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STOKES EQUIP. CO. v. OTIS ELEVATOR CO.

March 23, 1972

Stokes Equipment Co., Inc., C. Daniel Willis, Ronald W. Feigles, and Walter M. Stokes
v.
Otis Elevator Co., Moto-Truc Co., and Keystone Material Handling, Inc.


Ditter, District Judge.


The opinion of the court was delivered by: DITTER

DITTER, District Judge:

 This case comes before the court on a motion for judgment on the pleadings as to those counts of a complaint which charge violations of the antitrust laws.

 For many years, Stokes Equipment Company, Inc., was a distributor of light industrial lift trucks manufactured by the defendant, Moto-Truc Co., which was acquired by the defendant, Otis Elevator Company, in January, 1967. Thereafter, Otis embarked on a program to require some of its dealers, including Stokes, to handle another machine produced by Otis, the Baker lift truck. As compared with the Moto-Truc line, the Baker truck is designed for heavier use and Stokes considered it to be a less saleable, less desirable item to handle. Stokes was reluctant to become a distributor of Baker trucks, but after Otis promised marketing assistance and the extension of credit, Stokes became interested in taking on the Baker line. The ultimate decision to do so or not was left up to Stokes. Having determined to promote Baker trucks, Stokes made provision to improve its facilities in accordance with requirements imposed by Otis. While the changes were in progress, Stokes' franchise was cancelled and awarded to the defendant, Keystone Material Handling, Inc., Keystone agreeing to push the Baker line in return for being awarded the Moto-Truc franchise and Otis' agreeing not to deal further with Stokes. Stokes, and the individual plaintiffs who were all employed by Stokes, contend they were damaged by Otis' agreement with Keystone and thus brought the present suit.

 Count I of the complaint alleges the agreements, understandings, and arrangements between Otis, Moto-Truc, and Keystone constituted violations of Section 3 of the Clayton Act and Section 1 of the Sherman Act. Count II alleges violations of Section 7 of the Clayton Act. The remaining counts of the complaint are not affected by the present motion.

 Count I

 The allegations of Count I are insufficient to constitute a violation of either Section 3 of the Clayton Act or Section 1 of the Sherman Act.

 In essence, Section 3 of the Clayton Act prohibits leases, sales or contracts for the sale of goods made on the condition, agreement, or understanding that the purchaser will not use or deal in the goods of the seller's competitors where the effect may be to lessen competition substantially or tend to create a monopoly. This section, like others of the Clayton Act, was intended to reach specific conduct which had been held by the courts to be outside the ambit of the Sherman Act and which Congress felt must be proscribed in order to promote competition. The gravamen of a Section 3 violation is the forbidden condition, agreement, or understanding which stifles competition by excluding a competitor's product. A proper pleading should assert this ultimate fact. McElhenney Co., Inc. v. Western Auto Supply Company, 269 F.2d 332, 337, 338 (4th Cir. 1959).

 At most, Count I sets forth that Otis wanted Stokes to sell the Baker truck, Stokes was reluctant to do so, Otis offered inducements to Stokes, Stokes agreed, and then Otis decided to deal with Keystone instead of Stokes. There is no allegation that there was any lease, sale, or contract of sale between Otis and Stokes or that any agreement which was discussed was to be conditioned upon Stokes' not handling some product which would compete with those sold by Otis. It is not contended that Stokes' franchise was awarded to Keystone on condition that it would not handle items that could compete with those produced by Otis. There is no showing or allegation that competition would be lessened or that there would be a tendency to create a monopoly by anything which any of the defendants did or wanted Stokes to do.

 Although plaintiffs maintain they have alleged efforts on the part of the defendants to promote "tie-in" sales, which are illegal, Count I really does no more than assert that Otis was trying to have its dealers handle the full line of Otis industrial lift trucks. The mere allegation that a seller wanted its distributors to handle all of its products does not describe illegal conduct: McElhenney Co., Inc. v. Western Auto Supply Company, supra, 338.

 A tying arrangement has been defined as an agreement by a party to sell a product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier. Where such conditions are successfully exacted, competition on the merits with respect to the tied product is inevitably curbed in two ways. First, the buyer is prevented from seeking alternative sources of supply for the tied product, and second, competing suppliers of the tied product are foreclosed from that part of the market which is subject to the tying arrangement. For these reasons, tying agreements are considered unreasonable in and of themselves if a party has sufficient economic power with respect to the tying product to restrain free competition appreciably in the market for the tied product and a not insubstantial amount of interstate commerce is affected. Sufficient economic power may be inferred from the tying product's desirability or from the uniqueness of its attributes. Therefore, given the requisite economic power and effect upon commerce, tying agreements are illegal except where justified by special circumstances or conditions: Lee National Corporation v. Atlantic Richfield Company, 308 F. Supp. 1041 (E.D. Pa. 1970).

 Here, however, the plaintiffs have neither alleged the monopolistic position, market dominance, economic power, consumer demand, or product uniqueness to which the cases refer, *fn1" nor have they alleged there has been any effect upon interstate commerce as a result of what Otis did. They have not charged that the continuance of Stokes' franchise was conditioned upon its handling of the Baker truck or the exclusion of competing lines. Plaintiffs have not averred Stokes lost its distributorship because of its refusal to accede to demands made by Otis which would have prevented their handling of lift trucks produced by other manufacturers. In short, plaintiffs have not alleged facts which would describe an illegal tying arrangement, an attempt to create such an arrangement, the ability of Otis to do so, or any adverse competitive consequences that have resulted.

 Relying on Peerless Dental Supply Co. v. Weber Dental Manufacturing Company, 299 F. Supp. 331 (E.D. Pa. 1969), plaintiffs contend their assertions in paragraph 18 of the complaint are sufficient to sustain Count I. This paragraph states: "In effectuating the replacement of Stokes by Keystone, Otis, Moto-Truc and Keystone acted in concert to insure that Stokes' customers would shift their orders to Keystone." I disagree. In Peerless, the manufacturer and its new dealer were alleged to have libeled and slandered the plaintiff, a former distributor, to have made false representations about plaintiff, and to have interfered tortiously with plaintiff's relationships with its customers. The allegations in the instant matter fall far short of those in Peerless and do not allege illegal conduct.

 Plaintiffs also contend that defendants violated Section 1 of the Sherman Act which prohibits contracts, combinations, or conspiracies in restraint of trade. However, plaintiffs have not described any conduct by defendants which amounts to such trade restraint. For example, there is no contention that Otis tried to prevent Stokes from selling lift trucks, but merely that the exclusive franchise once held by Stokes was awarded to Keystone. This is not enough. Plaintiffs' allegations are similar to those in Joseph E. Seagram and Sons, Inc. v. Hawaiian Oke and Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), cert. denied 396 U.S. 1062, 90 S. Ct. 752, 24 L. Ed. 2d 755 (1970), rehearing denied, 397 U.S. 1003, 90 S. Ct. 1113, 25 L. Ed. 2d 415 (1970), and Kirihara v. Bendix Corporation, 306 F. Supp. 72 (D. Hawaii 1969). ...


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