Appendix — Hanover Shoe, Inc. v. United Shoe MacHinery Corp.

Supreme Court brief1968

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SUPREME COURT. Uy Bi | NOV .24 1

- APPENDIX =i] ws’

—_—_————— ame a |

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| Supreme Cont of the United States

OCTOBER TERM, 1967 ©

ns i No. 835

_ . THE HANOVER SHOE, INC.,

_ Petitioner,

_ UNITED SHOE MACHINERY CORPORATION,

‘Respondent.

No. 463

UN ITED. SHOE MACHINERY. CORPORATION,

ra Petitioner,

THE HAN OVER SHOE, INC.,

Respondent.

- ON WRITS OF CERTIORARI ,TO THE COURT OF APPEALS

FOR THE THIRD CIRCUIT,

f _

* + Petition for Writs of Certiorari filed

(No. 335—July 7, 1967)

(No. 463—August 7, 1967)

= tee, . Pros a ae ..

Certiorari granted’ October 9, 1967... :

ee »

e ° . »

Pe OTe ge eat Be | ASE eT SAMAR EEO LEO LER IEE PEED LAI LLORES LLL LENE DR

INDEX

‘ e. :-

ke © | . . s PAGE _

Relevant Docket Entries, United States ,

Court of Appeals for the Third Cireuit 1

_Amended Complaint y

Second Amended Answer to Amended Complaint ...... 21° -

Findings of Fact, Conclusions of Law and Opinion ;

x of Sheridan C. J., April 28, 1965 , ieee ae

IN otide of Motion dated June 9, 1965 CONE -108

Affidavit of Ralph M. Carson Read in Support of

Motion for Fertial New Trial sworn to June 9,

1965 : 111

* Annex 1—Taaaelitiot of. Hearing Metove Wyzanski :

} J., May 28, 1965 on Application for wrpmaroor en

oe Amendment of Decree :™

. Annex 2—Excerpt from Transcypt of May ‘1

1951 in U. S: v. United Shoe Mach. Corp. ee: : 15:

Supplemental and Amended Findings of Fact, Con-

clusions of .Law and Opinion, as Amended, by

Sheridan C. J., August 12, 1965 : 162

Order of * Sheridan C. J. August 12, 1965, denying —

‘ defendant’s motion for partial new trial _...............

__ Judgment of Sheridan C. J., ». August oe... 180

‘Notice of Appeal dated August 20, 1965 oe

Notice of Cross-Appeal dated September 10,. 1965 :... 183

| Opinion of United States ee of Appeals for ‘the

. Third Cireuit, April 11, 1967 ...... . 185

Supplemental Opinion of United States Court of |

‘. Appeals for the Third Circuit, May 18, 1967 ........ 219

‘ Order Amending Judgment pa Amended Judgment ee

dated June 7, 1967 : 223

‘Order Denying Rehearing dated May 18, 1967... 227°

Order of the Supreme Court 6f the United States

Allowing Certiorari in No. 335, Ocfober 9, 1967°......

Order of. the. Supreme Court of the United States

Allowing Certiorari 1 in No. 463, October 9, 1967 ..

Complaint i in U.S. v. United Shoe Mach. Corp. eens :

Final Decree of Wyzanski J. in U. g.v. United Shoe -

. Mach. Corp., February 18, 1953, ag. modified J uly

12,and September 17, 1954. igen ;

Stipulation of. Facts dated March. 22, 1957 ..

: Or r of Goodrich J. dated February 12, 1960 Deny-

_ Defendant’s: Motion to Dismiss Following

~Co. v. United: Shoe Mach. ‘Corp. Civ. No. 6841,

, WDNY : =

' Decision of Burke J. April 12, 1963, in W. B. Coon.

Col v. United Shoe Mach. Corp.

Excerpts » ‘from Testimony of. Lawrence B. Shep-

arate Trial [Opinion at 185 F. Supp. 6367 .:.°

: Complaint dated December 30, 1955 in W. B. Coon

wry

251

252

267-

pard a 2745470

Excerpts from ealiteneiies of Paul E. Spears : 397; 490 ; 495 -

_ Excerpts from Testimoiy of Chester Ward =

Excerpts from Testimony of John J. Corson ...........

_ Excerpts from Testimony of Lewis. B. ‘Walker ...........

_ Excerpts from Deposition of ot F. Purtell

taken June 8 and August 15, 1961 os

Excerpts from Testimony of Richard M. Cyert linet

‘Excerpts from Testimony of Robert R. Spence ........

Excerpts from Testimony of Robert M. Laird —......

Excerpts from Separate Trial on the Passing-On Issue

331

BT]

588

598

- Excerpts from Testimony of Lawrence B. Sheppard 598

Excerpts from any of Robert: M. ‘Laird ......

4 ; ~

601

4 ’

Pianerivy’s Exugrrs: ;

-Exhibit 24 (Admitted -R. 400)

Exhibit 25 (Part) (Admitted R. 402)

Exhibit 26 (Admitted R. 438)

Exhibit 31 (Adniitted R. 449)

Exhibit 33 (Admitted R. 453)

Exhibit 34 (Admitted R. 457) .

7 { DerenDant’s ExHisits:

Exhibit 5 (Admitted ‘R. 148)

Exhibit 7 (Admitted R. 167)

Exhibit 8 (Admittg@.R. 167)

cae

Cat

_ Exhibit 9 (Admitted R. 168) _ ©. 632

Exhibit 10 (Admitted R. 171) 634

Exhibit 11 (Admitted R. 172). 636

Exhibit 12 (Admitted R. 174) 638

_ Exhibit 13 (Admitted R. 176) . . 640

Exhibit 14 (Admitted R. 178) 3 642.

Exhibit 15(A) (Admitted R. 178). 644

Exhibit 15(B) (Admitted R. 178) _. 646

. Exhibit 33, Page 15 (Admitted R. 548)... 648

__ Exhibit’ 33, Page 22 (Admitted R. 648) «649 |

’ Exhibit.34 (Part) (Admitted R. 378) 6514

Exhibit 48 (Admitted R. 1367) ». 664

Exhibit 49 (Admitted R. 1367) . 666

Exhibit 51 (Admitted R. 1386) 668

Exhibit 70 (Admitted R. 1884) ~ 670

Exhibit 73 (Admitted RB. 1905) 672

245 ey

A ; ' . .

é e :

» , ~ -

. é p

. Sept. 28\Copy of Notice of Appeal, ree’d. Aug. 23, 1965,.

- RELEVANT Docker Ewrams Unrrep States Cova _

or APPEALS FoR THE THInp Circuir

Date

2 1965 . ; . ‘

“Sept. 28 Copy of Notice af Appeal, ree’d. Sept. 13, ‘1965,

filed: ; -

Record and exhibits (except as noted on original.

list), ree’d. Sept. 20, 1965, filed. (Covers

-15626/15627). Exhs. in Exh. Rm. . |

R. filed.

* Oct. 28 Supplemental record (Order amending opinion),

_ filed. (Covers 15626/15627).

ee oi .

-Apr.1 Motion-by Defendant for argument before Court

7 en banc and to allow each side 90 minutes for * | |

argument, filed. (Covers 15626/15627). ‘Affi- —

davit of services attached.

- Apr. 11, Submitted on Motion by United: Shoe Machinery

Corporation for oral argument before the.

Court en bane and to allow each side 90

minutes for argument. Coram: McLaughlin, —

Ganey and Freedman, Circuit Judges. .-

Apr. 11 Order (McLaughlin, Ganey and Freedman, Cir-

| cuit Judges) * denying motion for oral argn-:

ment before Court en bane and to allow each

‘side 90 minutes for argument, filed. (Covers

15626/15627). | La pile -"

May 3 | Argued. Coram: Forman, Ganey and Freed-

man, Circuit Judges. (Copies of “Dee. 3, 1962 - °

_at New York” transcript handed to panel

.. Jndges in court.)

"1967 .

Apr. 11

Apr-.26

_ May 18

May 18

May 23

May. 29

Opinion of. the Gourt (Forman, Ganey ‘and

Freedman, Cireuit J udges);. ‘filed (Covers

15626/15627).

‘Petition for cee em by Hanover Shoe (as °

_ appellant in 15627 and as appellee in amie

- filed. : ‘(Covers 15626/15627). z

obs: (Staley, Chief Judge and ‘McLavghlin,

-Kalodner,* Hastie, Forman, Ganey, Smith, .

Freedman and Seite, Circuit Judges) denying .

_petition for — filed. — 15626/

~ 15627). .

Opes Per Curiam on Rehearing (Staley, 2

Chief Judge and McLaughlin, Kalodner,

Hastie, Forman, Ganey, Smith, Freedman and

Seitz, pins ica es filed. (Covers ve a

15627).

Supplemental Gute ees. ‘Ganey and:

Freedman, Circuit: Judges), filed. - (Covers -

15626/15627).

‘Lneter. Amending Ufpinion (Wonsian, ‘Ganey and

. Freedman, Circuit Judges), filed. (Covers _

15626 /15627).

lied by plaintiff (Hanover Shoe, Ine.) for

stay of mandate, filed. (4 copies). (Covers

- 15626/15627 ). Affidavit of service and — .

- ance of ‘service ae,

Order (Forman, Ganey an atin & Circuit

Judges) staying issuance of the mandate until

July 10, 1967, filed. (Covers 15626/15627).

- .June 7: Order- (Forman, Ganey. and Freedman, Circuit os

i . Judges} amending judgment, filed. {Covers .

15626/15627). Sie Peete ek we ie meric

June 7° .Amended judgment vacating the judgment ‘of

the District Court, filed August 13, 1965 in ©

United’s appeal, No. 15,626) as to damages. ~

ahd a new trial is awarded limited to damages -

in accordance with the opinion of this Court;

the award of counsel fees in the amount of

$600,000 for the services of Donovan Leisure -

Newton & Irvine and $50,000 for the services °

of: Nogi, O’Malley & Harris is vacated for

further proceedings in accordance with the

opinion of this Court; and vacating the judg-

Ment of the District Court, filed August 13,

1965 in (Hanover’s appeal, No. 15,627) so that

the issue therein raised: may be reconsidered

‘ as part of the retrial of damages. The amount:

of attorneys fees’ in the prosecution, briefing

' and argument of each.of these appeals shall

be determined by the District:-Court as part

‘.'- of the retrial of the issue of damages, and the -

- costs on these appeals shall abide the ultimate -

decision in this action, filed. « (Covers: 15262/

15627). | oe . ea 3

July 11 Notice of filing. (on July ‘7; 1967) of petition for

writ of certiorari, received from Clerk of. .

Supreme Court, filed. (S.C: No. 335).

(Covers. 15626/15627). :

July 11 Certificate of filing (on July 7, 1967) of. petition

. ° for writ of certiorari, received from Cle: of

» Supreme Court, filed... (S. C. No. aD). -

_. . (Covers 15626/15627). Ee :

Aug. 9 Notice of filing (on August 7, 1967): of petition

° for writ of certiorari, received from Clerk of

. Supreme Court; filed. (S. C. No. 463, OT...

1967). (Covers 15626/7). .

oe bd

- .

Oot: 14 Certified copy of alii, dated October 9, 1967,

received from Clerk of Supreme Court grant- .

ing petition for writ of certiorari, consolidat-

ing this case with S. C. No. 463, allotting 2

hours for oral argument, etc., filed. (S. C.

No. 335, Q.T. 1967). (Covers "15626 /15627).

Oct. 14 Certified copy of order, dated October 9, 1967,

. received from Clerk of Supreme Court ‘grant-

, ing petition for writ of certiorari, consolidat-

ing this case with S. C. No. 335, “ar we 20

hours for oral argument, etc., filed. (8S. C

No. 463, O.T. 1967). (Covers 115626/15627).

Bistrict Court of the United States-

For THE Minpte District oF PENNSYLVANIA

- Civil Action—File No. 5 395

@ientinn 2 dy.

4 THE Hanover Suos, Inc.,

aera e ; Plaintiff,

_ y—against— ie

ae _ Unrtep Sor. MAcHINERY CorporaTION,*

yaa ; aie sa 3 Defendant.

. a

‘

Amended Complaint,

Jurisdiction: vy. .

__ 1. This.action arises under Section 2 of the ct com-

monly known as the Sherman Act, 26 Stat. 209, U! S. C.,

~ Title 15, Sec.'2 and under Section 4 of the Act comménly

known as the Clayton Act, 38 Stat:-731 ; U. S.-C. Title 15,

- Section 15. . |

Parties:

*2: The plaintiff, The Hanover Shoe, The., sometimes —

referred to hereinafter as Hanover. is a corporation or-

ganized and existing under the laws of the State of Pennsyl-

vania and has its principal office and place of business at.

Hanover; Pennsylvania. °

3. The defendant, United Shoe Machinery Corpora-

tion, sometimes referred ‘to hereinafter as United. is a cor-

poration organized and existing under the laws of the State

d | 6 ( ar

+ Amended Complaint

of New Jersey and has its principal office and place of

- business at 140 Federal Street, Boston, Massachusetts. The

_’ defendant also t cts business ip the\Middle District of »

Pennsylvania, ang a place of business and offices at 20

South Fourth Street, Harrisburg, Pennsylvania, and may

be found. within said Middle District.

The Product anil Ce ommerce Involved:

4. Since 1899 United or its predecesspf has been con-

tinuously engaged in the manufacture and distribution of

shoe.machinery. The principal part of such shoe machinery

_is manufactured at United's faetory at Beverly, Massachu-

setts,: and is distributed in interstate ¢onimerce -to, shoe ©

manufacturers, including plaintiff. Shipments were made

to plaintiff at its principal factory at Hanover, Pex#syl-

_ Vania, and at its other factories at Middletown and Em-

. mitsburg, Maryland, arid-East Berlin, Pennsylvania. __

5. Hanover is now and, since about 1901, has been

engaged in the manufacture and sale of men’s and boys’

shoes. Most of the operations of importance in the making

' of these shoes are done by. machine and Hanover cannot

engage competitively in quantity — of —_ “—

a such shoe machinery. ; 3

- ‘The operations involved in the manufacture of men’s ~ :

and boys’ shoes by Hanover and other shoe manufacturers —

_ are known as upper cutting, upper fitting, stock fitting,

lasting, bottoming, making, finishing and treeing. These

operations, briefly described below, are conducted in seven :

. departments or rooms at the shoe factories of Hanover,as

follows, and some or all of the United machine types listed

28 Aiaaintes sn ald

B10 SW AGP IS AI a te ESA Lil 8 A YOROAL EIA DROIT the MP hs SEAM A ie

FADIA Ts.

VB tNatewne

é, = 7

Amended Chane “ie

in eae 7 through 13 below have been used by Han-

over since 1912. + —

7. Cutting Room: hake cutting i is done in this room.

This consists of cutting the various parts of the ‘ti om.

‘and linings. The parts of the upper (such as vamps,

quarters, tips, back stays and tongues) are isually cut out

_ from leather and: fabri by clicking machines and clicking

dies. In addition to . shoe uppers, the linings are also -s)

cut. Uppers and linings are match-marked, sorted into

pairs and stamped for size and case numbers, the latter

being for factory identification throughout the remainder * .

of the manufacturing process. The following’ United ma-

chines are now or were. in the past used by meeneiarde in

* «hese operations: ~

Ideal ‘Clicking:, ‘Model. =

~ Tdeal Twin Clicking, Model G

8. Fitting Room: Upper fitting is déne in this room.

This immediately follows the cutting operations. It in-

cludes a wide range of operations by means of which the

separate parts of the upper’ and lining are prepared and

‘assembled to make the completed shoe upper. The number

_and: sequence of operations vary greatly and are in direct

_ Felation to the complexity of design and to the type of shoe

being produced. 4f the shoes are eyeletted, a temporary

thread lacing is inserted. in the eyelet holes by a lating

_ machine. This is ‘for the purpose of retaining the ‘shoe |

shape during the subsequent operations. The following’ -

- United machines are now or were in the past used rind Han- ©

over in these operations :

Edging, Model B . i

USMC Cementing; Model C

8 oe

Lae _ Amended C omplaint

Duplex SN Model B

USMC Eyeletting, Model C

‘USMC Tip Finishing, Model A

. USME Lacing, Model A

cr.

Goodyear Outsole. Rapid Lockstitch, Model O

Pluma ‘Skiving, Model O’

~ USMC Skiving, Model A. Rae

Rapid Kolding, Model J. ‘ oe

9. Stock Fitting Room: Stock fitting i iS = preparation -

-of bottom stock.for the shoe. The principal shoe parts pre-

pared are outsoles, insoles and platforms (which are ,,

cushioned insoles) but they may also include counters, box

_ toes, heels and welting. The operations largely involve

cutting and shaping the materials used, and applying ad- _—

. hesives or-stiffeners to the various parts. The, following

’ United machines are now or were in the ceil used by

' Hanover in these operations: :

Economy Insole Lip Cementing. Model C

' Economy Insole Channeling, Model B.

Automatic Heel Compressing, No: 6 ,

Insole Lip Cutting & Scoring, Model E id

2, Improved Gearless Sole Cutting, Model H

Planet Sole Rounding, Model E- ~ = '

Economy Insole Lip Setting, Model B

USMC Splitting, Models B and: Ge

Power Welt Tacking . .

Insole Rib Cementing. Model A

Insole Rib Reinforcing, Model B.

10. Lasting Room: Lasting is the series of operations ™

by means of which the shoe: upper and lining are drawn

eee - NS SSE.

