Hanover Shoe, Inc. v. United Shoe Machinery Corporation

PETITIONER:Hanover Shoe, Inc.
RESPONDENT:United Shoe Machinery Corporation
LOCATION:Seward High School

DOCKET NO.: 335
DECIDED BY: Warren Court (1967-1969)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 392 US 481 (1968)
ARGUED: Mar 05, 1968
DECIDED: Jun 17, 1968

Facts of the case

Question

Audio Transcription for Oral Argument – March 05, 1968 in Hanover Shoe, Inc. v. United Shoe Machinery Corporation

Earl Warren:

Number 699 — no. Number 335, Hanover Shoe Company Incorporated, petitioner versus United Shoe Machinery Corporation, and number 463, United Shoe Machinery Corporation, petitioner versus Hanover Shoe Incorporated.

Mr. Hayes.

James V. Hayes:

Mr. Chief Justice and may it please the Court.

We are concerned here with the case of Hanover, a manufacturer of men’s shoes brought against the defendant, United for damages occasioned by United’s monopolization of the shoe machinery trade.

Hanover leased from United all of the machines involved in this case at least which is needed in the manufacture of its shoes.

There were no comp — machines, comparable in quality with the United’s machines which were available from any other domestic or foreign source.

The District Court undisturbed by the Court of Appeals found that United’s monopoly position was from 89% to 100% of the 20 most important machines which accounted for 80% of the royalties which Hanover paid United, and it’s monopoly position was from 85% to 100% of all but six of the machines and there were a total of 58 which Hanover rented from United.

Now, all of those machine types were available to Hanover from United solely on a lease only basis.

In 1947, the government brought an action against United and I shall refer to that action as the government action.

In that action, the District Court held that United’s lease only policy, the provisions of its leases and related sales policies or related policies having to do with its relations with its customers were exclusionary and illegal.

And it held on the basis of its findings that United had monopolized the shoe machinery trade.

Now, in the course of this argument I am going to use the shorthand phrase, leasing system to describe the leases and the bundle of policies which were condemned by the District Court in the government action.

On the basis of its decision, the Court in the government action enjoined the leasing system and directed that, from the date to be fixed, United should offer no machine of those involved for lease unless it also offered it for sale.

The decision of the District Court in the government’s action as Your Honors well know was affirmed by this Court in a per curiam decision.

The decree in the government action was offered and received in evidence by the District Court below.

The District Court below in arriving at its findings and conclusions relied on that decree on the findings and conclusions of the Court in the government action and also an additional proof of monopolization which Hanover offered at the trial.

With respect to damages, Hanover offered two kinds of proof.

It’s first kind of proof what the District Court refers to as a primary claim, consisted of a comparison between the rentals which United actually — I mean, which Hanover, pardon me, actually paid to United and what it would have cost Hanover if it had owned the machines and met the necessary ownership cost, that was one method.

The second method was based on 19 instances which we found in the evidence in the record in the government action, instances where United had reduced its rents and royalties on machines when it was faced with competition, with respect to those machines and I might mention though that a matter purely of interest that the percentage reductions ranged from 11% to 82% and averaged out at 43%.

The District Court held that with respect to that evidence which was tendered to show excessiveness in the rents and royalties themselves, the plaintiff, Hanover had failed to prove excessiveness.

United in its briefs consistently asserts that its rents and royalties have been held reasonable.

There is no such holding by the District Court in this case or by the District Court in the government action.

The holding was that Hanover failed to prove excessiveness which is somewhat different.

The District Court, however, in this action found that under Hanover’s primary proof, the comparison of leasing with ownership cost, Hanover had demonstrated that it had been damaged in the sum of $1,413,000.

That is what had cost Hanover to lease the machines over and above what it would have cost Hanover if it have had the opportunity in a free market to buy the machines.

On United’s appeal to the Court of Appeals, Third Circuit, that Court affirmed with respect to all claims, all questions having to do with liability.

And United’s appeal to that Court presented every question that’s involved in the conditional cross petition here.

It did, however, order a new trial, limited to damages on two grounds.

The first of these grounds is that the award of damages should be reduced by the so called tax benefits, tax disadvantages that ownership would entail to it as I understand the opinion that if Hanover had been the owner, it would not have had the advantage, it did have as lessee in that as lessee.

It was able to deduct all its rents and royalties on its tax returns.

James V. Hayes:

And also that as owner, Hanover would have had to pay capital gains taxes on any machines itself.

Now it’s strange to my poor simple mind as the Court of Appeals decision is with respect to the deduction of the expenses.

It loses me completely with respect to the capital gains because as I will mention in a moment the reason is that Hanover must be assumed to have had a choice and you calculate the damages as they would have been calculated if Hanover had a choice, but assuming Hanover had choice, how Hanover in deciding to buy the machine could tell when and what amount it would have a capital gain completely escapes me.

There is no evidence in the record that if Hanover had purchased machines, it would have sold them before the end of their useful lives or that if it did sell them, it would have sold them for more than the depreciated value on the books of Hanover.

Now this we submit, this holding of the Court of Appeals with respect to so called tax advantages that Hanover enjoyed under the leasing system is error.

We start from one basic fundamental principle that there is no law, that we have been able to discover and no basis in fact in this case why Hanover should be treated any differently from any other treble-damage plaintiff.

Such plaintiffs always are permitted to recover the full damage sustained by them without regard to tax consequences.

We haven’t found a single case which could see the so called tax consequences, may be cover the excess.

The excess here was the amount by which the leasing cost exceeded what would have been the ownership cost.

Our calculations as such are not challenged.

There is one challenge that Mr. Carson makes that I will come to, but the Courts below did not challenge them.

What the Court of Appeals did in the District Court we submit was correct in its oppose to this case was to disregard what has been traditionally the basic rule of damages that in approaching damages, courts do not go beyond the first step and this is a rule that has been recognized constantly over the years, in both contracts and torts cases.

Now the Court of Appeals’ reasoning —

Potter Stewart:

I do not know that I quite understand that rule that in assessing damages, courts do not go beyond the first step.

James V. Hayes:

That is right.

Potter Stewart:

What does that mean?

James V. Hayes:

It was first enunciated if I recall rightly by Justice Holmes.

Potter Stewart:

What does it mean?

James V. Hayes:

It means that the damage is measured at the time of the impact of the wrong.

What happens after that is just not considered.

That is as I understand the meaning of the rule, Mr. Justice Stewart.

The Court of Appeals’ reasoning here is rather than intriguing.

They begin with the finding below, well supported by the evidence that if Hanover had had the opportunity, it would have bought the machines.

And then they do — they went to a bit of vaticination.

