vertically-imposed territorial limitations

must be judged not by a per se rule but by the Rule of Reason.

Because the Court in Sylvania expressly reaffirmed the appro-

priateness of the per se rule for horizontal territorial limits,

433 US. at 58, n.28, 97 S.Ct. 2549, it is difficult to see how the

—_— « =

A67

decision advances Sealy’s argument." It insists nonetheless that

the very premise of the Sy/vania decision is that restrictions on in-

trabrand competition may promote interbrand competition, thus

making it impossible to say that such restraints have the requisite

“manifestly anticompetitive” nature to justify a per se rule of il-

legality. Id. at 50, 97 S.Ct. 2549; and see Northern Pacific Rail-

way v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545

(1958). In United States v. Topco Associates, Inc., supra, how-

ever, the Court rejected exactly this argument in the context of

horizontal restraints, 405 U.S. at 610-11, 92 S.Ct. 1126, and the

Sylvania decision expressly reaffirmed that rejection. 433 U.S. at

57, n.27, 97 S.Ct. 2549. A horizontal agreement among potential

competitors to devolop a national brand and not to compete with

each other in selling it is, we think, considerably more suspect

than limitations imposed by a single independent manufacturer

on its distributors as a condition of their distributocships, but even

if we were inclined to agree with Sealy’s arguments to the con-

trary, we believe the Supreme Court has foreclosed that ap-

proach. Moreover, bad we accepted Sealy’s argument that only

the Rule of Reason could be applied, we would be unable to agree

that Ohio failed to make out a jury case under that rule. Dr.

Mueller testified, e. g., that the national mattress industry was

heavily concentrated and the market was heavily conditioned to

acceptance of major brand names, and that, accordingly, an in-

crease in intrabrand competition—in this industry at least—

would also promote increased interbrand competition.

We are aware of no authority interpreting Sylvania as having any

pertinence to horizontal restraints such as those at bar. Newberry v.

Washington Post Company, 438 F.Supp. 470, 474 = 5 (D.D.C.1977);

Evanston Motor Company, Inc. v. Mid- Southern 1,.yota Distributors,

Inc. 436 F Supp. 1370, 1372-73 (N. D. Ill. 1977); and Pitchford Scien-

tific Instruments Corporation v. Pepi, Inc. 435 F.Supp. 685, 688

(W.D.Pa.1977), all recognize the lack of such pertinence, and Sealy has

not suggest that there are any cascs te the contrary.

A68

We now turn to Sealy’s contentions that Ohio demonstrated

no antitrust injury and no antitrust damages compensable under

Section 4 of the Clayton Act, 15 U.S.C. § 15. Section 4 provides

treble damages to “[a}ny person who shall be injured in his busi-

ness or property by reason of anything forbidden in the antitrust

laws. After final judgment herein, the Supreme Court de-

cided Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.

477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), an important case in

the interpretation of Section 4, and one on which Sealy heavily

relies.

In Brveswick, a large national producer of bowling equipment

had acquired numerous bowling alleys that had defaulted in their

debts to the producer. It was conceded before the Court that the

acquisitions violated Section 7 of the Clayton Act, 15 U.S.C.

§ 18, in that they might substantially lessen competition or tend

to create a monopoly, and that but for the acquisitions, the alleys

would have failed. Plaintiffs were operators of bowling alleys

competing with those acquired by Brunswick, which established

that they would have gained larger market shares and profits had

Brunswick not acquired its alleys and kept them in business. The

Court held that plaintiffs were foreclosed as a matter of law from

recovering the profits thus lost, despite the causal link between the

lost profits and the antitrust violation. More was required,

specifically a nexus between the recovery sought and the purposes

of the antitrust laws. In Brunswick, a Section 7 violation existed

only because a “deep pocket” giant was entering a market of

“pygmies.” 429 U.S. at 487, 97 S.Ct. 690. Yet if the failing alleys

had acquired refinancing or been purchased by “shallow pocket”

firms, plaintiffs would have suffered the same loss, despite the

absence of a Section 7 violation. Similarly, if the alleys had been

prosperous, Brunswick’s acquisition would have been ai least as

illegal, yet plaintiffs would have suffered no loss. Id. As the Court

pointed out, plaintiffs were really seeking damages for loss caused

by fair competition, in total perversion of the purposes of the

A69

antitrust laws. As the Court summarized the teachings of its

Brunswick decision:

Plaintiffs must prove antitrust injury, which is to say injury

of the type the antitrust laws were intended to prevent and

that flo · from that which makes defendants’ acts unlawful.

