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STEWART-WARNER CORP. v. STALEY

November 21, 1941

STEWART-WARNER CORPORATION
v.
STALEY



The opinion of the court was delivered by: SCHOONMAKER

The original defendant in this case, Universal Lubricating Systems, Inc., filed a motion on April 1, 1941, for leave to file an amended counterclaim herein. On May 8, 1941, the plaintiff filed a motion to strike the defendant's amended counterclaim, and to dismiss it. The case then came on to be heard on June 9, 1941, at which time this court heard the motion to file this amended counterclaim, and allowed it to be filed nunc pro tunc as of April 1, 1941, hearing the case then on plaintiff's motion to strike and to dismiss this amended counterclaim.

In the meantime, the defendant, Universal Lubricating Systems, Inc., became involved in reorganization proceedings in this court, and its trustee, Austin L. Staley, was substituted party defendant.

 The defendant's counterclaim in this case has been the subject of much controversy. First, plaintiff moved to dismiss the counterclaim for want of jurisdiction, and the defendant moved to amend its counterclaim. This court then denied the plaintiff's motion to dismiss for want of jurisdiction and allowed the defendant's motion to amend its counterclaim. The plaintiff then moved to dismiss the amended counterclaim, on the ground that it failed to state a cause of action on which relief might be granted; and in case this motion was denied, that the defendant be required to file a bill of particulars.

 This matter came on then to be heard on November 7, 1940, when counsel asked leave to submit briefs, which was granted. Thereafter, on January 12, 1941, defendant voluntarily filed a bill of particulars. Then, on April 1, 1941, briefs were submitted; and at the same time, defendant filed its motion for leave to file a new amended counterclaim. We now have the case again on plaintiff's motion to dismiss this new amended counterclaim for failure to state a cause of action on which relief might be granted, which was heard on June 9, 1941; and the parties were allowed until July 1, 1941 to file further briefs.

 The amended counterclaim of April 1, 1941, charges the plaintiff with violations of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1-7, 15 note, and the Clayton Act, 15 U.S.C.A. § 12 et seq., in regard to lubricating equipment. It contains six counts or causes of action. All the counts charge that the plaintiff and the defendant were, and are, engaged in interstate and foreign trade and commerce in lubricating equipment, and have competed with each other therein. Count 1 (drawn under Sections 1 and 15 of Title 15 U.S.C.A.) charges in substance that plaintiff conspired with certain persons, firms, and corporations named therein, to restrain interstate and foreign trade and commerce in lubricating equipment, including both patented, unpatented, and unpatentable equipment, which said conspiracy and the successive series of continuing acts of the plaintiff were, and are, a part of a general and continuing conspiracy to restrain interstate and foreign trade and commerce therein.

 This amended counterclaim further charges that in pursuance of said conspiracy, plaintiff: (1) acquired ownership or control of many hundreds of patents in lubricating equipment, constituting the preponderant majority of all unexpired patents in that field, not for the purpose of commercializing the devices covered by said patents, but for the purpose of overwhelming the industry with a constant threat of patent litigation and thereby discouraging the purchase of competitive equipment; (2) asserted many of such patents in a scope not warranted by the patents and contrary to the patent laws of the United States, for the purpose of demoralizing trade in such lubricating equipment; (3) paid various defendants in patent suits brought by plaintiff, substantial sums of money and other valuable considerations not to defend such suits or to forego further appeals therein, in order to obtain favorable judgments therein which might be cited as precedents in other patent litigation, without apprising the court of the payment made by the plaintiff in such suits to obtain such judgments; (4) published and circulated among the trade, on a large scale, decisions of courts favorable to its patents, including decisions in cases in which plaintiff paid defendant not to defend, or to forego appeal; (5) published and circularized among the trade various, many, and sundry threats of infringement suits; (6) misrepresented to the public the scope of its patents and the scope and effect of the decisions of the courts based on said patents, all to the effect that the purchasing public has been intimidated thereby; (7) falsely marked its lubricating equipment under patents not applicable thereto, for the purpose of deceiving the public and intimidating the purchasing public from buying competitive equipment; (8) made sales and contracts for sale of its lubricating equipment on condition that the purchaser should not use or deal in products of competitors, thereby tending to create a monopoly in lubricating equipment; (9) purchased, or acquired control of the business of competitive manufacturers of lubricating equipment, who controlled a substantial proportion of national production of lubricating equipment, with the result that plaintiff acquired a commercial monopoly in such equipment; (10) organized and put in the field the Aro Equipment Corporation as an independent competing manufacturer of lubricating equipment, when, as a matter of fact, such company was not a competing company at all, but was owned and controlled by the plaintiff; (11) entered into contracts with owners of other patents either clearly invalid or not infringed, to enter suits against defendant, -- all for the purpose of embarrassing defendant, putting it to great expense, or destroying its financial structure, intimidating the trade, and deterring the purchasing public from buying defendant's equipment; (11) instituted, and caused to be instituted by others, unwarranted suits for alleged patent infringements against customers of defendant on defendant's equipment, which had theretofore been exculpated by the court in earlier suits brought by plaintiff against defendant; (12) circulated, and caused others to circulate false rumors concerning defendant, representing that defendant's equipment was unsafe to handle because of patent infringement, and that defendant would soon be put out of business; (13) unfairly reduced prices on some of its equipment to a point below the normal cost of production of such products for the purpose of forcing defendant and other competitors to discontinue the competitive manufacture of said products.