They say now if Hanover had been free to choose, what happened?

It would like every other businessman have weighed the two courses open to it, leasing and owning.

And that business has been generally when weighing such choices, consider not merely the gross but the net, they consider the tax consequences that might be involved in either choice.

And accordingly, since businessmen would normally consider the tax consequences, as if the tax consequences looked upon by businessmen would be inherent in their choice, damages should be calculated in the same fashion as the decision whether to buy or sell by looking prospectively, retrospectively, prospectively at tax consequences.

Now to begin with, I mentioned the Court of Appeals and United has mentioned of the so called tax (Inaudible).

Under the law, they are non existent.

James V. Hayes:

All expenses of leasing, all expenses of ownership are fully deductible on taxpayer’s tax returns.

The error of the Court of Appeals here aside from going beyond the first step, the error inherent in this choice reasoning of theirs is their assumption that the elements which are considered by businessmen in deciding whether or not they will take a certain business step are the elements that must be considered by courts in deciding or rather in calculating the amount of the damage sustained by an injured plaintiff.

That is a necessary part of their error.

And even this talk of choice to my again, poor, simple mind is beyond the point.

Hanover had no choice.

Hanover, we have demonstrated, was compelled by monopolization to pay out more money for the operation of its business than it would have paid would not — would have paid in a free market and they were forced to pay it out because they operated in a monopolized market.

If in fact Hanover had a choice, it could have been bought or leased, we will have no claim.

That would be nonexistent.

It was the lack of choice by which Hanover was injured.

And what Hanover might have done or Hanover might have considered, assuming it had a choice or would any other businessman might or might not have considered, we submit is of utmost of academic interest and would have nothing to do with the question as what was the amount of the damage to Hanover.

Now, it is not at all surprising that the Court of Appeals cited no authority, non exists which it could cite.

The nearest approach to an authority with the sort of reasoning it gives, it said, it’s just as realistic to deduct taxes as it was for the District Court to require that in calculating the damages, the servicing expenses on the machines should be deducted.

It is an equation that I am afraid escapes me.

It is a new part of my talking criminal matters but I am addressing myself to the Court of Appeals’ comment.

Servicing expenses quite obviously of expenses of operation that are met and paid before whenever reaches net profit.

Taxes have nothing to do as such with the operation of a business.

They are a sharing on the part of the taxpayer with the sovereign of what the taxpayer has left after he has arrived at his net profit.

Now in no sense as United would suggest any very noble or unique case.

It’s not the first time that plaintiffs in antitrust actions have been damaged by being forced to incur greater cost because of an antitrust violation than they would have incurred absent the violation and it very likely that in every such case, the injured plaintiffs deducted those excess costs on their tax returns because there are operations of a business, but it was never been suggested that I can find that such plaintiffs should not recover the full amount of the excess cost or that the excess cost should have been deducted from them the taxes they saved because they deducted the excess cost on their tax returns.

This is what is novel.

There is no case in the books which even suggests it.

I beg your pardon, Your Honors.

The damage sustained by it, if I may paraphrase the statute, was the full excess extracted from Hanover by United through its monopolization.

Now, one purpose of damages is to put the parties back in the positions they would have occupied if there had never been a violation.

In the examples in our briefs, we have demonstrated that by disregarding the Court of Appeals rule, forgetting this choice business and tax business, the parties are put back where they were.

But by taking the Court of Appeals rule and applying it, using a 50% assumed tax rate, the result is that the United, the monopolizer, the violator is left with half of the unlawful exaction and the victim, Hanover is out of pocket the same amount of money.

We submit that an approach which leaves the wrong doer with his illegal games and the victim out of profit could not possibly come under the heading of a symbol on the top of the entrance to this Courthouse.

Now the second ground upon which the Court of Appeals ordered a new trial was that the damage period should be cut almost halfway through its full statutory distance because of the view of the Court of Appeals that the decision of this Court on June 10, 1946, an American Tobacco case brought about a change in the law and so the Court of Appeals would cut off Hanover’s damages at that point.

United goes much further in its brief.

How long was the cut off?

James V. Hayes:

The (Voice Overlap)

What is the period, the length of the period?

James V. Hayes:

The total statutory period with the total statutes was from July 1, 1939 to June 1955.

United in its number 463, looks upon the Court of Appeals which is a defense but as a secondary position, United’s primary position is that the decree in the government action can be given no retroactive effect whatsoever.

It must be considered solely, prospectively according to the United, there should be no award here but if there is going to be an award at least begins the damage period at June 10, 1946.

Now, if I may address myself for a moment first to United’s position, we can find no authority, no principle, and the whole history of the Sherman Act, the Clayton Act, legislative history, cases which supports United’s position that a decree in a government action shall be looked upon prospectively only.

And here again, we submit that Hanover should not be treated any differently from the way any other antitrust plaintiff is treated, as the main antitrust plaintiff who relies on a decree in a prior government case.

All such government decrees and again, I apologize for stressing premier concepts, are based on the findings of the Court in the Government case and an adjudication of a violation of the law in the past or there would be no basis for the decree.

And then the decree operates prospectively because it can’t operate any other way as to action.

It wipes out the illegal action or it wipes out the conduct, the illegal conduct in the future, but it cannot change the illegal conduct that it found to have existed in the past.

United’s proposed rule is very interesting one so far as further damage and plaintiffs are concerned and treble-damage plaintiffs have a hard enough time as it is proving their cases.

But per United’s rule, there would never be an occasion on the statutory provision that the decree in the government action is prima facie evidence would ever be possible at all, because if decrees operate prospectively, they would contain no adjudication as to the past.

Now the fact is that the evidence of a government action covers many years going back to before the 1920’s if I remember rightly.

The findings on that case were based on that evidence and in this Court’s per curiam enforced affirmance, we find a very pertinent language that the finding of that case to government action now, that the findings are justified by the evidence and support the decree and that is the decree on which Hanover is relying.

Now neither in that decree itself or in the findings of the District Court of Massachusetts, or in this Courts affirmance, is there any suggestion that there is a cut off at any particular point?

Nowhere in the decision of the District Court below is there any suggestion of a cut off.

There, the government decree or the decree in the government action, the findings, the conclusions of the Court in that action and the additional evidence introduced by Hanover covered the whole period of the statute of limitations as told.

The Court of Appeals holds however, now this is fine, however while everything United did after June 10, 1946 was precisely the same as United did prior to June 10, 1946.

Everything United did after that date is unlawful and damages may be recovered for it and everything it did prior to that date was lawful and there may be no damages.

Now, I think we have demonstrated in our briefs that there is no prior case, no prior rule of law that was overruled by American Tobacco or by Alcoa.