Id. at 489, 97 S.Ct. at 697 (emphasis in original). Sealy argues

here that Ohio totally fails to meet that standard.

At the outset, we note that Sealy’s arguement goes too far. To

justify judgment n. o. v. even with respect to the market allocation

theory to which the Brunswick argument is addressed, Sealy

would have to demonstrate that absolutely no antitrust injury was

evidenced at trial. That cannot be said here. To take but one

example, the jury was entitled to find that pass-over payments

and product service repair charges were parts of a plan of market

allocation, and Ohio introduced evidence of nearly $170,000 paid

to Sealy thereunder. We do not believe an argument can be made

that a tax on intrabrand competition is not the type of injury the

antitrust laws were intended to prevent or that it does not flow

from that which makes a market allocation scheme illegal. None-

theless, if Sealy is correct that Ohio’s lost profit damages resulting

from Sealy’s acquisition of the Florida, Pittsburgh, and Philadel-

phia licensees are not compensation for antitrust injury, a new

trial would be required because the amount of damages awarded

by the jury established as a mathematical certainty that com-

pensation for those lost profits was a part of the jury’s verdict."

“The Court emphasized that a very different case would have been

presented had plaintiffs shown that Brunswick had abused its deep pock-

et by engaging in, e. g., predatory conduct injuring plaintiffs, but plain-

tiffs made out no such case.

As we have noted, Ohio claimed a total of $9,233,563 in damages, of

which $6,436,995 represented profits lost by the lost acquisitions. The

jury's verdict awarded $6,814,852.

«ae

A70

The thrust of Sealy’s argument is that the competitive situation

would have been the same regardl ss of whether the prior licens-

ee, Ohio, or Sealy had primary responsibility for the territories in

question.” It insists that Ohio is merely a disappointed desirous

purchaser of the licensees, and that to award damages for the dis-

appointment is a perversion of the antitrust laws. If Ohio had

claimed damages here on the theory that, e. g. Sealy’s acquisi-

tions in themselves violated Section 7 of the Clayton Act, Sealy’s

argument might have some plausibility. Sealy ignores, however,

the theory Ohio argued to the jury and on which the district court

gave instructions, that Sealy’s exercise of its right of first refusal

was a part of a scheme of market allocation, done to keep Ohio

from establishing new bases from which it might effectively com-

pete with neighboring licensees Evidence indicated that had

Ohio acquired the territories, its policy of competing across the

borders of its APR’s would have produced significant intrabrand

competition that did not occur under Sealy’s management of the

territories. Moreover, there was evidence that within the APR’s

tuemselves, Sealy would have been a more efficient producer and

more effective interbrand competitor. While Sealy would not

“Sealy hypothesizes that if an outside buyer had simply outbid Ohic

in its attempts to acquire the licensees, there would have been the sam

loss to Ohio without any antitrust violation. This argument has the ap-

peal of superficial similarity to an example used by the Court in Bruns-

wick. See discussion supra. But the point the Court was making

there—that there was no nexuc between the injury claimed and the pur-

poses of the antitrust laws—simply cannot be made here, for reasons

discussed infra. The incorrectness of lifting the example from the

Brunswick opinion and attempting to generalize it without regard to its

context can be quickly demonstrated by an example: if General Motors,

on its own and for bona fide and unassailable business reasons chose to

stop supplying one of its dealers with automobiles, there would be no an-

titrust violation, yet the loss to the dealer would be identical to that

which would result if all the neighboring dealers had pressured GM to

cease supply in order to reduce intrabrand competition. We doubt that

even Sealy would argue that the loss in the latter instance would not be

antitrust injury. See United States v. General Motors Corp., 384 U.S.

127, 86 S.Ct. 1321, 16 L.Ed 2d 415 (1966).