 This count then gives a list of the known persons, firms and corporations with whom the plaintiff so conspired; a partial list of contracts made by plaintiff in restraint of interstate and foreign trade; a list of the patents owned or under control of plaintiff; a list of corporations to whom plaintiff paid money for consent decrees; a list of circulars and publications set out by plaintiff to the lubricating equipment trade; a list of equipment falsely marked by plaintiff; a list of distributors' contracts containing provisions against dealing in equipment other than that of plaintiff; a partial list of competitive manufacturers whose business the plaintiff acquired; a list of patent-owners with whom plaintiff contracted to institute and maintain unwarranted patent-suits; a partial list of the patent-suits brought by plaintiff referred to in the complaint; and a list of the persons, firms and corporations among whom plaintiff circulated false rumors and to whom plaintiff made false representations. This count then charges that these acts were not in good faith, but were for the purpose of monopolizing and restraining interstate, foreign trade and commerce in all lubricating equipment.

 The second cause of action or count is based on Sections 2 and 15 of Title 15 U.S.C.A., and charges that plaintiff has monopolized and attempted to monopolize, and has combined and conspired with other persons, firms and corporations named in this count, to monopolize the commerce among the several states and with foreign countries in lubricating equipment; and as grounds for that charge sets forth the same acts as are alleged in the first count.

 The third cause of action is based on Sections 13 and 15 of Title 15 U.S.C.A. It charges that the plaintiff discriminated in price among different purchasers of lubricating equipment; that the effect of such discriminations has been substantially to lessen competition and tends to create a monopoly in lubricating equipment, to injure, destroy, and prevent defendant's competition in the interstate sale of lubricating equipment to the General Motors Corporation and other automobile manufacturers, as well as to manufacturers of farm, industrial and aeroplane machinery, and the lubricating equipment trade in general. It charges that from the late summer of 1934 through the years 1935, 1936, and 1937, defendant sold lubricating equipment of General Motors Corporation, to other automobile manufacturers and to other machinery manufacturers, but was forced to discontinue such sales because of plaintiff's low discriminatory price in order to monopolize said business and to drive the defendant out of said business.

 The fourth cause of action or count is based on Sections 14 and 15 of Title 15 U.S.C.A., and charges that plaintiff made sales of lubricating equipment on agreements that its purchasers should not sell or deal in lubricating equipments of others, including the defendant; that the effect thereof has been, and is, substantially to lessen competition, tends to create a monopoly in lubricating equipment, and lists the contracts and agreements above referred to.

 The fifth cause of action or count is based on Sections 15 and 18 of Title 15 U.S.C.A., and charges that plaintiff acquired the capital stock of certain corporations named therein which were engaged in the manufacture and sale in interstate commerce and foreign trade of lubricating equipment, and which corporations, along with plaintiff, manufactured and sold over seventy-five percent of all lubricating equipment consumed in the United States; that the effect of such acquisition was, and is, substantially to lessen competition and restrain the interestate trade and commerce in such lubricating equipment, and to tend to create a monopoly therein. This count charges that defendant has been damaged by such acts of plaintiff, and as a consequence thereof, plaintiff has deprived defendant of independent sources of supply for such lubricating equipment; that by reason thereof, plaintiff was able to induce large buyers to purchase from plaintiff to the exclusion of all others, including the defendant, thereby causing customers and prospective customers throughout the trade in the United States to buy from plaintiff.

 The sixth cause of action or count charges the plaintiff with unfair competition with defendant in lubricating equipment, and the diversion to plaintiff of lubricating-equipment business which otherwise would have flowed to defendant, except for plaintiff's acts of unfair competition. The acts complained of are those hereinbefore recited as to the previous counts of the counterclaim. The defendant claims it has been damaged in its business and good will by such acts of the plaintiff.

 By reason of the charges in these six counts, defendant claims damages in excess of $2,000,000, and asks that plaintiff give account of the profits which it received in consequence of its acts of ...


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