(264 F.)

III. Is the Plea of Res Adjudicata Good?

[10] The plea raises the issue whether the decree in the former action under the Sherman Act, between the same parties, owing to the fact that the provisions in the leases, now sought to have declared void as being in violation of section 3 of the Clayton Act, were in the complaint in that cause set out and relied on in part to obtain the relief asked, is res adjudicata in this action?

The opinions in that case are reported in 222 Fed. 349, and 247 U. S. 32, 38 Sup. Ct. 473, 62 L. Ed. 968. That action was instituted December 12, 1911, nearly three years before the enactment of the Clayton Act, and finally heard before, although decided by the trial court. after, the Clayton Act had become a law. Judge Putnam, the presiding judge at the hearing of that case in the District Court, which was heard by three judges under the Expedition Act (Comp. St. §§ 8824, 8825), in referring to the Clayton Act, said (222 Fed. on page 361):

"In this connection we make no special reference, and have come to no conclusions, in regard to the effect on the pending case of the legislation of Congress enacted since this case was submitted to us, nor with reference to the question whether or not the rights of the parties affected by this legislation would require supplemental pleadings."

Judge Brown, another of the judges sitting in that case in the District Court, referring to the leases complained of in this action, said: "It is also alleged that certain lease and license agreements constitute steps in carrying out such project."

Judge Dodge, another judge sitting in the District Court, in his concurring opinion in that case (222 Fed. 391), referring to the tying clauses in the leases, said:

"The complaints made regarding the leases embodying the clauses [the tying clauses] referred to are not directed against those pertaining to any particular kind or kinds of machines, as more objectionable than others. It is their entire combined effect which is attacked."

Mr. Justice McKenna, who delivered the opinion of the majority of the court, in the beginning of the opinion (247 U. S. 35, 38 Sup. Ct. 474, 62 L. Ed. 968) states the object of the bill to be:

"The charge of the bill is that defendants, not being satisfied with the monopoly of their patents and determined to extend it, conceived the idea of acquiring the ownership or control of all concerns engaged in the manufacture of all kinds of shoe machinery. This purpose was achieved, it is charged, and a monopoly acquired, and commerce, interstate and foreign, restrained by the union of competing companies and the acquisition of others; and that leases were exacted which completed and assured the control and monopolthus acquired."

What the defendants understood to be the issue in that action is clearly and concisely stated by their counsel in their brief (the same counsel representing them in the case at bar), when the cause was heard in the Supreme Court on reargument. On page 11, under the caption "The Issues in the Present Case," they say:

"The issue presented in the District Court was whether the defendants formed a plan, as charged in the petition: (1) To acquire all concerns engaged in manufacturing shoe machinery, or (if the limitation insisted on by the United States be accepted) to acquire all concerns engaged in manufacturing certain specified classes of shoe machinery; and (2) thereupon to refuse to lease any essential machines, unless the shoe manufacturer took practically all his other machines from them; and, if they did form such a plan, whether or not such a plan was unlawful, and whether they carried out the plan and thereby acquired an unlawful monopoly."

But it is claimed on behalf of the defendants that, as in the complaint in that case, although an action under the Sherman Act, the tying clauses complained of in the instant case were specifically charged to be unlawful and put in issue, the decree in that action is res adjudi

cata.

A careful reading of the complaint and the opinions in that case convinces that they were set out solely for the purpose of maintaining the charge that by their use, in connection with the other acts charged, the defendants had conspired in restraint of trade or commerce and monopolized it. The government certainly could not have pleaded in its complaint the invalidity of these clauses in the leases under the Clayton Act, which was not a law at that time.

To obtain the relief in that case the complaint charged that the defendants, by combinations with other shoe machinery manufacturers and the acquisition of the business of competitors, had obtained a monopoly of the foreign trade and commerce in shoe machinery, in restraint of trade, in violation of the Sherman Act, and that they had succeeded in that object. Among the numerous alleged unlawful acts charged, which made it possible for them to achieve that object, was the insertion of these tying clauses in the leases. But this was only one of the acts charged, to accomplish the result complained of. This allegation was therefore collateral to the main issue, and could only have been incidentally considered by the court. In this action no attack is made on any of the acts complained of, and which were the basis of the former suit, except the tying clauses. Nor is the object of the suit the same. The only relief now asked is against those acts of the defendants which are claimed to be in violation of section 3 of the Clayton Act. In the complaint it is alleged:

"The bill does not complain of the leases as a whole, but only parts thereof, which are described in the bill as 'tying clauses' and 'discounts and rebates.""

The object of the former suit was, as appears from the prayer for relief in the complaint, that

"the defendants be declared a combination in restraint of interstate and foreign trade and commerce, and attempting, in combination and conspiracy with other persons and corporations, to monopolize and have monopolized part of the trade and commerce among the several states of the United States and with foreign nations, and that each of them be dissolved and separated into such parts that no one of them will constitute a monopoly, or can become a monopoly, of the shoe machinery business," etc.

