with its principal office and place 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 has engaged in the manufacture of men's shoes by the Good-year welt process, and until the early 1950's also engaged in the manufacture of boys' shoes by the same process. Except for large quantities of military shoes manufactured 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 directly through retail men's shoe stores operated by its wholly owned subsidiary, Sheppard & Myers, Inc. There are currently about 110 retail stores. Hanover's manufacture 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.
Until 1956 all of the capital stock of Hanover was owned by or for the benefit of H. D. Sheppard or C. 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 percent of the then outstanding capital stock was sold to the public.
United is the successor of a combination of shoe machinery companies which consolidated in 1899. Since that time United has engaged in the manufacture and distribution of shoe machinery. Most of the machinery was manufactured at its factory in Beverly, Massachusetts, and was distributed in interstate commerce to shoe manufacturers, which included machinery supplied to Hanover at its principal plant in Hanover, Pennsylvania, and at its other factories in East Berlin, Pennsylvania, and Middletown and Emmitsburg, Maryland.
Most of the important operations in Hanover's manufacture of shoes are done by machine, and Hanover could not engage competitively in quantity production without the use of shoe machinery.
During the complaint period United made available its more complicated machines to shoe manufacturers, including Hanover, on leases only. The more complicated machines 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 lease 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 to as optional machines. The rental for these machines was on a flat rate basis, payable monthly.
In 1951 United had 42 machine types available for purchase only.
All new leases to shoe manufacturers, including Hanover, 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 important to this action are the full capacity, term, and return charge.
A fourth clause, Clause 2, provided, among other things, that the lessee shall at all times and at his own expense 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 put in such order at the expense of the lessee.
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 Sections 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, 74 S. Ct. 699, 98 L. Ed. 910. This action will hereinafter be referred to as the Government case.
B. United's Market Position:
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% - 9 types
85-89% - 1 type
80-84% - 3 types
55-69% - 3 types
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