Opposition Brief — Agrashell, Inc. v. Hammons Products Co.

es ree

SUPREME COURT, U. & om gout,

Se.

MICHAEL RODAK, JR.,CLERK |

IN THE

Supreme Court of the United States

OcToBER TERM, 1973

No. 73-140

AGRASHELL, INc. Petitioner

Vv.

Hammons Propucts Company, Respondent

BRIEF IN OPPOSITION

JOHN C. Scorr

WortH Row ey

STEVEN K. YABLONSKI

1730 Rhode Island Ave., N.W.

Washington, D.C. 20036

Counsel for Respondent

Of Counsel:

Morris CHERTKOV

1730 Rhode Island Ave., N.W.

Washington, D.C. 20036

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

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TABLE OF CONTENTS

Page

IWEROBUOTION ccc ccccccccccccccsccecescescccccees “* 8

Reasons FoR DENYING THE WRIT .........+-+0eeee00: 2

I. As to Question 1, Fact of Damage ............ 2

A. The question submitted misstates the facts

and is not presented by the record ......... oe

B. No confusion or conflict exists in the appli-

GREED BW occcncésvecscececccvesequaesscesse 5

C. There are ample additional grounds for sus-

taining the lost-profits damage award ...... 7

II. As to Question 2, The ‘‘Commission Sales’’ Con-

UD. occcvsducdeskevdcuassedsesceneeceweenee 11

A. This question is not presented by the record 11

B. The finding below of a Section 1 Sherman Act

violation is correct for reasons quite unre-

lated to the question presented ............ 14

a ry er Ener Te Trt 16

INDEX OF CITATIONS

Case CITATIONS:

Albrecht v. Herald Company, 390 U.S. 145, 150 (1968) 9

American Tobacco Co. v. United States, 328 U.S. 781,

GD CIEE) vccccccvsescvcccceessecsesseceseses 9

Atlas Building Products Co. v. Diamond Block & Grav-

el Co., 269 F.2d 950 (10th Cir. 1959) ............ 5, 6

Bigelow v. R. K. O. Radio Pictures, 327 U.S. 251, 264

CED ncnkcencssnevecsedenvcencsteveesannvess 5, 6

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

ee ree 5, 7, 10, 15

Eastman Kodak Co. v. Southern Photo Materials Co.,

Se Wis GE CUED wcccsccvesececssevencessnes 5

Flintkote Co. v. Lysfjord, 246 F.2d 368 (9th Cir. 1957) 6

Hammons Products Co. v. Agrashell, Inc., No. 73-25 .. 10

EATER INI RIO ET OE

ii Table of Contents Continued

Page

Herman Schwabe, Inc. v. United Shoe Machinery Corp.,

Oe eee Oe CE GA. BOGE ccc cctenvescreceeess

Interstate Circuit v. United States, 306 U.S. 208, 277

SEs conve ee theres coddeeesuneeetvedhe+exece 9

Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th

i i Ode ueeesvce Ss veesabeenseds ae ee ane 6

Maryland & Va. Milk Pro. Ass’n. v. United States, 362

Ot CED ed ck ecexeaneuntaesetereess 10

Mayer Paving ¢ Asphalt Co. v. General Dynamics

Corp., — F.2d —, 1973 Trade Cases { 74,719 (7th

PE esti ccewd siuvveocctsuxianeteuatees 7

Perma-Life Mufflers, Inc. v. Intern. Parts Co., 392 U.S.

cuvarncayesetcevensceretarseeus 7

Richfield Oil Corp. v. Karseal Corp., 271 F.2d 709 (9th

SE Van Veaenesenoeureascensetneest 5, 6,7

Story Parchment Co. v. Paterson Paper Co., 282 U.S.

EN oa hee b4 Ger eve as bua we Reena 5

United States v. Container Corp. of America, 398 U.S.

NCES ona eas ete avers valet saueareentee 9

United States v. General Electric Co., 272 U.S. 476

ee et aed <edenbcndeserae xi 11, 12, 13, 15

United States v. Masonite Corp., 316 U.S. 265 (1942)

12, 14, 15

United States v. Parke, Davis and Company, 362 U.S.