And both of those decisions as we have pointed out relied on decisions pre-dating United’s adoption of the leasing system condemned in the government action and they adopted that in 1922.

Both Justice — Judge Hand and this Court relied on decisions predating 1922.

The most that can be said about American Tobacco or Alcoa is that they were new developments made, new interpretations, but of what?

Of a statute that goes back to 1890 and the principles that have been established many years before, and that happens constantly in the antitrust field.

There’s nothing new about it, nothing noble about it.

It does not mean and it never has meant that such nuances as they grow bring about decrees which have only prospective effect and bar any treble-damage action.

Do you think that argument is detected by the retroactivity damages that have been adopted by this Court in the criminal proceedings?

James V. Hayes:

No, I don’t think there is any relation between the two.

Mr. Justice Harlan

Why not?

James V. Hayes:

Those are doctrines which generally had to do with the — and they all have to do I believe with the enforcement of criminal statutes and the protection of constitutional rights either by providing that something should have been done that wasn’t done or prohibiting something that was done that should not have been done.

Here, we have a statute and there is nothing new, it has been upheld time and time again, no question about its constitutionality.

It’s been interpreted time and time again.

It has been developed time and time again by the Courts.

If there were a real overruling provision here, I could see the relevance of the criminal cases or if there were some constitutional provision involved here, I could see the relevance.

Otherwise I am afraid the relevance escapes me.

Potter Stewart:

Now wouldn’t it follow that your cause of action accrued back around 1912 that you’re inspired by the statute of limitations?

James V. Hayes:

That is a point that United urges in its brief.

Potter Stewart:

Wouldn’t it follow from your argument (Voice Overlap)

James V. Hayes:

No it does not.

Potter Stewart:

But the law has always been always clear or if it is just been newly been discovered but was always there.

James V. Hayes:

We are not suing on the basis of a refusal to sell which is the way to get back to 1912. Our suit here is for damages due to monopolization.

That monopolization is continuous and as the Courts below had found and as we have set forth in our brief, every single time, United exacts from Hanover a rent and royalty payment which enables to exact because of its violation of the law, there is a new cause of action.

Hanover here is seeking only for those costs to which it was exposed by the monopolization during the statutory period.

It seeks nothing for what — for the costs that were imposed upon it prior to the statutory period.

So I think this whole argument about 1912 based on a refusal to sell which is not the basis of our action, but damages under the antitrust laws due to monopolization just has no merit.

So little merit that I do not think this Court should even consider, but that is my own personal opinion.

But I don’t think there is any connection between the two to answer the question Mr. Justice Stewart very specifically.

Byron R. White:

Has there been a cross-petition on this case?

James V. Hayes:

There was a conditional cross petition Mr. Justice White.

We petitioned on the basis of the two grounds on which the Court of Appeals sent it back for a new tria,l that Mr. Carson filed a cross-petition.

Byron R. White:

So you have to sets of brief here, that is right?

James V. Hayes:

That is right.

335 is Hanover’s petition.

Byron R. White:

Yes.

James V. Hayes:

463 is the cross-petition filed by Mr. Carson.

Byron R. White:

And does the cross-petitioner contend that the suit wholly barred by the statute of limitation?

James V. Hayes:

Yes, in its last point in its brief to the very end.

Byron R. White:

And that the Court of Appeals rejected?

James V. Hayes:

Yes.

James V. Hayes:

Every single point urged in the cross-petition having to do with liability was rejected by both courts below and the tax points that the Court of Appeals went off on was neither briefed nor argued before the Court of Appeals or in any other court.

Now the supposed change in the law —

Hugo L. Black:

How was it decided?

James V. Hayes:

How was what decided?

Hugo L. Black:

You said it was not argued or what —

James V. Hayes:

The Court went off on its own and invented or designed or devised this rule of damages.

What Mr. Carson had argued in the Court of Appeals was the same position he primarily takes here that the government decree, the decree in the government action had only prospective effect and no retroactive effect.

That argument was rejected but then the Court of Appeals on its own came up with this, what I submit is a new and unsound rule of damages with respect to taxes — pardon me not taxes, with respect to retroactivity, this cutting off on June 10, 1946.

If I said taxes, I misspoke.

I meant the retroactivity of June 10, 1940 — to June 10, 1946.

The supposed change of law that ought to take in place on June 10, 1946, cane be phrased very simply.

The law had been as a mere sized on exerted power, the actions of predatory practices does not constitute an antitrust violation.

Now if one looks at the statute one finds not a word about predatory practices.

The statute speaks about monopolizing commerce, about restraints on competition, the statute is aimed at developing and maintaining a free market and the statute doesn’t have any distinction between polite restraints and impolite restraints, between gentlemanly exclusions from the market or ungentlemanly exclusions from the market, but let us assume the principle.

Let us assume it is still the law that mid-size, un-exerted power do not constitute a violation.

The trouble with the principle is that it doesn’t fit United.

There is no question that United have the size and the power with its tremendous monopolistic position in the shoe machinery trade particularly the machines that Hanover had to lease from it.

But through its leasing system, which was condemned in the government action, it used that very power and monopolistic position to preserve that very power and position to the very means by which it practically married the shoe manufacturers to its monopoly, maintaining the shoe manufacturers as the courts below has said as a captive market through its exclusion of competition one can hardly say its power was un-exerted, one certainly cannot deny its size.

The very success it met over the years by these exclusionary practices proves that its maintenance of its monopoly position is and its ultimate evidence of the effectiveness of the exclusionary practices condemned in the government action.

That was just no need here in this market for United to avoid competition by, if I may use a word that I found in one of the opinions of this Court, by such a crafts method as price cutting.

It’s method was exclusionary.

Its method as the courts below held as the District Court in the government action held excluded actual and potential competition.

We submit that there was no basis at all for the Court of Appeals taking it up on itself to split the damage period practically half way through.

We submit the Court of Appeals was in error on the second ground of our petition in 335.

Now something that must be mentioned in connection with the claims of no retroactivity whether one considers United’s claims in 463 or the Court of Appeals’ approach for the three prior cases against United.

In the District Court in this case, United claimed that it was resting on a unique record of res judicata.

Earl Warren:

We recess now Mr. Hayes.

James V. Hayes:

Thank you your Honor.

[Recess]

Earl Warren:

Mr. Hayes, you may continue your argument.

James V. Hayes:

Thank you Mr. Chief Justice and again may it please the Court.

At recess, I began to mention that in the District Court below, United asserted that it was resting on a unique record of res judicata with respect to the three prior cases.