When a judgment or decree has the effect of res adjudicata in a later action between the same parties is well settled by numerous decisions of the English and American courts. The principle estab

(264 F.)

lished in the Duchess of Kingston's Case, 20 Howell's State Trials, 355, 538, 2 Smith's Lead. Cases, 424 (decided in 1776), has been generally followed by the American courts, including the Supreme Court of the United States. Leading cases of that court are Washington, A. & G. Co. v. Sickles, 65 U. S. (24 How.) 333, 16 L. Ed. 650; Cromwell v. County of Sac, 94 U. S. 351, 24 L. Ed. 195; Reynolds v. Stockton, 140 U. S. 254, 270, 11 Sup. Ct. 773, 35 L. Ed. 464. In the Sickles Case it was held:

"The essential conditions under which the exception of res judicata becomes applicable are the identity of the thing demanded, the identity of the eause of the demand, and of the parties in the character in which they are litigants."

It is equally well settled that estoppel by judgment does not extend to matters which were only collaterally involved in the former litigation. Duchess of Kingston's Case, supra; Hopkins v. Lee, 19 U. S. (6 Wheat.) 109, 114, 5 L. Ed. 218; Gaines v. Hennen, 65 U. S. (24) How.) 553, 579, 16 L. Ed. 770; Bluefield S. S. Co. v. United Fruit Co., 243 Fed. 1, 11, 155 C. C. A. 531; Smith v. Town of Ontario (C. C.) 4 Fed. 386, 390; Cavanaugh v. Buehler, 120 Pa. 441, 14 Atl. 391; Belden v. State, 103 N. Y. 1, 8 N. E. 363; Waterhouse v. Levine, 182 Mass. 407, 65 N. E. 822. In the Duchess of Kingston's Case the court, after stating when a foriner judgment will sustain the plea, said:

"But neither the judgment of a concurrent or exclusive jurisdiction is evidence of any matter, which came collaterally in question, though within their jurisdiction, nor of any matter incidentally cognizable, nor of any matter to be inferred by argument from the judgment."

In Hopkins v. Lee it was held:

"To points which came only collaterally under consideration, or were only incidentally under cognizance, or could only be inferred by arguing from the decree, it is admitted that the rule does not apply."

Vicksburg v. Vicksburg Waterworks Co., 206 U. S. 496, 506, 508, 27 Sup. Ct. 762, 51 L. Ed. 1155, is much in point. There was a plea of res adjudicata based on the decree affirmed in 202 U. S. 453, 26 Sup. Ct. 660, 50 L. Ed. 1102, 6 Ann. Cas. 253. The issues involved in that action are set out in 206 U. S. 506, 507, 27 Sup. Ct. 762, 51 L. Ed. 1155. The court, in disposing of the plea, said:

"But a decree must be read in the light of the issues involved in the pleadings and the relief sought, and we are of the opinion that the matters now litigated were not involved in or disposed of in the former case, and that, when properly construed, the decree does not finally dispose of the right of the city to regulate rates under a law passed after the contract went into effect and long after the bill was filed in the case."

This was reaffirmed in Vicksburg v. Henson, 231 U. S. 259, 273, 34 Sup. Ct. 95, 100 (58 L. Ed. 209), where it was said:

"The nature and extent of the former decree is not to be determined by seizing upon isolated parts of it, or passages in the opinion considering the rights of the parties, but upon an examination of the issues made and intended to be submitted, and what the decree was really designed to accomplish. We cannot agree with the court below, or with the majority of the Circuit

Court of Appeals, that the effect of the former adjudication was to preclude the rights of the parties in the present controversy."

All that was and could be determined on the pleadings in the former action under the Sherman Act, was that, applying the rule laid down in the Standard Oil Co. Case, 221 U. S. 1, 31 Sup. Ct. 502, 55 L. Ed. 619, 34 L. R. A. (N. S.) 834, Ann. Cas. 1912D, 734, and American Tobacco Co. Case, 221 U. S. 106, 31 Sup. Ct. 632, 55 L. Ed. 663, for the construction of the Sherman Act, the evidence failed to sustain the charge that the Shoe Machinery Company had violated that act, and therefore the alleged combination should not be dissolved. The plea cannot be sustained.