EE een cela hut eueeve cate neaeens 9

United States v. Paramount Pictures, Inc., 334 U.S. 131,

otal RETR a leap pba eine aan NMG tS A

United States v. Sealy, Inc., 388 U.S. 350, 354 (1967) .. 12

United States v. United States Gypsum Co., 340 U.S.

Ne heal eeuie es wan ead Keen ec kek One 10

Zenith Radio Corp. v. Hazeltine Research, Inc., 395

Me ee, SO a OR ROOD vnc cécvsucveeeeuseus 3, 5, 6, 7

RESTATEMENT:

ReEsTaATEMENT (2d) or Acency §14J (1958) ........ 13, 14

IN THE

Supreme Court of the United States

OctToBER TERM, 1973

No. 73-140

AGRASHELL, INc. Petitioner

Vv.

Hammons Propucts Company, Respondent

BRIEF IN OPPOSITION

INTRODUCTION

This Brief in Opposition is filed in accordance with

the Clerk’s letter of September 17, 1973, informing

counsel of the Court’s request that Hammons respond

to the Petition filed by Agrashell herein on July 18,

1973. We had previously notified the Court, by letter

of July 31, 1973, that Hammons wished to waive its

right to file a Brief in Opposition, feeling that

Agrashell’s Petition raised questions which are clear-

ly not worthy of the Court’s attention. For the reasons

developed below, we remain convinced that the Pe-

tition lacks merit.

bab ’ > ae

F .

Indeed, we do not believe either of the ‘‘questions

presented’’ in the Petition is genuinely raised by the

facts of record in this case. Any attempt to restate the

questions in terms we consider justified by the factual

record would necessarily produce questions quite dif-

ferent from those Agrashell intended to bring here.

Therefore, we have foregone any statement here of

‘‘Questions Presented.”’

To avoid repetition, we have also dispensed with

a separate ‘‘Statement of the Case’’ since every ex-

ception we take to the Petition’s recitation of the

facts must logically be dealt with below in our reasons

for opposing issuance of the writ.

REASONS FOR DENYING THE WRIT

I. As to Question 1, Fact of Damage

A. The question submitted misstates the facts and is not

_ presented by the record.

Neither the record nor any statement, finding, or

ruling by the courts below supports the assertion in

question No. 1 that the testimony of Hammons’ dam-

age expert is ‘‘the only evidence that claimant had

been injured’’ (Petition, p. 2). Indeed, the Petition

itself recognizes the presence in the record of the

evidence that formed the basis for the damage ex-

pert’s opinions and conclusions — contractual com-

mitments by key distributors not to buy from Ham-

mons.

At page 9, the Petition recites the proven facts

that, whereas Hammons was foreclosed from making

any sales in the portion of the market covered by

Agrashell’s exclusive-dealing arrangements, its sales

in another market where those exclusive-dealing ar-

rangements were not operative exceeded Agrashell’s

sales in a ratio of 60 to 40.

In stating the first question, moreover, the Petition

draws its hyperbolic terminology — ‘an economist’s

damage theory,’ ‘many practical defects,’’ and

“* ‘serious failings’ of proof’? — from statements in

the court of appeals’ opinion relating to testimony on

the amount, not the fact of damages.’ Agrashell has

written a question designed to exploit unrelated res-

ervations of the court of appeals. Unless Agrashell is

asking this Court to reexamine the evidence and to

decide the factual question as to the sufficiency of the

evidence, the only issue here is one easily answered:

whether an appellate court’s doubts or the jury’s ver-

dict is to prevail once the court has ascertained that

there was an evidentiary basis for finding the fact of

injury.

Far from being the only evidence of “fact of dam-

age,’’ the testimony of Hammons’ damage expert was

put in evidence, first, to give the jury guidance as to

the conclusions and inferences to be drawn from the

primary evidence of the fact of Hammons’ injury

’The court of appeals’ reference to the damage expert’s testi-

mony as a mere “‘theory’’ with ‘‘many practical defects”’ appears

at page 21 of the opinion (Petition, Appendix A), where the

court is discussing the expert’s explanation of his calculation of

the amount of business Hammons lost in the foreclosed market

and the extent of its loss on each ton of material it had to divert

to a less lucrative market. Mention of the ‘serious failings’’

of the expert’s testimony is made at page 24 as a summation of

the foregoing discussion of ‘‘defects’’ in the expert’s methods of

estimating the profits lost and as a prelude to the court’s conelu-

sion that ‘‘some damage’’ had been proven within the meaning

of Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,

114 n. 9 (1969).

a eth renee eee

tanaindiesiinn ant

PEORIA. LEMON PHAN

and, second, to establish the amount of the damage

suffered.

