Thomson Manufacturing Co., Judson L

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IN THE ~LATTER OF JUDSON L. THOMSON MANUFACTURING COMPANY COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 3 OF AN ACT OF CONGRESS APPROVED OCT. 15, 1914 Docket 4111. Complaint, Apr. 25, 1940-Decision, Feb. 9, 1944 Where a corporation which was long engaged in the manufacture and interstate sale • and distribution of tubular and bifurcated rivets to the industrial field exclusively, and in the manufacture and lease of automatic rivet-setting machines to manufacturers, in competition with others so engaged, and, but for the restrictive leases below set forth, with concerns engaged in interstate sale and distribution of such rivets suitable for use with said machines; was one of a group of eight manufacturers in the United States engaged in the manufacture and sale of such rivets, and manufacture, sale and lease of such machines-prices of which range from $150 to $1,000 and more, with the more popular machines selling for around $300; and was one of two of said manufacturers, which, as original occupants of the field, inaugurated the practice of making restrictive leases, later adopted by the others; Leased its said machines for more than forty years, upon the condition that they should be used only for setting rivets made by it, at yearly rentals which ranged from $15 to $25 for ordinary types, were not sufficient, without the sale of the rivets, to warrant the leasing,-in connection with which it made no additional charge for servicing, or, with one exception, for part replacements-and were rebated in event of lessee's using, at prices about ten per cent higher than those of corresponding rivets sold to non-lessees, specified number thereof; With the result that through said excluding condition it precluded other concerns from selling to ita lessees, rivets suitable for use in such.machines, and excluded from the tubular and bifurcated rivet market numerous potential purchasers of such articles from its competitors, and competition in aforesaid market was restricted and contracted in direct proportion to the extent to which it was successful in so leasing its machines;

Effect of which, materially increased by similar practices of the other seven manufacturers hereinbefore referred to, might be to substantially lessen competition in sale in commerce of aforesaid articles:

Held, That through use of acta and practices described, said corporation had violated and was violating Section 3 of the Clayton Act. Before JI.J r. Edward E. Reardon, trial examiner. Mr. Lynn C. Paulson and Mr. George W. Williams for the Commission. Hutchins & Wheeler, of Boston, Mass., for respondent. Complaint ! I The Federal Trade Commission having reason to believe that Judson L. Thomson Manufacturing Company, a corporation, hereinafter referred to as respondent, has violated the provisions of Section 3 of the Act ofCongress entitled "An Act to supplement. existing laws against unlawful Iif restraints and monopolies, and for other purposes," approved October 15, I' 1914, and commonly known as the Clayton Act, hereby issues this it~:> .,,i!,,_ complaint against said respondent and states its charges in respect thereto as follows 1 to wit; · . i1 .I ·'I' Complaint 38F. T. C.

PARAGRAPH 1. Respondent, Judson L. Thomson Manufacturing Company, is a corporation organized, existing and doing business under and by virtue of the laws of the State of Massachusetts, having its principal office and place of business at Waltham, Mass. Respondent is now, and for many years last past has been, engaged in the business of manufacturing rivet-setting machines and of leasing and licensing the use of said rivet-setting machines, and of manufacturing and selling tubular and bifurcated rivets. Rivet-setting machines are used to set tubular and bifurcated rivets and tubular and bifurcated rivets are used in the manufacture of many articles of commerce. In connection with its aforesaid business, respondent has leased and licensed, and still leases and licenses, its rivet-setting machines, and has sold, and still sells, its tubular and bifurcated rivets to individuals, firms, partnerships and corporations located in the several States of the United States and the District of Columbia, and has caused, and still causes said machines and the rivets, when leased, licensed or sold, to be transported from its principal place of business in Massachusetts to the licensees, lessees and vendees thereof located at various points in the several States of the United States and in the District of Columbia, and said respondent now is, and has been for more than three years last past, constantly engaged in commerce in said products between and among the several States of the United States, the territories thereof and in the District of Columbia.

