Court Opinion

ID: 8826466
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:49:02.427653+00
Date Added: 2024-06-11T17:04:46.113316
License: Public Domain

MORRIS, District Judge
(concurring in part and dissenting in part). The operative parts of the order of the Commission here attacked are that the respondent forever cease and desist from:
“1. * * * Leasing pumps or tanks or both and equipment for storing or handling petroleum products in furtherance of its petroleum business, at a rental which will not yield to it a reasonable profit on the cost of same after making due allowance for depreciation. * * *
“2. Entering into contracts or agreements with dealers in its petroleum products or from continuing to operate under any contract or agreement already entered into whereby such dealers agree or have an understanding that as a consideration for the leasing to them of such pumps and tanks and their equipment, the same shall be used only for storing or handling the products of respondent. * * * ”
The first paragraph of the order is directed only to the method of competition whereby the petitioners lease pumps and tanks to retail*91ers at a nominal rental and is concerned not at all with the restrictive or tying clause of the lease. Divorced from the tying clause, leasing the pumps at a, nominal rental is, in my opinion, a practice “never heretofore regarded as opposed to good morals because characterized by deception, bad faith, fraud, or oppression,” nor is that practice against public policy as declared by the Sherman and Clayton Acts, and, consequently, is not an unfair method of competition within seciion 5 of the Trade Commission Act, as interpreted by the Supreme Court in Federal Trade Commission v. Gratz, 253 U. S. 421, 427, 40 Sup. Ct. 572, 64 L. Ed. 993, even though the leasing of the pumps at a nominal rental may, perhaps, have a tendency to lessen competition either in the sale of pumps or in the sale of gasoline at wholesale. I am therefore in full accord with the views expressed by the majority of the court with respect to tire first paragraph of the Commission’s order.
The second paragraph of the order rests upon section 3 of the Clayton Act. While section 5 of the Trade Commission Act provides, “If it shall appear to the commission that a proceeding by it * * * would be to the interest of the public, it shall issue,” etc., no similar provision is found in the Clayton Act In proceedings under that act public interest is as conclusively presumed as in a criminal proceeding, and needs to be neither alleged nor proved. Consequently, as I see it, the petition for review presents with respect to the second paragraph of the order two questions only: First, whether the leases here involved are “on the condition, agreement, or understanding that the lessee * * shall not use or deal in the goods, * * * merchandise, * * * or other commodities of a competitor of the lessor”; and, if so, then, second, whether “the effect of such lease, s * * condition, agreement, or understanding may be to substantially lessen competition or tend to create monopoly in any line of commerce,” both within the meaning of section 3 of the Clayton Act. The leases contain the following provision:
“That the said equipment shall be used solely for the storage and handling of motor gasoline purchased by the party of the second part from the party of the first part for the purpose aforesaid.”
While the foregoing clause does not contain a specific agreement not to use or deal in the gasoline of a competitor of the lessor, yet the clause falls within the terms of the Clayton Act, if its practical effect is to prevent such use. United Shoe Machinery Corp’n et al. v. United States, 258 U. S.-, 42 Sup. Ct. 363, 66 L. Ed.-(decided April 17, 1922). Whether the practical effect of the restrictive agree- • ment is to prevent the lessee from using or dealing in the gasoline of a competitor must be determined from the findings of the Commission and the evidence adduced before it, for under section 11 of the Clayton Act (Comp. St. § 8835j) its findings of fact are conclusive, if supported by the testimony. One of the findings of the Commission, supported by the testimony, is
“That a small number of retail dealers to whom the respondent leases or sells such devices upon the terms and conditions aforesaid, handle similar products of respondent’s competitors, but a large majority of the retailers to *92whom the respondent leases or sells such devices upon the terms and conditions aforesaid, require and use in their business only a single pump outfit.”
With respect to the one-pump retailer the restrictive clause in the leases in question is as effective in preventing the lessee from using or dealing in the gasoline of a competitor of the lessor as if the lease expressly so provided. True, the lessee may terminate the lease at the time and under the conditions mentioned therein, but that fact does not enable the tying clause to elude the prohibition of section 3 of the Clayton Act, for that section operates with respect to short term leases and leases at will in like manner and with like force as it does with respect to long-term leases, or, for that matter, leases in perpetuity. The legality or illegality of the tying clause is dependent not at all upon the duration of the lease or the manner in which it may be terminated. It is likewise true that the lessee has the right to install another pump of his own or a pump of a competitor; but, as his business does not warrant or require' more than one pump, he has not installed more than one, and, consequently, his right is not a practical one, but a mere abstract right. The result in my opinion is that in practice the restrictive clause of the leases in question has prevented and prevents a “single pump” lessee from using or dealing in gasoline of a competitor of the lessor just as effectively as if the lease had expressly so provided. Consequently the lease falls within the prohibition of section 3 of the Clayton Act, if the effect of such lease “may be to substantially lessen competition or tend to create a monopoly” in selling gasoline at wholesale.
Whether its effect may be to substantially lessen competition or tend to create a monopoly is our second question for consideration. The leases are now in force. The fact that they may be terminated at some future time is not relevant to the issue now under consideration. What has already been said shows that “a large majority of the retailers” require for use in their business only a single pump outfit, and the practical effect of the restrictive covenant of the lease under which they operate is to prevent such large majority from using or dealing in the gasoline of competitors of their respective lessors. Thereby free competition among the wholesalers of gasoline has been and now is restricted, not with respect to an insignificant number of retailers, but with respect to a large majority thereof, and as effectually as if the leases were in perpetuity and as if they expressly prohibited the lessee from using or dealing in the gasoline of the competitors of the respective lessors.
The petitioners have set up as a reason for the reversal of the Commission’s order the excellence of the pump as a means for storing and delivering gasoline. But the Commission has not attacked the pump. On the contrary, it admits the pump’s many advantages and great utility. It denies, however, the right of the petitioners to make unlawful contracts with respect thereto, or otherwise to use it as a means of stifling competition. The petitioners further urge that the restrictive clause is the only method by which they are enabled to use and adequately protect their trade-mark. Even if this contention were *93supported by the evidence, it would be ineffective, for the petitioners are not at liberty to violate the law of the land, whatever proper result may be the consequence of their so doing. The evidence, however, discloses that many pumps are owned by retailers, yet there is no evidence that the name of the gasoline being sold through such pumps is not exhibited in the same manner as it is on the leased pumps. Nor is there any evidence that in such cases the gasoline of one wholesaler has been sold as the gasoline of another. These last contentions of the petitioners are, in my judgment, wholly irrelevant to either of the two issues presented with respect to section 3 of the Clayton Act.
Again, the petitioners contend that by means of the leases in question the number of retailers has' been substantially enlarged, and competition thereby increased rather than lessened. If it he a fact that by means of the leases the number of retailers has been increased, such increase was beyond question due to the nominal rental and not to the tying clause, and the tying clause is none the less invalid, even though accompanied by other clauses that are valid. Furthermore, each increase obtained by the nominal rental was simultaneously monopolized by the tying clause, and competition thereby lessened and not increased.
Although not differing from the majority of the court as to the legal principles by which the correctness of the second paragraph of the Commission’s order should be tested, yet I find myself not in full accord with their ultimate decision, for the only conclusion that I am able to reach by applying those principles of law to the facts of these cases is that the effect of the restrictive covenant has been, now is, and so “may be,” to substantially lessen competition; that the practical effect of that covenant is to prevent the “one-pump” retailer from using or dealing in the gasoline of a competitor of his lessor; and that, consequently, all “one-pump” leases are in violation of section 3 of the Clayton Act, and invalid.