A7l

presumably have blocked Ohio’s attempted acquisitions for the

purpose of ‘imiting effective inside-APR interbrand competition,

evidence indicated that a loss of that competition may have been a

price Sealy was willing to pay to achieve the primary purpose of

maintaining territorial restraint.

There was, in other words, evidence of an illegal scheme to

divide markets, intentionally effectuated against Ohio by means

of Sealy’s acquisitions, resulting in harms both to intrabrand and

interbrand competition because Ohio’s contracts to acquire the

licensees were frustrated.” We believe the profits lost thereby do

reflect injury of a type the antitrust laws were intended to prevent

and do flow directly from the anticompetitive scheme that made

Sealy’s acquisitions illegal. Obviously, to the degree the profits

Ohio would have made might include profits that a poor inter-

brand competitor committed to avoiding intrabrand competition

"Sealy advances the related argument that Ohio's losses were not

caused by the right of first refusal or its exercise, but merely by Ohio’s

decision not to make higher bids than Sealy was willing to match. We

wholly disagree. The jury was properly instructed that it would be

sufficient i ~stablish causation if the jury found antitrust violations to

be material factors in causing loss. See Zenith Radio Corp. v. Hazeltine

Research, Inc., 395 U.S. 100, 114 n.9, 89 S.Ct. 1562, 23 L.Ed.2d 129

(1969). We note that there was no evidence indicating that Ohio had

the power to force a licensee desirous of selling his business to withdraw

Mee

cised. Indeed, the thrust of Sealy’s counterclaim, rejected by the jury,

was that Ohio committed grievous wrong by the role it may have played

in even encouraging selling licensees to withdraw their business from

sale at the time of Sealy’s attempted exercise of the right. Moreover, in

both Florida and Philadelphia, Ohio did up the ante significantly only to

have Sealy (which had not expressed previous interest in acquiring

9 — atten Giaudh ot \ecet —

Florida, Sealy considered the price paid too high. The jury could surely

have found that the market allocation scheme was in fact the cause of

Sealy’s exercise of the right of first refusal.

“>

13 1

A72

could also have made," they do not totally reflect an actual harm

to market competition. But as the Court made clear in Kors.

Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3

L.Ed.2d 741 (1959), and Radiant Burners, Inc. v. Peoples Gas

Light & Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358

(1961) (per curiam), private antitrust suits need not be premised

on actual diminutions in market competition, so long as they in-

volve anticompetitive conduct aimed at the plaintiff. The refine-

ment made in Brunswick is simply that the injury claimed

“should, in short, be the type of loss that the claimed violations

. .. would be likely to cause. Zenith Radio Corp. v. Hazeltine Re-

search, Inc., 395 U.S., at 125, 89 S.Ct. 1562.” 429 U.S. at 489, 97

S.Ct. at 697 (footnote omitted). That test is amply met here.

B. Tying and Price-Fixing of Mattress Components

It is undisputed that Sealy required its licensees to manufac-

ture Sealy products in accordance with certain specifications.

The specifications required use in mattress foundations of a tor-

sion bar element called a Posturegrid, which is a patented product

of the Universal Wire Spring Company. Sealy also insisted that

certain other specified components be purchased from designated

approved suppliers. Mattress springs are the component primari-

ly in issue here. Sealy had three subsidiaries that manufactured

spring units and that were at all pertinent times approved

“We emphasize that it is by no means clear that the profits Ohio

would have made in the territories would not have been entirely attribut-

able to increased intrabrand and interbrand competition. Sealy, after

all, a demonstrably less effective interbrand competitor which, pei naps

understandably, made no significant intrabrand sales in the territories,

lost money on the territories acquired to block Ohio’s expansion. We

note here, in passing, that Sealy does not attack the method used by

Ohio to estimate its lost profits, applying a representative Ohio-plant

profit margin to the sales actually made in the territories after Sealy ac-

quired them. Cf Zenith Radio Corp. v. Hazeltine Research, Inc.,

supra, 395 U.S. at 116-17, 89 S.Ct. 1562.