$ A mended Complaint °

Le Pz

tightly over the wood last. pn which the shoe is made, and-

fastened to the insole of the shoe. This operation causes

‘the upper to conform to the shape of the last, imparting

thereby the desired style and fit characteristic to the finished

shoe. The work of lasting consists of, positioning the insole,

upper. (inelading all lining materials), box toes -and

7 “counters in correct relation to one another ; in stretching the

upper ; and.in fastening the entire structure together. The

upper must be conformed to the last with a high degreg of

skill. ‘The following United machines are now or weré in

the ‘past used by Hanover in these operations:

. Rex Assembling, Model H

: USMC Celastic Conditioning

USMC Lasting, No. 7 — :

-USMC Heel Seat. Lasting, Model E

USMC Staple Sidelasting, Model B

Rex Pulling Over, Model C ,

USMC Insole Tacking, No. 1 ,

USMC Upfer Trimming, Model J - -

USMC Toe Lasting, Model Se .

11. Giciiens Room: ‘Desssinien and making are done

in this room. Bottoming, includes a series of operation’ by |

means of which the shoe bottom is prepared and the out-

sole is permanently attached to the lasted upper of the shoe

and it may include Some operations upon the outsole which

are performed after attaching. Construction of the Good-,

year Welt Shoe requires that the welt be sewn on, the sur-

plus upper’ material be removed (mseam. trimming), the |

_ Welt be beaten out flat “ind trimmed off and bev eled af the

- heel breast line,,dind\the outsole and welt be rotigh-rounded

to approximately final:shape. The final operation in bot-

“~

eg 10

. Affiended Complaint

taming generally is leveling, which is performed by ma-

chines which apply considerable pressure to the sole bottom

either by means of a progressive roll or a matrix form.

This operation compacts the shoe bottom and produces the

desired smooth contours of the sole surface. ;

Making consists of the operations performed, after the

outsole has been attached, that have to do with attaching

the heel to.the shoe, trimming the heel and the edges of the

sole to the required contour, scouring the heels, setting the

‘edges and staining and burnishing the heels. —

The following United machines are now o os were in the

past used by Hanover in these bottoming and making |

operations:

‘ _. * , Goodyear Welt Beating & Slashing ~

Goodyear Welt Indenting & Burnishing

Inseam Cerhenting, Model A

USMC Sole Cementing, Model C

Goodyear Universal Rounding: & Channeling, .

Model E

. USMC Fibre Pacuehie, Model } B

' Goodyear Automatic Sole Leveling, Model D -

_ Goodyear Outsole Rapid ockstitch, Model O

Loose Nailing, No. 2

oe ' * Goodyear Stitch Separating, Model B

ee Goodyear Upper Stapling, Model B.

_ USMC Inseam Trimming, Model C -

vs, Goodyear Rapid Bobbin Winding

~ . Goodyear Welt Butting & Tacking, Model B

Goodyear Welt Sewing, Model K __

Goodyear Inseam Sewihg, Model B:

Goodyear Welt Indenting & a de Model C

2 ‘

a -* \

_ Amended Complaint

11 ae

12. Finishing Rooin: Finishing is ‘the giving of a

_ thorough treatment to the

" make: it attractive in appearance and the heels (ifgwood), .

entire shoe bottom -surface to

¥.

are permanently attached. The bottom treatment consists\ oe

of a variable combination of

operations according oheaty

and effects desired and includes buffing and the application

of different finishes. The following United machines are

now or were in the past used by Hanover in these opéra4

. tions:

McKay Automatic Heel eo & Attaghing,

- Model B

Crest Heel Blacking,

Model C | *

_ USMC Jointing, Model G

_ Twin Edge Setting, Model D

Universal Slugging

USMC Edge Trimming, Model H | 5

-Heel Breast Scouring and Aligning, Model.A

USMC Edge Trimming, Model L

USMC Twin Edge Setting, Model F

13. Treeing Room: Treeing is the operation in which

the shoes are: given. their

final treatment before being

packed in boxes. The following Uriited machine is used

by Hanover in this operation :

USMC Embossing. Model G 2

The Vi iolation of Law C omplained of: "

14, Prior to and “continuously from the year 1912 the

defendant. United Shoe Machinery Corporation, has been *

violating the antitrust laws of the United States, by:

(a) monopolizing i

in the shoe machinery’ i

terstate trade and commerce °

industry of the United States;

; Amended Complaint

(b) monopolizing interstate trade and commerce

of the United States in substantially all shoe machinery

required and used by sonra in the manufacture of .

~ men ’sand boys’ shoes.: :

15. ‘Monopolization by United as aforesaid and the -

‘to dominate and control the ‘market in*shoe machinery, to.

restrict actual competition and to excuate potential com~

petition in said market.

The Principal Means Used to.

Accomplish the V ivlation of Law:

* 16. At all times prior to May 17, 1954, the date of

the decision of the United States, Supreme Court affirm-

ing a judgment that United - violated Section 2 of the

Sherman Act by munopolizing the shoe machinery trade

and ‘commerce among the several States, United declined

to sell most of its shoe machines and made such machines

available to shoe nanufacturers only upon leases which

reserved to United: the sole and exclusive property in the,

machines and w hich granted to lessees the right to use

the machines only ‘ToR the purposes specified in the leases.

At all times prior to said May, 17, 1954, United offered

on lease only all of the major, important machines used

by Hanover in the operations described in paragraphs 7

‘through 13 above and listed in. those paragraphs.

17. United’s ge for most of its machines, ineluding

all such leayes between United and Hanover, provided for

the payment by shoe manufacturing lessees of flat rental -

charges or of su-called unit charges based upon the number ,.

of ‘shoes upon which’ the machines were:used or upon the ©

* 43

Amended omphaint

number of operdfions. performed by the machines. Leases

for the rest of its machines, ineluding all such leases ‘be-

tween United and Hanover, provided for the payment of

both rental and unit charges. Where unit charge machines

were adaptable for more than one kind of operation, sepa-

rate charges were assessed by United for each marys of

“operation. '

. 18.- At all times prior to said May 17, 1954, all leases

~ of United, including all leases entered into between’ United -

‘and Hanover, included the following provisions. which,

alone or,in combination with one ‘@& more of he others,

deter and prevent shoe manufacturing lessees,, including

Hanover, from. replacing with a competitive machine each .

. of the shoe nfichines le sed from United.

(a) That’ *the lessee shall use the mactiine for’a

fixed period of time, never less than 10 years, subject ;

to rénewal for a period.of not less than five years; that

upon the expiration of the origifial term or the renewal

_ term, the leases provided that the machinery shall con-

‘tinue tinder the lease indefinitely subject to the right

of United ‘or the lessce-to terminate the lease upon 60

days’ notice. In practice United did not leave the ma-

chinery, subject to: termination on 60 days’ notice but

required the execution of a further renewal lease;

(b) That the lessee of each unit dines machine

shall use the machine to its full capacity upon all shoes

made by the lessee upoh which. the ‘machine is capable -

of being used; . .

shall: use ‘the machine each month upon a stipulated

Amended Complaint

> minimum niieobes of pairs of shoes, and shall pay to

United a stipulated sum of money at the conclusion of |

each ‘month during which the machine is not used upon

said minimum number of pairs of shoes;

_ (d) That upon termination of the. lease the lessee

_. Shall surrender the machine to United in good order and

. condition, shall reimburse United for the cost of all

- broken or missing parts, and shall pay to United a

_ stipulated sum of money, called a deferred payment or —

return charge, varying in ameunt according to the ma-

chine leased from about 30% to 40% of the manufac- - .

turing cost plus the developmental cost’of the machine

type,: although there is no tte formula by which the

amount is determined.

19. Beginning Sania: Re: 1923, United, by written |

~ . notice to its lessees established a plan whereby a stated i

centage (2% from January 1, 1923, increased to 3% be-

ginning February 1, 1927 and to 4% beginning: August 1,

1939) of all unit charges, rentals and minimum charges on

a machine were set aside by United to the credit of the

lessee solely for the purpose of being applied by the lessee, —

if the lessee desired, to deferred (or return) payments and,

since 1939, to payments for. use of the machine less than

minimum that might be due or beconie due under the terms —

of the lease on that ‘machine or on other machines under

lease in the factory. The amount so set aside by United to

_the credit of the lessee is commonly known as. the “right of

deduction fund. oh

20.: In the event that any lessee, including Hanover,

has desired to return a United machine to be replaced with -

another United machine, United permits such return upon

A mended C oimplaint

payniin ie the lessee, as required wielias United's aii

of the cost of transportation of such machine to United at

Beverley, Massachusetts, the cost of replacement. of all

broken or missirigy parts at the regular prices established

_.by United therefor and the return charge established for

such machine in the lease. Where a lessee, including Han-

over, wished to return a United machine solely to replace

_ it with a competitor’s machine, United permits the return

only on the*payment, in addition to the items just stated,

of an adjustment or commutation of sums that would have —

_accrued thereafter which is calculated, in the case of a ma--

chine leased without any unit charge, at 25% of the monthly

rentals payable for the balance ofthe term and, as to a

machine leased ‘in whole or in part on the basis of unit

charges, at 50% of the minimum monthly payment for the

_ balance of the term after the waiver of four months for

each of the remaining yéars of the term; that these charges

are, at the lessee’s option, payable in cash or charged against

the right of deduction fund. | .

1. Abnough not required to do so by its leases, United

we as all times undertaken to repair its machines without

extra charge to the lessee except for such parts as -are.

required. As a result no independent repair or service

organizations have been, able to: grow up, and potential or .

existing competitors of United in the manufacture of shoe

machinery must either offer repair service with their ma-

- chines or suffer the competitive disadvantage of marketing

machines to shoe manufacturers, all of whom know that

repair setvice will be difficult to provide.

22. As a further means of preventing competition, ex-

cluding competitors and expanding its share of the market, |

16.

Amended res omplaint

United has, where faced with competition in the market-

ing of one, or more types of shoe machinery made by it,

adopted, among others, the following practices:

(a) Reduced its own rates on the machinery type

or types threatened by competition; —

(b) Introduced new models at lower rates than for

comparable old models;

despite a policy of increasing rates on other, machine

types to meet increased costs of manufacture ;

(d)° Introduced new ‘models so designed and’ priced

- as to reach only that area ‘of the shoe manufacturing

_ industry in which a competitor is attempting to market

a machine. , :

’ Extent of United’s M Mopoly )

and Control of Market:

23. By means’ of the unlawful conduct hereinbefore. ,

described, United has placed in shoe factories most of the

shoe machinery used in the manufacture of shoes in the.

- United States. United supplies from 75% to 100% of

-“almost all of the different types of shoe-machinery used in -

; the United States,’ exclusive of dry thread Sewing ma-

chinery. -

24. The following types of shoe machinery (more par-

ticulary identified in paragraphs 7 through 13 above) are

required by Hanover in the manufacture of men’s and boys’

shoes and are or have been leased by Hanover from United.

United supplied approximately the following percentages of

| . “Amended C —

ay the total of all guch machines i in | American en factories

about. pany 1, 1947: :

ee me United’s Share of

Total Shoe

in Shoe Factories

. ; . in the United States

at & as of about

Machine Types _ - , : : May 1, 1947

Clicking oe

Eyeletting : - 81%

Cutting Press (Dinking) 91%.

Pulling. Over - - CR

Lasting oe 3

Heel Seat Lasting’ |

‘ Staple Side Lasting

Bed Lasting

Welt Toe Lasting

Inseam Trimming

Welt Sewing

. Rough Rounding

Outsole Stitching

. Loose Nailing

Outsole Leveling

Fibre Fastening -

Heel Attaching

- Slugging :

' Fitting Room Department ee ie

Skiving pare , 80%

Folding © " 62%

+ Upper Cementing ee

Lacing gs . 99%

- Edging “a 100%

Tip Finishing . 99%

United's Share of

_in Shoe Factories

ng 2 in the United States

Yetta: as of about .

¥ Machine Types . May 1, 1947

General Department

, Edge Trimming. 88%

_ Edge Setting 90%

Sole Leather Splitting .

. Cementing _ . 83%

Sole Rounding - ©: 100%

Heel. Blacking ns 100%

Jointing - - 100%

~ Insole Lip Cutting and —_ . 97%

Goodyear Department . ae

Insole Channeling . BPD%

~ Rib piiehiniee” 93% -

Bobbin Winding + B%

' Welt Beating & Slashing 99%

, ; ‘Lip Turning & Setting . 99%:

; Lip Cementing 9% }

Welt Butting . 100%

Upper Stapling 98%

Rib Cementing . ‘ B%

Heeling Department © 7 Bare As

Heel Compressing ere 89% an

Lasting Department % eae

Insole Tacking . - GG

Pulling Over ee - wn

_ Assembling — . 100%

Celastic Co onditioning ~ _. G%

Upper Trimming ow 98%

Effects of United’s Monopoly: ae.

25. The aforesaid practices and-conduct of United, its

‘monopolization of interstate commerce in shoe machinery,

Amended Complaint

the restriction of existing. competition and ae IR - i a

potential competition in the manufacture, leasing and sale

of shoe machinery has had the‘following effects on Hanover :

‘(a) United has collected from Hanover. excessive,

arbitrary. and non-competitive rental, unit and a

charges for its products and services; .

(b)° Hanover has been prevented from acquiring

shoe machinery, new or used, as owner either from

United or elsewhere ;

. of its shde machinery, large sums of money in excess of

the reasonable value of such machinery and of the serv-". |

ice rendered by United on, such machinery. SEs

26. As a result of the foregoing montipalization in ¥i0- “4

pe! latioa of the antitrust laws and as a result of the acts.

done. in furtherance of such monopolization, Hanover has

been. damaged in the amount of $1,750,000.

3 ‘Wnenerore, plaintiff asks that judgment be entered

against the defendant hereinabove named in the amount of

$5,250,000, being three times the actual damage suffered

by plaintiff and that in addition plaintiff recovera peer

~ attorney’s = amd costs as — by Statute.

* : ‘ ad

an | - 290

| Amended Complaint —

Nea Oar Han

By Russet J. O’MaLrEey

-Member of the ‘Firm’ -

Miller Building

Scranton 3, Pennsylvania

Lairp & BUCHEN ©

. Hanover Trust Building .

Hanover, Pennsyl*ania

A torneys for Plaintiff”

Of Counsel:

Donovan LetsurE NEwTon & InvINE

Breck P. MCALLISTER

JAMES V. Hayes

“Ropert F. MortEN f

2 Wall Street |

New York 5, N. Y:

ae 21

Second Amended Answer to Amended ‘Complaint

‘DISTRICT COURT OF THE UNITED STATES

For THE MippLeE District oF PENNSYLVANIA

dy.

[SAME TITLE] ©

Defendant by its attorneys Davis Polk Wardwell

Sunderland & Kiendl for its second amended answer to

the amended complaint: ~ er a

1. Is without knowledge as to the truth of paragraph

5 thereof except that defendant admits that plaintiff is

_~ not and-was not able to engage competitively in the quan-

tity production of men’s and boys’ .shoes without shoe ~

machinery. |

) + * without knowledge as to the truth of ‘paragraph

6 pt it admits (a) that the operations used in’ the

manufacture of men’s and boys’ shoes are by shoe manu-

facturers generally grouped under the descriptions in. said

paragraph and (b) that some or all of the United machine

‘types listed in paragraphs 7 through. 13 thereof have been

used by Hanover since 1939 at least. easy

3, Is-without knowledge as to the truth of paragraphs

7 to 13 thereof inclusive except it admits (a) that the

operations described in those paragraphs are generally per-

. formed in the manufacture of shoes and in the departments

so designated and (b) that one or more United machines

of the types referred to in said paragraphs are now or °

were in the past leased by Hanover from. defendant.

Sthond Amended Answer to A — Complaint

4. Denies © paragraphs 14, 15, 22, 23, 25 .and 26

thereof. o :

5. Denies paragraph 16 thereof except it admits (a)

that before 1955 it was the practice of defendant to offer

for lease only 37 out of the 47 machine types listed in

paragraphs 7 to 13 ‘thereof while offering 10 of said 47

machine types either for lease or for purchase at the cus-__..

tomer’s option and (b) that underpits leases the leased -

machinery remained the sole and exclusive property of the

defendant with the right in the lessee to use the: same besa

the conditions contained in the lease.

6. Denies owinvalls, 18 thereof. except it admits that

at all relevant times defendant made with plaintiff and

' others leases substantially in the form annexed as Exhibit

A to defendant’s answer dated May 2 1956 to the original

complaipt and that renewal leases were executed for a

five-year term, which terms and conditions: have at all times

_ been the same for all lessees of defendant.

7. Denies paragraph 19 thereof except it admits that,

beginning January 1 1923, by written notice to its lessees .

defendant established’ a plan under which there would be

applied by United, unless the lessee elects otherwise, a stated

percentage (2% from January 1 1923, mcreased to 3%

beginning February 1 1927 and 4% beginning August 1.

1939) of -all unit charges, rentals and minimum charges

received by defendant in respect of a machine, to liquida-

tion of any deferred (or return) payments for which the

lessee became obligated and, since 1939, to the payments

for use of the machine less the minirhum that might be

due or become dué under the terms of the lease on that

i 23. |

Second Amended Answer to Amended Complaint |

machine or op other machines under lease in the factory.

“The amount available for such application on the lessee’s ~

election and instructions. is ‘commoely known as the “Right

of Deduction Fund’’.

8. Denies paragraph 20 thereof except it admits that

at all relevant times it has accepted the return of. each

machine which’ a lessee. has desired to return even though

. the contract term of the applicable lease has not expired; —

that where return before expiration of the contract term

of the lease has been d¥sired by the. lessee either because

the operation performed by the machine is no longer to

be used or is to be performed: by hand or by another

machine of defendant, either’ newly or previously leased, -

. or because the defendant’s machine does not successfully

perform the operation which can be successfully performed-

by a machine of other manufacture or because the lessee

is ceasing to do business, in each such case the return has

been accepted upon paymént by the lessee ef the cost of

broken and missing parts, the deferred payment, if any,

and the cost of trarfsportationi to defendant’s factory. at

Beverly, Massachusetts, all as provided in the lease; that

where return of the machine before expiration of the con-

tract term of the lease has. been desired by the lessee solely

for the purpose of substituting in performance of the opera-

‘tion, a machine of other manufacture, in.each such case

the return has™Been accepted on payment of.an additional

‘sum amounting, in the case of 4 monthly rental machine,

to 25% of the monthly rentals for he unexpired term of

the lease’; or, in the case of a unit charge machine}to 50% -

of two-thirds of the aggregate minimum monthly c arges.