The two exclusive-dealing contracts found by the

court of appeals to be in unreasonable restraint of

trade were maintained between Agrashell and the two

most advantageously situated distributors in the

market. These two distributors were the leading man-

ufacturers and sellers of the blasting equipment in

which the nutshell abrasive sold by Agrashell and

Hammons is used (III App. 752T). As such, they were

relied upon by the equipment customers for supplies

of the abrasives best adapted for use in the blasting

equipment (II App. 234T-235T ; III App. 733T-734T ;

III App. 855T-856T ; V App. 14-19, 41-47). When the

leading producer of a product secures exclusive-

dealing arrangements with buyers having preferred

marketing positions, the depressing effect of those

agreements upon the business of competing producers

is obvious. Even Agrashell’s expert witness agreed

that such arrangements significantly strengthen one’s

marketing position (III App. 924T-925T).

As long as these exclusive-dealing arrangements

were observed, they necessarily denied Hammons

access to these two preferred marketing outlets. Ham-

mons’ initial advertising cempaign when it entered

the abrasives market (II App. 229T-233T; IV App.

16-20) and its subsequent sales efforts directed to the

entire trade, including Pangborn and Wheelabrator,

the two distributors tied to Agrashell through exclu-

sive-dealing contracts, are well documented (II App.

56T-57T ; II App. 229T-235T; V App. 105-108). At

all relevant times, Hammons had ample soft grit abra-

sive material to supply the market with an additional

one thousand to fifteen hundred tons annually (II App.

238T-239T )—more than enough to fill the orders its

expert projected in his damage calculations.

The record evidence of fact of damage in this case

is like that of other private antitrust cases in which

the plaintiff sought recompense for expected sales lost

by reason of the defendant’s predatory or exclusionary

business practices. Richfield Oil Corp. v. Karseal

Corp., 271 F.2d 709 (9th Cir. 1959); Atlas Building

Products Co. v. Diamond Block & Gravel Co.,' 269

F.2d 950 (10th Cir. 1959). For fact of damage, rather

than amount of damage, Hammons relied primarily,

not on the expert’s testimony, but on ‘circumstantial

evidence’”’ from which the trier of fact could “‘infer

. . . that the necessary causal relation between...

[Agrashell’s] conduct and the claimed damage ex-

isted.”” Zenith Radio Corp. v. Hazeltine Research,

Inc., supra, 395 U.S. at 125.

B. No confusion or conflict exists in the applicable law.

It is a late date indeed to be raising here questions

relating to the standard of proof in private antitrust

cases for establishing that reasonably anticipated

profits were lost and that the loss resulted from an

antitrust violation. The applicable criteria were stated

and restated in at least four decisions of this Court

preceding Zenith, supra. Continental Ore Co. v. Union

Carbide & Carbon Corp., 370 U.S. 691, 699 (1962) ;

Bigelow v. RKO Radio Pictures, 327 U.S. 251, 264

(1946); Hastman Kodak Co. v. Southern Photo

Materials Co., 273 U.S. 359 (1927) ; Story Parchment

Co. v. Paterson Paper Co., 282 U.S. 555 (1931).

Trial and appellate courts alike must also

observe the practical limits of the burden of

proof which may be demanded of a treble-damage

plaintiff who seeks recovery for injuries from a

partial or total exclusion from a market; damage

issues in these cases are rarely susceptible of the

kind of concrete, detailed proof of injury which is

available in other contexts. The Court has repeat-

edly held that in the absence of more precise

proof, the factfinder may ‘‘conclude as a matter

of just and reasonable inference from the proof

of defendants’ wrongful acts and their tendency

to injure plaintiffs’ business, and from the evi-

dence of the decline in prices, profits and values,

not shown to be attributable to other causes, that

defendants’ wrongful acts had caused damage to

the plaintiffs.”’ Zenith Radio Corp. v. Hazeltine

Research, Inc., supra, 395 U.S. at 123-4, quoting

Bigelow v. RKO Pictures, Inc., supra.