A73

suppliers.” Evidence established without dispute that Universal

Wire and approved spring manufacturers paid to Sealy a charge

of from three to five percent of their sales to the licensees, unbe-

knownst to the licensees. The jury could have found that the

charge was in the nature of a payment for the privilege of being a

supplier to Sealy licensees, akin to a commission to Sealy for pur-

chases it forced its licensees to make.” There was also evidence

that prices for Posturegrid assemblies and spring units under this

system were significantly higher than for comparable products

available in the market. Sealy’s chairman, indeed, admitted that

something of a “captive market” existed for spring units for Sealy

products. Ohio also introduced evidence that during the late

1960’s, Sealy’s original spring manufacturing subsidiary (in

Rensselaer, Indiana) agreed with the only other manufacturer

then approved to supply Sealy licensees that the two firms would

set the same prices.

We agree with Ohio and the district court that it was proper to

send Ohio’s components claims to the jury. “[A] tying arrange-

ment may be defined as an agreement by a party to sell one

product but only on the condition that the buyer also purchases a

different (or tied) product ... .” Northern Pacific Railway Co. v.

United States, supra, 356 U.S. at 5, 78 S.Ct. at 518. Because they

"Sealy Spring Corporation—Indiana was the only subsidiary in exis-

tence throughout the entire damage period, but Sealy Spring Corpora-

tion East and Sealy Spring Corporation— West were approved sup-

pliers from their inception through the end of the period.

* Sealy’s Vice President at one time wrote a letter to the President of

an approved spring supplier, referring to the charge as a royalty for the

privilege of supplying Sealy licensees. Although Sealy’s trial witnesses

attempted to characterize the charge as compensation to Sealy for its

quality control inspection program for suppliers, officials of Sealy had

prior to 1971 frequently referred to the charge as a royalty, a commis-

sion, or a load charge. Sealy also had at one time, extending into the

damage period pertinent to this case, received rebates on mattress tick-

ing supplied to licensees, such rebates being justified only by a desire for

revenues for Sealy. Sealy does rot argue on appeal that the jury was ob-

ligated to accept the quality co trol service charge characterization.

deny competitive access to the tied product market on the basis of

the seller's leverage in the tying product market, and force buyers

to forego free choice between sellers, such arrangements

are unreasonable in and of themselves whenever a party has

sufficient economic power with respect to the tying product

to appreciably restrain free competition in the market for the

rep ome and a “not insubstantial” amount of commerce

is affected.

Id. at 6, 78 S.Ct. at 518 (citatiors omitted); Fortner Enterprises,

Inc. v. United States Steel Corp., 394 U.S. 495, 498-99, 89 S.Ct.

1252, 22 L.Ed.2d 495 (1969).

Sealy, as we have said, does not dispute that it conditions the

license of its trademarks on the licensee’s use of specified compo-

nents from designated suppliers. Nor does it deny that its unique

and legally protected trademarks, see United States Steel Corp. v.

Fortner Enterprises, Inc., 429 U.S. 610, 619, 621, 97 S.Ct. 861,

51 L.Ed.2d 80 (1977), which have achieved substantial consumer

acceptance, create sufficient power to allow it to restrain competi-

tion in the market for the components, or that a substantial

volume of commerce is affected.” Sealy does argue, nonetheless,

that the challenged practices are not of the type properly con-

demned as tying arrangements.

With reference to the Posturegrid specification, Sealy points

out that the Universal product was patented and argues that it

was the legal patent monopoly that foreclosed competitors’ access

to Sealy licensees. This assertion unfortunately misses the thrust

of Ohio’s claim, that Sealy wrongfully mandated use of the Pos-

turegrid and gained hidden rebates thereby, at the expense of the

licensees.” We quite agree with Ohio that a patented product, like

»Ohio's purchases alone of the allegedly tied components amounted

to approximately $9.6 million during the pertinent period, and the entire

organization obviously purchased many times this amount.

introduced evidence that it would have comparable

items elsewhere (given the pre price Universal was charging) but

for the mandatory specification.

A75

any other, may be illegally tied. The antitrust laws do not permit

a compounding of the statutorily conferred monopoly.” United

States „ Lowe's, Inc., 371 U.S. 38, 52, 83 S.Ct. 97, 105, 9

L.Ed.2d 11 (1962).