* for the urlexpired term of the lease; or, in the caseof a

machine leased upon monthly rental and unit charge (with

Second Amended Answer to. Amended Coniplaint |

no provision for minimum monthly charges), to 50% of -

the aggregate monthly rentals for the unexpired term of

the leasex and that in each stich case the lessee was entitled

at his election’ to cause any amount available under the

plan .known as the Right.of Deduction Fund to be applied

to discharge in whole or in part the obligation of the lessee

to make to the defendant the deferred + sae if ‘any,

’ provided i in the lease. A

9. Denies paragraph 21 thereof except it admits that

defendant has at all relevant times undertaken to repair

its machines on lease with plaintiff and with other lessees

without extra charge to the lessee except for such parts

as are required and in addition to this repair service. has

rendered planning, shoe-making and other . services to

plaintiff without charge, all of which services plaintiff has

received and accepted and on occasions requested.

10. Denies paragtaph 24 thereof except it admits ‘

machines of the types listed. in paragraphs 7 to. 13 thereof

are required in plaintiff’s manufacture of men’s and boys’

shoes and are or have been leased by plaintiff from de-

fendant; and admits for the purposes of this case only

that the information available to United, known to be in-

complete and inaccurate, with respect to use by shoe manu-

facturers as of about May 1 1947 of machines of the first

17 types listed therein, eacly first developed, introduced and

distributed to shoe facturers by defendant: and

progressively improved by defendant:since its introduction,

‘indicates that the percentages thebein alleged as being the

proportion of all machines then used by shoe manufacturers

for the operations performed by such machine types, re-

spectively, represented by machines of defendant’s types and

, Mee

25 ae

ern

_ Second a Answer to Amended c sapien

. cline are appronidiate witiiin limits rendering in-

accuracies probably immaterial for the purposes of this

case. wie Ue

For A First DEFENSE.

** 11. Says that plaintiff’s claims did not accrue within

the time limited for action, and are barred by the Massa-

chusetts one-year statute of limitations governing actions

for penalties or forfeitures under penal statutes ( Mass.

“Sy

G. L. Ch, 260 § 5) as made applicable to this case by the —

statutes of Pennsylvania (12 Purdon’s Statutes § 39).

For A Secon AND PARTIAL DEFENSE

12. Says that all plaintiff’s claitns for the period prior

to July, 1 1939 did not accrue within the time ‘limited for

action and are barred by the renneyivania six-year statute.

of limitations.

For A’ THIRD DEFENSE

13. Says that such pre-eminence as defendant has or

has had in the soe machinery industry has been due to its

initiatjve, enterprise, research, experience, knowledge and

development of Superior products and of business methods

e adapted to promote entrance into business and competitive

success of lowe | and shoe manufacturers generally, and ©

such pre-eminerf€e has been accompanied ‘by an increase

rather than a diminution of competitive opportunity for

plaintiff.

~«

26.

Second Amendcd Answer to Amended Complaint

For A FourtH DEFENSE

14. Says that the right of action, if any, set forth in

the complaint is. barred by laches, estoppel, waiver and

acquiescence on the part of the plaintiff.

WHEREFORE defendant prays for judgment dismissing

. the complaint.on the ‘merits together with costs and: dis-

- bursements. of this action.

Davis PotK WarRDWELL SUNDERLAND &

KIENDL '

' By -Racpuw M. Carson |

A: Member of the. Firm

ok eer Attorneys for Defendant

pags ot Meier 15 Broad Street _

Ban \ _ New York 5, N. Y.

New York, N. Y. | Ree a

February 24-1961 ir

FINDINGS OF FACT, CONCLUSIONS OF LAW AND OPINION _

UNITED STATES DISTRICT COURT

_ For tHE Mippte District or PENNSYLVANIA

; : e &

- [SAME TITLE]

INTRODUCTION

_ . ‘This is a private antitrust action which arises under |

_ Section 2 of the Sherman Act, Act of July 2,°1890, c. 647,

26 Stat. 209,'as amended, 15 U. S. C. A. § 2, and under ~

Section 4. of the Clayton’ Act, Act of October 15, 1914,

c. 323, 38 Stat. 731, 15 U.S.C. A. § 15, to recover treble

damages for defendant’s alleged monopolization of the

Shoe machinery industry, and, particularly, its alleged

monopolistic practices with respect to substantially all shoe

machinery required and used by_ plaintiff, The Hanover

Shoe, Inc. (Hanover). ; |

The complaint, as amended, alleges in paragraph 14

that “Prior to and continuously. from the year 1912 the

' defendant, United Shoe Machinery Corporation [United],

has been violating the antitrust laws of the United States .

by: (a) monopolizing interstate trade and commerce in

* the shoe machinery industry of the United “States; (b) .

monopolizing interstate trade and commerce of the United

States in “substantially all shoe machinery required and

used by Hanover in the manufacture of men’s and boys’

shoes.” In paragraph 15 it is alleged that “Monopoliza-_

dings of Fact, C oncluston's g Law and Opinion a

tion -by United ‘as aforesaid and the exercise by it" of its

monopoly powers has enabled United to dominate and con-

trol the market, in shoe machinery, to restrict. actual com-

petition and to exclude potential competition in said

market.” | ;

‘The complaint then sets forth allegations with respect.

to the principal means used by United to accomplish the

violation of law. ‘It is alleged that.“‘At all times’ prior

to May 17, 1954, the date of the decision of’ the United

States ‘Supreme Court affirming a judgment that United

_violated Section 2 of the Sherman Act by monopolizing

the shoe machinery trade and commerce among the several

States,, United declined to sell most of its shoe machines

and made such machines available to shoe manufacturers

only upon leases . . .” and that United “offered on lease

only all of the major, important machines used by Han-

over” in the sHioe manufacturing operations described in

other paragraphs of. the complaint. It is alleged that

United’s leases for most of its machines, including all such

leases with Hanover, provided flat rental charges or unit

rental charges based on the number of shoes produced or.

‘on the number of operations performed. by the machines,

and on the rest’ of its machines, including those on lease

to Hanover, provided for payment of both rental and unit

charges. It is alleged that in these leases, the 10 year term,

full capacity, minimum charge, and machine return clauses,

alone or in combination with one or more of the other

clauses, deter and ‘prevent shoe manufacturing lessees, ‘in-

cluding Hanover, from replacing with a competitive ma-

chine each of the machines leased from United.

Other means ised by United to deter competition are

alleged to be the establishment of a “right of deduction

fund” whereby a: percentage of rentals was sete aside by

yer

ieee

ee ee eae ret pen eet e

“a

Findings of Fact, Conclusions of Law and Opinion

United to be applied by United, if desired by the lessee, to —

machine return charges or minimum rental charges; the re-

}. that lessées pay transportaticn and parts replace-

ment costs, and a sum equaling either 25 or .50 percent of

the remaining rental for the term if a lessee, including Han-

over, desired to replace'a United machine with that of a

United competitor; and United’s voluntary assumption of ~

machine repair with no separate charge to the lessee, there-

by deterring the establishment and growth of competitive

repair service organizations. The complaint alleges that as

a further means of preventing competition, United, when

faced with competition, reduced its own rates on machinery

types threatened by competition; introduced new models at

lower rates than those rates for comparable old models;-

maintained rates on a particular machine type despite a pol-

icy of increasing rates on other machine types to meet in-

creased costs of manufacture; and introduced new models ”

‘so designed and priced.as to reach only that area of the shoe

manufacturing industry in which a competitor was attempt-

ing to market a machine.

Hanover alleges that these: practices affected it in the

following ways: (a) United collected from Hanover exces-

sive, arbitrary and non-competitive rental, unit and other

charges for its products. and services; (b) Hanover. was

prevented from acquiring shoe machinery, new or used, as

. owner either from United or elsewhere; (c) United ex-

tracted from Hanover for the use of its shoe machinery,

large sums of money in excess of the reasonable value of

such machinery and of the service rendered by United on

such machinery. | :

| Hanover claims damages of $2,000,000, and pursuant

to the treble damage provisions of the Clayton Act, requests

sin of $6,000,000.

OO stouekey SOR RE OR , opr

| Findings of Fact, Conclusions i of Law ond Opinion -

In its answer United denied many of the significant alle-

gations of the complaint and set up as affirmative defenses

the statute of limitations, laches, estoppel, waiver and ac-.

quiescence on the part of Hanover. United also contends

that its pre-eminence in the shoe machinery, industry is due _

to its initiative and enterprise and. its business methods,

which were adopted to promote success of manufacturers

generally, | and has been accompanied by an increase of -

portunity for Hanover. .

The action was tried to the court without a jury.

FINDINGs oF Fact, Conctusions or Law

A. Background: |

Plaintiff, The Hanover Shoe, Inc., 1S-a corporation

" organized and existing under the laws of the State of Penn-

sylvania, with its principal office and _ of business in

Hanover, Pennsylvania.

Defendant, United Shoe’ Machinery Corporation, is -a

‘corporation organized and ‘existing under the-laws of the

State of New Jersey, with its principal office and place of

_ business in Boston, Massachusetts, and also with offices — -

and a place of business in Harrisburg, Pennsylvania, within *_

‘this district. . .

Since 1899 Hanover via engaged in the manufacture of

men’s shoes: by the Goodyear’ welt. process, and until the

early 1950’¢ also engaged in the manufacture of boys’ shoes

by the same process. Except for large quantities of military

shoes martufactured during World War II, and for shoes

sold to Montgomery Ward and J. C. Penney since World

War II, Hanover has sold the shoes it manufactured: di-

foe

Findings of Fact, C onclusions of Law and Opinion p

rectly through retail men’s shoe ;storés operated by its

_‘ wholly owned subsidiary, Sheppard & Myers,.Inc. There

are currently about 110 tetail stores,.Hanover’s manufac- —

ture of shoes during’ the period from 1939, the beginning

of the complaint period of this action, to-1955, the year

in which the action was instituted, ranged in volume from a.

_ low of 1,006,768 pairs in 1939 to a high of 1,939,289 pairs

in 1944. In 1955 Hanover was<one, of the 35 largest of |

approximately 1,000 shoe. manufacturers in the United -

States. aaa Pie nate SEDs ety

. Until 1956 all of the capital stock of Hanover was

. Owned by or for the benefit of H. D. Sheppard or Ce N.

Myers,, the original shareholders, or ‘members of their

families, except. for small blocks of.stock sold to key

- employees, beginning in 1940.. In 1956 approximately 25

pércent of the then outstanding capital stock was sold to

the public. © | . bt Sh e

United is the successor of a combination of shoe ma-

' chinery companies which consolidated in 1899. Since that

time United has engaged in the manufacture and distribu-

tion of shoe machinery. Most of the machinery was manu-

factured at its factory in Beverly, Massachusetts, and was

distributed .in interstate .commerce to shoe manufacturers,

which included machinery supplied to Hanover gt its prin-

cipal plant in Hanover, Pennsylvania, and at its other fac- -

tories in East Berlin, Pennsylvania, and Middletown and

Emmitsburg, Maryland. ¥ yarn ;

Most of the important operations in Hanover’s: manu-

facture of shoes are done by machine, and Hanover could -

not engage competitively in quantity. production without the

use of shoe machinery. _ aie —

During the éomplaint period United made available its,

' more complicated machines to shoe manufacturers, includ- €

en - —

“Findings of Fact, Conclusion? of Law and Opinion =

ing Hanover, on leases only. The more complicated ma-

chines are those which have greater importance in the

manufacture of shoes. These machines produced the largest

revenue for United. In 1951 United had 178 machine types

‘on a lease-only basis. The complaint in this action relates

to United’s practices with respect to 58 such machine types

which Hanover had on leasé during the complaint period. .

The rental for these machines was either .a stated amount,

a stated amount plus royalties, or royalties only, payable’

monthly. Of the 58 machine types, 20 accounted for’ more

than 80 percent of the rentals and royalties -paid United

by Hanover. during the complaint period, and 18 of the 20

types were on a royalty or royalty plus‘rental basis.

United also marketed machines less complicated than

_the major machines, on an alternate lease or sale basis, at’

the customer’s option. In 1951 United had 122 of these

machine types, hereafter referred tod as optional machines. -

. The rental for these machines was on a flat Tate basis, pay-

able monthly.

In 1951-United had 42 machine types a sad gur-

chase ‘only. . me

~ All. new leases to shoe manufacturers, including Han-

over, of machinery involved in this action were for 10 year,

terms. Renewal leases were for 5 years. From 1922 to May |

17, 1954, all of United’s ‘leases were substantially uniform. |

They are known as~“Form A” leases. Three clauses im: ~~ |

portant to this action are the full capacity, term, and return |

charge.’ A fourth-clause, Clause 2, provided, daa other |

Use” ~<" .purpose than for performing the operations for which

it is designed in the manufacture of boots, shoes or other

footwear made by or for the lessee. Subject to the foregoing limita-

tions, the lessee shall use the leased machinery to its full capacity upon —

Lteshinli 4

Machine 5. The leased machinery shall be used for no other |

= . . * ——s corr!

—— ee ee <i

at ie Mase : <a eRe Downe He

, 33 ae .

Findings of Fact, Conclusions of Law and Opinion

things, that the lessee shall at all times and at his own ex-

pense keep the machinery in good and efficient working .

- order, and in the event that the lessee shall fail to do so,

United may cause the machinery to be - in such order: at

the expense of the lessee? |

all boots, shoes o or other footwear or portions thereof

Full made by or for the lessee in the manufacture or prepa-

Capacity ration of which such machinery is capable of being used, _

and the provision herein contained shall not be construed ~

’ to be limited in any way by the number of pairs designated in —

-umn VI in the foregoing Schedule of Machines. - |

“Term “ 12. The —— hereby granted in respect to each machine

Lease hereby leased shall continue, unless sooner terminated by

the United Corporation because of breach thereof on the

part of the lessee or otherwise as herein provided, for the — of

ten years from the date hereof.

“Return of 14.. Upon the termination in any manner whatever of

Machines the lease hereby granted or any extension thereof in re-

‘spect to any machine hereby leased the lessee shall forth-

with deliver such machine to the United Corporation, at Beverly,

Massachusetts, complete and in good order and condition, reasonable ,

wear and tear alone excepted, and shall pay to the United Corporation

in respect to each such machine theamount (if any)

Payment set opposite the name thereof in column VII in the fore-

going Schedule of Machines, The lessee shall also pay

to the United Corporation sueh sum as may be necessary to cover

replacement at the regular prices established by the United Corpora-

tion therefor of all broken or missing parts.”

The complaint also sets forth the monthly minimum charge on unit .

. charge machine clause as a means whereby United monopolized the

shoe machinery industry to the -detriment of lessees, including Han-

. Over. In its brief and proposed findings of fact and conclusions of law,

‘ization. Hanus did not — to this clause as a means of monopo-

. lization. ~

2It is the conduct of “United under this clause, rather than ‘the

clause itself, that Judge Wyzanski found to be a means by which

United, controlled the shoe . machinery market.

* 34

Findings of Fact, Conclusigns of Law and Opinion

In 1947 the United States instituted a civil action ‘

‘against United in the United States District Court for the

District of Massachusetts, Civil Action-No. 7198, alleging

violations’ of Sectidns 1 and 2 of the Sherman Act, 15

U. S. C. A. §§1 and 2. On February 18, 1953, Judge —

Wyzanski handed down findings of fact, conclusions of law,

opinions, and a decree which found that United violated

Section 2 of the Sherman Act. United States v. United

Shoe Machinery Corporation, D. Mass. 1953, 110 F. Supp.

* * 295. On May 17, 1954, the Supreme Court of the United

States affirmed per curiam. the judgment of the District

« Court. 347.U. S. 521. This action will hereinafter be re-

“ferred to as the Government case.

B. United’s Market Position: — ; eee “as As ,

As of about’ May, 1947, United’s share of. the market -

of 56 of the 58 lease-only machine types leased by Hanover

—there being no data in evidence as to the remaining two—

was as follows: _ —-

100% — 10 types .

99% — 14 types :

98% — 7 types

97% — - 4 types

. 96% — 5 types

90-95%, — JQ types

85-89% — 1 type

80-84% — 3%types

‘55-69%, — 3 types

ca ee a oy oe

Of the 20 major machine types included in the 56, the

rentais and royalties of whickyaccounted for mote than

¢ ’ ‘

— mae gar

as aac teis tn aeceeeaecianece ™ '

oats

ene (eee ne ene

' Findings of Fact, Conclusions of Laiv and Opinion

80 percent ‘of the, charges Hanover paid United, United's

market share was:

100% — . 4 types .

99%, —~7” 6 types ‘

98% —- 4 types

97% -— 3 types

89-93%, — 3 types —

20.

There is no eviderice that United suffered any appreciable

limitation in its share of the market with respect to these ‘Qs

' machine types prior to the filing of the complaint. With % o

réspect to domestic machines, there is no evidence of any . ~~

change whatever. As to foreign machines, a tabulation for

23 machine types, 15 of which are comparable in function,

with United’s machines leased by Hanover, shows that 538

machines were installed in factories since January 1, 1947, °

and 403 of these were outstanding on August 1, 1955. On

ao May 1; 1947, United had 115,787 machines outstanding. |

Since January 1, 1947, there have been 323 installations of -

. the 15 types Hanover leased from United, of which ‘104 ¥€

-were clickers. On Aygust 1, 1955, 233 were outstanding, .

