Chicago Rivet. & Machine Co

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IN THE 11ATTER OF CHICAGO RIVET & 11MACHINE C011PANY COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. 3 OF AN ACT OF CONGRESS APPROVED OCT. 15, 1914 Docket 4562. Complaint, Aug. 11, 1941-Decision, Feb. 9, 1944 Where a corporation which was engaged in the manufacture and interstate sale and distribution of tubular and bifurcated rivets, and in the manufacture, and outright sale, lease-sale, 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 suit-' able for use with its 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 ordinary or more popular machines selling for around $300; and was one of six of said manufacturers, which followed the other two original occupants of the field in the making of such restrictive leases; Leased its said machines upon the condition that they should be used only for setting rivets made by it, for yearly rentals, which were not sufficient, without the sale of rivets, to warrant the leasing;-in connection with which it made no additional charge for servicing, or, with certain exceptions, for part replacements-and which were rebated in the event of lessee's using number of its rivets specified therein, prices of which were about ten per cent higher than those of corresponding rivets sold to non-lessees; · With the result that through said excluaing condition it precluded other concerns from selling to its 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 acts. and practices described, said corporation had violated and was violating Section 3 of the Clayton Act. · Before Mr. Edward E. Reardon, trial examiner. Mr. Lynn C. Paulson and Mr. George W. Williams for the Commission. Winston, Strawn & Shaw, of Chicago, Ill., for respondent. COMPLAINT .The Federal Trade Commission having reason to b~lieve that Chicago RLVet and Machine Company, a corporation, hereinafter referred to as respondent, has violated the provisions of Section 3 of the Act of Congress entitled "An Act to supplement existing laws against unlawful restraints and monopolies, ·and for other purposes," approved October 15, 1914, and commonly known as the Clayton Act, hereby issues this its complaint against said respondent and states its charges in respect thereto as follows, to wit: ' Complaint · 38F. T. C.

PARAGRAPH 1. Respondent, Chicago Rivet and Machine Company, is a corporation, organized, existing and doing business under the laws of the State of Illinois, having its office and principal place of business at 1830 South 54th Avenue, Cicero, Ill. · Respondent is now, and for many years last past has been, engaged in the business of manufacturing and selling tubular and bifurcated rivets. In connection with its aforesaid business, respondent manufactures rivet setting machines which it leases or sells or permits the use of by way of a license. Such rivet setting machines are used to set tubular and bifurcated rivets. Tubular and bifurcated rivets are used in the manufacture of many-articles of commerce, principally as a device for fastening two or more parts or things together.

PAR. 2. In the course and conduct of its aforesaid business, respondent has leased, licensed or sold and is now leasing, licensing and selling its rivet setting machines, and has sold and still sells its tubular and bifurcated rivets to individuals, partnerships and corporations, many of whom are located in States of the United States other than the State of Illinois, and in the District of Columbia, and has caused and still causes such machines and rivets, when leased, licensed or sold, to be transported from its principal place of business in Illinois to the licensees, lessees and vendees thereof located in various places in the several States ofthe United States and in the District of Columbia as aforesaid. Said respondent now is, and has been for many years last past, continuously 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.

PAR. 3. In the course and conduct of its business in commerce as aforesaid, said respondent is, and has been f<'!r many years last past, in competition with individuals, partnerships and corporations engaged both in the manufacture, leasing, licensing and vending of rivet setting machines and in the manufacture and sale of tubular and bifurcated rivets, and with other individuals, partnerships and corporations who have been and are engaged in the manufacture and sale of tubular and bifurcated rivets most, if not all, of which competitors manufacture and sell rivets suitable for use in and with respondent's rivet-setting machines, with whom, but for the restrictive condition of respondent's contracts of license, lease and sale, as hereinafter more particularly set forth, respondent would have been and would now be in more active and substantial competition.

Said respondent has done for more than three years last past and now does more than 15 percent of the total business done in commerce between arid among the several States of the United States, the territories thereof, and the District of Columbia, in the manufacture and sale of rivets and in the manufacture, sale, lease. and license of rivet-setting machines.

