Dueber Watch-Case Manuf'g Co. v. E. Howard Watch & Clock Co.

66 F. 637, 14 C.C.A. 14, 1895 U.S. App. LEXIS 2674

• Court: Court of Appeals for the Second Circuit
• Decided: March 5, 1895
• Status: Published

Opinions

LACOMBE, Circuit Judge.

The complainant corporation is a citizen of Ohio, the demurring defendant corporation a citizen of Massachusetts, engaged in the business of manufacturing and selling watch movements, and having a place of business in the city of New York, state of New York. Of the nineteen other defendants, ten are individuals whose citizenship is not set forth in the complaint. It is averred that they are engaged in business, two -of them in New York City under one firm name, two others in Philadelphia and üíew York City under another firm name, three others in the city oí New York under another firm name, and three others in Cincinnati under still another firm name. The nine remaining defendants are corporations, two of them citizens of Massachusetts, two citizens of New York, two citizens of Connecticut, two citizens of Illinois, and one a citizen of Pennsylvania.

The complainant avers that plaintiff is a corporation duly created and existing under the laws of Ohio, and engaged in the business of manufacturing gold and silver watch cases. That at the times mentioned in the complaint it owned and operated an extensive factory at Newport, Ky., and subsequently at Canton, Ohio; that it maintained the same at great expense, and had the capacity to manufacture and offer for sale in the open market 25,000 watch cases per month. In the third paragraph it is averred “that prior to November 10, 1887, plaintiff had a ready market throughout the United States and Canada for all the goods it could manufacture, and in fact sold all of said goods to a great number of dealers therein throughout said territory, and thereby fully earned and realized to itself a substantial legitimate profit of at least $75,000 per an-num.” Next follow averments as to the incorporation and partnership of the several defendants, who, it is stated, are respectively engaged in the business of manufacturing or selling watches, watch cases, or watch movements. In the eighteenth paragraph it is averred that on or about November 16, 1887, the defendants, and others to plaintiff unknown, at and in the city of New York, mutually agreed together each for himself with all the others that “they would not thereafter sell any goods manufactured by them to any person, firm, association, or corporation whatsoever who thereafter should buy or sell any goods manufactured by this plaintiff.” ‘ It is further averred that thereafter defendants caused notice of this agreement or compact to be given to the many dealers in watches, watch cases, and watch movements throughout the United States and Canada; and gave said notices to “many of the then and thei-e-tofore purchasers and dealers in plaintiff’s goods manufactured as aforesaid”; whereupon a large number of such purchasers and dealers withdrew their patronage, and ceased thereupon entirely to purchase and deal in any wise in plaintiff’s goods. The complaint further alleges that after said November 16, 1887, defendants refused to sell their goods to purchasers of and dealers in plaintiff’s goods who had offered to buy defendants’ goods, stating as the reason for their refusal that said dealers also bought and sold and dealt in plaintiff’s watches, notifying such purchasers and dealers that if they would promise not to deal in plaintiff’s goods, then, and so long as they kept such promise, they might purchase the goods of the defendants or either of them; otherwise not. In the twenty-third paragraph it is alleged that prior to November 16, 1887, the defendants had agreed among themselves, “and which said agreement has been in operation and effect between them ever since, that they would agree upon and agree to maintain an arbitrary fixed price to the public for all the goods manufactured by them, and in pursuance of said agreement the said defendants had agreed upon an arbitrary price, and fixed the same for all the goods manufactured by them.” The agreement of November 16, 1887, is alleged to be “in addition to and furtherance of said prior agree.ment, and made and entered into for the sole purpose of compelling this plaintiff to join with them in said first-named agreement.” All these acts of defendants are alleged to have been done “fox" the purpose of establishing a monopoly in the supply of watches to the public, contrary to the policy of the law, and in violation of the statutes of this state and the United States, and to cut off this plaintiff from any participation in such business unless it joined in said illegal and vicious conspiracy, and the acts of defendants thereunder, in furtherance thereof, as alleged, and to crush competition, and enable the defendants to maintain the prices fixed as they pleased by them as aforesaid for their commodities with regard only to their private emolument and profit, contrary to the benefit of the public; the said defendants, by the said combination, conspiracy, and agreements and acts thereunder, maliciously intending to injure this plaintiff, and drive it out of business, and prevent it from selling its watch cases,” etc. It is further alleged that “by the extended influence and power acquired by the combination over the trade” defendants forced and prevented persons from dealing with the plaintiff, or purchasing its goods, under the threat of a refusal themselves to deal with such purchasfers; that said threats were effectual, and did prevent a great number of persons who otherwise would have purchased large quantities of the goods of the plaintiff from purchasing the same, and did effect in fact against the plaintiff a complete boycott and ostracism from the trade, and prevented the lawful and oi’dinary competition of business which plaintiff had a right to enjoy. The concluding paragraph of the complaint alleges that after the passage by congress of the act of July 2, 1890, “all the former purchasers and dealers in plaintiff’s watch cases and other dealers in watch cases were, as plaintiff is informed and believes, ready and willing to buy large quantities of said plaintiff’s goods, and this plaintiff would have regained all the business and the profits thereof whereof it had been deprived by the acts aforesaid of defendants; but that said defendants, after the passage of the said act of congress, ratified, confirmed, renewed, and continued the contracts, agreements, and combinations hereinbefore alleged, and in like- manner, and with the same intention as hereinbefore alleged, served notices of their ratification, confirmation, renewal, and continuance of said agTee-ments and combinations upon all said dealers in plaintiff’s watch cases, whereby said dealers have continued to this day, forced by said renewed threats of defendants, and compelled thereby, and not otherwise, to refuse to purchase plaintiff’s watch cases, or to deal anywise therein, whereby the said defendants illegally and maliciously damaged the plaintiff in the sum of $150,000.” Judgment is demanded, -not for the $150,000, but, “under and by virtue of the statute of the United States hereinbefore r-eferred to, for three times the amount of damages so sustained by it in the premises, to wit, for the sum of $450,000.”

