Hanover Shoe, Inc. v. United Shoe Machinery Corp.

Following this Court's affirmance of a district court judgment in a civil action against United Shoe Machinery Corp. (United), a manufacturer and distributor of shoe machinery, which the Government had brought under § 4 of the Sherman Act, Hanover Shoe, Inc. (Hanover), a shoe manufacturer and customer of United's, brought this private treble-damage suit against United for its alleged monopolization of the shoe machinery industry in violation of § 2 of the Sherman Act, by means of its practice of leasing and refusing to sell its shoe machinery. Hanover, relying on § 5 (a) of the Clayton Act (making a final judgment or decree in a Government antitrust suit prima facie evidence as to all matters respecting which the judgment or decree would be an estoppel between the parties thereto), submitted the court's findings, opinion, and decree in the Government's case as its evidence that United had monopolized the shoe machinery industry and that its refusal to sell the machines was an instrument of the monopolization. In 1965 the District Court rendered judgment for Hanover, holding that it was entitled to damages for the period from July 1, 1939 (the earliest date permitted by the statute of limitations), to September 21, 1955, when this suit was filed, in an amount equal to three times the difference between what Hanover had paid in rentals and what it would have paid had United been willing to sell the machines, plus interest. The Court of Appeals affirmed as to liability, but disagreed with the District Court on certain aspects of the damage award, including the relevant damage period. It fixed that period's end date somewhat earlier and ruled that its start was June 10, 1946, when this Court decided American Tobacco Co. v. United States, 328 U.S. 781, and endorsed the views in United States v. Aluminum Co. of America, 148 F. 2d 416 (C.A. 2d Cir.), prior to which the Court of Appeals concluded it had been necessary in an action for violation of § 2 to prove the existence of predatory practices as well as monopoly power. Both parties were granted review of the Court of Appeals decision. United contends that the decision in the Government's suit against it did not determine that United's leasing practices was an instrument of monopolization; that Hanover sustained no injury since any excess cost of leasing over cost of ownership was not absorbed by Hanover but passed on to its customers; and that the District Court's damage calculations which the Court of Appeals upheld were erroneous because they did not properly allow for the cost of capital to Hanover as an element of the cost of acquiring the shoe machinery, the District Court having made an adjustment only to the extent of deducting a 2.5% interest component from the profits it thought Hanover would have earned by buying the machines. Hanover contends that the Court of Appeals erred in changing the start of the damage period and in ordering the District Court on remand to reduce its damage calculations by whatever tax advantages Hanover might have obtained by leasing as compared with buying the shoe machinery.

Held:


 * 1. The courts below did not err in holding that United's practice of leasing and refusing to sell its major machines was determined to be illegal monopolization in the Government's case, as reference to the court's findings and opinion, as well as decree, in that case makes clear. Pp. 483-487.


 * 2. Hanover proved injury and the amount of its damages within the meaning of § 4 of the Clayton Act when it proved that United had overcharged it during the damage period and showed the amount of the overcharge; and the possibility that it might have recouped the overcharge by "passing it on" to its customers was not relevant in the assessment of its damages. Pp. 487-494.


 * 3. Hanover is entitled to damages for the entire period of the applicable statute of limitation, since the Alcoa-American Tobacco decisions did not fundamentally alter the law of monopolization in a way which should be given only prospective effect. Pp. 495-502.


 * 4. The District Court did not otherwise err in its computation of damages. Pp. 502-504.

377 F. 2d 776, affirmed in part, reversed in part, and remanded.

James V. Hayes argued the cause for petitioner in No. 335 and respondent in No. 463. With him on the briefs were Breck P. McAllister and Robert F. Morten.

Ralph M. Carson argued the cause for respondent in No. 335 and petitioner in No. 463. With him on the briefs were Robert D. Salinger, Philip C. Potter, Jr., and Roland W. Donnem.