PAR. 4. Respondent in the course and conduct of its aforesaidbusine ss during all of the time herein referred to and continuing up to the present time has leased, licensed and sold, or contracted to sell, rivet setting machines for use in the several States and territories of the United States and in the District of Columbia, . or fixed a price charged therefor or discount from, or rebate upon, such price, on the condition, agreement or understanding that the lessee, licensee or vendee thereof will not use the said machines or machine for setting any other tubular or bifurcated CHICAGO RIVET & MACHINE CO. 173 171 .Findings rivets than those manufactured by the respondent or sold under its authority. · . PAR. 5. The effect of leasing, licensing or selling or contracting to sell nvet-setting machines by respondent on the aforesaid condition, agree-. ment or understanding, may be to substantially lessen competition or t~nd to create a monopoly in a line of commerce, to wit: The sale and distribution of tubular and bifurcated rivets among and between the several States of the United States and in the District of Columbia. · PAR. 6. 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 supplement existing laws against unlawful restraints and monopolies, and for other purposes,'' app~oved October 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 August 11, 1941, issued and subsequently served Its complaint in this proceeding upon the respondent, Chicago Rivet and Machine 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, including testimony and other evidence taken in Commission's proceeding under Docket 4111 (Judson L. Thomson :M;manufacturing Company) ,l which by stipulation upon the record was made a part of the record in this proceeding, 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 consid- ~red 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 PARAGRAPH 1. Respondent, Chicago Rivet and Machine Company, is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Illinois, having its principal office and place of business at 9600 W. Jackson Blvd., Bellwood, Ill. 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 and sells to various manufacturers of commercial articles for use in setting such rivets. · . . PAR. 2. In the course and conduct of its business, the respondent causes tts automatic rivet-setting machines when leased or sold, and its tubular 1 See ane, p. 135.

17 4 FEDERAL TRADE COMMISSION DECISIONS Findings 38F. T. C.

and bifurcated rivets when sold, to' be transported from its principal place of business in the State of Illinois to the purchasers and lessees of such products located in various other States of the United States. Respondent maintains, and at all times mentioned herein has maintained, a course of trade in said 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 been, 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, sale, 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 rivetsetting 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 customersfirst, 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 automatic-feed 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 principles. The essential parts of such machines are the automatic feeding mechanism, the plunger or driving stem, the pocket, and the anvil. The rivets 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 cutoff 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 bih1rcated rivet punches ite~ way through the material to be riveted, and CHICAGO RIVET & MACHINE. CO. 175 • 171 Findings 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 r~spondent, engaged in the business of selling tubular and bifurcated nvets and in supplying automatic rivet-setting machines for the setting of such rivets. 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 said 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 industrial purposes began, until the year 1914, the Judson L. Thomson Manufacturing Company (respondent in Commission's proceeding under Docket 4111) and Tubular 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 these companies was to lease their automatic rivet-setting machines and not to sell such machines. The Judson L. Thomson Manufacturing Company has outstanding on lease approximately 8,000 automatic rivetsetting 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 year 1939 was $5,180,304.75. Of this amount $1,243,927.86, or about 25 Percent, was done by the Judson L. Thomson Manufacturing Company and $1,331,550.98, or .about 25 percent, by the Tubular 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 evi- ~ence is not. complete as td number of machines sold by this company, ~t appears that it has sold in excess of 2,000 machines during the time It 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-settin_g 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 has 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 respondent, Chicago Rivet and Machine Company, began the manufacture and sale of tubular and bifurcated rivets but did not supply automatic· rivet-setting machines until sometime between the Years 1925 and 1928. Since that time it has supplied customers with automatic rivet-setting machines by lease, outright purchase, and on a lease-sale arrangement. As of October 1, 1941, respondent had 1,201 • 176 FEDERAL TRADE COMMISSION DECISIONS Findings 38F. T. C.