In the course and conduct of its business, said respondent is, and has been for the past several years, in competition with firms, partnerships, corporations and individuals engaged in the manufacture, leasing and licensing of rivet-setting machines and in the manufacture and sale of tubular and bifurcated ·rivets in commerce between and among the various States of the United States, the territories thereof, and in the District of Columbia.

There are in the United States, and have been during the time respondent has been in business, other corporations, firms, partnerships and individuals who have been and are engaged in the sale of tubular and bifurcated rivets in commerce among and between the several States, which tubular and bifurcated rivets are suitable for and may be used in and with· respondent's rivet-setting machines; and with whom, but for the restrictive' condition of respondent's contracts of license and lease, as hereinafter set forth, respondent would have been and would now be in acti~e, substantial competition in the sale of tubularand bifurcated rivets. Said respondent is now, and for more than four years last past has been one of the largest manufacturers and distributors, licensors and lessors of rivet-setting machines in the United States, and now manufactures and distributes approximately 40 per cent of the rivet-setting machines and approximately 30 per cent of the tubular and bifurcated rivets entering into interstate commerce in the said United States. PAR. 2. The respondent in the course and conduct of its said business hereinabove described in paragraph 1, has leased and licensed and is now leasing and licensing its said rivet-setting machines for use' in the · several States and territories of the United States and in the District of Columbia on and with the condition, agreement or understanding that the lessees or licensees thereof will not use the said machine for ·setting any other tubular and bifurcated rivets than those manufactured by tlie respondent, or sold under its authority, and on the further condition, JUDSON L. THOMSON MFG. CO. 137 135 Findings agreement or understanding that the lessees or licensees will allow the said respondent or its agents to inspect the said machines at all reasonable times.

PAR. 3. The effect of the said provisions in said license and lease agreements or understandings set forth in paragraph 2 hereof; may be to substantially lessen competition or tend to create a monopoly in respondent in tubular and bifurcated rivets in commerce between and among the _ several States of the United States and in the District of Columbia. PAR. 4. The aforesaid acts, practices and methods of respondent constitute a violation of the provisions of Section 3 of the hereinabove-mentioned Act of Congress entitled "An Act to supple~ent existing laws against unlawful restraints and monopolies, and for other purposes," approved pctober 15, 1914 (the Clayton Act) .. REPORT, FINDINGS AS TO THE FACTS, AND ORDER Pursuant to the provisions of that certain Act of Congress of the United States entitled, "An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," approved , October 15, 1914, commonly known as the Clayton Act, the Federal Trade Commission.on April 25, 1940, issued and subsequently served its complaint in this proceeding upon the respondent, Judson L Thomson Manufacturing Company, a corporation, charging it with the violation of the provisions of Section 3 of said act. After the issuance of said complaint and the filing of respondent's answer thereto, testimony and other evidence in support of, and in opposition to, the allegations of said complaint were introduced before a trial examiner of the Commission theretofore duly designated by it, and said testimony and other evidence were duly recorded and filed in the office of the Commission. Thereafter, this Proceeding regularly came on for final hearing before the Commission on said complaint, answer thereto, testimony and other evidence, report of the trial examiner upon the evidence and exceptions filed thereto, briefs in support of the complaint and in ·opposition thereto, and oral argument of counsel; and the Commission, having duly considered the matter and being now fully advised in the premises, makes this its findings as to the facts and its conclusion drawn therefrom. · FINDINGS AS TO THE FACTS PARAGRA-PH 1. Respondent, Judso_n L. Thomson Manufacturing Company, is a corporation, organized, existing, and doing business under a;n.d by virtue of the laws of the State of Massachusetts, having its prin- Cipal office and place of business at ·waltham, Mass .. Respondent is now, and for many years last past has been, engaged in the business of manufacturing and selling tubular and bifurcated rivets .and also in the manufacture of automatic rivet-setting machines, which the respondent leases t? various manufacturers of commercial articles for use in setting su.ch rtvets.