"of which 86 were clickers. The influence that these machines

had on the domigance of United’s position is inconsequential.

Until 1955 United enjoyed an overwhelming share > the

shoe machinery market which it ae

i. The Antitrust Vidlation:

‘1. The Findings and Decree in the GoveKannass case.

- Hanover relies primaril ly on the decree, a Pee con-

clusions, and opinions in the Goyernment case, as proof of

United’s illegal monopolization of the shoe machinery in- ~

36 nae: a

Findings of Fatt, Conclusions of Law and Opinion

dustry in the United States, pursuant to Section 5 of the

Clayton Act, 15 U. S.C. A. § 16, which provides:

“(a) A final judgment or decree heretofore or. '

hereafter rendered in any civil or criminal proceed-

ing brought by or on behalf of the United States

‘ under the antitrust laws to the effect that a defendant

_has violated said laws shall be prima facie evidence :

against such defendant ‘in any action or proceeding

brought by gny other party against such defendant

\under said laws or by the United States under section

\ Sa of this title, as to all matters respecting which

id judgment or decree would be an estoppel as be-

tween the parties thereto: . . .” :

United urges that even with the aid of the decree in the

Gover case, Hanover has not proved a monopoliza-

tion; that the four clauses in the Form A lease, the ten

. year term, the full capacity, the deferred, payment or return

charge, and the repair clause; were the orly factors relied

on by Judge Wyzanski as the basis of his decree; that these

clauses were not in their actual operation restrictive or .

monopolizing practices, and had no effect on “Hanover ; and

that all other charges were dismissed. with prejudice.

- The findings, conclusions and decree in the Government

' case show that the four clauses of the Form A leasé, and

also the lease-only System were in their operation restrictive

‘ or monopolizing practices.* 2 |

"The coirrt clearly indicated this in the following parts of its opin-

ion (page numbers refer to 110 F. Supp.). °

“The effect of United’s leasing system as it works in practice may

be examined from the viewpoints of United, of the shoe manufacturers, . ©

and of competitors potential or actual..p. 323 - :

- “Yet as already noted, a shoe manufacturer may psychologically or

economically be more impeded by a leasing than by a selling system.

e . “s a

/ ' that it is a restraint of trade under § 1 fora

ip ES tet De

Findings of Fact, C onclysions of Law and Opinion

, . \

«= The court spoke of the lease-only system, and its “fea-

_ tures” which have a “special deterrent effect”; the lease-

And‘ this general observation is buttressed-by a study of features in

the United leasing system which have a special. deterrent effect.

Though these features are stated separately, and some of them alone —

are important’ impediments, they must’ be appraised collectively to

appreciate the full deterrent effect. p. 324 | : '

“However, United’s leases, in the context of. the present shoe

i market, have created barriers to the entry by competitors

into the shoe machinery field. p. 340” ee ds

“First, the complex of obligations and rights accruing under

ited’s leasing system in operation deter a shoe manufacturer from

disposing of a United machine and acquiring a. competitor’s machine.

He is deterred. more than if he owned that same United machine, or if

he held it on a short.lease carrying simple rental provisions and a

reasonable charge for cancellation before the end of the term. The ©

‘lessee is now held closely to United by the combined effect of the

10 year term, the requirement that if he has work available he must

: use the machine to full capacity, and by the return charge which

"can in practice, through the right of deduction fund, be reduced to in-

significance if hekeeps this and other United machines to the end of

the periods for which he leased them. p. 340 eS ;

N “Second, when a lessee desires to replace a United machine,

United gives him more favorable terms if the replacement .is by an-

other United machine than if it is by a competitive machine. p. 340 -

“Third, United’s practice of offering to repair,. without separate

charges, its leased machines, has had the effect that there are. no

independent service organizations to repair complicated machines.

- In turn, this has had the effect that the manufacturer of a complicated -

machine must either offer repair service with his machine, or must

face the obstacle of marketing his machine to customers who know that

repair service will be difficult to provide. p. 340 ; .°

. Psi “If the matter were res integra, this Court would adopt the first

/. approach, and, as a preliminary step to ruling upon § 2, would hold

company having on over- ‘

whelming share of the market, to distribute its more deaportunt prod- ©

ucts only by leases which have. provisions that go- beyond assuring f

prompt, periodic payments of rentals, which are not terminable

cheaply, which invalve discrimination against com ition, and which

- combine in = contract the right to use the product and to have ‘it _

serviced. p. 343 ee

_ “. , In the relatively Static shoe machinery market where there

4 “ate no sudden changes in the style of machines or in the volume of |

“a

38.

Findings of Fact, Conclusions of Law and Opinion

only system and the. “complex of obligations and rights”,

accruing thereunder. which “in operation” deter a shoe

manufacturer from disposing of United's and acquiring. a |

‘demand, United has a network of long- -term, complicated leases with

over 90% of the shoe factories. These leases assure closer and more ,

frequent contacts be'ween Untied and its customers than would

exist if United were a seller and its customers were buyers. Beyond

this general quality, these leases are so drawn and so applied. as to

strengthen United’s powers to exclude competitors. .. . p. 343

. These considerations would all affect potential competition,

and have not been without their effect on actual competition. p. 344 ,

“Much of United’s market power is. traceable to the magnetic ties

inherent in its system of leasing, -and not selling, its more important

machines. The lease-only system of” distributing complicated ma-

chines has many ‘partnership’. aspects, and it has exclusionary fea-

* tures such as the 10-year term, the full capacity clause, the return

charges, and the failure to segregate service ‘charges from machine

charges. Moreover, the leasing system has aided United in maintain- -

ing a pricing system which discriminates between machine types.

“i to... are contracts, arrangements, and policies which, instead

of encouraging. competition based on pure merit, further the domin-

ance of a particular firm. In this sense, they are unnatural barriers;

they unnecessarily exclude actual and potential competition ; ad re-

strict a free market. . . . pp. 344-5

. United is denied the right to exercise effective control of the

sinaaaet by business policies that are not the inevitable consequences

of its capacities or its natural advantages. That those Policies are not

imihoral js irrevelant. . . . p. 345

Defendant intended to engage in the leasing practices nib .

pricing policies which maintained its market power. That is all the -

intent which the law requires when both the complaint: and the judg-

_Mment rest on a charge of ‘monopolizing’, not merely. ‘attempting to

—e. Defendant having willed the means, has willed the — |

end. . . p. 346

. All that this opinion has ruled is that when control of the

ene has been obtained in large part by such leases, the market .

pewer cannot be said to have been’ thrust upon-its holder through its

‘own skill, energy, and initiative, or through tec ological conditions

of production and aeiriegion, or the inevitable c racteristics of the

market. . ; .” : P- 346 “s

. the leasing system and the miscellaneous activities just re-

. -

ee ee a ee ee ee ee ee

eee ad neler: dee Ab te 6 Abeta) or ann htc OB,

if 39.

Findings of Fact, C onclusions of Law and Option

‘competitor's machine; the distribution of itil only o on

leases which “assure closer and more frequent contacts”

with customers than if United were a seller, and “beyond

this general quality” the four clauses which are “so drawn

* and applied” as to “exclude competitors” were the business

policies with a deterrent effect; the business policies which

erected “barriers” to competition and were traceable to the

“‘lease-only system”, and its “partnership aspects” and “éx-

clusionary features”. The court found that United -in-.

tended to engage in leasing practices and pricing policies

which maintained its market Power and in so doing’ monop-

olized. -

The conclusion is buttressed by the’ part of the opinion

dealing with remedy. In discussing the remedies and their’

effects, the court glearly indicated that the lease-only sys-

_tem, restrictive clauses and related practices were the

policies to be banned.* .

. *‘From the opinion on defendant’s violations it follows that some

form of relief regarding defendant’s leases and leasing practices is"

proper and necessary. _p.

..the Court agrées with the Government that the leases should

be purged of their restrictive features. In the decree filed herewith,

the term of the lease is shortened, the full capacity clause is eliminated,

the discriminatory commutative charges are removed, and United

is required to segregate its charges for machines from its charges

for repair servic¢. .. . p. 349

“The Court also agrees w ith the Cnventions that if United

chooses to contiriue to lease any machine type, it must offer that type

of machine also for sale. The principal merit of this-proposal does not .

lie in its primary impact, that is, in its effect in widening. the choices

open to owners of shoe factories. For present purposes it may be |

assumed that the anti-trust laws are not designed, chiefly, if at all,

to give a customer choice as to the selling methods by which his

supplier offers that supplier's ewn products, The merit of the

Government’s proposal is in its secondary impact. Insofar as United’s

machines are sold rather than leased, they will ultimately, in many ~

cases, reach a second-hand market. From that market, United will

Findings of Fact, Conclusions of Law and Opinion

The decree effectuated the court’s intent as expressed in

the opinion. After holding that United monopolized the

shoe machinery trade and commerce among the several .

_ States, in violation of § 2 of the Sherman Act, the court }

enjoined United from using the Jease-only system and

purged the leases of the restrictive effects of the four ae

clauses. . :

. If the lease-only system was not a monopolistic practice

by the aid of which United maintained its monopolistic po-.

sition, it would have been unnecessary for the court to order

its cessation since it is a practice which could exist inde-

pendent of the other lease. provisions and practices. The

complaint in the Government case, .the court’s summariza-

tion of the charges in the complaint, the findings and opin-

ions, and the decree show that the charges which were -

dismissed with prejudice related to certain charges of mo-

nopolizing and attempting to monopolize in certain areas

other than ‘shoe machinery. ;

face a type of sulstitute competition which will gradually weaken

the prohibited market power which it now exercises. Moreover, from

that market, or from United itself, a competitor of United can acquite

a United miachine in order to study it, to copy its unpatented features,

and to experiment with. improvements in, or alterations of, the ma-

chine. Thus, in another and more direct way, United’s market power

will be diminished. p. 349

“Furthermore, the creation of a sales market together with the

purging of the restrictive features of the leases will, in combination,

gradually diminish the magnetic hold ‘now exercised by what United

properly describes as the partnership features of the leasing system.

As United’s relationships with its customers grow feebler, com-

‘ petitors will have an enhanced opportunity to market their wares. p.. - \

350.

‘ “It has used its leases to monopolize the shoe machinery

sieilan ‘And if leasing continues without an alternative sales system,

United will still be able to monopolize that market. To root out

monopolization and to bring United, in the future, in the same class -

as,its competitors, it is necessary not merely to place limitations upon

’ United’s leases, but also to ie United to offer for sale any ma- .

chine type which it leases. . . p. 350.

Ree tee ren one ty

41 ; :

Findings of Fact, Conclusions of Law and Opinion

United advances several reasons why the four “Form A”

clauses had no effect on Hanover. eerie

Full Capacity. One argument is that Judge Wyzanski

held this clause to be a “deterrent” to competition on the

basis of certain testimony® by United’s president in which

the witness merely adopted that’word as used by the court,

and to which the court gave unwarranted weight. United

offered previous testimony by the same witness in the

Government case to show that the witness may have thought

that the court was using “deterrent” as applicable to past

general practice, particularly since the testimony in the

instant case shows that the full capacity clause. was never

enforced since the early 1940’s. . - ~

Judge Wyzanski, after reviewing instances when the

full capacity clause was invoked, found that this clause and

other clauses‘ were invoked in accepting returns of ma-

chines before the lease terminated, or in billing lessees for

5“The Court: If -I have understood your answer correctly, you

said that the full capacity clause operates as a deterrent to a factory

taking on a competitor’s machine, and it is a deterrent which the

factory owner is not always aware of when he signs. the lease. Have

I misinterpreted your answer? .

“The Witness: No, I think that is quite true. Very often they

are not fully aware of the full capacity clause, or the way in which

_. the obligation would devolve upon them.

“Q. Well, what I want to make clear is that even in the case

where you have done that, have you told him that he coutdn’t return

your machine. A. No, sir. On the contrary, we have gone to great -

lengths in most instances, and our branches I believe do so in all

_cases, because he has three alternatives, of course. Heafay return

the machine if he wishes to, upon the basis I have outlined previously.

If he wants to retain the machine, then we expect him to live up to

the full capacity obligation in the lease; that is, that he will use the

machine to full capacity. a .

' “Q. And that is when he has work for it to do? A. That is -

_right. Or if he wishes to use the other machine and not use ours,

we expect that payment will still be made to us, of course, under the

full capacity ‘clause.” (United’s Exhibit 107) .

x : 42

Findings of Fact, C onclusions sii Law and Opinion

° *

machine use, if the lessee desired to use a non-United ma-

chine in place of the United machine, whereas these clausés

were not invoked if the lessee had some other reason for

_ returning a United machine or for non-use of the United

“machine. Judge -Wyzanski concluded that this “discrim-.

'- ination is designed to operate, and does operate as, a method

- of excluding from the shoe factories shoe machinery com-

petitive with United.” Having so concluded, the court

added” “Tf this were otherwise doubtful, this finding is

confirmed’ by the statement in court of United’s president

‘that the full-capacity clause operates as a deterrent to a

factory taking on a competitor’s machine.’” Thus, the

court reached its conclusion after a review of evidence other

than the president’s testimony. .

Moreov er, United’s president: was advised by counsel

that his answers were to apply to the past. as well as the

present: “*And if I ask you. questions*jn the present tense,

I also mean them to apply to the general practice in the past

' tense as long as .you have been familiar with the matter,

Mr.: Brown.” | - 4

United also’ argues that the prcabdent’ s adoption of °

“deterrent” is negatived by a previous question and -his

answer: “Has it evér been the practice of your company

to invoke this full capacity clause to deter or prevent any

- of your lessees from replacing a machine which you have

leased to him with a competitive machine’ A. Never.”.

United’s president was then asked to explain why the.

“clause does not have that operation.” He answered that-a

lessee may at any timé install-a non-United machine if the

lessee uses the United machine to ‘full capacity. This ex-

planation is no more than a description of the.lessee’s rights

under the lease. Sanctions under the full capacity clause

could hot be imposed, no matter what machinery was being

Arestin’ Paneth oh ond a mann

ja 0 ding eM essen inane ei wt ike oth

’ m

ae. bine or PRL

Dei ties ilald AR orb tn

re,

Sar 43

Findings of Fact, Conclusions of Law and Opinion

used, if the United machine was being used to full capacity.

Thus, any adoption os. “deterrent” was not negatived by

. previous testimony.

- United points to she testimony of bens: Sheppard of

Hanover, Mills of Endicott Johnson Corporation, Erb of

Melville Shoe Company, and Jones ef Commonwealth Shoe ~

Company that the full capacity clause was‘never enforced

against these companies, and, in the ‘case of Mr. Erb, that

the existence of the clause did not prévent his company

from installing a competitive ‘machine. The relevance of

- this testimony, for the most part, is not apparent. judge

‘Wyzanski found that the full capacity clause was not con-

sidered by United to “have been violated’ unless the lessee

failed to use the machine on work for which the machine

was capable of being used, and instead performed such

work by using a competitor’s machine. Judge Wyzanski

said:*“In other words, it is not treated as’a violation i P, the -

lessee fails to use United’s machines because he perfortns the

work by hand, or because he discontinues the type of opera-

tion for which.the machine is capable of being used.” The

; evidence of non-enforcement and that in certain instancés

shoe manufacturers were not prevented from .installing

non-United machines. Ww ould be meaningful ‘if there was also

evidence that use of a competitor’s machine caused the.

United machine to be operated at less — full capacity.

There was no such evidence.

F inally, United argues that ‘the uncontroverted testi-”

mony is that the full capacity clause has not been enforced

since the early 1940’s. This.testimony was given by one of-

Unitéed’s employees, who stated that since 1942 nq attempt

was made to enforce the clause because of the administra-—

tive difficulties involved. It is not clear as to whether this

was.intended to bea “company wide” or “location” aban- - -

‘

_ Findings of Fact, Conclusions of Law and .Opinion

donment of enforcement of the clause. But assuming it

was a company wide policy, the full capacity clause was not

-deleted from the leases, and the. company’s jntention to

abandon enforcenmfent was not otherwise cOmmunicated to

‘the lessees. In the absence of such communication, the lessee -

would expect enforcement of the clause. ie:

Return Charge. United relies on testimony by Messrs. —

"Sheppard, Erb, Jones and Mills that the return. charge in

no way prevented them from returning a United machine,

either for replacement by 4 competitive machine or for any

other reason. Mr. Sheppard’s testimony dealt with the re-

turn of United machines because they were surplus,.or in

exchange for other or new United machines, and was not

concernéd with the return of United machines to be replaced

by non-United machines. The other three witnesses testified

the return charge did not prevent the return of United

‘machines for replacement by non-United machines, because

they had. accumulated substantial. credit under United’s

“Right of* Deduction Fund”,’ which. would offset machine |

return charges. This testimony does not overcome Judge

Wyzariski’s finding that this clause was a deterrent or mo-

nopolizing practice. Judge’ Wyzanski found that the right of

deduction fund was an informal policy which United had

not expressly committed itself-to continue, and that discrim-

inatorily higher charges’ were. assessed if.a machine was

a eroaat ae ies

®The Right of Deduction Fund is a plan, not part of. the leases, ~ >

but established by United in written notices to lessees, whereby (since ~

_ 1939) 4 percent of all unit charges, rentals, and minimum charges

on a machine is credited to the lessee: The ctedit*is solely. for the

purpose of being applied, if the lessee desires, to deferred (or return) .

payments, and (since 1939) to payments for use less than minimum,

due on that machirie or other machines in that factory. The credit is

not ayailable if. the lessee is in default on ‘any payment due United,

or if the lease has been terminated by reason of the lessee’s breach or

insolvency. ‘

ash 2D cieseos baw

45.

| Findings of Fact, Conclusions of Law ond Opinion é

returned, before the end of the term, to’ be replaced by’ a-

_ non-United machine, as compared with the. lower charges

assessed if thé machine were returned for another reason.