rivet-setting machines outstanding on lease. During the time that respondent has been engaged in distributing automatic rivet-setting machines, it has sold 3,708 machines. Its gross sales of tubular and bifurcated rivets for 1939 amounted to $1,011,527, or about 20 percent of the total business done by the eight companies supplying rivet-setting machines. During the period from 1927 to 1930, the Milford Rivet & 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 rivetsetting 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 Tack Company 45 machines The number of automatic rivet-setting machines sold by these companies during the time they have been in business is as follows: Milford Rivet & 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 done 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 arcund $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 machines. · PAR. 6. The respondent sells its tubular and bifurcated rivets to both · industrial manufacturers and to the carton and jobbing trade. Rivets sold for use in automatic rivet-setting machines amount to approximately 75 percent of its sales. For the purpose of increasing the purchase of its tubular and bifurcated rivets, the respondent in 1925 began supplying automatic rivet-setting machines for use in setting such rivets. Since that time the respondent has followed three methods of supplying automatic rivet-setting machines to customers, these being by outright sale, by a lease-sale agreement, and by lease. . CHICAGO RIVET & MACHINE CO. 177 171 Findings When automatic rivet-setting machines were supplied to customers on a lease basis, respondent followed the practice of leasing such machines on a yearly rental basis, which rental was rebated to the lessee if the lessee used a quantity of rivets stated in the lease. The respondent makes no additional charge for servicing machines held by customers on lease a.nd replaces parts without charge, with the exception of jaws, drivers, and anvils. The prices charged by the respondent for rivets used in leased rnachines are approximately 10 percent higher than the prices of corresponding rivets sold to purchasers who do not lease machines. The form of lease which was used by the respondent prior to July 1, · ~940, provides that the lessee shall not use the leased machine for insert., lng and setting rivets except rivets manufactured and sold by the lessor. This restrictive clause was discontinued in leases taken after July 1, 1940. All leases were subject to cancellation by eit}Jer party upon ten days' notice in writing .

. PAR. 7. The revenue received by .respondent from the leasing of its nvet-setting machines is of minor importance as compared with the revenue received from the sale of its tubular and bifurcated rivets. The Prirnary 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 the 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 bifur- ~ated rivets for usc 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 or lease such machines. These concerns are prepared to sell tubular and bifurcated rivets to lessees of respondent's rivet-setting machines but are 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 designed, such rivets can be duplicated and supplied by any competent rivet manufacturer. · ~AR. 9. Among the concerns which do not supply rivet-setting machmes in connection with the sale of tubular and bifurcated rivets are Atlas Tack Company, New Jersey Rivet Company, Townsend Company, J. W. Coombs Mfg. Co., and Manufacturers Belt Hook Co. The gross sales of these companies of tubular and bifurcated rivets for the year 1939 were as follows: " 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 . 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 Order 38F. T. C.

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 in~ dustrial manufacturers and to the hardware and jobbing trade. About 80 percent of the rivets sold by this company are sold to one customer to whom it originally supplied 12 rivet-setting machines. The Manufac~ turers 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 Hl28. It now sells both to har.dware and jobbing trade and to . industrial users. Sales are made mostly to industrial users who own their rivet-setting machines.

While the business of aij 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 ip.dustrial users. However, the testimony of representatives of these various companies clearly indicates 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 suchrestrictions, would be prospective and poten~ tial purchasers of tubular and bifurcated rivets from respondent's com~ petitors. 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 agree~ ments containing such restrictive conditions. PAR. 11. The Commission further finds that the effect of such rcstric~ tive conditions under the circumstances set forth' herein may be to substantially lessen competition in the sale of tubular and bifurcated rivets in commerce between and 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 re~ spondent has violated, and is now violating Section 3 of the Act of Con~ gress of the United States entitled, "An act to supplement existing laws against unlawful restraints and monopolies, and for other purposes," commonly known as the Clayton Act.

ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Commission upon the complaint·Qf the Commission, answer of the respondent, testi~ mony and other evidence in support of, and in opposition to, the allega~ • CHICAGO RIVET & MACHINE CO. · 179 171 Order tions 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, Chicago Rivet and Machine 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 m 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 ~he lessee or purchaser thereof shall not use 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 in or in connection with any existing lease or sale contract, which condition, agreement, or understanding is to the effect that the lessee or purchaser 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.

Complaint 38.F. T. C.