In the courts of appeals, these criteria have been

cited and applied uniform’. Richfield Owl Corp. v.

Karseal Corp., supra; Ati Building Products Co.

v. Diamond Block & Gravel Vo., supra; Flintkote Co.

v. Lysfjord, 246 F.2d 368 (9th Cir. 1957) ; Kobe, Inc.

v. Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952).

The results have varied because the facts have varied,

not because the courts are divided or confused as to

the applicable principle of law. In Herman Schwabe,

Inc. v. United Shoe Machinery Corp., 297 F.2d 906

(2nd Cir. 1962), upon which Agrashell relies (Peti-

tion, p. 16), there was no departure from the above

line of cases. That case involved the standard for

proving amount of damage, not the occurrence of an

injury or its causal connection with the antitrust

violation.

Nor is it essential, as the Petition here seems to

suggest (e.g., p. 14), that the antitrust violation be

the only possible explanation in the record for plain-

tiff’s loss of anticipated profits. ‘‘Normally it would be

I a A Ee RS

7

enough .. . if the defendant ‘materially contributed’

to plaintiff’s injury.’’ Perma-Life Mufflers, Inc. v.

Intern. Parts Co., 392 U.S. 134, 143 (1968), citing

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

supra. See also Zenith Radio Corp. v. Hazeltine Re-

search, Inc., supra, 395 U.S. at 114, n. 9.

‘‘Having shown the illegal restraint applied to its

product, [Hammons] had proved the causal connec-

tion between the defendant’s wrongful act and the

loss of revenue.’’ Richfield Oil Corp. v. Karseal

Corp., supra, 271 F.2d at 713.

C. There are ample additional grounds for sustaining the

lost-profits damage award.

Many of the shortcomings Agrashell assigns to

Hammons’ proof of injury are attributable directly to

the unlicensed surgery the court of appeals performed

on the Section 1 Sherman Act case Hammons had pre-

sented to the jury. The court below (1) usurped the

function of the jury when it weighed the conflicting

evidence (Opinion, p. 17) and decided Hammons had

failed to prove exclusive-dealing and resale price main-

tenance arrangements between Agrashell and

‘‘agents’’ other than Pangborn and Wheelabrator,?

(2) ignored or overlooked portions of the record when

it stated (Opinion, p. 24) that Agrashell did not use

its patent as an illegal barrier to competition prior to

2‘‘The Seventh Amendment provides that ‘no fact tried by a

jury, shall otherwise be re-examined in any Court of the United

States,’ U.S. Const. amend. VII. As I see it the verdict of this

jury should not have been ‘re-examined’ and overturned nor the

judgment set aside.’’ Mr. Justice Clark, dissenting, in Mayer

Paving & Asphalt Co. v. General Dynamics Corp., — F. 2d —,

1973 Trade Cases 74,719 (7th Cir. 1973).

the patent’s expiration and (3) erred as a matter of

law when it decided (Opinion, p. 24) that Hammons’

failure to establish an attempt to monopolize ‘‘ne-

gated’’ Agrashell’s misuse of its patent as an illegal

barrier to sales by Hammons.

1. In its weighing of the evidence on the existence

of a Section 1 Sherman Act combination between

Agrashell and its ‘‘agents’’ other than Pangborn and

Wheelabrator, the court of appeals’ opinion in and of

itself discloses the error committed. The court points

first to evidence ‘‘that Agrashell dealt with the agents

whether or not they agreed to the statement of policy”’’

(Opinion, p. 17). Since it was this statement of policy

that embodied Agrashell’s exclusive-dealing and re-

sale price maintenance terms of sale (V App. 10-13),

the court’s statement recognizes the undeniable evi-

dence in the record that at least some of the other

agents were induced to enter into unlawful agreements

(II App. 366T; III App. 683T-684T, 972T-973T; V

App. 22-23, 26, 32, 33, 37, 49, 67, 70, 79, 82, 83, 84, 93).