I think the short answer to that is that on the oral argument on the appeal from the government action before this Court, United’s counsel, then counsel not Mr. Carson, was expressly asked if he considered the three prior cases res judicata and answered with a flat no.

United also claims that its lease only policy was not condemned in the government action, and here again on that same appeal on the government action but in the briefs, United’s counsel described the lease only policy as what the District Court found to be the basic vice in the system.

But aside from all that, United really claims that the three prior actions approved its leasing policy.

We have set forth in our briefs and I’m not going to take this Court’s time detailing it, an analysis of those cases and specifically what each one of them held and I make the flat statement that what was condemned in the government action had never been presented in this Court before and accordingly had not been passed on.

In 1922, after the decision in the Clayton Act case which throughout all of the tying provisions in United’s leases, United adopted the forms of leases and leasing policy which I call a leasing system which was before the Court in the government case and over the years, it added some additional policies which are also part of that leasing system.

It was that combination which was attacked in the government action and that combination had never been passed upon before or sanctioned before by any court.

And it was that combination of policies and practices which was held to constitute monopolization at the District Court and I am afraid I am repeating on this on the basis of that combination held that the United had excluded actual and potential competition and restricted a free market.

I beg your pardon.

In the course of its opinion, the District Court in the government action detailed the effects that United’s policies and practices produced on shoe manufacturers and not on only shoe machinery manufacturers that were also set forth, but on shoe manufacturers.

Now, in our brief we treat on the law with the target area argument that is presented by United in 463, but I think the short answer to this whole target area argument is found in the findings of the District Court in the United action and the government action as to precisely what the effects were on shoe manufacturers of United’s exclusionary policy.

As a matter of fact, it seems to me extremely difficult to imagine anybody who could be more directly affected by a monopoly than the customer who must deal with the monopoly into the monopolized market.

Now, neither Court below found the decree in the government action ambiguous.

They both found it to hold what I have said in the course of my argument to Your Honors that it does hold.

But United in 463 seeks to create an ambiguity in what the Court held in the government action and it claims that the Court in the government action did not hold the lease only policy to be a means of monopolization.

And building on this claim, it contrives an ambiguity.

And on the basis of the contrived ambiguity, it claims that the District Court below should have certified the question of what the government decree meant to the District Court of Massachusetts and United now claims error because of the failure of the District Court below to do so.

Now to begin with, there is no rule or practice in the federal system whereby treble-damage courts should refer to decree entering courts for an interpretation of decrees entered in the decree entering court.

The treble-damage court’s job is to decide the case before it.

There is the decree in black and white and this decree was not merely the decree of the District Court of Massachusetts.

It was in effect the decree of this Court because it had been affirmed by this Court.

Obviously, every treble-damage court passing upon a decree entered in another court has the task of asking itself what does this decree mean and it arrives at an interpretation.

If it is wrong, it can be reversed on appeal.

There is no need for running back and forth between courts and I can conceive of no greater waste of judicial time and judicial manpower in such a rule as United contends for.

Another contrived argument advanced by United here is that the lease only charge was dismissed by the court in the government action.

Again, we have spelled out in detail the complaint, the finding and so on in the court, in the decision and opinion of the Court in the government action, and we submit that it is crystal clear that the charges there dismissed related to other vices of the industry in which United was involved and did not relate to the shoe machinery industry which that court specifically held had been monopolized by United.

Further, United would escape liability here by the so called passing on.

Now this passing on issue was a subject of a separate trial back in 1959 or 1960, four days of trial.

It was decided by the District Court in United’s favor.

James V. Hayes:

The Court of Appeals affirmed.

This Court denied certiorari.

Ralph M. Carson:

Hanover’s favor.

James V. Hayes:

I’m sorry.

Ralph M. Carson:

You mean Hanover’s favor?

James V. Hayes:

Oh thank you Ralph.

I do mean Hanover’s favor.

I am — Hanover’s counsel I believe in the case.

Untied says however that the measure of damages that was before Judge Goodrich in the passing on trial was a different measure of damages from what Hanover presented at the trial and that is just not so.

The separate trial was held on the basis of a stipulation as to what Judge Goodrich was to decide and that stipulation provide that it should be assumed for the purposes of the trial not only that there was a violation of law but that the excessive cost of shoe machinery as alleged in the complaint existed.

Now let us look at Hanover’s complaint.

Hanover’s complaint alleged the two types of injury that I mentioned, excessiveness of rentals and the excessive cost of machinery by being denied the right to purchase.

And I was interesting to read — interested to read in United’s main brief in 463 at page 14 that United itself set forth that both kinds of injury were alleged in Hanover’s complaint.

United suggests that the primary claim below, the comparison between leasing and ownership cost was first advanced at the trial.

It must have been a stoop of memory on the part of United’s counsel.

United knew this in the very beginning, we alleged it in our complaint.

Copies of our tabulations in the course of discovery have been delivered to United long before the trial began.

But really, there passing on argument of United is based primarily on the Oil Java cases and no similarity can be found between those cases and the Hanover situation.

Unlike the Oil Jobers (ph) cases there was no guaranteed margin here, basically, the cases could not be the same.

Unlike the Oil Jobbers, Hanover did not buy and sell machinery.

Hanover used the machinery.

It was a consumer so to speak of the use of the machinery it leased.

Further there was absolutely no relation between the rather infrequent changes in United’s rents and royalties and the very frequent changes in the sales prices of Hanover shoes.

Actually, as one analyzes United’s argument on passing on, it comes down to this.

Hanover operated at a profit during the whole period, therefore it must have passed on.

If it didn’t pass on, it might have operated at a loss.

So we have a new rule of antitrust law that the treble-damage plaintiff who despised restraints makes a profit, may not recover but the treble-damage plaintiff who was unfortunate enough to lose money may recover.

I find no justification in statute or case for such a doctrine.

The short answer of this whole passing on was the one that Judge Goodrich gave and at first Mr. Justice Stewart was that courts do not go beyond the first step in assessing damages.

And secondly that if the excess cost had not been imposed on United, Hanover would have more money to use whatever it wanted to use it for in its business.

James V. Hayes:

And there is here contrary to United’s contention, no wind fall to Hanover rather a balancing of the scales.

I suspect that if windfall if any is what United would like to have by keeping the fruits of its monopoly.

Byron R. White:

Mr. Hayes, do you see any essential inconsistency between the Court of Appeals during what it did with respect to taxes and yet rejecting to pass on to penalty?

James V. Hayes:

I haven’t thought of that.

May I have a moment Mr. Justice White?

An inconsistency between the passing on — yes I do, because with respect to the passing on they adopt the general rule that the courts do not go beyond the first step and the taxes they are going beyond the first step to wit a point of exaction of excess royalties.