The federal statute of July 2, 1890 (26 Stat. 209), declared upon in the complaint is entitled “An act to protect trade and commerce against unlawful restraints and monopolies.” The relevant parts of this statute are as follows:

“Section 1. Every contract, combination in form o£ trust or otherwise, or conspiracy, in restraint o£ trade or commerce among the several states, or with foreign nations is hereby decbired to be illegal.” [Then follow provisions declaring the act a misdemeanor, and providing for punishment.]

“See. 2. Every person who shall monopolize or attempt to monopolize, or combine or conspire with any other person or persons to monopolize any part of the trade or commerce among the several states or with foreign nations shall be guilty oí a misdemeanor.” LThen follow provisions as to punishment therefor.]

“Sec. 7. Any person who shall be injured in his business by any other person or corporation by reason of anything' forbidden or declared unlawful in this act may sue therefor in any cdrcuit court of the United States in the district in which the defendant resides or is found, without respect to the amount in controversy, and shall recover three fold the damages by him sustained and the costs of suit, including a reasonable attorney’s fee.”

This action is manifestly one under the act of July 2, 1890. It is brought in a district where neither the plaintiff nor the demurring defendant resides, but where the demurring defendant is found. In the face of a complaint so framed as to present a cause of action under the statute, a defendant, if “found” here, could not object to the jurisdiction. It is expressly given by the seventh section. It would be manifestly unfair to permit a plaintiff to bring a defendant into this court on a complaint declaring upon the statute, and thereafter, when such defendant has failed to question its jurisdiction under the statute, and has appeared generally in the case, to transform the cause of action into one at common law, and insist that defendant has waived any objection to the jurisdiction. Moreover, although the complaint contains allegations as to combinations and threats long .prior to the passage of the act of 1890, the averment of pecuniary damage to the plaintiff, which is specified in the twenty-seventh or concluding paragraph, is averred to have been sustained in consequence of the “renewed threats” of defendants (that is, those renewed after the passage of the act), which compelled dealers to refuse to purchase plaintiff's watch cases or to deal in any wise therein. Moreover, judgment is demanded, not for plaintiff’s actual damages, but for trebie damages, “under and by virtue of the statute.” The counsel for plaintiff in error asserts in his filed brief that “the action is founded solely upon the act of congress passed July 2, 1890, the [seventh] section whereof expressly provides that the circuit court of the United States shall have exclusive jurisdiction of such action.” There are 28 separate assignments of error, in each and .ail of which it is contended that the facts charged in the complaint make out a case under the act of 1890. Therefore, unless the complaint sets forth a canse of action under the act of 1890, the demurrer should be sustained.