PAR. 2. In the course and conduct of its business, the respondent causes its automatic rivet-setting machines when leased, and its tubular and bifurcated rivets when sold, to be transported from its principal place. of business in the State of Massachusetts to the purchasers and lessees of such products located in various other States of the United States. Re- 591546~6--vol. 38----12 Findings 38 F. T. C.

spondent maintains, and at all times mentioned herein has maintained, a course of trade in fiaid products in commerce among and between the various States of the United States ..

PAR. 3. In the course and conduct of its business, said respondent is, and for several years last past has hen, in competition with firms, partnerships, corporations, and individuals engaged in the manufacture and sale in commerce among and between the various States of the United States, of tubular and bifurcated rivets and in the manufacture and leasing of automatic rivet-setting machines for use in setting such rivets. There are in the United States other corporations, individuals, firms, and partnerships who have been, and are, engaged in the sale in commerce among and between the various States of the United States of tubular and bifurcated rivets suitable for use in, and with, respondent's rivet-setting machines and with whom, but for the restrictive conditions of respondent's contracts of lease as hereinafter set forth, respondent would have been and ·would now be in active, substantial competition in the sale of tubular and bifurcated rivets.

PAR. 4. Tubular rivets are rivets which have the end of the shank of the rivet away from the head drilled or punched out so that a portion of this end of the shank forms a tube. When the rivet is set, the metal in this tubular part of the shank is caused to spread or flow so as to form a clinch. Bifurcated rivets have a v-shaped slot cut in the shank at the end away from the head and are set by causing the prongs on each side of this slot to be spread in opposite directions. Tubular and bifurcated rivets are sold to two classes of customers first, to manufacturers in the industrial field who use them for the purpose of assembling their products or as component parts of their products, and second, to the carton or jobbing trade, which includes the sale of rivets through mail-order houses and hardware jobbers and others for replacement and repair purposes. Rivets used in the industrial field by manufacturers are generally set in automatic-feed setting machines. Rivets sold to the carton or jobbing trade are as a rule not used in automaticfeed machines but, instead,· are used in small hand-feed machines and some in special brake-lining machines.

Automatic rivet-setting machines all operate on the same general prin- ·ciples. The essential parts of such machines are the automatic feeding mechanism, the plunger or driving stem, the pocket, and the anvil. The rivbts are, poured into a hopper at the top of the machine and assorted mechanically so that they slide down a track. At the end of the track there is a cut off in the feeding mechanism, which releases one rivet at a time from the track and delivers it to the pocket. The pocket holds the · rivet while it is being driven by the driving stem, which comes down on top of the rivet from above and pushes the rivet through the material to be riveted and against the anvil. The operation of the driving stem against the anvil spreads the prongs of bifurcated rivets or, in the case of the tubular rivets, causes the metal sides of the tube on the end Of the shank to flow against the materials and clinch the rivet. A split or bifurcated rivet punches its way through the material to be riveted, and the rivet is clinched on a fixed anvil. The tubular rivet is clinched on a disappearing-point anvil.

PAR. 5. There are eight companies in the United States, including the respondent, engaged in the business of selling tubular and bifurcated rivets and in supplying automatic rivet-setting machines for the setting JUDSON L. THOMSON MFG. CO. 139 135 Findings of such ;ivets. All of said companies were, at the time of the filing of the complaint herein or prior thereto, engaged in the practice of leasing automatic rivet-setting machines on the condition and understanding that the lessee shall not use sal.d leased machinery for setting any other rivets than those made and sold by the lessor.