Apparently the court of appeals made the preposterous

assumption that Hammons had the burden or obliga-

tion of proving that agreement had been reached with

every ‘‘agent’’ before it could be found that agree-

ments had been reached with any of them and before

such agreements could be held violative of the Sherman

Act. |

If the court of appeals had been the trier of fact in

this case, it might have been justified in concluding, on

the basis of the testimony it described (Opinion, p.

17), that two of the agents had never heard of the

statement of policy. But the jury was entitled to be-

lieve Agrashell’s own statements to the trade that ‘‘all

of them follow the distribution policy that we have

a a ne ne nn ee

9

established”’ (V App. 22, 33, 40, 80). There is, in any

event, no basis in the law for the court of appeals’

insistence upon proof of ‘‘either formal or informal

contractual relationships’’ (Opinion, p. 17). A con-

tract is only one means of creating a conspiracy or

combination in restraint of trade. Much less formal

arrangements have frequently been held to have done

so. United States v. Container Corp. of America, 393

U.S. 333 (1969); United States v. Paramount Pic-

tures, Inc., 334 U.S. 131, 142 (1948) ; American Tobac-

co Co. v. ‘United States, 328 U.S. 781, 809 (1946);

Interstate Circuit v. United States, 306 U.S. 208, 227

(1939). It is enough that Agrashell encouraged — and

sometimes demanded — observance of the statement

of policy and many ‘‘agents’’ were persuaded to com-

ply with it. Albrecht v. Herald Company, 390 U.S.

145, 150 (1968); United States v. Parke, Davis and

Company, 362 U.S. 29, 43 (1960).

2. With respect to the status of Agrashell’s

patent, the court of appeals declared: ‘‘The assump-

tion that the patent was an illegal barrier prior to its

expiration was conclusively negated when the trial

judge ruled that the patent had not been fraudulently

procured’’ (Opinion, p. 24). By thus eliminating the

patent as one of the ‘‘structural supports’’ for the

expert’s damage testimony, the court ignored a basic

portion of Hammons’ case — that the patent was

used to monopolize a product market broader than the

scope of the patent grant. The Perry patent covered

‘‘pelletized nutshells . . . with the hardness of black

walnut shells” ‘‘for use in air blasts for cleaning

metal’’ (IV App. 3); the exclusive-dealing commit-

ments secured thr ugh the leverage of the patent cov-

ered all ‘‘soft grit blasting and cleaning materials’’

10

(V App. 11, 14-15, 41-42), without regard to end use

or cleaning method.’

3. As for the failure of Hammons’ attempt-to-

monopolize count, the only element the court of ap-

peals found lacking is proof of dangerous probability

of success.* That finding does not negate the proof of

the overt activities whose ‘‘dangerous probability”

had to be assessed. Nor did it bar Hammons from rely-

ing on those overt activities as some of the operating

market forces that made the illegal exclusive-dealing

arrangements more effective and hence more dam-

aging to Hammons. Even entirely lawful conduct can

sometimes be shown to be part of a scheme or course

of conduct violative of Section 1 of the Sherman Act.

Maryland & Va. Milk Pro. Ass’n. v. United States,

362 U.S. 458, 472 (1960); United States v. United

States Gypsum Co., 340 U.S. 76, 87 (1950). Surely

conduct that, if successful or likely to be suc-

cessful in achieving its purpose, would violate Section

2 of the Sherman Act can be treated as part of the

market context in which the existence and extent of

injury to a competitor is to be determined.

Hammons should have been given ‘‘the full bene-

fit of [its] proof without tightly compartmentalizing

the various factual components and wiping the slate

clean after scrutiny of each.’’ Continental Ore Co. v.

Union Carbide & Carbon Corp., supra, 370 U.S. at

699. Hammons’ antitrurt claim is based on Agrashell’s

3 Hammons’ contention that Agrashell had extended the patent

monopoly ‘‘to nutshell products not covered by the patent’’ was

specifically called to the jury’s attention by the trial court (III

App. 986T).

* This portion of the decision below has been challenged in Ham-

mons Products Co. v. Agrashell, Inc., No. 73-25.