I see that inconsistency in intellectual concept so to speak.

Byron R. White:

It seems to me that you could well argue that if they are going to get down to the actual out of pocket cost in the taxing, they could well get the same thing on the passing on.

If you actually passed on, let us assume you actually passed on your —

James V. Hayes:

Right, the order of Oil Jobber cases did.

Byron R. White:

Say you actually passed on this remedies to your customer —

James V. Hayes:

Yes.

Byron R. White:

And perhaps you are not losing any money at all and yet the Court permitted you to — permits you to recover in spite of you having you passed it on?

James V. Hayes:

Now if we have in fact passed on, if the fact situation were like for example the Oil Jobber cases, if for example incidentally these machine cost prepare shoes run similar item in a sense of pair but let us assume that every time United changed its rates and increased it $0.1 a share, we — because of that, increased our sales price $0.1 a share.

And let us assume further as was the case in the Oil Jobber case that United guaranteed that we would still make this much money on sales of shoes as we had if they did not increase their sales prices.

With such a set of facts, I would say Hanover will be in no position to recover, thus far if from the fact situation here.

Now, I do not know whether I’ve answered your question Mr. Justice White.

Byron R. White:

Well, you have.

James V. Hayes:

United further would deny recovery here because it says there was no formal demand to sell.

Now both courts below considered this claim of a lack of a formal demand and concluded that in the circumstances of this case, the demand would be vital and futile.

The Court of Appeals I thought I phrased it fairly well and I have been paraphrasing what they said, I cannot remember it offhand.

They said that a demand here would really be a demand of that of a monopoly and this one is a powerful and persistent monopolist, would be a demand that a monopolist seized monopolizing.

I think they described such a notion as ironic any contention that is that under those circumstances, a demand should be required.

United brings in a very interesting notion in its so called cost of capital, claiming that cost of capital first and first claimers, I do not know which first or second, they have two claims.

One, because the cost of capital Hanover faced — would face, it would never buy the machines.

Secondly that in determining their damages the cost of capital should be determined and deducted from any award.

The cost of capital is solely an economic concept and it maybe the concept to be cutting us.

It was occasionally in the course of this not too short trial, a bit of humor would get in to the case and I remember that their expert cited as an authority to this cost of capital approach to a certain document, certain book.

I was foolish enough to read the book and that incidentally the expert hadn’t quite precise as to just what percentages should be applied to Hanover’s so called cost of capital.

When I read the book, I found that the author said that pen economists measured the cost of capital of IBM, they would have 10 answers.

James V. Hayes:

And I asked him if he relied on this book and he said yes and I asked if he relied on that and he said “no, the authors were wrong there”.

They were right only in the sense that it is an economic theory.

Of course it is.

It is a theory that is used by economists as a guide in deciding whether a certain investment might or might not be worthwhile.

In no sense is it cost?

In no accounting sense is it a cost?

It is not a disbursement, it’s not an item of an expense incurred in the course of operation.

It is not reflected in the profit and loss statement.

But even under the theory, capital can be of two kinds, equity and borrow and the cost of capital that is being talked about here is cost of equity capital.

In the case of borrowings, the cost of capital is the interest rate and this is agreed to by the experts below.

Hanover has been held and in fact had a surplus of equity, had surplus of even of current assets, but Hanover for the purpose of its calculations assumed it would borrow the money so that its business will otherwise go on as it had gone in fact.

And during the period of the so called supposed acquisitions, Hanover in fact paid the prime rate and this sounds like old times.

The prime rate then was 1.5% to 2% and Hanover deducted it from its calculations pursuant to Judge Harry’s direction, his direction 2.5%.

Now if Hanover had any cost of capital that was it and it’s fully accounted for in the calculations.

Hanover had no other cost of capital and certainly no cost of equity capital.

Both courts below considered this cost of capital theory.

Both rejected it, any other conclusion I submit would be ridiculous.

As I said at the beginning and this suggests that I am coming to the end, there is no reason and this is our basic position that Hanover should be treated differently from any other treble-damage plaintiffs who relies on a decree in a prior government action that Hanover was damaged by United’s monopolization cannot possibly be disputed.

The District Court’s decision held, it cost Hanover $1,413,000 more to lease the machines and it would have cost Hanover if it had rented it in free market.

And the District Court said and quite accurately and it is one of the short answers to all of United’s contention,”by this monopolization Hanover was aimed at and hit.”

We submit that Your Honors please that the Court of Appeals should be reversed on the points set forth in number 335.

We submit further that the points raised by United in 463 are not worthy of this Court’s consideration.

I thank you Your Honors.

Yes —

Byron R. White:

Can I ask you?

James V. Hayes:

Yes.

Byron R. White:

Are Hanover’s recovery possible?

James V. Hayes:

Oh yes, completely.

Byron R. White:

All —

James V. Hayes:

In full, the full trebled amount and United gets a deduction on its tax return for whatever recovery it pays.

James V. Hayes:

This is set forth in the examples in our brief Mr. Justice White.

I thank you Your Honors.

Earl Warren:

Mr. Carson.

Ralph M. Carson:

Mr. Chief Justice and may it please the Court.

On behalf of United Shoe Machinery Corporation, appellant in number 463, appellee in number 335, I should like to present the case differently from the order of points and the detailed analysis that Your Honors will see in the brief in the form of a narration of what happened in the relations between the parties in order that you may see this points developed as we go along.

First however, I should like while the statements are fresh in Your Honors mind to emphasize two points, indeed concessions, that Mr. Hayes has made in the course of his argument.

The first statement to me remarkable and I wrote it down; we are not suing on the basis of refusal to sell.

He goes on to say, “we are suing for damage due for monopolization.”

But what I ask Your Honors is the monopolization accept inability to buy and how are the damages computed except by comparing so called ownership costs with so called lease costs.

Why then does Hanover say it is not suing for refusal to sell because the courts below held a finding that is not contested that there was no demand?

Now the second interesting point which Mr. Hayes made which is basic to his argument is the point that the tax decision of the Court of Appeals is wrong because it charges Hanover with taxes or the effect of income taxes on the judgment of the damages it has proved.

I think I am right in saying that Mr. Hayes argued that that is wrong, that the Court of Appeals wrongly pursued the theory of Hanover having a choice, the choices of fiction, and that since it had no choice, and because of inability to buy, Hanover could not be charged with income tax savings in the course of the assumed purchased operation or put it in the words of Hanover’s last brief in number 335 the blue brief, the Court of Appeals in espousing in a fiction of choice was espousing a self destructive argument and one that automatically abolished the possibility of damage.