It should be noted also that Judge Wyzanski ordered United

to discontinue the right of deduction fund and not substi-¢

tute anything similar. in any plari or lease.. -

_N on-Segregated Repait Service Charges. The lease

provided that the lessee was to-make all repairs at its ex-

pense. Instead, United made the repairs at no additional

cost. United argues that ‘while. Judge Wyzanski found

this practice tended to prevent the entry and existence of

’ large-scale independent repair compahies and hence put a

stumbling block in the way of competing machinery manu-

facturers, it was a boon for the lessees. United states that

Hanover realized it was "getting repair service without

additional. expense, and insisted on- efficient service at all

times. Judge Wyzanski found United’s practice of render-

ing repair service without separate charge “bas. brought -

about a situation” in which there are almost fio large-scale

independent repair. companies. It was not a boon because -

Hanover paid for it. Judge Wyzanski found that United

set monthly and unit charges high enough to pay for the

services rendered. Judge Wyzanski pointed out this prac-”

tice was an advantage to some shoe manufacturers, not be- |

cause United. performed the service when it was not obli- *.

_ gated to do so, but because the manner of recovering costs ~

'. ‘therefor, through inclusion of a factor in machine rentals,

we worked tes the advantage of those manufacturers that had

high service requirements to the disadvantage of those that .

.- had low service requirements. The repair service clause.

plus United’s conduct was a deterrent. Hanover paid for

‘the service. To have non-United service meant double pay- .

: ° oe ° % *

Findings of Fact, Conclusions of Law and Opinion

"ment. Thus, independent service companies did not —

- and Hanover was at the mercy of United.

Ten Year Term. United argues that by 1939 its ma-

chines had been’ under lease for more than 27 years, and

those prior to 1929 were all on 5 year~renewal terms; that

the only exception after 1939 would be for new machines

installed after that date. The anwer is there were a sub-

stantial number either on 10 year terms for new machines,

or on terms in excess of 5 years for those whose original -

term had not expired.

Neither the individual clauses nor the lease-only sys-.

tem:-can be viewed separately. “The evil is the result of their

collective use. As Judge Wyzanski said, “. . . some of them

alone are important impediments [but]. . -: eer must be

appraised collectively to appreciate the full deterrent ef-

fect.” Judge Wyzanski found that if. shoe machinery were

available upon a sale basis, some. shoe manufacturers would

have ‘been able~to provide service at: less cost than that,

charged by United. They would not be subject to the uni-

lateral decision of United whether or not to continue or

modify: the informal policies hy which it administered its

leases, thereby réleasing shoe manufacturers from some of

’ the logical and economic power United exercised

‘over them.

‘In Futuro Argument. United submits that the decree

in the Government .case was intended to operate prospec- |

tively only, citing “may” in listing the effects of the. full’

‘eapacity clause. Judge Wyzanski did not us¢ “may” in

describing the effects on the other clauses. He characterized -

- the four clauses as features which “have” a special deterrent

effect, and spoke of the deterrent, effects of United’s policies’

- on the shoe machinery er: "It i is clear that he had in-

' See footnote 3, oupen.

7 =

“7

Findings of Fact, C onclusions of Law and Opinion

mind the eae ae the clauses and practices did have, and.

not merely the effects they might have. This is confirmed

by the conclusion that United’s practices operated as a

method of excluding competitive shoe machinery from the

Shoe factories, baséd on findings of such practices in the 90

instances United invoked the full capacity; return, or like

provisions of the standard lease during 1927-1948, ~ /

In its brief United states, “We are relying upon a unique

record Of res judicata and upon the fact “that, as Judge

Wyzanski acknowledged, the practices now attacked were

in prior cases not only ‘uncondemned’ but also ‘were in part

endorsed’.’””* It maintains that its preponderant position, as

measured by percentages of machines in shoe factories, is

not enough to sustain Hanover’s burden ‘of proof of mon-

opoly ; that this position is die to its original constitution,

which Judge Wyzanski regarded as protected by res judi-

cata, and the superiority ofits products; that Judge ,Wy-

zanski found the leasing system honestly industrial; and that

even the full capacity clause had been approved in a prior

case. ‘

The prior Government cases do not bag the holding of

monopolization. Judge Wyzanski was awage of them when

he framed his findings, opinion and decree. HeYindicated _

that but for the prior cases he would have held United in

violation of Section 1, as well as Section 2 of the Sherman —

Act. There is no support for the.statement that United’s

preponderant position is due to its original constitution and

product superiority. . Judge Wyzanski pointed to these two .

factors and the leasing sy¢fem and its aspects as the principal

*Three. earlier antitrust cases involved United: United States

v. Winslow, 1913, 227 U. S. 202; United States v. United Shoe -

Machinery Company of-New Jersey,’ 1918, 247 U. S. 32; and United

Shoe Machinery Corp. v. United States; 1922, 258 U. S. 41.

"y \ :

- Findings of Fact, C onclusions of Law and Opinion

‘sources of United’s power. ‘In corinection with prodtict de-

velopment, gic is closely related to product superiority,

Judge Wy2fnski found that the rate at which United ‘im-

‘ proved old-machine types did-not Create a formidable record,

and United’s research.in the shoe machinery and in allied

developrrents was neither tke basic cause of its success nor

far beyond what could be achieved’in a monopoly free -

market. The leasing system and its aspects were the barriers

to competition, and were the basis for the decree of monopo- _

lization. It is immaterial that Judge Wyzanski said the ori-

ginal constitution was protected-by res judicata, and that he

did not criticize the other sources of United’s power. And

while he did say that the leasing system and practices were

_ honestly industrial, he also said that they représent policies

which are unnatural barriers to competition, unnecessarily

excluding actual and potential . competition and restricting

a free. market:

There is also the contention that Judge Wyzanski’s

judgment gave effect to what he récognized to be a change

in the law beginning with United States v. Aluminuni Co.

of America, .2 Cir. 1945, 148 F. 2d 416 ; that while courts

can.overrule thetr own decisions and change the law retro-

actively, they also can limit a precedent, reversing decision _

to prospective application; and that retroactive application

‘of an overruling; decision is inequitable and is not invoked

when persons have acted in reliance on the prior. decision.

Assuming that the decision in the Aluminum Co. case repre-

sented a change in the law, effective in 1945, Judge Wyzan-

ski did not attempt to limit his decree to the future. There-

. fore, there is no merit to this argument. See American

Amusement Co, v. Ludwig; D. Minn. 1949, 82 F. Supp.

265, 267; United States v. Calamaro, E. D. Pa. 1956, 137

F. Supp. 816, 820, rev'd on other grounds, 3 Cir.’ 1956, 236

Ph ee

Findings of Fact, Conclusions of Law and: Opinion

° , ‘wy

F. 2d 182, aff'd 1957, 354°U. S. 351. Some of the relief.

looks to the future, but this does not mean that the..court

did not find a monopolization, or did not intend its decree

to be retroactive. The decree. operated “both ways. The

court required United to cease certain practices and also to

terminate outstanding leases. Pe

Ia summary, the findings, conclusions and decree in the

Government case established that United’s preponderant

position coyipled with its lease-only system, the four clauses

_ and its practices with respect thereto constituted a viola-

_ tion of Section 2 of the Sherman Act, and that such policies

and practices were restrictive or monopolistic during the

‘complaint period in this action, and had a restrictive effect

on Hanover and other shoe manufacturers. . With the aid

of the decree Hanover has proved a monopolization.

_, 2. The Estoppel Aspects.and Relevance of the Govern”

ment Decree. | | ee :

. The estoppel aspects andggelevance of the Government _

“decree have been termed by some courts the “target area.”

These courts have held that if the decree, fairly construed,

does not embrace the plaintiff as a target of the antitrust —

violation, there can be no recovery. The injury: and ,the

damage must not be remote from the violation. A plaintiff

“must show that his claiméd injury stemmed directly and

proximately from the type of practi¢e condemned in

the Government action.” Iffternational Shoe Machine Corp.

‘v. United Shoe Machinery Corp:, 1 Cir. 1963, 315 F. 2d

“449, cert. denied 1963, 375 W. S. 820. The difficulty does

not lie in the principle, but in its application. “It is not pos-

sible toformulate any general rule by which to determine -

what injuries are too remote to bring a plaintiff within the

scope of the Act... . Each casé must be dealt with on its

_. Findings of Fact, C onclusions of Law and Opinion - -

own facts.” Harrison v. Paramount Pictures, Inc., E. D.

Pa. 1953, 115 F. Supp. 312, aff'd per curiam, 3 Cir. 1954,

211 EF. 24405.” .

' Prior to the trial, there was a trial on a smn’ issue —

_ in accordance with Fed. R. Civ. P. 42(b), 28 U. S.C. A..

The issué was to determine whether excessive shoe ma-

chinery costs constituted an injury in that all such costs .

were passed on by Hanover to its customers. The late Judge _

Goodrich of the Court of Appeals, sitting asa : district judge,

found for Hanover. Hanover Shoe, Inc. v.. United Shoe. -

Machinery Corp., M. D. Pa. 1960, 185.F. Supp. 826. The ..

Court of Appeals affirmed. 281 F. 2d 481. The order for.

. the separate trial assumed that (1) the violation of law as

alleged existed, and (2) the excessive cost of shoe ma-

chinery as alleged existed. Judge Goodrich held that “The -

_-causal relation between defendant’s -wrong and plaintiff’s

_ harm is obvious.” - >

In La Chapelle-v. United Shoe Machinery Corp., D.

Mass. 1950, 90 F. Supp. 721, the complaint charged that an

inventor was forced to sell his product to United at less than

its value because of United’s monopoly. The court refused

ie to dismiss the complaint.

“The more frequent complaint against a monop-

oly is by one who seeks to buy and complains that —

since the monopolist controls the market he must

therefore -buy from the monopolistic seller at the

latter’s price, or not at-all. But the i injury is equally

-great to one who wishes to sell his product in a

market subject to monopolistic control and must sell

to the monopolist as the only available buyer, again

on the monopolist’s terms, or not at all.. Here the.

injury is the direct resut of the monopolistic condi-.

: Findings of Fact, C onclusions of Law and ‘Opinion

_ tion which has been created, and the injured seller .

may recover r under § 15.” (90 F. Supp. at p (wae).

After an answer was filed, the court ‘(granted Aafeidant’s

motion for summdry judgment because thee plaintiff had

previously filed a complaint against the defendant alleging |

the same-cause of action, which had been dismissed with

prejudice. The reason for the dismissal does not appear.

. No appeal was prosécuted:. Consequently, La Chapelle is

still authority for the proposition that the target area is not

limited to a monopolist’s competitors.. See Congress Build-'

ing Corp, v. Loew’s, Inc., 7 Cir. 1957, 246 F. 2d 587; Vines.

i Genet | Outdoor Advertising Co., 2 Cir. 1948, 171 F.

2d 487.

— ae Chattanooga Foundry & Pipe Works v. . City. of.

Atlanta, 1906, 203 U. S. 390, plaintiff purchased pipe at an

excessive price due to an illegal arrangement. between de-

fendant.and others. The court held+the plaintiff “.. . was’

injured in its property,-at least, if not in its business of

furnishing water, by being led to pay more than the worth

of the pipe.” United attempts to distinguish this case be-

cause the excessive pfice of the pipe represented property

diminished by ‘the payment of money wrongfully induced

by a conspiracy ; whereas, here there is no wrongful induce- |

ment because the rentals were paid in accordance with valid

_ leases. In Chattanooga the sale. was lawful, but the motayes

.and inducements to make it constituted a wrong, that is, a

: combination of members of a‘trust who. arranged, for the

sale at an excessive price after simulated competition which

induced the buyer to buy. .The court said:

. .. Finally, the fact that the sale was not so con-

ae in its terms with the unlawful combination as

to be unlawful, Connolly v. Union Sewer Pipe Co.,

Findings of Fact, Comclusions cf Law and Opinion

184 U. S. 540, in no way contradicts the proposi-

tion that the motives and inducements to make it

were so affected. by the combination as to constitute

a wrong. . - ;

United citi the validity of the leases with the motives |

and inducements behind them. Hanover was. induced to

enter into the leases by the absence of suppliers brought

about by the monopolistic practices, including the lease-only :

policy. The motives and inducements were so intertwined

with the monopolization practices as to constitute a wrong. |

Both Atlanta and Hanover, were buyers from an antitrust

.violator. The damages sought in both cases are the higher

business costs caused by the wrongdoers. The cases can-,

not be distinguished.

The cases relied on by United are ‘distinguishable. ‘In

Eagle Lion Studios, Inc. v. Loew’s, Inc., 2 Cir: 1957, 248 F.

2d 438, aff’d by an equally divided court, 1958, 358 U. S.

100, the court interpreted the decree in the ‘Government

case as deciding that defendants: monopolized only with re-°

spect to a segment of the market. Theyll had restricted the

films of the major distributors, but not those ef: the plaintiff

and other independent producers. The practices of United

were directed at the shoe machinery trade and commerce,

and, therefore, at Hanover, a’substantial and captive cus-

tomer. In Conference of Studio Unions v. Loew’s, Inc., 9

— Cir. 1951, 193 F: 2d 51, cert. denied, 1952, 342 U. S. 919,

the court held that the i injury to plaintiffs, a unfon and its .

members, did not flow from the injury ,to the competitive

situation of the motion picture industry caused by the re-_

- striction of activities of independent producers by defend-

ants, a rival union and major film producers. The plaintiffs

were not in the business of making or weal motion -

gee ae ge

ae ate er

Findings of Fatt, Conclusions of Law and. Opinion sofa .

tures, did-not sii with’ defendants, did not. buy from —

them, and were not even employees of the companies which

the defendants intended to destroy.» The remoteness ‘of

plaintiff’s injury. was apparent. In Karseal: Corp; .v. Rich-

field Oil Corp., 9 Cir. 1955, 221. F. 2d 358, Karseal and _

Richfield were manufacturers of wax. *Richfield applied °

restraints to capture the independent gas station market.

The court held Karseal was in the target area. The fact that

Karseal marketed its, product through middlemen, while

- Richfield dealt directly with retailers, was immaterial. The

- fact pattern for a direct injury was strong in Karseal. The

- court said: “Assuming Karseal was ‘hit’ by the’ effect of

the Richfield antitrust violation, was Karseal, ‘aimed at’

with at precision to entitle it to maintain a treble dam-

age suit . . .?” Since Karseal was directly in Richfield’s

aim, ‘the case sheds little light on the standard by which

fenough precision” can be measured.:-—---

While Eagle Lion Studios, Caine of Studio Unions |

and Karseal are distinguishable on the facts, under‘ the tar-

get area tests suggested by these cases Hanover’s injury

flows proximately from the monopoljzation. The complaint

‘in the Government case listed the effects of the monopolistic

practices on the shoe manufacturers, as well as on United’s.

competitors. One of the effects-on the lessees was United’s

extraction of large sums of money in excess'of the reason-

able value of machinery. and of, the ser@ice rendered by

‘ United. A similar charge is, included in Hanovet’s com-

plaint. Judge Wyzanski found that United’s: policies have

“.. . mot necessarily promioted in the shoe manufacturing

field the goals of a competitive economy and an-open s0-

ciety.” He pointed out that if United shoe machinery were

available ona sale basis, United’s psychological and .eco-

nomic control over shoe manufacturers would be releas

‘Sak Laas

- Findings of Fact, Conclusions of Law and Opinion

which in turn .would cause: some sine Seiaidactanets. tor

financial and psychological reasons, to be more willing to

” dispose of: United’s machines and take on.either competitors’ vf

. machines or. United “‘mnachinery available in a secondhand

' market. Itis obvious that-the financial considerations were

thaf soma manufacturers would find, it less costly to own

+ g® than-to-lease machinery. Thus, a charge and finding of °

detriment to a particular class of persons, as seemingly «'

required by Eagle Lion Studios, is present. |

‘The’ facts satisfy the test of the Conference of Studio.

Unions | case. Shoe machinery is not absorbed by the general

public; it is meant for use solely by- shoe manufacturers.

They consume all of it, and its cost is 2 factor in.the j pricing

- of shoes.’ Shoe manufacturers are directly interested in the

devélopment of better machinery, and in the quality of exist-

ing machinery. It i is clear that a shoe manufacturer is “

--within that area of the economy which is endangered ee a

breakdown of competitive conditions .. .” in the shoe ma-

chinery industry.

‘ The stifling of the business of competing shoe machinery

manufacturers was a direct object of United’s actions, but:

it‘was not the only object. "It permitted United to}deal with

. Shoe manufacturers on United’s terms, and the terms wa ae

turn permitted U United to-stifle the competition. The monop- ¥ ry

. i olistic terms, such as the lease-only system and the related ,

‘w clauses and .practices, causéd both the injury claimed by.

Hanover and the injury to United’s competitors. There is

nothing strange about an actor having more than one im-. .

‘mediate object of his acts. The aim was wide enough to

accomplish both. Hanover was “aimed” at and _ ” the

test of Karseal. |

. United accuses Hanover of. an attempt to bring itself

within®the target, area

a ee ee eee ee ee

. - SOR Me ee

Ss Oma |

; “tf ‘ ; &.

Findings of Fact, Conclusions of. Law and Opinion

“... by saying it was obliged to ‘obtain its machinery

from defendant at a cost in excess of what it would

shave to pay absent the monopolization’’ (Pl. br. 9).

It tries to use its claim of excessive price to show in-*

jury as a result of antitrust violation. So far’as the

a. decree is concerned, it is enough here to point out-

ne that that claim was dismissed by Judge. Wyzanski.

Decree par. 2 dismisses with prejudice all other.

charges of violation than those there enumerated.