The only acts of defendants as to which plaintiff can in this action contend that they are “forbidden or declared to be unlawful by this act” are those done after its passage. They are set forth in the twenty-seventh paragraph, and are as follows: (1) Defendants "ratified, confirmed, renewed, and continued” an agreement between themselves, that they would agree upon and agree to maintain an arbitrary fixed price to the public for all the goods manufactured by them. (2) They "ratified, confirmed, renewed, and continued” an arbitrary price, and fixed the same for all goods manufactured by them. (8) They "ratified, confirmed, renewed, and continued” an agreement that they would not thereafter sell any goods manufactured by them to any person, firm, association, or corporation whatsoever who thereafter should buy or sell any goods manufactured by the plaintiff. (4) They served notices of such ratification, confirmation, renewal, and continuance of these three agreements upon all those persons who were former dealers in plaintiff's watch cases. The remaining averments of the twenty-seventh paragraph refer not to defendants’ acts, but to the consequences of those acts; the principal consequence being that the former purchasers and.dealers in plaintiff’s watch cases and other dealers in watch cases were compelled to refuse to purchase plaintiff’s goods.

The question to be decided is whether these acts are within either the prohibition of the first section of the statute of 1890 as a contract or combination in “restraint of trade,” or within the prohibition of the second section as a “monopolizing” or as an “attempt to monopolize.” Whatever differences of opinion there may be as to the meaning of these words when used in this statute, there is and can be no dispute as to one qualification expressed in the act, — the trade or commerce restrained or monopolized or attempted to be monopolized must be interstate or international. The statute expressly so says, and, whatever its phraseology, it must be so construed if it is to stand, since it is only such trade and commerce that congress has authority to regulate. Rio monopolizing or attempt or combination or conspiracy to monopolize any part of such trade or commerce is set forth in the complaint. The several manufacturers defendant are charged with an attempt to secure to each of them a sale of his or its own produces to the exclusion of those of the plaintiff, but there is nothing to show' that each defendant does not sell his or its entire product in the very state where it is manufactured. The sale within a state of articles manufactured in the same state is no part of interstate trade or commerce. U. S. v. E. C. Knight Co. (Jan. 21, 1895) 15 Sup. Ct. 249. The circumstance that, after manufactured products are thus sold within the state, they may be again sold for introduction into another state, and thus become a subject of interstate commerce, does not change the situation, for it is only when' a commodity has begun to move as an article of trade from one state to another that commerce ,in that commodity between states has commenced. Coe v. Errol, 116 U. S. 517, 6 Sup. Ct. 475. The complaint, therefore, fails to charge an offense against section 2 of the act of 1890.