Sealy also insists that the vice condemned in the tying cases

simply cannot be found where a trademark licensor specifies the

patented products of a third company for use by its licensees,

because the licensor, whatever the power conferred by his

trademark’s value, cannot be said to be using it to invade a second

market. We agree that there is no illegal tying arrangement

where a “tying” company has absolutely no financial interest in

the sales of a third company whose products are favored by the

tie-in. Crawford Transport Company v. Chrysler Corporation,

338 F.2d 934 (6th Cir. 1964), cert. denied, 380 U.S. 954, 85 S.Ct.

1088, 13 L.Ed.2d 971 (1965), Keener v. Sizzler Family Steak

Houses, 1977-2 Trade Cases 71 61,682 at 72,800 (N. D.

Tex.1977); Rodrigue v. Chrysler Corporation, 421 F.Supp. 903

(E.D. La.1976). Here, however, it is undisputed that Sealy

received substantial rebates from Universal on sales to the licen-

sees, and, moreover, that those rebates were concealed from the

licensees. The concealment aspect alone might have justified a

jury’s decision to disbelieve Sealy’s claim that the payments made

to Sealy were not in return for the specification of Universal's

product as mandatory Sealy components. In addition, the assert-

ed justification for the payments was that they were compensation

for Sealy’s technical efforts in helping Universal adapt its torsion

bar concept to the mattress industry. Yet Sealy’s President admit-

ted that Universal had prior to dealing with Sealy applied the con-

cept to the mattress industry (though an improvement was still

needed at the time), and, as was brought out at trial, the written

agreement between Sealy and Universal made no reference to

Sealy’s provision of technical assistance, though it did state that

Universa! was to provide technical assistance to Sealy. Sealy’s

third argument on the Posturegrid units, that the specification

~~ a.

A76

was not shown to be other than a bona fide decision on the basis of

product merit by a trademark owner to protect the essential char-

acteristics of the trademarked product, may be disposed of

briefly. The jury could have found from the evidence we have dis-

cussed that Sealy forced the use of the Posturegrid and was paid

handsomely by Universal simply for creating a captive market in

which it could and did charge a premium price. Even if the Pos-

turegrid was a superior product, such an ay rangement was unlaw-

ful. See Osborn v. Sinclair Refining Cu., 286 F.2d 832 (4th Cir.

1960), cert. denied, 366 U.S. 963, 81 S.Ct. 1924, 6 L.Ed.2d 1255

(1961), a case very similar to this one.

Regarding mattress spring units. Sealy takes the position that

an essential element of a tying case is proof of actual foreclosure

of competition. It cites Fortner Enterprises, Inc. v. United States

Steel Corp. 523 F.2d 961, 967 (6th Cir. 1975), rev'd, United

States Steel Corp. v. Fortner Enterprises, Inc., supra; Coniglio v.

Highwood Services, Inc., 495 F.2d 1286 (2d Cir.), cert. denied,

419 U.S. 1022, 95 S.Ct. 498, 42 L. Ed. 2d 296 (1974); and Driskill

v. Dallas Cowboys Football Club, Inc., 498 F.2d 321 (Sth Cir.

1974), to support this proposition, and says that Ohio has failed to

introduce the requisite proof. Because the Supreme Court has

repeatedly held that tying, if it fits within the Northern Pacific

standard, is a per se violation, we are not free to inquire whether

such tying in any given case injures market competition. Sealy’s

argument, however, is somewhat more subtle than that, and we

agree that if a given tying arrangement has no potential to fore-

close access to the tied product market, it does not exemplify the

vice that led the Court to declare tying a per se offense. Coniglio

and Driskill amply illustrate the proper bounds of the actual fore-

closure rule.” In these cases, the practices of two National Foot-

ball League clubs of requiring season ticket buyers to purchase

The Sixth Circuit's Fortner opinion cited Coniglio and Driskill as

recognizing in actual foreclosure requirement, but declined to apply it

as a bar to the case before it.