. From about 1889, when the use of tubular and bifurcated rivets for tndustrial purposes began, until theyear 1914, the respondent and Tubu- · lar Rivet & Stud Company (respondent in Commission's proceeding under Docket 4113) were the only companies engaged in the business of selling tubular and bifurcated rivets and supplying automatic rivet-setting machines for setting such rivets. The practice of the Tubular Rivet & ~tud Company, like that of the respondent; was to lease its automatic nvet-setting machines and not to sell such machines. The respondent has outstanding on lease approximately 8,000 automatic rivet-setting machines, and the Tubular Rivet & Stud Company has approximately 7,412 machines on lease. The total volume of business of the above eight companies in tubular and bifurcated rivets for the vear 1939 was $5,180,304.75. Of this amount $1,243,927.86, or about 25. percent, was dTone by the respondent, and $1,331,550.98, or about 25 percent, by the ubular Rivet & Stud Company. · The Penn Rivet Corporation (respondent in Commission's proceeding Under Docket 4563) entered the industrial field and began the manufacture of bifurcated rivets and automatic rivet-setting machines about the year 1914 and subsequently included tubular rivets., This company both sold and leased its rivet-setting machines. During the period from 1932 to 1936 it made no new leases but resumed this practice in 1936, and now has approximately 500 machines outstanding on lease. While the evidence is not complete as to number of machinef:J sold by this company, it ~Appears that it has sold in excess of 2,000 machines during the time that tt has been in business. The gross sales of tubular and bifurcated rivets by the Penn Rivet Corporation amounted to $307,000 in 1939. · The Edwin B. Stimpson Company (respondent in Commission's proceeding under Docket 4560) began the manufacture and sale of tubular and bifurcated rivets about the year 1920, and about two years thereafter began supplying automatic rivet-setting machines. This company both sold and leased its rivet-setting machines. It has about 2,000 machines now outstanding on lease, and during the time that it ha& been in business has sold approximately 300 machines. The gross sales of tubular and bifurcated rivets of this company for the year 1939 amounted to $286,500. .

In 1920 the Chicago Rivet and Machine Company (respondents in Commission's proceeding under Docket 4562) began the manufacture a_nd sale of tubular and bifurcated rivets but did not supply automatic r\vet-setting machines until sometime between the years 1925 and 1928. Slllce that time it has supplied customers with automatic rivet-setting machines by lease, outright purchase, and on a lease-sale arrangement. 1'he Chicago Rivet and 1Machine Company had 800 to 1,000 rivet-setting machines outstanding on lease. During the time that this company has been engaged in distributing automatic rivet-setting machines, it has s?ld in excess of 3,000 machines. Its gross sales of tubular and bifurcated ttvets for 1939 amounted to $1,011,527, or about 20 percent of the total business done by the eight companies supplying rivet-setting machines. Findings 38F. T. C.

During the period from 1927 to 1930, the Milford River & Machine Company, Milford, Mass. (respondent in Commission's proceeding under Docket 4110); National Rivet & Manufacturing Company, Waupun, Wis. (respondent in Commission's proceeding under Docket 4561); and· Shelton Tack Company, Shelton, Conn. (respondent in Commission's proceeding under Docket 4564), began the manufacture and sale of tubular and bifurcated rivets and supplying automatic rivet-setting· machines. All three of these companies both lease and sell automatic rivet-setting machines. The machines of these companies outstanding on lease are as follows:

Milford Rivet & Machine Company 269 machines National Rivet & Manufacturing Company 96 machines Shelton ~ack Company 45 machines The number of automatic rivet-setting machines sold by these com-panies during the time they have been in business is as follows: Milford River & Machine Company 254 machines National Rivet & Manufacturing Company 207 machines Shelton Tack Company 146 machines The gross sales of these companies of tubular and bifurcated rivets for the year 1939 were as follows:

Milford Rivet & Machine Company $396,574 National Rivet & Manufacturing Company 390,000 Shelton Tack Company 213,225 These three companies, together with the Penn Rivet Corporation and Edwin B. Stimpson Company, do approximately 30 percent of the total business clone by the eight companies supplying rivet-setting machines. When automatic rivet-setting machines are sold, the prices range from $150 to $1,000 and sometimes more, depending upon the nature and extent of special construction. The ordinary or more popular machine sells for around $300. When such machines are placed with customers on a lease basis, the yearly rental is usually upon a more or less nominal basis and is not sufficient to show a profit. Rivets sold to lessees for use in leased machines cost approximately 10 percent more than corresponding rivets sold on the open market or sold to persons who do not lease ma<!hines: . . PAR. 6. The respondent confines its sales of tubular and bifurcated rivets to the industrial field and makes no effort to sell,. nor does it sell, to the so-called carton or jobbing tr::tcle. For the purpose of inducing the purchase of its tubular and bifurcated rivets, the respondent supplies automatic rivet-setting machines for use in setting such rivets. The respondent does not sell such rivet-setting machines to its customers but, instead, has, for more than forty years, followed the practice of leasing such machines on a yearly rental basis of from $15 to $25 a year for ordinary types of machines. These rentals are rebated to the lessee if the lessee uses a quantity of rivets stated in the lease. The respondent makes no additional charge for servicing machines held by customers on· lease and replaces parts without charge, with the exception of disappear-ing-point anvils, which wear out rapidly in use and for which a charge is made to the customer. The prices charged by the respondent are approximately 10 percent higher than the prices of corresponding rivets on the open market.