Abe Fortas:

Is there any precedence supporting your position here?

Ralph M. Carson:

Yes.

Abe Fortas:

Could you tell me what it is?

Ralph M. Carson:

Well, they’re cited in our brief Your Honor, I will just have to recur to it.

I will — while Mr. Potter is looking for it, I will refer to the basis of the award that Hanover would have purchased instead it was forced to lease and the cost of purchase was less than the cost of leasing.

Now it’s conceded that in the calculation that I will come to later, the tax saving on the annual and monthly rental and royalty payments were omitted and its conceded that those would have amounted to several hundred thousand dollars which together with the charging of cost of capital that I will come later if viewed contemporaneously as the time of purchase, would have wiped out and it’s so called benefit of purchase and made purchase $949,000 more costly.

Now Your Honor asked for precedence.

On page 9 —

Abe Fortas:

I want treble-damage cases.

Ralph M. Carson:

In treble-damage cases, I do not know of any.

I am referring to the reasoning in Public Utility Commission, 1954 —

Abe Fortas:

I have read your brief.

Ralph M. Carson:

You have seen that.

Abe Fortas:

As I understand it and since the Clayton Act in all of the treble-damage cases that have been litigated, this theory appears in none of them?

Ralph M. Carson:

It appears on none of them because the theory of the damage is not adapted to the consideration of taxes.

Abe Fortas:

Why?

Ralph M. Carson:

Perhaps I should go into the later part of my argument and call to Your Honors attention. –-

Abe Fortas:

I think practically every — well in the great many treble-damage cases if you do not have a sister or a brother to this particular one, you have got cousins in which the tax theory might have been applied and worked out?

Ralph M. Carson:

My experience does not include those Your Honor.

I know of no case where the denial the right to purchase has resulted in a comparison of purchase price with aggregate lease charges.

I think that —

Abe Fortas:

Would you stop your tax?

Would you confine your theory to those precise cases or would in every treble-damage case which involves exclusion from access to a particular product or a particular technique.

Would you say that the tax consequence of the choice which was actually made that as against the choice that might have been made has to be taken into that account?

Ralph M. Carson:

I do not see that it would Your Honor.

It is difficult to look forward to supposititious cases.

I think we are here concerned with 683 machines which were leased.

Abe Fortas:

Unhappily as you know Mr. Carson you always have to look for it —

Ralph M. Carson:

I know what the Court is concerned with, but I will submit that this is a unique situation. I know no situation, I can conceive of none where a lessee who has leased without protest for here 16 years in fact 55 years and has benefited from the use of the machines very, very handsomely and is never has to buy them has yet recovered an award on the basis that it would have bought them and if that is to be done, I think that any court and I assume Your Honors would if that comes in that comfortable form, any court would have to say what the Court of Appeals said here as to taxes, “calculations must include those elements which a business corporation would necessarily consider in choosing between the two alternatives”.

Now, if Hanover, no monopoly in what Mr. Hayes calls a free market, if Hanover had as they testified, they would have like to bought the United machines and that is the theory of the recovery here, they would have lost the benefit of the annual tax savings.

They would have gotten certain benefits in the way of a temporary deduction for the money paid out on the purchase.

They would have made a recovery for depreciation and so on.

Now all those matters were laid before the District Court in the calculation by Dr. Corson which is defendant Exhibit 52 and on the inclusion of cost of capital along with the tax saving, it is found by the District Court that there would have been — that purchase would have been more expensive by $949,000, yet the District Court left those entirely out of the calculation on the basis that it is looking backward from 1962.

Abe Fortas:

Suppose in every one of the years in question when Hanover was leasing this machinery, Hanover had paid no tax?

In other words it had been in a loss bracket?

Ralph M. Carson:

Yes, we would not have that calculation.

It might have been in that situation that the tax benefit wouldn’t have existed.

The accountant took into account just what happened.

It sets forth in the Exhibit the Hanover’s actual tax rates.

Now, the surprising thing Your Honors, and I perhaps should develop this later but I am on the point now is that both Dr. Corson testifying as an expert called by United and Dr. Syrt (ph) an economist, a academic economist called by Hanover, agreed that if you look at the operations year by year on the assumption of a choice to buy or to lease in 1939 or 1940 and 1941, you have to take into account the tax considerations and the cost of capital considerations and the parties, the experts parted from each other solely on the basis that as Dr. Syrt said, “Here, I have got the computations on the assumption of purchase and looking backward as if these were damages.

I wouldn’t allow for taxes or cost of capital”.

Earl Warren:

Mr. Carson, I understood that —

Ralph M. Carson:

Yes, Mr. Chief Justice.

Earl Warren:

Mr. Hayes to say that this issue was neither raised or argued in the District Court or on the briefs or an argument before the Court of Appeals, I wonder why?

Ralph M. Carson:

He later corrected himself.

He misspoke.

He said at first, the tax matter was not argued in the Court of Appeals and then he corrected himself and said retroactivity was not argued by us in this way in the Court of Appeals.

I have my brief in the Court of Appeals at page 69.

Earl Warren:

No need of going into it.

It would have been recounted on that.

Ralph M. Carson:

I think Mr. Hayes will agree with me that there was a slip of the tongue which he corrected and the income tax point was argued and taken up and accepted by Court of Appeals on reasoning which I will not reiterate because it seems to us unexceptional.

Now, it seems to us Your Honor that this case which we beg to leave to characterize in its result except as corrected by the Court of Appeals, a gross miscarriage of justice, this case presents a number of points that are rather remarkable in this Court.

In this case, to some of the points before I narrate the facts, you have a judgment based on a practice of leasing which was no injury to Hanover, but a benefit to it and which it testified was completely satisfactory.

You have the absence of a demand to purchase.

You have an underlying decree which I think I shall demonstrate did not condemn the lease only by itself.

You have what the Judge Wyzanski himself characterized as a change in the law made retroactive by the District Court here.

You have basic errors in the damage calculation that I have briefly mentioned and you have an ignoring of the statute of limitations, all adding up together to make what we think is a most unjust result.

Now, with that background statement, let me tell the Court briefly from the record what has happened here.

Hanover began as a small family company making shoes in Pennsylvania.

It was organized at the same time as United Shoe Corporation was organized, about 1900.

According to the complaint, the lease relationships between them date back to 1912.

In fact, they undoubtedly date back much earlier.

Hanover remained a small family company until 1956 after Judge Wyzanski’s decree when for the first time in 1956 it issued some stock to the public.

By 1960, having begun as a small family company, it was one of the 35 biggest and most prosperous shoe manufacturers in the United States.

Its profit rate regularly increased from 1939 on.