A77

preseason exhibition game tickets in the sume package were at-

tacked as illegal tie-ins. Because both clubs had a complete mo-

nopoly, however, in the tied as well as the tying market, there

could be no foreclosure of competitive access to the tied market

resulting from the tie-in. If the same thing could be said here,

Sealy would have been entitled to a directed verdict on mattress

spring tying.”

We think there was clearly a jury question on foreclosure dur-

ing the pertinent period, however. Only approved manufacturers

could supply Sealy licensees. Sealy’s own subsidiaries were al-

ways approved. Prior to 1972 (when Sealy obtained patents on

the then-specified spring units) only two other firms were ap-

proved, the Steadley Company from which Ohio purchased and a

west coast firm referred to as Laisco. Both firms paid, as the jury

could have found, a commission to Sealy for the privilege of sup-

plying Sealy licensees. See Osborn, supra. The Steadley Company

was induced to agree to base its prices for specified units on those

charged by Sealy’s manufacturing subsidiary.” The jury was enti-

tled to infer that no firm which would not play the game by these

rules would win Sealy’s approval as a supplier. In this context,

Sealy’s statement that there was no evidence it ever denied sup-

plier approval carries much less weight than might otherwise be

Because the jury may have awarded some damages flowing from the

tie-in, Sealy, under Coniglio and Driskill, would be entitled cither to a

new trial, or to a remittance of the full amount of damages claimed from

tying to eliminate the possibility it was prejudiced by submitting the

claim to the jury. See Duram y. Surety Homes Corporation, No.

77-2045, 582 F.2d 1081 (7th Cir. August 8,978). The possibility also

exists that the district court’s remittitur of half of the jury verdict, if er-

offered as an alternative to a new trial, would render harmless

the submission of the tying theory to the jury. See discussion inf, 2.

*Sealy’s attack on the sufficiency of the evidence to prove this point is

without merit. Evidence indicated not only identity of actual prices

charged but also an express agreement to fix prices. That Sealy’s officials

denied the agreement, or that Ohio could not prove the agreement con-

tinued to any c efinite ending date, would not have justified taking the

question from the jury.

A78

the case. Moreover, the jury could have concluded Sealy attempt-

ed to force Steadley and Laisco out of the suppliers’ market. In

1970, Sealy developed new specifications which it thought patent-

able, and applied for a patent thereon. Although Sealy now cites

its licensing of a supplier under the patent, after it issued in 1972,

as evidence of its magnanimity and of lack of foreclosure, Sealy

advised both Steadley and Laisco in 1970 that if a patent issued

no one would be licensed thereunder. Thus even if Steadley with-

drew from supplying Sealy springs in late 1970 because of a lack

of desire to incur tooling costs that would not be recoverable over

a reasonable amortization period if the patent issued, the jury

could have concluded that Sealy used the no-license threat to

drive Steadley out of the market during the interim period.

(When Steadley did withdraw, only Sealy’s subsidiary was left in

the captor selling market created by the specifications.) Further-

more, Steadley asked for the specifications for the new system so

that it could tool up to produce the new springs, or at least con-

sider doing so, and Sealy refused to provide them. Thus it is not

even clear Steadley would not have been willing to be a supplier in

the interim period. There was also evidence to support the conclu-

sion that Sealy used its quality control inspection and approval

powers to force Steadley out of the market. Sealy’s President at

one point in 1970 wrote to its Vice President suggesting that Sealy

ought to consider continuing to allow Steadley to manufacture

approved products (despite alleged quality control problems) as a

bargaining tool to avoid problems from Steadley regarding the

proposed change of specifications that would put Steadley out of

the business of supplying Sealy licensees.”

C. The National Accounts Agreement

To deal with potential customers such as Montgomery

Ward & Co., Sears, Roebuck & Co., and J.C, Penney Co., which

* Sealy’s attack on the sufficiency of the evidence to make a jury ques-

tion of Ohio’s theory of monopolization of Posturepedic springs is based

entirely on the no-foreclosure argument which we have rejected. Ac-

cordingly, we reject the argument in this context as well.