. ° * Amiong those charges was the charge of excessive-_

ae ness contained in par. 97 of the Government com-

: plaint as follows:”. si weir ae

‘This argument confuses Hanover’s primary and alternate\ =

damage claims. Excessiveness relatee} principally to‘the al-

ternate damage flowing from the differefice between the rent

and royalty charges United exacted from lesseeS when faced

with competition and the ‘higher charges exacted.when it

- was not so faced. Hanover’s. primary claim is measured

by the difference between the higher cost of leasing mia-

‘chines and the cost of owning them. The primary claim:

does not necessarily imply excessive returns to United.

_ The complaint in the Government case included an alle-

gation that United collected excessive, arbitrary and non-

competitive charges for its products and services and ©

thereby made excessive arid unreasonable profits. . Judge

- Wyzanski noted that while United generally followed a

policy of setting prices so its shoe machinery business re- .

- turned income to cover- costs plus, a profit, there were

_instances in which the rates were adjusted to meet or defeat

competition, and to ——. xpand United's share of the

market: He found no evi Ribd that United secured a

monopoly profit on its entire or machinery branch opera-

».

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Biren. a, , >

FRET PR Ong nr rE MORLEY LT WED: Aesctovpenagage — oe ——

TPS Oy FNM,

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Findings of Fact, c onclusions of Law and Opinion

tions. “He did not mer a finding that mere were exces-

sive or unreasonable. While he found thaf the discrithina-_

tory, pricing policy was eviderice of United’s monopoly

power, a. buttress to it and a cause of its perpetuation, he’

, stated his decree w ould not deal. with the price discrimina-

tion aspects Of United’s policy. hecatase some not too rigid .

‘price discrimination is inevitable, some is justified as rést- ”

ing on patent monopolies, some is, desirable in promoting a

competitive market, and an order to eradicate such discrimi- ’

‘natiyn could not be enforced.

The doctrine of collateral. estoppel by judgment extends

only’ ag to'those matters in issue or points controverted,

upon the determination of which the findjng or verdict was .

, rendered. Partmar Corp. v. Paramount Pictures Theatres

' Corp., 1954, 347 U.S. 89; Emich Motors Corp. v. General

Motors Corp., 1951,340 U..S. 458. The findings and con-.

clusions on the price discrimination aspects of the pricing -

policy cannot be considered matters upon- the determination *

of which the. findigg or verdict was rendered in view of the

specific langyage that, the decfee would not attempt to deal

with these matters. This, there cannot be an estoppel.

“ ‘Hanover also relies for its alternate damage on certain

documents in evidence in this case. One is a summary of.

19 instances in which United reduded rents and royalties on

certain: machines because of competition.+ These 19 in-

s stances were taken from:mére than 50 instances in evi-

dence before Judge Wyzanski, and. from which he drew9y

for detail analysis jn arriving at his findings. Hanover asks, ©

4. this court tg infer bit the sunimary and from the evidence

of overwhelming market control that, if competition existed,

“Hanover would have had the benefit 6f reductions similar

to those listed on the summary. Admittedly, few, if any,

Of the machines on this ‘summary. were used by Hanover,

4 ~

a * ‘

c@°

FIO ES FOTIA AOS PO. ROE IES, DALE. AAO IG WO or’ _s agri trs yelors: m

“~

Findings of Fact,.Conclusions of Law and Opinion *

and most of the reductions took place prior to the complaint

period inthis case. The sumfnary is irrelevant» The infer-

‘ence urged by Hanover cannot be. drawn. International

Shoe Machine Corp. v. United Shoe Machinery Corp.,315_

F. 2d 449, supra. The decree created no estoppel with

respect to the findings based on the evidence of 50 instances

of reduced rentals, so that the only evidence before this

court is the summary of.the 9 instances.

Hanover also introdftced i in evidence a schedule of the.

percentage of revenues to machine or bulletin costs’ The

machine or bulletin cost is not the only item considered

before a machine rental is set. The development expenses,

installation costs, 10 year service costs, and interest on the ~

last two items, are also‘considered. The rental woutd include

all these, plus a profit, so that the percentage derived from

the comparison does not demonstrate a “high rate of return.”

Moreover, while Hanover points to high percentages it con-

_ siders “startling,” the schedule contains percentages | which

are extremely low. The schedule also invites other com-

parisons such asthe comparison of revenues with Hanover’s

- . computed sales price, also on the schedule, which. would re-

_ duce the percentages considerably. There is no evidence of

the normal rate of return if the omitted cost: factors were

included. In short, the schedule and related evidence are not

. ‘sufficiently probative of the alleged high rates of return to

| U ited.

Hanoyer has failed to” prove its sieoveane damage claim.

: This doe¢ not. affect its primary claim measured by the

difference between the cost to operate its ‘business with

lease-only machinery and the cost to own ‘the machinery.

The rental returns may not ha; os ey excessive, but there

‘isa differenice betweeri non-excesSive returns. and machinery

costs in excess of*those which would have been incurred

had the machinery been purchasable. As stated by Judge

‘

fs"

e- 58

Findings of Fact, C ontclusions of Law and Opinion

Wyzanski, “Some truth lurks in the cynical remark that

not high profits but a quiet life is the chief reward of a

monopoly power.” Machine’ reifitals which return costs plus

a reasonable profit to United may be substantially in excess

of the machine costs to a shoe manufacturer dealing in an

unrestricted market. A supplier’s costs may be inflated due .

' to inefficiency, excess personnel,‘or other reasons. Such

‘ conditions might not exist in a competitive market. There is -

no necessary inconsistency between a reasonable rate of

"return and proof that the rentals were substantially in excess

of the cost of ownership. If the “quiet life” brought about

_ by the monopolistic practice of United’s lease-only system

«produced some excess costs to’Hanover, it nged not rely on

excess returns to United to show damage.-Hanover’s claimed

; primary injury is injury flowing from United’s leage-only

policy and practices, provided Hanover was at. all times *

ready, willing and able to buy machinery.

Judge Wyzanski did find there was: virtually no ex-

pressed dissatisfaction from cofsumers respecting the leas-

ing. system; and that all shoe rhanufacturers who testified

on the point expressed a preference for the leasing system:

This was not a finding that shoe manufacturers were not

hurt by the leasing system. Judge Wyzanski pointed out

that “It cannot be said whether this absence of expressed

dissatisfaction is due to lack of: actual dissatisfaction, to.

practical men’s preference for what they regard as a fair

system, even if it should be monopolistic, or to fear, inertia,

or reluctance to testify.” He then pointed out the system’s

adverse effects on the goals of a competitive economy and

on nape society as related to the shoe manufacturing field.

4. Choice of Marketing’ ares

United: urges that the language of Judge Wyzanski

negates a-duty tosell:,

Findings of Fact, C onclusions of Law and Opinion

“*The Court alie. agrees with the Government

that if United chooses to continue to lease any ma-

chine types it must offer that type of machine also

. for sale. The principal merit of this proposal does

not We i in its primary impact, that is, in its effect in

to give a customer choice as to the selling methods

. by which his supplier offers that supplier's own

products. The merit of the Government’ s proposal

is in its secondary impact [i.e. creation of a second-

hand market]. (Emphasis en . 110 F.

Supp., at 349, 350 ©

Judge Wyzanski found that the lease-only system and lease

Clauses enabled United to monopolize the shoe machinery

market, and ‘to end this monopoly it would be necessary not

widening the choices open to ownérs of shoe fac-

tories.. For present purposes it may be assumed that.

_ the anti-trust laws are not designed, chiefly, tf at all, :

“s

only to place limitations or United’s leases, ‘but also to re-

quire United to offer the machines for sale.- ‘Thus, United.

had a duty to refrain from illegal'‘trade practices, See Con-

gress Building Corp. v. Loew’s, Inc., 246 F. 24-587, 594;

596, 597, supra. If one of the practices by which it monop-

olized the market was its lease-only policy, it had a duty

to abandon that policy. The only effective way was by’an

alternative sales system. .The antitrust laws were’ designed

to prevent monopolistic practices. They are not to be

thwarted because an incidental effect of the decree may

give a customer a choice of the supplier’s marketing meth-

ods. While ordinarily a supplier may: determine his own

business practices, they will be condemned as illegal if they

7 *Quotation as it appears in United's brief at page 24. Tire origi-

nal opinion did. not contain the material: in earned or the emphasis...

F re

. . ae, ~ _

- 60 Se , ot eee &

Findings of Fact, Conclusions of Law and Opinion

are used to achieve a’ monopoly. “A refusal to sell, while it

a may be lawful pér se, cannot be used in order to achieve an

illegal result.” United States v. Klearflax Linen Looms, *

Inc., D: Minn, 1945, 63 F. Supp. 32, 39. It is only another .

step to-say a refusal to sell coupled with a willingnéss to -.

lease may--be lawful, but Judge Wyzanski found these

_achieved an illegal resiilt :

“Tt has used its leases to monopolize the Shoe ma-

-chinery market. And if leasing continues without

an alternative. sales system United will still be able

to monopolize that market: To root out monoholiza- ~

tion and to bring United, in the future, in the same

class as its competitors, it is necessary not merely

to place limitations upon United’s leases, but also to *

require United to offer. for sale arly machine type

which it leases.” ‘110. F. Supp., at 350.

x The Legality. of the Leases.: ae

Unrifted relies on the legality of- the leases as a complete

defense. It cites Bruce’s Juices, Ince v. American Can Co., .

1947, 330°U.-S. 743, 755; Kelly y. Kosuga, 1959, 358 U. S..

516, 518, 520; Turner Glass Corp. v. Hartford-Empire Co., |

7 Cir. 1949, 173 F. 2d 49, 52) for the-proposition that since

the Form A leases are enforceable’ as contracts the courts

will not. sanction a belated antitrust. action, to’ avoid legal

obligations now completely performed. |

; Whether the leases are legal is, not important in this

lawsuit because Hanover is not suingsonthem. United ap-

; parently contends that it would be unjust for Hanover to

recover monies which would in effect offset rentals and

royalties. paid under a yalid contract. It would also be un-

just to allow a monopolist to escape liability. for injury and

damage inflicted on another even though the contractual

a OL Ee ky,

oe &

"Findings of. Fact, C onclusions of Law and Opinion

dealings between them were legal. United’s products and

services may ‘have been efficient, the prices not excessive,

and the leases tawful, but-it runs the risk that its monopo-

listic acts may ¢ause actionable injury. In..Chattanooga .—

Foundry, & Pipe Works v. City of es 203 U. S: 390,

> at 92% 397, supra, the court said: ;

. In most cases where the resi complained of

as s springing from a tort is*a contract, the contract

is lawful, and the tort goes only to the motives which’

led to its being made, as when it is. induced Aes .

duress or fraud.”- :

: The cases cited by United do. not ‘support its hiding In

Turner Glass Corp. v. Hartford-Empire Go., supra, plain-

- tiff offered no evidence to prove a. pecuniary damage by

reason of defendant’s memb€rship in a conspiracy to monop-

‘ olizé, but contended that the payment of license. fees. to de-

fendant was evidence of pecuniary damage. Plaintiff ad-

mitted that if the license agreements were not inherently

. illegal, it could not prevail. The court held for defendant

because they were not inherently illegal.

Similarly, i in Bruce’s Juices, Inc. v. American Can Co.

supra, in an action for the purchase price of goods, the

court refused to allow the defense of illegality of prices, but

told the defendant it could prove the illegality i in the bead |

damage action, which was pending.

~~. Moreover, if Bruce can in this suit prov’ hat

the prices respondent charged were illegal, as ‘sust

, in order to win, it can do the.same in a triple C ——

. suit. . . .” Page 752.

The court simply refused to add another sanction to the

antitrust ages

Ars, 62.

Findings of Fact, Conclusions of Law and Opinion

Then, after suggesting that the argument for the additional

“The Act prescribes sanctions, and it does not

make uncollectibility of the purchase price one of

them. Violation of the Act is made criminal -and

upon conviction a: violator may be fined or impris-

oned. 49 Stat. 1528, 15 U. S. C: § 13a. Any person |

who is injured in his business or property by reason

of anything forbidden therein may sue and recover

three-fold the damages by him sustained and the costs

of suit, including a reasonable attorney’s fee. 38

Stat. 731, 15 U. S. C. § 15. This triple damage

provision to redress private injury:and the criminal

proceedings to vindicate the public interest are the ,

only sanctions provided by Corigress.

“It is contended that we should act judicially to

add a sanction not provided by Congress by declar-

ing the purchase price of goods uncollectible where

‘ the vendor has yiolated the Act. . . .” Page 750.

" sanction might be a persuasive. one for Congress, the court

said :

“cc

. It is clear Congress intended to use private

self-interest as-a means of enforcement and to arm

' injured persons with private means to retribution

when if gave to any injured party a private cause

of action:in which his damages:are to be made good

. threefold, with costs of suit and reasonable attor-

sad s fee.” Page 751.

In Kelly v. Kosuga, supra, it is clear that the court decided

_that the avoidance of private contracts is not to be added |

to the sanctions provided by the Sherman Act. Implicit i in

these cases is that the sanctions of the Sherman Act remain

ee eee ee ee ee

Se ia ti on ci

\ * + s

Findings of Fact, C onclusions of Law and Opinion

wndtihved A bend ‘ial enftibesatile’ contract. doés not |

‘insulate a monopolist from liability to contracting parties.

D. The Injury.

1. Demonstration of Anjury.

Hanover relies on Judge Goodrich $ opinion in the sepa-

~~ rate trial of the “passing on” issue to prove injury. United .

answers that this is erroneous because Judge Goodrich ‘went

beyond the two assumptions on which the i issue was tried,

and made = causal connection. himself inf order to decide

the -issue.*° | |

Judge Goodrich clearly ruled that on: thie basis of the

’ assumptions Hanover suffered actual injury. He did -not

supply assumptions. His: ruling shows that if the stipu-

lated assumptions are proved, the other elements, the injury

and the causal connection, are present as a matter of law.

United, misconstrues Judge Goodrich’s statement “ -—

there are affirmative defenses or other complicating legal

issues, they are not before the Court at this time.” The

~ fact of injury is not an-affirmative ceiense, but an essential

element of the cause of action, and the “other” issues refer

to issues of which he was not aware. He'was aware of the

need to establish injury.

The hypothesis in the pan before Judge Got.

rich, was broad enough to cover Hanover’s primary claim. —

of damages. Judge Goodrich analogized this tort to negli-

gence: . . there is (1) a legal duty on defendant’s part

(to obey the antitrust laws), (2) a violation of that duty,

e ‘Similarly, there is a right i in Hanover to conduct its

The two assumptions were (1) that the yislation of the law as

alleged existed, and (2) that the excessive cost. of shoe machinery .

as alleged en.

> 64

Findings of Fact, C onclusions of Law and Opinion

business in a m ket free from-thg awe of a monopo-

list. United’s opolistic practices violated that right.

United’s violation of that right caused an injury. If Han-

over: proves the amount of damagé, as Judge Goodrich

stated, the causal ‘relation between United’s wrong and

Hanover’ s harm is obvious. This court fully agrees with

Judge Goodrich, and finds that Hanover sustained redress-

‘able injury by United’s acts. Thus, while United’s char-

acterization of the trial of the “passing on” issue as a

“mere motion to dismiss” makes: no-difference with respect

‘to whether this court. can. and should ‘follow such decision

as the law of. the case, 1A Moore, Federal Practice, ‘Para.

0.404(4) at page 4213, Para. 0.404(10-) (2d ed.) ; United

States v. Wheeler, 3 Cir. 1958, 256 F/2d 745, 747, °% view

of this court’s finding, Vnited’s argument with respect to

’ the law of the case need not be fully discussed.

2. The Impact of Monopolization on Hanover.

As a final and complete defense to the antitrust viola-

. tion United contends Hanover has not shown actual

impact of monopolization on it. Some of the reasons ad-

vanced are: There was no written purchase policy or

expression by the Board of Directors; Hanover bought ~ :

machines only when it was advantageous to do so; Hanover.

leased 136 optional machines; Hanover never prétested its

‘inability to purchase lease-only machines; the 1955-1956

purchases disprove a purchase policy because important

machines were retained on lease, same were replaced by

non-United machines, 39. were returned, and in buying

- as part of the purchase price; both foreign and non-Unitéd

domestic machines were available; Hanover’s attitude to-

_-ward United’s leasing policy is the result of a quarrel

—

| 65

Findings of Fact; Conclusions of Law and Cpe

between its president and certain United officials ; Hanover

and its competitors enjoyed equality ofgtreatment since the—

lease terms were uniform, and, thus, there could not be an

injury; and Judge Wyzanski’ found virtually no shoe

manufacturer was dissatisfied with the leasing system.

There was testimony that singe the 1920’s Hanover

was actively engaged in a search to buy non-United Good-

year welt shoe machinery. , Mr. Sheppard, president of

Hanover, described clicking machines which were pur-

chased to replace United’s. machines. He told. of visits in

the 1920’s and 1930’s to various other welt shoe factories °

..in a search for machines. In the early 1940’s Hanover

their United counterpart. The search fér machines was

dormant shortly before and during World War II. .When-

tever shoe makers gathered, there was tally about the pur-

chase of foreign machines after the war ended. Hanover

and other shoe factories.tested many foreign machines. when

they became available in 1948'and 1949. The various shoe |

manufacturers exchanged the test information.’ The tests

and other evidence showed: that between 1939 and 1955 only

a few non-United machine. types, comparable to- United

lease-only machines, could be used satisfactorily in the

Goodyear welt process. Only three such machine types were

_ found and in each case Hanover purchased them.