-JUDSON L. THOMSON MFG. CO.· 141 135 Findings ' The form of lease which has been used during the past several years by· the respondent and which is ·substantially the same as those forms previously used by it, provides that the leased rivet-setting machines shall at all times remain and be the sole and exclusive property of the r~spondent, with no right of property therein by the lessee other than the nght of use of the machines by the lessee or by operatives in his direct e!fiploy and only in the factory occupied by him at the time of the execution of the lease. It is further provided that the leased machinery shall not be transferred, delivered, or sublet to any other person or cor- Poration and the agreement for lease cannot be assigned by the l~ssee, either by his own act or by operation of' law. It is pro- 'Vlded in said lease that the respondent and its a.gents and employ..:ees .shall at all times have free _access to the leased machinery for ~he purpose of inspecting it or watching its use and operation or of alterlug, repaii'ing, improving, or adding to it or determining the nature or extent of its use, and that the lessee shall affol·d all reasonable facilities therefor. It is further provided in said agreement, among other things, that the agreement may be terminated at any time by either party upon ten days' notice in writing. ' In addition to the above provisions of said lease, respondent's leases contain the following provis~on: "The licensee shall not use or allow said leased machinery to be used for setting any other rivets than those made and sold by the company." · · . PAR. 7. The revenue received by respondent from the leasing of its rivet-setting machines is of minor importance as compared with the revenue received from the sale of its tubular and bifurcated rivets. The Primary purpose of leasing the equipment is to enable respondent to sell tubular and bifurcated rivets in or with the equipment, as is evident from the provisions of. tP,e agreement rebating rental paid when a specified number of rivets is used by the lessee. The amount of rental charged by the respondent is not sufficient to warrant leasing its rivet-setting· machines in the absence of the sale of rivets. PAR. 8. There is on the market an ample supply of tubular and bifurcated rivets for use in or with respondent's rivet-setting machines Which is for sale and which can be supplied for sale by concerns which sell or lease rivet-setting machines and by concerns which do not sell o~ lease such machines. These concerns are prepared to sell tubular and bifurcated rivets to lessees of respondent's rivet-setting. machines but a,re precluded from making such sales by reason of the restrictive conditions in respondent's lease contract. While the respondent manufactures rivets of many various sizes and shapes, many of which are specially ~esigned, such rivets can be duplicated and supplied by any competent l'lVet manufacturer. . PAR. 9. Among the concerns which do not supply rivet-setting ma-chines in connection with the sale of tubular and bifurcated rivets are I Atlas Tack Company, New Jersey Rivet Company, Townsend Company,J. W. Coombs Mfg. Co., and Manufacturers Belt Hook Co. ll The gross sales of these companies of tubular and bifurcated rivets forthe year 1939 were as follows: ~ j Atlas Tack Company $ 24,994 ~· New Jersey Rivet Company 40,000 Townsend Company 300,000 J. W. Coombs Mfg. Co. . 39,000 Manufacturers Belt Hook Co. 72,000 Conclusion 38 F. T. C.

