Court Opinion

ID: 8812894
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:08:14.898779+00
Date Added: 2024-06-11T17:04:21.114437
License: Public Domain

BROWN, District Judge
(concurring). Full weight must be given to the final clause of section 3 of the Clayton Act — “where the effect of such lease, sale, or contract for sale, or such condition, agreement, or understanding, may be to substantially lessen competition or tend to create a monopoly in any line of commerce.”
In determining the effect we must consider the thing upon which the effect is to be produced. This clause seems to require that the interpretation and application of section 3 of the Clayton Act should be according to the principles stated in the opinion of Mr. Justice Brandeis in Chicago Board of Trade v. United States, 246 U. S. 231, 238, 38 Sup. Ct. 242, 244 (62 L. Ed. 683):
“But the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates, and perhaps thereby promotes competition, or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint, and its effect, actual or *800probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, ■ are all relevant facts. Thi3 is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.”
To predict the consequences of the defendant’s agreement not to sell or permit to be sold on its premises, during the term of the contract, any other make of patterns, it is necessary to consider the peculiarities of the particular business to which the contract relates. We must also consider that the restraint is upon the use of the premises of the defendant for a limited period. See 251 Fed. 559, 560, 163 C. C. A. 553. It is evident that a restriction of this character did not constitute an inducement to the defendant to enter into the contract for carrying a stock of the plaintiff’s goods. It is also evident that, so long as the defendant remained satisfied to carry only the single line of dress patterns that it had chosen, the agreement not to carry another line of goods was of no practical effect. It is operative to exclude competitors only in those cases where a customer may desire to add a second stock or to abandon bis contract during its term. Of the exclusion of competitors which results from the fact that the wants of customers are supplied by the plaintiff, no complaint can be made.
The misapprehension as to the actual or probable effect of restrictions of this character as a means of introducing goods to the trade and of building up a monopoly was pointed out by the Supreme Court in United States v. United Shoe Mchry. Co., 247 U. S. 32, 66, 38 Sup. Ct. 473, 485 (62 L. Ed. 968):
“Besides, -it is impossible to believe, and the court below refused to find, that the great business of the United Shoe Machinery Company has been built up by the coercion of its customers, and that its machinery has been installed in most of the large factories of the country by the exercise of power, even that of patents. The installations could have hád no other incentive than the excellence of the machines and the advantage of their use, the conditions imposed having adequate compensation and not being offensive to the letter or the policy of the law;”
and by the court in United States v. United Shoe Mchry. Co. of N. J. et al. (D. C.) 222 Fed. 349, 414:
“It is impossible to believe that defendants’ equipment is in so many shoe factories for any other substantial reason than the merits of what they have toad to offer. To say that this is due, in any substantial degree, to the fact Ithat its leases run beyond the terms of patents, or because of the exclusive use, prohibitive, or cancellation clauses, rests largely, if not entirely, upon assumption. But that the business of these defendants rests upon the lease provisions objected to in such a substantial amount as to constitute any factor of independent force in securing or maintaining a monopoly does not appear.”
This was said in connection with contracts of a duration as long as 17 years, and applies with especial force to short-term contracts like that before us. It also was said in the opinion in that case (222 Fed. 407):
“A business contract, like a statute, is not to be upset ‘upon hypothetical and unreal possibilities if it would be good upon the facts as they are.’ Pullman v. Knott, 235 U. S. 23, 35 Sup. Ct. 2, 59 L. Ed. 105.”
*801In applying the statute it must be judicially determined what the effect may be. This judgment must be more than a mere feeling of “possibility” arising in ignorance of facts which, if known, would' destroy that feeling. It must be based on knowledge and upo,n a reasonable belief that, in view of existing facts, there is a “dangerous probability.”
In the present case there is no evidence that any competitor of the plaintiff had ever been excluded from competition in the city of Boston or elsewhere because of inability to procure customers or a store in which he might market his goods. If the defendant desired lo defend upon the ground that this contract, by reason of its effect upon the trade, was illegal, it was incumbent upon it to allege and prove such facts as would enable the court to make a reasonable prediction of consequences. Ford Motor Co. v. Benjamin E. Boone, Inc., 244 Fed. 335, 342, 156 C. C. A. 621. No such defense is made by the answer.
The defendant sets up in its answer that the plaintiff is a combination in restraint of trade, and that it is seeking an injunction against the defendant for the purpose of preventing competition and to establish a monopoly. The answer that the plaintiff is an unlawful combination of course states no defense.
The facts before us were brought out principally in the direct testimony of the plaintiff and upon cross-examination. They tend to show that the ordinary purchaser from the plaintiff is required to maintain a considerable stock of dress patterns, which soon go out of style, and have to be renewed by exchange, and that a single stock meets all the requirements of the ordinary dealer at retail. This being the case, the exclusion of competitors would presumably result from the fact that the plaintiff’s customers were supplied, and did not desire to duplicate their stocks; but preferred to concentrate their efforts on the goods of their choice, rather than from any agreement not to handle the goods of others. It also appears that there are but lew stores which handle more than one line of dress patterns, and that in some cases special contracts arc made permitting it.