In 1949 the National Shoe Manufacturers Association —

- (N.S. MeA.), of which Mr. Sheppard was president from

1946 through 1949, and representing A to 95 percent of

the shoe manufacturing industry, form¢d a congmittee, with

’’Mr. Sheppard as’a member,‘ to study numerous problems — - |

poncerning shoe machinery costs, to search for and dis-

seminate information’ on modern non-United shoe -ma-

AZ Pe ie ee

Findings of Fact, C onclustons of Law and Opinion .

die to assist members i in the evaluation of machinery,

and to persuade United to offer more of its machinery for

_ Sale.

The absence of a- written declaration of a policy to hay

machinery, the lack of such an expression<in its minutes,

and the testimony jof ‘Mr. Sheppard that Hanover’s policy

_.was. to. buy machinery only “.. . as far as we could do it

advantageously atid worth while” are not significant. Han-

_ Over was a Closely held family corporation. The most im-

portant machines were not for sale. Mr. Ray Purtell, em-

ployed by Hanover as an assistant superintendent from

“1949 to 1956, testified that during his employment the policy

of Hanover ‘was to. purchase machines, both United and

non-United. The policy to purchase only when it was ad-

. vantagéous is merely sound business practice. Hanover need

not show that in any and all cases it would have purchased,

_ but that it likely would-have purchased the machines. Han-

over’s purchase of substantially all of United machinery in

place at Hanover in 1955-1956 is some indication Hanover

would fave considered it advantageous to patcenee during

' the lease-only period. :

Hanover never asked United if iit could buy the lease- .

- only machines. Neither did. it protest its inability to buy.

Mr. Sheppard testified that any such request would have

beén a “foolish question.” This explanatiort does not seem

unreasonable in view of the findings in the Government case _

and the evidence in this case. Not only ‘Mr. Sheppard, but

‘representatives of the whole shoe machinery industry ap-

parently thought that they were captive - customers of

United. In a proposed statement by the'technical committee

of the N. S. M. A. to United protesting increases in unit

_ e

‘

° a ; > . t 4 °

Findings of Fact, Conclustons of Law and Opinion

sulted about rate increases particularly “. . since the only

choice a shoe manufacturer | has is to pay ‘the | increases or

‘stop making sh¢ shoes.” --~~* Th

_Mr.: Sheppard was ane by representatives of.

—United prior to the Government case. - The purpose of the

interview was not to obtain Hanover’ s complaints agains

‘United, but to obtain Mr. Sheppard as a witness for Gaited

in the Gsovernment case. He was asked whether he had any -

objections to the*leasing system, but he was not asked

whether he would. prefer to buy rather than lease. . The

leasing system had many facets of which lease-only was one.

Jn view of the shoe machinery market, a reasonable interpre-

tation of the question is whether there was any objection tc

the leasing system as it existed. In the interview he men-

_ tioned an incident when he ‘refused to lease’ clicking ma-

chines because United insisted that Hanover ‘acknowledge

in the lease that Unitell owned the machine dies which Han-

_over had purchased. Before the matter could be resolved.

Hanover purchased 11 Reece clicking machines. Mr. Shep--

pard described the rejection of the United machines as

brazen and “perhaps ‘stupid,” because the Reece machines

were unsatisfactory and later abandoned with a return to

_ United machines. This one instance does not support an

‘inference that Hgnover would have purchased machines

if _only when the lease térms were unacceptable. «

Optional Machines. ‘During .the complaint period Han-

over leased 136 optional machines. The optional: machings |

-were. the minor, simpler, less complex machines. .Some were

not purchased because he price was too high. During the

same period Hanover purchased non-United machinery., ex- °

-clusive of dry thread sewing machines, for prices totalling -

‘ . 68 ee

’

Findings of Fact, C onclusions of Law and Opinion

both United and non- -United machinery it could have pur-

chased during the same period. In addition, Hanover pur- >

chased United optional machinery totalling about $29,600.

The rentals for non-United machinery totalled about $101,-

100, of which about $76,900 was for lease-only. Total rents

and royalties paid United were about $2,417,700, but only

about $64,700 or 2.68 percent was for optional machines.

The effect of optional machine rentals, which were flat

rate, could be minimized through efficiency and quantity

production, and this would offer less incentive for owner- __

Ship than in the case of lease-only machines. The- latter,

with few exceptions, were offered only on a royalty’ or

rental and royalty. basis. The leasing of some optional ma-

chinery because the purchase price was too high, the sub-

stantial purchases of machinery from non-United sources,

the low percentage of. optional rentals to rental and ‘royalty

expense, and cost savirigs. which could be achieved through

. efficient use of optional machines point to a Hanover pur-

chasing policy,-rather than to a leasing policy. ,

The 1955-56 Purchases. Pursuant to order of the dis-

trict court in the Government tase, a plan for the termina-

|» tion of all outstanding Form A leases became effective on

~ ‘June 1, 1955. All lessees were given the option to terminate

_ their leases, and to purchase the machines at prices com-

7 <> puted in a discount schedule,set out in the plan. In October,

1955, Hanover purchased 205 of the 306 machines it then

held on Form A leases, deferting action on the remaining

machines for various reasons. By December, 1956, Han-

over had purchased an additional 7 maghine. types, consist- .

ing of 58 machines, and it returned 37/machines to United:

‘The total cost of the machines purchased by Hanover in

1955 and 1956 was about $613,900. In 1960 two addi-

‘tional machines were purchased, three were returned and;

one remajned on‘lease.. Also, in 1955 when United offered

»3. 3

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- Findings of Fact, C onclusions of Low and | Opinion

its lessees the ila to service their own machinery, ayith

a credit of 13.3 percent against lease charges, Hanoves®

‘chose to do so.. These purchases show a disposition by

Hanover to buy if it could do so advantageously. It is true

that the prices were at discounts and the result 6f negotia- -

tions, and that Hanover postponed for one year a decision .

to buy about $100,000 worth of machinery. United says

the prices were bargains; at the time the N.S.M.A. said

they were too high. The 1955 prices were the product

extended discussions in which factors such as age, obsoles-

cence, etc., were applied. . Even if the prices were bargains, -

it“does not follow that Hanover would not have bought at

higher prices. There is no evidence that Hanover s€fused

to buy unless prices were a bargain. Also, the evidence is

that Hanover retained the $100,000 worth of machines on

lease, not because it preferred leasing, but because certain . -

’ newly developed United and non-United machines were

about to be marketed which -might make those machines

obsolete. Most.of these were subsequently purchased. Han-

over weighed. many factors, such as price, the years te

quired for a return of the investment, etc., before it decided .

to purchase. This was sound business judgment. Undoubt-

” edly; these same factors would have been considered in 1939

and subsequent years. This does not justi¥y an. inference

Hanover would not have bought during the complaint

period. It authorized the purchase of machines of $500,000

from United and $250,000 from non-United sources. ‘The

few-instances pressed by United to support a contrary in-

ference are not convincing.

In its brief. United states that since did not buy

important machine types such as heel seat lasters, toe lasters,

-and Goodyear stitchers, bat. retained them on lease. This

was the testimony of Mr. Ray Purtell who had not been

70 Es ; a

Findings of Fact, C onclusions of Law arid Opinion |

employed by Hanover since 1956, and who testified “to the

_ best of my memory.” The credible evidence shows, how-

ever, that Hanover purchased four heel seat Jasters and

14 toe lasters.in the first group of purchases in 1955, and

that none remained on lease. Also, 17 Goodyear stitchers °

were included in the first group of purchases; and of the two

retained on lease, one was only a spare or standby machine

and the other was eventually replaced by a foreign machine.

- United also states ‘that after completion of the 1955-

1956 purchases, Hanover continued three machines on

Form A leases until their return in. 1960. The testimony

in support of this statement is somewhat ambiguous, and

the record otherwise shows the machines were’ retained on

the Form B lease.’' One was a machine type of which Han-’

over purc.ased nine, indicating that this may ‘have been an

excess machine. Another -was a machine type of which

Hanover purchased two, and the evidence is that”the re-

turned machine was 4 new machine originally listed for pur-

chase. -The third wag, the spare or standby Goodyear

stitcher. Hanover also converted to Form B leases certain

machinery considered: for purchase.in 1955. Except for

the Goodyear stitcher, these machines were later either -’

returned or purchased. ° gry

Hanover replaced certain United machines, with non-

United machines.. These instances were few, but together

with Hanover's contemplated expenditure of $250,000 on

non-United machines and its action in waiting for the de-

’ velopment of non-United machinery indicates that Hanover

‘did not prefer to lease United ‘machinery. Hanover’s

™'The Form B leases were the new leases approved as part of the

lan to terminate Form A leases. The objectionable features of the

orm A lease were eliminated. ger '

i |

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Findings eet Fact, C onclusions of Lom. and Opinion

disposition to buy. United machinery may- be ites frie

both non-United and United machinery purchases in 1955-

1956, particularly if aéceptable non- vue machinery was

not available prior to that time.

The return of 39 machines at the time of and following

the 1955-1956 purchase demonstrates only the unlikelihood |

of the purchasé of those machines, but not‘the other ma--

chines. They were only a small part-gf the machjnes eval-.

uated for ‘purchase. me were. optional which never en- -

teréd into the damage calcirlation. Hanover eliminated

_ rental costs frm the remainder-so that only peeves royalty

costs remain in the. di amage calculation. .

| Availability of Domestic: Non-United Machines. There

is little a that major comparable non-United ma-

chines for use in the Goodyear welt process were available “

. from United States manufacturers. Mr. Swinney, a retired

~ employee of and consu!tant to Genesco, a shoe manufacturer,

_ testified that in 1949 he had seen a Hamlin heel and toe, bed

laster in the Hamlin Shoe Co-in Massachusetts; and in 1920 —

he had'seen a R. H. Long lockstitch machine in the Rice and

Hutchins factory in Massachusetts. While these machines

- _ performed: the same function as their United ounterparts, .

"Ke did not testify that their performance and gapacity com-

“domestic machines, whose ftinctions were similar to cer-

tain United machinesHe only mentioned two that were of .

‘comparable quality. One, the Prime Mawufacturing Rib Re- ;

inforcing Machine, was purchased by him in 1949 when. he

bought three for a total of $125.00. It is not likely this

was comparable. because the 1955 price of one such United

machine. was $4,825.00. The other, a Peerless Machine

“Findings of Fact, Cc ancineane of Law and Opiates:

Works Eyeletting Machine, was purchased by him in 1949;

_ but there is-no indication as to how long the machine had.

~ been available for purchase. Neither machine was one of

the eight key machine types used in the Goodyear welt pro-

cess; Pulling Ov er, Staple Side Lasting, Toe Lasting, Heel

Seat: Lasting, ° Inseaming. or Welting, Inseam Trimming,

Rough Rounding, and Lockstitching. Moreover, although

Mr. Swinnéy ‘had .been associated with the shoe business

_ for many. years, most of his observations were limited to

. the years 1949-1950. :

-. While Hanover purchased three LeMatic Sole Press

ve machines and ten Schwabe Clickers in 1951 and subsequent

‘years, there is no evidence of how long these had been avail-.

able prior to 1951. The only machine which appears to have

been available prior’ to-and since is the Landis stitcher

which, while primarily intended for use by the shoe repair-

- ing.industry, was also used satisfactorily i in welt shoe manu-

facture.

Availability of. Foreign Machine. The principal testi-

mony was given by Mr: Swinney and Mr. Major, also an

employee of Genesco, Mr. Walker, an official of United, and

Mr. Becka, general manager of the International Shoe Ma-

chinery Company. In 1950 both Mr. Swinney and Mr.

Major were connected with the establishment in Israel of

a shoe factory in which Genesco had an interest: The fol-

lowing i is a summary dee their testimony, together with com-

- ment:

. Mr. Swinney. The Goodyear welt machines used in the .

Israeli factory had been obtained in England from Standard |

Engineering Company, a British manufacturer. They per-.

~ formed the same fun¢tion ‘as United machines.. Most of:

his observations were limited to machinery he saw in opera-

tior in 1949 in connéction with the procurement of ma- —

Findings of Fact, G onclusions of Law and Opinion

chinery for the Israeli \fectiory. He identified about 70.

foreign machines of various types and manufacture which

he had seen in operation. He did not testify that any of

. these machines were in operation in the United States be-

tween 1939-1955. There were seven machines of different

types which he considered comparable to United machines.

' Six of these qzere Standard: There was no evidence that

they were available before 1949-1950. Only two were-in

the key category. One was a Standard Oscillating Welt

Wheeling Machine No. 93, “Very similar in quality and

_ quantity of production” when compared with the United

- machine, called Goodyear Welt Indenting and Burnishing.

The capacity of the Standard machine was 700-800 pairs of

shoes per day, and two different United machines of that

type had a capacity of 1800 pairs per day. The other was the

Standard Heel Seat Lasting machine, on which he ex-

presséd no opinion on comparableness. According to the

— . catalog, city of the comparabie United machine ex-

ceeded the peaad by 300 to 400 pairs per day.

Although for a long time Genesco had much informa-

tion on foreign machines, and had tried them, it-used only |

United machines in its Goodyear welt factories in. the

United States. .-It procured none of the Goodyear’ welt.

machine types used iri Israel for its United States factories.

He remembered seeing only one foreign machine in any

domestic Genesco factory, an Albeko Band Knife Splitter,

which3 was a machine ype also purchased in 1953 by Han-

over.

Mr. Major. Mr. Major’ S me was similar to ;

that of Mr. Swinney.

Mr. Walker. While he was manager of United’s Mil-

waukee territory in the 1930’s he saw five foreign machines

Findings of Fact, Conclusions of Law and Opinion |

of the key ae installed in dninnanie shoe fatiatint a Moe-

nus Staple Side Laster, Heel Seal Laster Pulling Over,

Welter and: Stitcher and a Standard Welter. These. ma-

‘chines “did a passable job; I ‘don’t think any machines ire.

chines.” Most of the machines were not even rated as

_ passable on United’s Outside “Machine Reports (O. ?1.

Rs.), prepared hy him or under his direction, and on scher -

United documents prepared at the timie he saw the ma-

chines. The Moenus welter was not used at all during a *

particular week because a German mechanic was working

on it,and the operator’ w ds: having considerable trouble

‘with it. Later the machine was: removed as unsatisfactory,

ahd replaced by a United machine. Subsequent reports

indicated that ‘the seller was. having trouble placing. the

‘machine in another fac®ry for trial. The Standard Welter,

installed in the same factory, was removed in 1937 as a

“total failure.” The only machine type other than key

machine types was 2 Montreal or a Moenus sole = which’: «

7 also rated as passable.

Some foreign machines were described on O. M: Rs. as’

“man killer,” “unsatisfactory,” ‘and “total - failure.’ oar.”

.that the factories were not interested in making the machines ~

Tun, and it was not his job to encourage or make it possible

to make the machines a success. He thought.the machines

could have performed satisfactorily. =

The explanation is not convincing. It is wulthedy that

a conéern would obtain a machine on a trial basis, and have

its organization disrupted in an attempt to operate it, if it

was not interested in seeing it run. Whether Mr. Walker

was. not interested in seeing it run, or in not encouraging its

oo,

_ turer could not very well modify the machines unless

e 75.

' Findings of Fact, Conclusions of Law and Opinion

success, is immaterial. He was an outsider in no way con-

nected with the potential Seller or buyer.* No one would ex- -

pect him to breach his loyalty to his employer by encouraging

or aiding in the success of a’ competitor’s’ machines. One

‘would expect him to be factual in his reports to his employer.

. If a machine was not unsatisfactory, an unqualified rating

to that effect would be of little value to United.

* Mr. Becka. For a long. time he had been familiar with .

foreign shoe machinery and with - United machinery,

ee. As aim machines were practically the only

machines ...”. In 1954 he made a trip to Europe to examine *

. shoe neal Five machine types—heel seat lasters,

stitchers, rough FOUNERTR, stapleside lasters and -pulling

over machines—were “. . .-equally as good and suitable for

use in Canadian or American shoe factories.” Foreign’

machines brought here must be modified for such things as

the particular way they are to perform, electrical require-

ments, custom installation, and the like: A shoe manufac-

it also

went into the shoe machinery business. Two American shoe.

manufacturers had equipped their factories with enna

other than, United, but both had machine shops equipped

for the mariufacture of machinery. In the distribution of

foreign machines, the spare parts, service, and technical

know-how are of major importance, and a shoe manufac-

turer could not acquire foreign machines without an

assurance of.-a lgcal supply of parts and availability of local

service. There were only four organizations which offered

this service. He knew of only a few Goodyear welt foreign

machines i in place in United States shoe factories. prior to -

1955. :

Mr. Becka’s observations were limited to about one

year prior to the complaint period, and are.at variance to

‘NG:

Findings of Fact, C onclusions of Law and Opinion

hin and reports ‘accumulated by United. And digie 3 is no. .

evidence that Hanover: had facilities for the manufacture .

of shoe machinery. It.is not necessary to detail Mr. Becka’s’

_ testimony of the four shoe organizations. It is sufficient to

‘say that none would have been adequate if Hanover had

*. purchased foreign machinery.