The complaint alleges that the acts of defendants subsequent to July 2, 1890, have forced and compelled persons who theretofore dealt in plaintiff’s goods to refuse to purchase the same, and avers.that prior to, November 16, 1887, plaintiff sold its goods to a great number of dealers throughout Hie United states and Canada, plaintiff manufacturing such goods first in Kentucky, and after-wards in Ohio. And plaintiff’s counsel contends that this sufficiently charges such a restraint of interstate and international trade as is obnoxious to the first section of the statute. The phrase used in' the act of 1890, viz. “restraint of trade,” is no new one. It had theretofore been used by courts applying the doctrines of the common law in determining the validity of contracts. If is to be presumed that the lawmakers, when they chose this phrase, intended that it should have, when used in the statute, no other or different meaning from that which had always been given to it in judicial decisions and in the common understanding. Tlie title indicates that the phrase'is so used, for the act is described "as one “to protect trade and commerce against unlawful restraints and monopolies”; and, though tlie title to an act cannot control its words, it may furnish, some aid in showing what was in the mind of the legislator, U. S. v. Palmer, 3 Wheat. 610. The “restraint: of trade" which is obnoxious to the provisions of the first section must be of such kind as was, before the passage of the act, recognized as unlawful. In re Greene, 52 Fed. 104; U. S. v. Trans-Missouri Freight Ass’n, 58 Fed. 58, 7 C. C. A. 15. It may be assumed that the total amount of any given commodity which will be purchased by a community is limited, and when several sellers of such commodity enter into a combination in the form of a partnership, and by ingenious advertising, or by the devices of business competition, or by the offer of favorable terms to buyers, enlarge their own trade in such commodity, they restrain to some extent the trade of one or more of their competitors therein. But no one, not even the plaintiff in error, contends that the statute forbids any such acts, although, if the words be taken with absolute literalness, the phrase “restraint of trade” is broad enough to cover them. A most elaborate discussion of the meaning of this phrase “restraint or trade.” with a. careful review' of all the leading authorities bearing upon the question, is found in the opinion of tlie United States circuit court of appeals for the Eighth circuit in U. S. v. Trans-Missouri Freight Ass’n, 58 Fed. 58, 7 C. C. A. 15. The conclusion reach (id by that court — and on that branch of the case there was no dissent — is that where it is a question as to private parties engaged in private pursuits, and not dealing in staple commodities of prime necessity, “it is not the existence of the restriction of competition, but: the reasonableness of that restriction, that is the test of the validity of contracts that are claimed to be in restraint of trade.” And that “'contracts made for a lawful purpose, which were not unreasonably injurious to the public welfare, and which imposed no heavier restraint upon the trade than the interest of the favored parly required, had been uniformly sustained, notwithstanding their tendency to some extent to check competition.” A like statement of the law' is found in Navigation Co. v. Winsor, 20 Wall. 64, 66, where the supreme court holds that “an agreement which operates merely in partial restraint of trade is good, provided it be not unreasonable, and there he a consideration to support it. In order that it may not be unreasonable, the restraint imposed must not be larger than is required for the necessary protection of the party with whom the contract is made.”

It remains only to inquire whether the contract or combination set out in the complaint is in restraint of interstate or international trade in the sense in which the phrase- “restraint of trade” is used in the act of 1890. The first alleged unlawful action of defendants charged upon them subsequent to the passage of the act is a renewal and confirmation of an agreement among themselves to “maintain an arbitrary fixed price to the public for all the goods manufactured by them,” and a carrying out of such agreement by thus fixing and maintaining a price. The goods in question are not articles of prime necessity, as were the flour,, coal, and other staple commodities referred to in many of the cases cited upon the argument; nor were the manufacturing defendants engaged in any public or quasi public business, as were the railroads or the gaslighting companies referred to in other cases. Each one of the defendants had an undoubted right to determine for himself the price at which he would sell the goods he made, and he certainly does not lose that right by deciding to sell them at the same price at which a dozen or so of his competitors sell the goods which they make. Collectively the defendants owe no duty to any one of their competitors to regulate the price they fix for their goods so as not to interfere with the price he fixes for his own. And it is difficult to see how the public is injuriously affected by any such agreement between the combining manufacturers. If the price so fixed is the normal and usual one theretofore prevailing, certainly the public cannot complain; still less if the price be reduced. If a combination of the capital and business abilities and factory appliances of many different manufacturing establishments enables them to produce an equally good output at á reduced cost, so that they can sell such output cheaper than any single manufacturer could, surely the public does not suffer. If, on the contrary, the combining defendants fix the price too high, they restrain their own trade only; the public will buy the goods' it wants, not from them, but from their competitors. There are no averments in the 'complaint to show that the defendants are all, or even substantially all, of the manufacturers of watch cases in the United ¡States, or even in any single one of the different states wherein their manufactories are located. For aught that appears, they represent but a small part of the watch-case industry, and there is nothing to prevent the number of their competitors from increasing to whatever extent the public demand-for such goods may require. This is no such case as that presented in Arnot v. Coal Co., 68 N. Y. 558, where, as was said, “the region of the production of [anthracite coal] is known to be limited.” There is nothing in the complaint nor in common knowledge to show that the production of watch cases may not be practically unlimited. An agreement, therefore, between some of the makers of watch eases to sell their commodities at a uniform price, which they fix upon with regard only to their private emolument and profit, is not an agreement in general restraint of trade, or unreasonably injurious to the public welfare, within the authorities.