IV. Were the Defendants, in Making the Leases Attacked, Engaged in Interstate Commerce?

[11] That leases may constitute interstate commerce was determined by this court on the motion to dismiss the complaint. 234 Fed. 127, 143, 144. Of course, this does not apply to leases of machines in the state of Massachusetts, when the machines were made and delivered in that state. Witherell & Dobbins Co. v. United Shoe Machinery Co. (First Circuit, opinion filed June 18, 1919, not published, as motion for rehearing granted). As to leases made with manufacturers in states other than the state of Massachusetts, the claim of defendant's that they are not in the course of interstate trade is sought to be sustained upon the ground that all leases, made prior to the enactment of the Clayton Act, were only presented to the lessee for signature and executed by him after the machines had been set up and were in operation, regardless of the fact from what state the defendants shipped them. The custom then prevailing was: The shoe manufacturer would notify the local representative of the defendants that he desired to lease certain machines, whereupon a blank printed order, prepared and furnished by the defendants, would be handed to him. He would then insert in a blank left for that purpose the kind of machine or machines he desired and sign the application. The order is:

"Please deliver to the undersigned, upon the terms and conditions hereiuafter stated, for use in the factory of the undersigned at (insert St. Louis, Mo., or wherever the factory is located) the machines," etc.

It also contains an obligation that he will hold the machines at his sole risk from injury, loss, or destruction by fire or otherwise, pay all taxes assessed and levied on them, will render full and accurate reports of the use of the machines, pay the rental and royalty established by the defendants, and pay all shipping and transportation charges, both to and from the factory of the Machinery Company. The order would then be sent to the home office of the defendant Maine company in the state of Massachusetts, and, if accepted, the machines would be shipped from Massachusetts, consigned to itself. Upon their arrival at the destination, they would be taken from the carrier by defendants' agent and installed in the shoe factory, and, when set up and put in operation, the lease would be executed. This, it is claimed, makes the transaction intrastate, and therefore not subject

(264 F.)

to the Clayton Act. The court is unable to sustain this contention, as it has been uniformly held that acts of this nature constitute interstate commerce. Brennan v. Titusville, 153 U. S. 289, 14 Sup. Ct. 829, 38 L. Ed. 719; Caldwell v. North Carolina, 187 U. S. 622, 23 Sup. Ct. 229, 47 L. Ed. 336; Rearick v. Pennsylvania, 203 U. S. 507, 27 Sup. Ct. 159, 51 L. Ed. 295; Dozier v. Alabama, 218 U. S. 124, 30 Sup. Ct. 649, 54 L. Ed. 965, 28 L. R. A. (N. S.) 264; Crenshaw v. Arkansas, 227 U. S. 389, 33 Sup. Ct. 294, 57 L. Ed. 565; Western Oil Refining Co. v. Lipscomb, 244 U. S. 346, 37 Sup. Ct. 623, 61 L. Ed. 1181.

The cases cited and relied on by the defendants are clearly inapplicable. Banker Bros. v. Pennsylvania, 222 U. S. 210, 32 Sup. Ct. 38, 56 L. Ed. 168, was an action involving the right of the state to tax the defendants on sales of automobiles made in Pittsburgh, Pa. The facts were that the defendants kept no machines in stock, but would obtain them from the manufacturers in another state. A purchaser would order the machine from the defendants in Pennsylvania; the order being addressed to the defendants, the manufacturer's name (the Pierce Company) not appearing on the order. The defendants would forward the order to the Pierce Company, who would ship it to the defendants, at Pittsburgh, Pa., with draft on defendants attached to the bill of lading, less the commission. On paying the draft, the Banker Bros. would take up the bill of lading, receive the car from the carrier, and then deliver it to the buyer on his paying the balance of the purchase money. It was held that the Banker Bros. had the title and the shipment had become at rest in the state of Pennsylvania, though shipped in interstate commerce, and therefore subject to the tax imposed by the state. The court said:

"This is one of the common cases in which parties find it to their interest to occupy the position of vendor and vendee for some purposes under a contract containing terms which, for the purpose of restricting sales and securing payment, come near to creating the relation of principal and agent. But as between Banker Bros. Company and the Pittsburgh purchaser, there can be no doubt that it occupied the position of vendor. As such it was bound by its contract to him and under the duty of paying to the state a tax on the sale The name of the Pierce Company was not mentioned in the order signed by the purchaser. Had there been a breach of its terms, he would have had a cause of action against the Banker Bros. Company, with whom alone he dealt. If he had failed to complete the purchase, the Pierce Company would have no right to sue him on the contract."

In Browning v. Waycross, 233 U. S. 16, 34 Sup. Ct. 578, 58 L. Ed. 828, it was held that a city or state may impose an occupation tax on lightning rod agents, not for taking orders to be filled in another state and delivered in the state where the order was taken, but "on persons engaged in putting up or erecting lightning rods." In Bacon v. Illinois, 227 U. S. 504, 33 Sup. Ct. 299, 57 L. Ed. 615, what the court held was:

"Property brought from another state, and withdrawn from the carrier, and held by the owner with full power of disposition, becomes subject to the local taxing power, notwithstanding the owner may intend to ultimately forward it to" another state.