11

single, cohesive, and protracted course of anticompeti-

tive conduct. (See Hammons’ opening statement, IT

App. 27T-28T, and closing argument, III App. 1007T-

1011T.) Hammons’ claim for lost profits is not predi-

cated on any theory that exclusive-dealing contracts

are unlawful per se but that they represent an un-

reasonable restraint of trade when considered along

with Agrashell’s regulation of price, filing and

threats of patent-infringement suits to obtain exclu-

sive-dealing contracts going beyond the scope of its

patent, and contractual reservation to itself of all busi-

ness with the government and with the dental-supply

industry.

II. As to Question 2, The “Commission Sales” Contract

A. This question is not presented by the record.

The court below contented itself with an elliptical

one-paragraph exposition of its reasons for denying

the Agrashell-Wheelabrator contract the protection

of “‘the doctrine promulgated in United States v.

General Electric Co.,’”’ 272 U.S. 476 (1926) (Opinion,

p. 17.) GE permits a manufacturer to use agency ar-

rangements to control the price charged for his

product at wholesale and retail. Seizing upon the

brevity of the court of appeals’ treatment of the mat-

ter, Agrashell understates the nature and terms of

the agreement held to have ‘‘extended the life of the

patent beyond the expiration date’’ (Opinion, p. 18).

It presents here for review, and defends, only the

price-fixing terms of the contract.

But Agrashell’s agreement with Wheelabrator is

not an agency contract ‘‘merely for the distribution of

a product warehoused and priced by the manv-

facturer’’ (Petition, p. 3). It is a contract that (1)

12

leaves the ‘‘agent,’’ Wheelabrator, ‘‘free temporarily’’

to deal elsewhere only when ‘‘ Agrashell is unable to

fulfill orders’? (V App. 15), (2) denies Wheelabrator

authority to compete with Agrashell in selling to ‘‘the

rubber industry, the dental supply industry and the

ornamental jewelry industry’ (V App. 15), (3) forbids

Agrashell to make bids or sales at prices below those

dictated to Wheelabrator (V App. 17), and (4) was

supplemented by an understanding that Wheelabra-

tor would not compete with Agrashell for government

contracts (V App. 78, 81).

Consequently, what we have here is not simply the

unilateral establishment by a manufacturer of the

price at which he will make, through an agent, the

first sale of his patented product. Rather, we have an

‘‘aggregation of trade restraints’’ (United States v.

Sealy, Inc., 388 U.S. 350, 354 (1967)) that takes this

case completely outside the scope of the General Elec-

tric doctrine, supra. Nothing in the General Electric

opinion suggests that a contract of agency can never

contain or constitute a Section 1 Sherman Act vio-

lation. When the patent-holding manufacturer and

his ‘‘agent’’ are competing or potentially competing

independent businessmen, they are not free to elimi-

nate competition between themselves by agreement.

United States v. Masonite Corp., 316 U.S. 265 (1942).

A fortiori, they are not free to make exclusive-dealing

and other contractual commitments that protect the

patent owner from competition after the expiration

of his patent.

Any possibility that the court of appeals was

relying exclusively on the pricing provisions of the

agreement between Agrashell and Wheelabrator is

negated by the court’s holding with respect to the

13

Pangborn contract. The latter contract spécifies that

‘‘Agrashell reserves no right to set selling prices’’

(V App. 45). Yet the court below, stressing the exclu-

sive-dealing feature of that agreement, found the

same illegal extension of the patent monopoly

(Opinion, pp. 18-19).