The other contract or combination which, plaintiff contends to be unlawful is the agreement of defendants not to sell goods of their manufacture to any one who thereafter should buy or sell goods manufactured by the plaintiff. To the extent that such refusal to deal with those persons who dealt with plaintiff induced such persons to cease dealing with the plaintiff, and to buy watch cases from one or other of the defendants, the agreement did not operate in general restraint of trade, the total amount of purchases and sales remaining constant, so far as the complaint shows. It did, no doubt, operate in partial restraint of trade, viz. to restrain some part of plaintiffs trade in the watch cases it manufactured. But it does not follow that such restraint was unreasonable, nor heavier than the interest of the favored party required. An individual manufacturer or trader may surely buy from or sell to whom he pleases, and may equally refuse to buy from or to sell to any one with whom he thinks it will promote his business interests to refuse to trade. That is entirely a, matter of his private concern, with which governmental paternalism has not as yet sought to interfere, except when the property he owns is “devoted to a use in which the public has an interest”; and such public interest in the use has as vet been found to exist only in staple commodities of prime necessity. Munn v. Illinois, 94 U. S. 113; Budd v. New York, 143 U. S. 517, 12 Sup. Ct. 468. It is a business device, probably as old ns business itself, to seek to increase the number of one’s customers, and the extent of their purchases, by treating more favorably those who become exclusive customers. Certainly there is nothing unlawful or unfair in the statement to the trade by the maker of any kind of merchandise, “My goods are for sale only to those who will buy from me exclusively, not to others.” And the case is in no way different if a half a dozen individuals combine info a partnership, or an hundred individuals combine into a corporation, and adopt the same method to enlarge their business. If this be so, — and no auihority to which we are referred holds to the contrary, it is difficult to see in what respect it is unlawful for a score of different manufacturers to enter into a like arrangement to push the sales of their own goods, or to secure some business benefit to themselves by increasing the number of their exclusive customers, when there is nothing to show that the parties so combining constitute substantially all, or even-a majority, of the manufacturers of such goods, even in the half dozen states where their factories are located, and when the field for manufacture is open to all. It is not an unlawful business enterprise for sellers to seek to secure the entire trade of individual buyers, and an agreement between sellers, who wish to confine their dealings to such buyers only, not to sell to others, is not an unfair or unreasonable measure of protection for such trade. Nor can it be claimed that such an agreement between sellers who represent but a part of the trade is injurious to the public, which has all the rest of the trade to deal with. “Unless an agreement involves an absorption of the entire traffic, * * * it is not objectionable to the statute [of 1890]. Competition is not stifled by such an agreement, and other dealers would soon force the parties to the agreement to sell at the market price, or a reasonable price, at least.” U. S. v. Nelson, 52 Fed. 646. It is difficult to see wherein the agreement complained of is injurious to the public. Certainly it is not one in general restraint of trade. It seems to be a reasonable business device to increase the trade of one set of competitors at the expense, no doubt, of their business rivals, who are equally free to avail of similar devices to secure their own trade. As such it is not obnoxious to the statute: The agreements or contracts complained of being not unlawful, the giving notice to the world of their existence is no offense. The judgment sustaining the demurrer should be affirmed.