‘There is other evidence of hat“ sioe availablity ot’

acceptable foreign machinery. Mr: Sheppard testified that

Hanover would not purchase machines ‘that would not do

the work of United machinery-because of Hanover’s policy -

of high quality performance and production. Hé testified _

_ that whenever foreign machines suitable to‘-Hanover’s needs

were found, they were purchased and substituted for United _

machines. Also, in the Government case United requested

the court to find asa fact that as of 1952

| . The evidence is clear that shoe ‘ manufac-

turing practices in Great Britain and continental

European. countries vary markedly from those of

the industry of this country ; that the productivity

of such foreign factories: is. universally below that

of American factories; that the ‘high production of

the American industry i is not a requirement of these

- foreign industries; and that machine and operating ,

characteristics acceptable abroad are rot acceptable

to the industry of. the United States. The main

és

reason for the production superiority of the shoe’

industry of this country lies in the ae de-

veloped and introduced by United. -

In a communication, dated July 7, 1952; United recog-

nized that. “. . . The war brought about a cessation of

activities, not only of those [Zuropean shoe machinery]

\ «

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Findings of Fact, Conclusions of Law and Opinion

companies, but of our own foreign companies to a omsider-

able extent, and in some~instances the plants of foreign

shoe machinery manufacturers were damaged.” The com-

munication also noted that of late, foreign manufacturers

had recovered from the effects of the war and were making’ ’

efforts to introduce their machinery into the United States,

indicating United’s awareness of the absence of foreign

machines during the period from the war to 1952. Such

foreign machines were described as copies of United's older

existing models, and while many were listed as good ma-

chines, the communication stated that this rating was

2. based on performanee under European conditions

whére the requirements are normally much different from

those existing in this country, . . .”, and that United ma-.

chinery “. . can deliver superior. performance under the

conditions aa requirements of this country... .” The ~

list included key and other machine types used in »'the Good-

year welt pfotess* Most of the key machines were by

Moenus, Adrian &-Bugch, Standard and Sagem.

A statement by Mr. ‘Purtell that the purchase policy was

set up only after the availability of United’s lease-only ma-

chinery is urged by United wholly out of context. The record

. shows: that. this statement was confined to the lease-only .

| machines purchased in 1955-1956. , Previously, he had been”

asked whether from the beginning of his employment in

1949 he was aware that Hanover had a policy to buy five

‘machinery. He answered, | I believe we purchased

machines that were—whiether it be. United’s or anyone

else’s, that were. available, on.a purchase basis,.. . .” but

that during those years most major United voachinex'y was

necessarily on lease. Also, United’s O. M's. in-1951 state

_ _ that Hanover preferred to purchasé as many machines as

possible, thereby eliminating unit charges. |

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' Findings of Faet, Conclusions of Law and Opinion

"On the evidence in this case the conclusion is inescapable

that there was very little suitable foreign machinery avail-

able and then only toward the end of the complaint period.

- But even if foreign machines were comparable in all

respects to United machines, it does not mean that shoe

manufacturers were free to procure them. Hig production

in short runs is a characteristic of the shoe industry in the’

‘United States, and. this makes work stoppage due to parts

and service difficulties a major problem. Hanover regarded

adequate service and a ready supply of parts a most im-

portant factor in the purchase of shoe machinery, partic-

ularly,the more complicated types. In 1952 United recog-

nized the effort “of late” of European shoe machinery manu-

facturers to introduce their machinery into this country,

their plants having recovered from the effects of World

War II. The vice president and general manager told the

branches, “... We are also sure you have in mind the high

standard of our service, and we mean that in the broadest

sense, the rapidity with which we can adapt styles and con-

ditions, and: the availability of our stock of replacement:

parts. Experience both in this country and abroad indicates

you cannot emphasize too strongly the fundamental import-

-ance of this parts stock.”"” United recognized the import-

' 427 ater in 1952, United’s Research Department, after reporting

: ee machines of. different: types and manufacture, concluded |

“Assuming. the fact that most foreign shoe machines will everitually

live up to our high standards of quality and production, the quantity

of majoramachines of foreign make installed in the U. S. will depend .

on the efficacy of a suitable maintenance service and parts stock.

“Further assuming that the distribution of these machines and

their maintenance service would be handled by companies with

branches in the nation’s shoé centers such as I. S.M.C. and Compo.

Shoe Machinery Corp., the parts supply would, to say the least, j

present a. serious problem to their agents. It. would be.most costly _

+o import spare parts and stock them in sufficient numbers at strategic ~

points; a fact which would reflect in the shoe manufacturers’ overhead.

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Findings of Fact, Conclusions of Law and Opinion

ance of adequate parts for foreign machines installed in

domestic factories in the 1950’s. Their O. M. Rs. for that

period state that a Moenus heel seat laster, and a Standard

outsole lockstitcher were unsatisfactory for the reason,

among others, that parts service was poor. - .

Thus, with very few exceptions, it is clear that no—

domestic non-United or foreign machines, comparable to

United rhachines in capacity and performance, and for

which there was service, parts and technical advice, -were

available to Hanover. 7

_ Hanover had sufficient finances to purchase. It had

-~ample working capital. During “1939 and/1940 its current

- and total liabilities were minimal in relation to current as-

sets, and even to quick assets. United’s expert, Dr. Corson,

a management consultant on problems of economics, mar-

ketigg, finarice, personnel administration and organization,

rest Na that Hanover had sufficient funds to purchase the

machinery here in question without borrowing additional

capital. If it had borrowed in 1939, its financial condition

_ “Should the United, States agents of foreign shoe machinery

manufacturers decide to produce spare parts for foreign machines in

this country, the cost of fixtures, jigs, etc. for so many various models

of different make would make the capital outlay seem prohibitive in

‘view of the limited market. : ”

“ .. . The shoe manufacturer who has acquired foreign machines

at a comparatively low purchase price would also be forced to invest

in a costly spare parts stock and to employ a trained staff of mechanics

for the maintenance of these machines in an adequately equipped

_ workshop. This, in our opinion, would tend to offset, if not wipe out,

the initial saving derived from the purchase of a lower-priced machine

and would increase the manufacturing cost of footwear. The above

would be true with all major machines such as pulling over, side last--

"ing, outsole stitching, and inseam sewing machines.

“We, therefore, assume that, while a few major foreign machines

may find their way into domestic factories, there is at this time not

‘ too great a danger of any mass import... .”

Findings of Fact, C onclusions of Law and Opinion

was ‘such that the interest would have been at the then

prime rate of 1% percent, or at most 2 percent.

. Finally, United argues that the rental and royalty pay-

ments, even if higher than the costs of purchase, could not

form among all shoe manufacturers, citing Keogh v.° Chi-

cago & Northwestern Ry. Co., 1922, 260 U. a 156, 165:

“. ... Here the instrument by which: the damage is

alleged to have been inflicted is the legal rate, which,

while in effecf, had to be collected from all shippers.

Exaction of this higher legal rage may not have in-

jured Keogh at all; for a lower rate might nothave

benefited him. Every competitor was entitled to put

—and we must presume would have been put—on a

parity with him. And for every article competing

with excelsior and tow, like adjustment of the rate

-must have been’made. Under these circumstances

no court or jury could say that, if- the rate had been

lower, Keogh would have enjoyed the difference be-

tween the rates or that any other advantage would.

have accrued to him. The benefit might have gone

to his customers, or conceivably, to the ultimate con-

sumer.” - a

_The Keogh case differs significantly. The action was

brought under Section 7 of the Sherman Act against sev-

eral railroads who were charged with conibining to fix un-

reasonable rates. United was not a public utility and was

not regulated. Its rates were not fixed. United was not

required to charge uniform rates, and Hanover was not

required to accept.and pay‘the same machinery costs.as its

' competitors.- If Hanover could have reduced machinery

costs by purchase, it should have been free to do so. Com-

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a Findings of Fact, Conclysions of Law and Opinion

petitors might-not have had the financial ability, or the

borrowing capacity, or the foresight to purchase. It might

have been advantageous for some.of them to lease and not

to purchase. The other manufacturers were not entitled to

be put on a parity with Hanover. Consequently, an option —

rto-purchase, as distinguished from a uniform rate, might

have benefited Hanover. Some manufacturers might not

have had a cause of action. Hanover and its claim are un-

affected by those who had a cause of action, and did not

pursue it, or failed in the attempt.

_ Hanover has proved that as a consequence of United’s

*monopolization it was unable to purchase most of the more

important machines which it would’ have purchased had. -

they been available.

E. Damages. - nee

1. The Leidesdorf Calculations. 2

_ The primary ‘damage. claimed by. Hanover is the excess

of leasing costs over what it would havé cost to own the

same machines had they been available for purchase during

the period from July 1, 1939, to September 21, 1955. This

required, ‘imong othér things, a determination of -what the

purchase pricesswould have been. The first time the lease-

only machines .were offered for\sale was in 1955 when

United established prices for the sale of its machines new |

(1955 prices ). Hanover’ s proof consisted of the following

steps.

a. The’ cost to Hanover of the machines presumably

purchased by it in 1939, or in any subsequent year when

additional machines or replacement machines were pre-

sumably acquired by it, was determined by applying the ~

Bureau of Labor Statistics .Consumer Price Index, All

Items, for the years of acquisition, to the 1955 prices.

. : : ra q : . : ,

82 .

: Findings of Fact, Conclusions of Law and Opinion

b. The cost so determined was reduced by the residual

_. value of (1) machines deenied to have teen disposed of at

‘on hand on September 21, 1955, the date ofthe commence-

ment of this action. The reduction was determined by first

applying to the 1955 prices the discount+ table that had

been negotiated between United and N.-S. M. A. pursuant

to the order of the districtcourt (the discount table). Then

the Bureau of Labor Statistics Consumer Price Index; All

Items, for the years of disposition prior to 1955 was applied

to the discounted prices. ,

é. The difference between a. and b.7 ‘was subtracted from

the total rents and royalties paid by Hanover during the

complaint period. a | -

d. The estimated cost to: Hanover of servicing the ma-

chines it presumably purchased was deducted from the re-

, .». mainder. For the 20 major machine types this service cost

was based upon the actual service costs Hanover incurred

when servicing. the 20 major machine types during the year

September 1, 1961, to August 31, 1962. No allowance was

made for the lower costs that would have been incurred

during thé complaint peri For the remaining 37 ma-

chine types, the servic was determined by taking: that

, proportion of the service costs“for the 20 major machine

types for the year ending August 31, 1962, which the rents

and royalties paid on such 37 machine types bore to the rents

and royalties paid on the 20.major machine types.

-Three separate calculations were prepared by S. D.

‘Leidesdorf & Co. (Leidesdorf), Certified Public Account-

ants, all of which are based substantially on this method,

differing mainly in the: life expectancy assumed for the

various machine types. One was based on a study of the

83° : a o oe ®.

Findings of Fact; Conclusions of Law. and Opinion

life expectancies made by Professor Joel Dean,-an. expert

employed by United, and used by it in the course of the

negotiations with the N. S. M. A. A second was based’on

_ a’ fifteen year life expectancy, accepted by the Internal

Revenue Service for shoe machinery, for all machine types.

The third was based on a life expectancy determined from

the actual shipments of machines by United to Hanover,

and the actual returns of machines by Hanover to United.

- The damages shown by the three calculations vaty between

$1,821,431.77 and $1,836,060.90. .

United raises several objections to this proof, which it

contends renders it “speculation or guesswork” and not

within the guidelines established in Keogh v. Chicago &

Northwestern, Ry. Co., 260 U. S. 156, supra, and Bigelow

v. RKO Radio Pictures, Inc.; 1946, 327 U. S. 251.

The first objection is that the Leidesdorf calculations

are merely mathematical calculations based on assumptions -

which have not been proven.

The Discount Table, United says it accepted the dis-

count table under the pressure of the decree and the sup-

plemental opinionéof March 8, 1955, in the Government —

case, and after strenuous bargaining with N. S. M. A.,

_ and that Hanover used it, without further proof, in fixing |

athe salvage value at given dates of the machines assumed

to have been purchased at prior dates.

Hanover was faced with the necessity of establishing

a value for machines on hand at the date of commencement

. of the action, or which had been disposed of previously,

to be deducted. from the computed costs of machines as- -

sumed to have been purchased to arrivettt.a computed net .

* ‘cost of ownership. Since there was no market price for

. secondhand machinery, Hanover used the discount table ~

(

“Sy

Findings of Fact, Conclusions of Law and Opinion

which reflected age. and other conditions. It had no alter-

- native.

Uhited offered testimony that the’ prices established by

application of the discount table did not take into account

actual value. This cannot be accepted. Value has differerit

‘meanings to different persons. The discount table was nego-

tiated. Negotiation is a process of submission and con-

sideration of offers uhtil_an acceptable offer is made and

accepted. United States v. John McShain, Inc., D. C. Cir.

1958, 258 F: 2d 422, 424, cert. denied 1958, 358 U.S. 832.

- United’s-contention; in effect, that it was forced to agree io

such prices, is without merit. The decree required United, -

within certain time limits, only to present a plan for the

termination of. outstanding leases and for the sale of the

*-Jease-only machines. There was no attempt to dictate prices,

or’ taf force United to accept unreasonable ‘lease and sale

terms. Judge Wyzanski’s supplemental opinion merely. re- |

quired Unitedtq_ disclose the. data on which Joel Dean’ Ss

calculations were based. 1ts purpose was to remoye unneées-

sary roadblocks in the negotiations. It did not force terms

on United or require it to accept the terms of N.S, M. A.

United offered no evidence that the sales prices were in

fact unreasonably low. The use of the discount table was

proper.

Date of Ciabnmibcemnian: of Action. The salvage value

- of machines assumed to have been purchased is supposedly an

‘increased because the, discount table assumes September zi...

1955, as the correct date for cutting off the estimated life

of the machines, thereby diminishing the net cost ‘of wner-

ship. United has not suggested any other date. _

The applicable statute of limitations is measured from

the date the action was begun; September 21, 1955. Since .

this is the end of the damage period, the comparison of ren-

_ eee s

Findings of Fact, Conclusions of Law and: Opinion

tal costs to cost of ownership would have to include ma- °

_chinery values established no later than September, 1955,

The 1955 Prices. United. next argues that the’ sales

prices constructed by Hanover assume, without any proof,

that if prices were a Poaeageg by United for machines in

1939 and subsequent \ yes, it would have established the

prices so constructedj even though the 1955 prices were

fixed under 1955 economic conditions, and under the man-

date of the decree providing’ that sales prices could’ not be

‘fixed so-as to make it substantially more advantageous to

lease, and that this is sheer speculation because those ecé-

nomic and legal conditions did not exist in 1939 and later

|" years. .

The issue is whether the prices computed by Hanover

are reasonable. Dr. Corson testified that the 1955 prices,

with the application of a proper index, were essential to the -

calculations. The 1955 prices have been adjusted to. reflect

economic conditions existing at the time.the assumed pur-

chases were made. The limitation that it could not be more

advantageous to lease did not depress prices, because rents.

and royalties were not fixed or regulated. United had com- _

plete freedom to fix its lease terms and sales prices at any

‘level. The limitation is not material to the reconstructed

prices. The 1955 prices were not.an assumption but a fact. |

The consumet price index used was also a fact.

Machine Shipments and Returns. United next argues

that the Liedesdorf calculations include a practical suppres- ~

sion of machine returns, which occurred’ often, in that re-

turns “.’. . are treated most artificially through a series ‘of

accumulations until the totals accumulated reach the totals

previously leased, when the deductions are made to show a

putative transaction ‘of indefinite character looking like a

| =.

Findings of Fact, Conclusions of Law and Opinion

re-sale . . . ,” and whether or not this treatment. favors

United, the result is “. . . unjustifiable as a matter of prin-

ciple-in falsifying the facts concerning machinery returns

‘by which the court and the parties are bound in the ascer-

tainment of ‘damages’ ”: that “. : . ignoring returns under

Form A leases until comulattve returns had exceeded cumu-

lative shipments, is only another indication that the Leides-

dorf. procedures rest.on the speculation that every machine

in fact returned could and would have been promptly sold

upon a different market at an established orice...

The argument is: not clear and appears to misconstrue _

Recor es the manner in which machine returns were considered in |

the calculations. As a part of its approach, Hanover had to

determine how many machines, if purchased, would have

been required to maintain its production. Between 1939 and

1955 machines were received from United and returned to

United. Hanover did not credit itself with the return of .

4 machine because the shipment and return data showed the .

return in a particular year. This was in order not to take

' - advantage of returns a lessee, and not an owner, might

make because of cyclical fluctuations in production. Han-

over credited itself with returns only to cumulatively offset -

shipments at a. given time, and shipments were considered

_ purchases vxly when shipments exceeded returns at a given

time. This is reasonable and does not render the calcula-

tions speculative or conjectural. If Hanover had used in-

dividual returns, it would have increased the damages.

United has not proved that a consideration of individual

shipments and returns would decrease the amount of dam-

ages.

2. Wisthents Not Included in the Leidesdorf Calcula- -

tions. .

87.

Findings of Fact, Conclusions of Law and Opinion

United attacks the Leidesdorf calculations because cost

of capital, future worth and taxes are not included, and a

‘proper index was not used.

Cost of Capital. The Leidesdorf calculations do not in-

clude cost of capital. Cost of capital is an ecoriomic concept

. which has been defined as “the rate of return expected by

investors on capital funds they place at . . . [a concern’s] |

. disposal.” Dr. Corson testified that a company usually gets

its capital in four ways: debt, preferred stock, common

stock and retained earnings, and that during the damage

period Hanover derived its capital from the sales of com-

mon stock and retained earnings. He computed Hanover’s

cost of capital in two ways. First, he took the percentage of

_ earnings per share to the price per share of commun stock

for the seven years (1940, 1941, 1942, 1948, 1949, 1950,

-1951) in which common stock was sold. The weighted

average was 22.14 percent. He also took the percentage of

net ‘profit after taxes to stockholders’ equity for the years

1939 to 1955: This average was 14.1 percent. Using the

14.1 percent, Dr. Corson made certain adjustments to the

calculations. He concluded that purchases would not result

in an investment return greater than the cost of the capital

invested, and that the purchases were economically unsqund.

If cost of capital is a necessary element of the damage

calculation, the rate used by Dr. Corson does not reflect the

true cost-that Hanover would have had to pay or offer to

attract capital. The measurement of cost of capital is vague.

“Quite apart from the practical difficulties of measuring

capital cost for a specific company, there is today no explicit

and generally acceptable account of what is the correct con-

cept, actual approach to its measurement. . . . The best

known. exception is the work of Professor Joel Dean but

Findings of Fact, Conclusions of Law and Opinion

even his most comprehensive statement regarding the cost

of capital is neither explicit nor complete.”

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