Its profit figures are shown at page 245 of the joint appendix and they show that from 35 to 55 for 20 years, they went up from about $300,000 before taxes to about $4 million before taxes.

Now, this relationship with United was partly the source of the prosperity at Hanover and the relationship as I say was continuous since at least 1912.

It was in 1930 that the first case came before this Court on a criminal indictment by the United States based on the original constitution of the United as a combination of machinery companies.

And the dismissal of that indictment was supported by this — was affirmed by this Court in an opinion by Justice Holmes.

It is of some interest in view of our contention and Judge Wyzanski’s conclusion that United’s leasing practice has the approval of this Court from the beginning.

It is of some interest Your Honor to note what the Solicitor General said in 1913 in presenting his first claim under the Sherman Act.

He said, “This case presents the question of whether it’s legal to gather together into one corporation about 80% of all the interstate trade in some particular line of activity when it is done gradually by legitimate methods and without any unfair competition such as characterized to Tobacco and Standard Oil cases.

If that is legal, the sooner the business world understands it, the better”.

On that particular case which does not involve the propriety of the leases, this Court held the conduct of United was legal.

To resume the record of United up until 1953, Judge Wyzanski in his careful review of 40 years of behavior of this defendant held that there had no exhibited no predatory practices, no monopoly profits and there had been developed in the language of the Court of Appeals an approval of the leasing policy in various forms by three successive decisions of the Supreme Court.

This was 1913 that I first referred to in this Court’s judgment.

In 1918 the lessees themselves were attacked in a Bill in equity that came before this Court in 247 of the United States, and there was a division of the Court.

The charge was a violation of the Sherman Act, both Sections 1 and 2.

Ralph M. Carson:

And there Your Honors, we will find a sharp division between Mr. Hayes and myself.

Mr. Hayes has said in downright terms that decision had nothing to do with the approval of United’s leasing practice.

I ask Your Honors to read the opinions both of Justice McKenna and the dissent of Justice Day and to see as I read the words that the question of whether or not the leases coerced shoe manufacturers was taken up and disposed off and the Court held they were not, that the leases were not coercive.

Mr. Hayes’ language was carefully selected and I owe it to him to say that what he really asserted in this Court was that the prior decisions of the Supreme Court did not deal with the exact practices that Judge Wyzanski dealt with.

That is true, that’s true.

In 1922 as he said, the leases were altered because of the third decision of this Court under the Clayton Act.

Tying causes were taken out.

A 17-year term was changed to a 10-year term.

All this with complete silence and acquiescence from Hanover.

The leases were deformed and the leasing practice went on but what I call this Court’s attention to is that the gravamen of the Hanover case is what is called lease only, that is to say inability to buy certain groups of machines.

The gravamen of Hanover’s case as I shall demonstrate is not the four restrictive causes that Judge Wyzanski condemned in 1953 that I will mention in a moment, the gravamen is the continuance of leasing only for the distribution of the more important, more productive and more lucrative shoe machines such as Hanover used.

Now what my point Your Honors is that throughout the Clayton Act case in 1923, the Sherman Act case in 1918 and the Sherman criminal case in 1930.

That practice of lease only was constant.

In none of those cases was the — none of those situations where shoe manufacturers in the situation described by the Courts were they able to buy the machines that was then distributed on lease.

It fair to say that the Court did not discuss that question.

None of the three judgments of this Court discussed whether or not inability to buy was a violation.

I do not think Judge Wyzanski held inability to buy a constitutional violation and I note that Mr. Hayes says we do not base our case on refusal to sell.

But it is very obvious, is it not, that in the second of those cases 247 US when the divided members of the Court discussed whether or not the existing leases then more honorous were coercive of shoe makers.

The majority said they were not and they had in mind — must have in mind that there was no alternative in the way of purchase.

And we have put in our brief some very interesting language of the three-judge court in Massachusetts which discussed in considerable detail with approval, the leasing policy so far as concerned shoe manufacturers.

Now, we are dealing here with Hanover, but I felt it necessary to lay this background prior to judicial approval of the United leasing practice that is a lease only business because Judge Wyzanski said in his opinion which you have all read, United leasing practices were never condemned but were in part endorsed by the Supreme Court.

Abe Fortas:

Mr. Carson, I confess I am having some difficulty.

Ralph M. Carson:

Thank you sir.

Abe Fortas:

Because I do not understand the theory to which this argument is addressed.

I take it that we do not have before us the merits of the judgment against your client in the treble-damage suit.

Ralph M. Carson:

You do have before you that.

Abe Fortas:

Well now, will you explain that to me?

Ralph M. Carson:

Why you have the merits of the judgment before you?

Abe Fortas:

Yes.

Ralph M. Carson:

We have Your Honor a number of points.

Abe Fortas:

As distinguished from the various points that have been made here about the measure of damages, the retroactivity and so on.

Ralph M. Carson:

Yes.

Our first point is that the government decree, that is the first point in our brief, on which this judgment is founded primarily, did not constitute an adjudication of lease only as a violation and I can elaborate that by saying what it did dictate.

Well apparently, the case is here because of your cross-petition?

Ralph M. Carson:

Well, I perhaps should have said that, yes.

I thought Justice Fortas had in mind that we have a cross-petition in 463 —

Abe Fortas:

Yes.

Ralph M. Carson:

— in which we have stated seven questions.

That is one of them.

Now, should I go on to elaborate why that is so?

Abe Fortas:

No, I think I understand that.

Ralph M. Carson:

Alright.

Now, our second point is that the judgment of Judge Wyzanski on which Mr. Hayes relies not being a condemnation of lease only for the past as a violation, did condemn it for the future and required us to sell an alternatively and optionally and we did, but was not retroactive in effect.

Abe Fortas:

But are you bringing that before us that is say the condemnation of the lease what you have called lease only —

Ralph M. Carson:

Yes.

Abe Fortas:

— with respect to the future?

You are presenting that to us and claiming that that was error?

Ralph M. Carson:

No, we say that as to the future.

The requirement to sell was imposed by the judge affirmed by this Court, we are doing it.

Abe Fortas:

That is what I thought.

Ralph M. Carson:

Yes.

Abe Fortas:

What you are saying that because — is it because Judge Wyzanski as affirmed by this Court made the order only prospective —

Ralph M. Carson:

Yes.

Abe Fortas:

— in the other case that treble-damages cannot be properly awarded on a retroactive basis?

Ralph M. Carson:

Yes, on the theory of the lease only.

Now, if there had been an injury to Hanover from the four restrictive practices in the leases that Judge Wyzanski particularly discussed and condemned, of course they would have a recovery.