A79

sell bedding at many retail outlets throughout the country, Sealy

developed its national accounts program,” which was originally

embodied in a separate agreement but which is now a part of

Sealy's license agreements. Under this program, Sealy ap-

proached the national accounts directly and attempted to nego-

tiate agreement to supply both Sealy-brand products and private

label products according to agreed specifications and at agreed

prices. Once agreement was reached, each Sealy licensee was

given the opportunity to participate in the program for the par-

ticular national account involved. Participation, we emphasize,

was wholly voluntary. Any licensee was free not to participate,

and to negotiate directly with the customer in an attempt to sup-

ply all or any part of the customer’s needs. (Sealy has not had ex-

clusive dealing contracts with any national account.) Even though

a licensee might originally elect to participate, it was perfectly at

liberty at any time to withdraw from the program and to begin

negotiations with the customer.” While a licensee was in the pro-

gram, however, it was obliged to supply the customer’s outlets in

its APR with the specified products at the agreed price. The cus-

tomer was not prevented from specifying that it wanted deliveries

to any given outlet made by a licensee which did not have primary

responsibility for the territory in which the outlet was located.

This in fact did occur from time to time.

Sealy’s primary national account was Montgomery Ward &

Co. (Ward s). The furniture merchandise manager for Ward’s

testified that his company had committed itscif to a policy of pur-

chasing from firms that could serve Ward’s needs nationally,

because of the efficiency, simplicity, and flexibility available in

“It is a matter of some historical irony, if no great substantive sig-

nificance, that the program was devised by a committee chaired by

E. M. Wuliger, the President of Ohio.

The sole limitation on the right to withdraw was that a licensee was

obliged to fill orders under the program for a six month transition pe-

riod. No claim is made that this provision is illegal.

A80

dealing with a single source of supply.” He also testified that if

Sealy eliminated the national accounts program, Ward's would

turn to other national suppliers to meet its needs and would not

return to its earlier “chaotic” practice of purchasing from many

manufacturers. This testimony was undisputed. Scaly officials

testified that the existence of such attitudes among national ac-

count customers was the reason for the program Ohio attacks,

and this testimony also was never seriously challenged.

Ohio participated in the national accounts program until 1974,

at which time it withdrew. Since that time, Ohio has vigorously

sought to capture a significant part of Ward’s business, offering

lower prices than those provided by the Sealy-Ward's contract.

As we have noted, Ohio is an efficient high quality manufacturer.

Nonetheless, Ohio has not been successful in garnering Ward's

business, because of Ward’s preference for dealing with a nation-

al supplier. Asserting the illegality of the national accounts pro-

gram, Ohio sought $106,766 in damages for sales it alleged it

would have made to Ward’s (and to J.C. Penney, in a much

smaller amount) but for the program.”

We have concluded that the district court should have directed

a verdict in Sealy’s favor on this claim. First, as Sealy points out,

Ohio repeatedly emphasizes that Ward's does not in fact deal with a

single supplier of mattresses. It is true that Ward's has separate national

suppliers of foam and innerspring mattresses, and that in a few isolated

instances Ward’s is obliged by circumstances to meet its needs locally.

There is even one market area where Ward's agreed, in response to ap-

peals from community leaders, to purchase mattresses from a local firm

as part of a program to shore up the depressed economy in the market

area. The essential fact, however, stands undisputed in the record:

Ward's does have a policy of buying from a single source of supply, al-

beit that policy is subject to rare exceptions.

»Onio also claimed $294,915 in damages for royalties to Sealy

for goods not bearing Seaiy-brand labels. Over 97% of royalties

derived from sales to Ward's while Ohio was in the national accounts

f.ogram, but the rationale for these damages is analytically distinct and

we consider this claim hereinafter.

inal

the profits lost from sales to Ward's resulted from Ohio's purely

voluntary choice to compete for the business on its own, not from

any illegality that arguably might have infected the national ac-

counts program. Both causation and Brunswick, supra, problems

pose insurmountable obstacles to the recovery sought.

Second, and more fundamentally, we are unable to perceive

how a jury could have found the national accounts program to be

illegal. It is clear that a joint selling agency is not per se violative

of the antitrust laws. In Appalachian Coals, Inc. v. United States,

288 U.S. 344, 53 S.Ct. 471, 77 L.Ed. 825 (1933),

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