Indeed, the court of appeals did not even decide that

the Wheelabrator contract is in fact a contract of

agency. Its differentiation of the General Electrie doc-

trine is prefaced with the phrase: ‘‘ Assuming that the

Wheelabrator contract was a contract of agency, see

RESTATEMENT (2d) or AGENCY §14J (1958)”’ ( Opinion,

p. 18). This reference to the section of the Restatement

that deals with the distinction between an agent and a

buyer is a clear manifestation that the lower court

stopped short of accepting Agrashell’s contention

that it had made an agency contract. Since §14J of the

Restatement makes agency status depend ‘upon

whether the parties agree that his duty is to act pri-

marily for the benefit of the one delivering the goods

to him or is act primarily for his own benefit,”’ there

are serious obstacles to classifying Wheelabrator as an

agent. It is difficult, first of all, to understand why

Wheelabrator needs price-support assurances from

Agrashell if Wheelabrator is acting primarily not for

its own benefit but for Agrashell’s. Moreover, the

agreement recognizes Wheelabrator as being a pro-

ducer and marketer of various types of cleaning equip-

ment and the materials used therein (V App. 14) and

specifies that Wheelabrator is to make sales under the

contract in its own name, not in Agrashell’s name (V

App. 15). Each of these features of the arrangement

is inconsistent with agency status. See RESTATEMENT

- ees eT eeeee

PINAR TRO SE I de

14

(2d) or AcENoy, §14J, Comment b(6) and (7). See also

United States v. Masonite Corp., supra. *

Agrashell makes much of the fact that the written

contract with Wheelabrator is terminable on sixty

days’ notice. But it is terminable only on its anniver-

sary date, November 1 (V App. 18), which means its

initial force necessarily extended to a date nearly five

months after the expiration of Agrashell’s patent on

June 10, 1964 (IV App. 2). It actually remained in

effect right up to the time of the trial of this case in

1970. Agrashell’s point boils down to an untenable

argument that an agreement in restraint of trade

escapes condemnation under Section 1 of the Sherman

Act if it is voidable at the option of either party.

B. The finding below of a Section 1 Sherman Act violation is

correct for reasons quite unrelated to the question presented.

To reach the second question presented by the Peti-

tion, this Court must (1) view the Wheelabrator con-

tract in isolation from the rest of Agrashell’s anti-

competitive activity proven at the trial (as the court of

appeals apparently did), (2) ignore all restrictive fea-

tures of the agreement except Agrashell’s reservation

of the right to set price and (3) avoid comparing the

scope of the patent’s product claims with the products

covered by the contract and its exclusive-dealing

clause.’

5 Had the contract been limited to ‘‘abrasive material for use

in air blasts for cleaning metal comprising pelletized nutshells

having the kardness of black walnut shells’? (IV App. 3), an

exclusive-dealing arrangement for the life of the patent would have

been lawful despite the contract’s other restraints on competition

between the parties. Under these circumstances, however, an

exclusive-dealing clause would have been superfluous until the

patent had expired. Agrashell’s status as exclusive supplier would

have been fully protected by its limited patent monopoly.

15

If the case Hammons presented to the jury at trial

is not thus ‘“compartmentalized”’ (Continental Ore

Co. v. Union Carbide & Carbon Corp., supra, 370 U.S.

at 699), the restraint of trade shown is of an intensity

and scope that extends beyond not merely the practice

sanctioned in the General Electric case but also that

outlawed in United States v. Masonite Corp., 316 U.S.

265 (1942). Masonite, like Agrashell, utilized *‘the

sales organization of another business—a business with

which [it] has no intimate relationship—. . . a regimen-

tation of a marketing system . . . peculiarly suscep-

tible to the restraints of trade which the Sherman Act

condemns.”’ United States v. Masonite Corp., supra,

316 U.S. at 279. Masonite, like Agrashell, reserved

specific markets to itself and limited those available to

the “‘agent.”’ 316 U.S. at 271. But Masonite’s ‘fagents’’

were left free to deal in competing wallboard

products. Indeed, many of Masonite’s ‘fagents’’ were

holders of competing patents and manufacturers of

competing wallboard products. Even ignoring Agra-

shell’s extension and enforcement of its ‘fagency’’

contracts beyond the 17-year life of the Perry patent,

Agrashell’s control of the market in which its patent

functioned was much more complete than that of

Masonite.

MEIC TG ILE MA: REALE PED

16

CONCLUSION

For the reasons stated above, the Petition for a

Writ of Certiorari should be denied.

Respectfully submitted,

Joun OC. Scorr

Worth ROowLeEY

Sreven K. YABLONSKI

1730 Rhode Island Ave., N.W.

Washington, D.C. 20036

Counsel for Respondent

Of Counsel:

Morris CHERTKOV

1730 Rhode Island Ave., N.W.

Washington, D.C. 20036

Fs EL LG MALL ELD RES RN ENNIS