The Atlas Tack ,Company sells its rivets to both the hardware and jobbing trade and to industrial users. Its sales, however, have been more or less limited to the hardware and jobbing,trade, as it has not had much success in the industrial field. The New Jersey Rivet Company sells practically all of its rivets for use in automatic rivet-setting machines but has had difficulty in making sales where leased machines are present. The Townsend Company sells to both the hardware and jobbing trade and to industrial users. A representative of this company testified that the use of leased machines by manufacturers curtails outlets and narrows the market for its rivets. The J. W. Coombs Mfg. Co. sells to both indus- ~ trial manufacturers and to the hardware and jobbing trade. About SO percent of the rivets sold by this company are sold to one customer to whom it originally supplied 12 rivet-setting machines. The Manufacturers Belt Hook Company began the' sale of tubular and bifurcated rivets in 1910 but did not become interested in the industrial business until 1927 or 1928. It now sells both to hardware and jobbing trade and to industrial users who own their rivet-setting machines. While the business of all these companies has increased during the past several years, there is no evidence whether such increase was due to a greater demand by the hardware and jobbing trade or by industrial users. However, the testimony of representatives. of these various companies, clearly indicated that the outlets for their tubular and bifurcated rivets · were curtailed, and competition therein restrained, by the practice of leasing rivet--setting machines in the manner hereinabove described. PAR. 10. The Commission finds that the practice of respondent in requiring that the lessees of its rivet-setting machines use in or with such machines no tubular or bifurcated rivets other than those supplied by the respondent, results in the exclusion from the market of numerous parties who in the absence of such restrictions, 'XOuld be prospective and potential purchasers of tubular and bifurcated rivets from respondent's competitors. Competition in the tubular- and bifurcated-rivet market is restricted and contracted in direct proportion to the extent to which respondent is successful in leasing its rivet-setting machines under agreements containing such restrictive conditions. PAR. 11. The Commission further finds that the effect of such restrictive conditions under the circumstances set forth herein has been, is, and may be to substantially lessen competition in the sale of tubular and bifurcated rivets in commerce between a.nd among the several States of the United States and in the District of Columbia. Such effect is materially increased by reason of the fact that it forms a part of the cumulative effect of the practices of the other companies described in paragraph 5 hereof upon competition in commerce among and between various States of the United States.

CONCLUSION Through the use of the acts and practices described herein, the respondent has violated, and is now violating, Section 3 of the Act of Congress of the United States entitled, "An Act to supplement existing laws against unlawful restraints and monopolies1 and for other purposes," commonly known as the Clayton Act .

• JUDSON L. THOMSON MFG. CO. 143 135 Order · ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission Upon the complaint of the Commission, answer of the respondent, testi- ~ony and other evidence in support of, and in opposition to, the allegations of said complaint taken before a trial examiner of the Commission theretofore duly designated by it, report of the trial examiner upon the evidence and exceptions filed thereto, briefs filed in support of the complaint and in opposition thereto, and oral argument of counsel; and the Commission having made its findings as to the facts and its conclusion that said.respondent .has ·violated the provisions of that certain Act of Congress of the United States entitled, "An Act to supplement existing laws against unlawful restraints and monopolies and for other purposes," approved October 15, 1914, commonly known as the Clayton Act. It is ordered, That the respondent, Judson L. Thomson Manufacturing Company, a corporation, and its officers, representatives, agents, and employees, directly or through any corporate or other device in connection with the leasing, sale, or making any contract for the sale of respondent's automatic rivet-setting machines in commerce as "commerce" is defined in the Clayton Act, do forthwith cease and desist from: 1. Leasing, selling, or making any contract for the sale of, respondent's automatic rivet-setting machines on the condition, agreement, or understanding that the lessee or purchaser thereof shall not usc in or with such machines any rivets other than those acquired from respondent or from some source authorized by respondent. · 2. Enforcing or continuing in operation or effect, any condition, agreement, or understanding ii:J. or in connection with any existing lea.'Je or sale contract, which condition, agreement, or understanding is to the effect that the lessee or pmchaser of respondent's automatic rivet-setting machines shall not use in or with such machines rivets other than those acquired from respondent or from some source authorized by it. It is further ordered, That the respondent shall, within 60 days after service upon it of this order, file with the Commission a report in writing, setting forth in detail the manner and form in which it has complied with this order. · ! j I I! l\ Complaint 38 F. T. C