From the history of this clause of the Clayton Act to its final form it is quite evident that Congress rejected various drafts which would make a contract of this character void upon its face, and that the final clause was inserted to prevent the disturbance that might result to long-established methods of business by an indiscriminate condemnation of a large body of existing contracts because of their verbal form, irrespective of their actual or probable effect, and in recognition of the fact that where there is an established monopoly competition cannot he instituted or maintained unless the new competitor in the field can make a contract with some one to handle only its own goods and not to handle the goods of a company already dominating the field; that if such contracts were to be condemned irrespective of the trade in which they were made this might lead to effective suppression of competition, by enabling an established monopoly to place its goods in the shop of every competitor.
' I am of the opinion that this court should not, upon this record and upon so incomplete a state of proofs, determine the invalidity of this *802contract. The question of the plaintiff’s right, at the time of bringing his bill, to an injunction to restrain a breach of the negative agreement concerning the use of the premises, in spite of the authorities cited, is still very doubtful on principle.
The doctrine of Lumley v. Wagner, 1 DeG., M. & G. 604, has been much questioned. Eindley, E- J., said he looked upon Lumley v. Wagner “as an anomaly which it would be dangerous to extend.” See Fry on Specific Performance (5th Ed.) §§ 860, 861, 862. In sections 857 and 858 the difficulties in distinguishing between express and implied negatives are discussed. So far as the negative agreement is not to do that which as a matter of fáct is inconsistent with an affirmative and lawful agreement, it may be regarded as mere surplus-age. It is only where the negative agreement goes beyond what is inconsistent with an affirmative and lawful agreement that it can be regarded as unreasonable. That a court of equity, while recognizing its inability to compel specific performance of a contract, should, nevertheless, by injunction, put compulsion" upon a defendant who is answerable at law for his breach of contract,'may result merely in the imposition of a penalty; and penalties are not favored in equity. The defendant’s agreement not to use its premises for the sale of the goods of others was to fortify the agreement to “pay proper attention to the sale of plaintiff’s patterns and to conserve the best interests of the agency at all times.”
Ordinarily a party to a business contract for the purchase of goods may elect to break his contract and pay full damages. For a court of equity to put compulsion upon him by way of punishment for refusing to perform the contract is beyond its powers, and to attempt coercion without power to make it effective is too doubtful an experiment. In view of the decision of the Supreme Court in Javierre v. Central Altagracia, 217 U. S. 502, 30 Sup. Ct. 598, 54 L. Ed. 859, it is doubtful if the Supreme Court will approve the extension of the doctrine of Eumley v. Wagner to a contract like that involved in the present case.
I am of the opinion that on the present record we cannot properly determine that the contract is invalid under the Clayton Act. The statute does not create a presumption that such contracts are inherently vicious, nor does it impose upon the plaintiff the burden of proving that the contracts are not illegal. The presumption is of legality, and the burden is upon him who asserts illegality. The application of the statute should be made only upon full proofs. The; consequences of applying it otherwise are too serious to be disregarded. The power of Congress to enact this statute is based upon the power to regulate interstate commerce. It may make an interstate contract illegal by reason of the incorporation therein of conditions relating to commerce of a purely local character, not within the power of Congress to regu- . late when not associated with an interstate contract. It would seem to follow that we cannot separate from the interstate commerce features of the contract the features that relate to a business wholly local, and nullify those features only, since this is directly inconsistent with the "theory that by virtue of their connection with an interstate commerce contract Congress, in the exercise of its power over interstate com*803merce, may, provide that “it shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale * * * on the condition,” etc.
In view of the long continuance and wide "extension of the method of doing business, through what the Supreme Court in Willcox & Gibbs Co. v. Ewing, 141 U. S. 627, 12 Sup. Ct. 94, 35 L. Ed. 882, regarded as agency contracts, and of the long-established trade usage of describing such contracts as agency contracts, irrespective of the fact that the title to the goods may pass from vendor to vendee, there must be a large body of outstanding contracts which might be so completely nullified that no recovery can be had by the vendors for goods that they have furnished under such contracts. It was not the intent of Congress to afford to persons who desire to escape from their contracts technical and merely verbal grounds to excuse a breach of contract.
It should be remembered that contracts in usual form, containing no negative agreements, are means of establishing monopolies and suppressing competition quite as effective as contracts containing negative agreements. Whether the expression is positive or negative is largely a mere matter of form. The effective means of establishing a monopoly is to get contracts to purchase goods. This must precede any agreement restricting the sale of other goods. The restrictive agreements may or may not have an effect according to the circumstances. Under some circumstances they may be an effective means for breaking a monopoly by instituting or maintaining competition. In the present case there is evidence that the largest competitor of the plaintiff is rapidly extending its business by affirmative contracts without restrictive conditions, and has a much more dominating position in the field than the present plaintiff. I can see no ground in the record for apprehension that anybody is likely to acquire a monopoly in the dress pattern business, in which, as the evidence shows, competition is very active.
I am unable to agree that this bill should be dismissed because the contract in question is unlawful under the Clayton Act. I concur in the result for the reason that I am of the opinion that the plaintiff, upon the filing of the bill, was not entitled to an injunction as a means of coercing the defendant to perform the principal contract to which the negative agreement was merely a subordinate and dependent provision, and for the reasons stated in our former opinion.