Abe Fortas:

Now, again may I ask you, addressing yourself only to treble-damage cases?

Ralph M. Carson:

Yes.

Abe Fortas:

Is there had been any theory of this sort approved by the courts in any treble-damage case?

Ralph M. Carson:

Yes, constantly.

Abe Fortas:

You tell me.

Ralph M. Carson:

Constantly.

We have the cases in our brief which determine whether or not the Eagle Lion case came to this Court where Your Honors divided four to four and held that the judgment did not support the recovery because the decree did not deal with the practice which injured the plaintiff.

I have a number of cases on our brief.

Abe Fortas:

There is a question whether the government decree was properly a basis for the judgment, for the particular judgment.

I am talking about the retroactivity, so called retroactivity point in any treble-damage case which supports your position?

Ralph M. Carson:

I do not know any treble-damage case where the retroactivity point arose.

And that is why Your Honor, I have taken time to recite the unique record of judicial approval of the lease only policy by this Court and by all courts until in 1953, Judge Wyzanski changed it.

That is why I have taken the time to do that.

Perhaps I should in view of Your Honor’s question addressed myself what maybe on the Courts mind as to the effect of a reversal here on other treble-damage cases because Mr. Hayes has gone so far as to say that if our contentions are correct, no person injured by an antitrust violation can recover with respect to the past, the antitrust violation is corrected only prospectively.

Now of course we do not make any such contention.

Let me direct myself to Clause 4 of the Decree.

The Decree Your Honors is in the bound volume of the joint appendix and in that Judge Wyzanski said the leases are unduly restrictive in that, you find the page in the decree, in that they have as 10-year term which is too long.

They have a repair service without extra charge.

They have a full capacity clause and they impose return charges on the return of the machines.

Now he analyzed all those in relation to the keeping out of competition of shoe machinery manufacturers.

He did not have before him the claims of any private parties, but he did have the claim of the United States in paragraph 61 of the complaint, among the offenses charged said paragraph 61, as United has declined to sell its most important machines.

Now that was dismissed in the clause of the decree which dismisses on the merits all other matters than these four clauses.

And it would seem to me that the drift of Your Honor’s question as the effect on treble-damages, other cases would be, did these four clauses which the judge condemned injure Hanover?

It is perhaps an oversight in our briefs, we didn’t even discussed that question because it was never claimed.

The only injury ever claimed was the inability to buy which resulted in assertedly excessive leasing charge.

But let me go back to these four.

The 10-year term by 1939 when limitations begins, all the older machines were on a five-year renewal basis and as to new ones, there was a free right of return, cutting the 10-year down to any period of the lessee he wished because United have its own volition that created what is called a right of deduction fund.

The right of deduction fund was made up out of royalties paid by the particular lessee and credited to it and used to pay return charges.

Now as to shoe machinery makers, Judge Wyzanski said this is a restrictive.

It keeps out competitors, but as to shoe manufacturers like Hanover, it is a benefit and the 10-year term never affected it.

Hanover testified at page 301 of the record that it never had to pay a return charge for this reason.

Second, the free repair service is charged as a restrictive practice that kept out shoe machinery makers, but as to Hanover, it was a benefit because the lessees required Hanover to repair the machines at its own expense and United did it at its expense.

And while the Court found that Hanover paid for this service in paying lease charges, the Court also found that this lease charges were reasonable and I cite pages 51, 61, 100 and 189 of the joint appendix.

Third, the full capacity clause, which was held that the restrictive devices against competitors, Mr. Sheppard of Hanover testified it was never enforced against him.

Ralph M. Carson:

And fourth, the return charges on the return of the machines, they were never paid by Hanover because of its continuing credit in this voluntarily created right of deduction fund.

So as regards the impact of our contention on any other treble-damage cases that may come before the Court, we say that giving full effect to the adjudication that Judge Wyzanski made, Hanover didn’t try to bring itself within it and in other cases, the violation is found for the past but of course people injured would be entitled to claim on the injury.

But there again, I think Your Honors would be interested in the fact that not only did Hanover never complained of being unable to buy until this suit was filed in September 1955, but Hanover expressed positive satisfaction with the leasing system.

As it chanced, the defendant brought before Judge Wyzanski on his trial, a number of shoe manufacturers testified that the satisfactory character of the lease only system without particular regard to these four objectionable clauses but whether they would prefer to buy rather than to lease.

And somewhat to the disbelief of Judge Wyzanski, all the 13 whose testimony is cited at page 14 of our main brief in number 463, all 13 who were produced, testified, no they like leasing, they would rather lease than buy.

Of course a great advantage of leasing Your Honors is that it puts all this competitors at the same footing.

The charges are uniform and above all as Judge Wyzanski himself said, “Small companies like Hanover that are beginning, have no capital, can get full equipment of machinery by just paying the monthly charge”.

Now, Mr. Sheppard, president of Hanover, was going to be asked to testify among those people.

As it happened, he was not called.

The testimony was getting accumulated, but the record is very clear as to what he said in an interview which my senior partner Mr. Kendall had with him Sheppard in 1950 concerning the leasing system.

I cite the record page 335, Mr. Sheppard was very pro United Shoe and the only thing about the leases which he did not like was the fact that it allowed competition to hurt him.

He said the only objection I have to leasing is the fact that you lease everybody.

He said directly on the record United’s control of shoe manufacturers is a lot of nonsense.

He said quoted by a person at the interview, “His big objection against the leasing system was that it caused too many competitors for his company.”

So carrying this story which I have endeavored, treat chronologically, down to 1953, you have a situation where Hanover had prospered in the use of the leases, had never claimed the right to purchase and was not in fact affected as the direct object of the monopoly which monopoly was directed against United’s competitors.

Certainly normal that the monopolization giving United a control of the shoe machinery market would exclude shoe machinery manufacturers.

Now, the fact the other competitors like the Campbell Shoe Machinery and other producers, leased their machines exclusively, that leasing was traditional in the business, that it had been going on since the Civil War.

All that of course did not save United from the restrictive effects of these four clauses which kept out the competitors, but these four clauses did not affect Hanover.

Now, I must hurry on and I think perhaps I had better get for just a moment to passing on since Mr. Hayes mentioned it.

I thought I might leave it to the briefs because it is after all largely a matter of interpreting the cases, but I think I can sum up by saying the word injury in the Clayton Act has been treated differently by different courts with respect to whether the plaintiff is a middle man or a consumer of the product.

It is a middle man, the court still say in the cases that are cited, is passing on the alleged excess cost gives him no cause of action, but it is the consumer who uses shoe machinery then says the court said it’s different.

Even though he passed on the excess cost, he is still injured because as Mr. Hayes reminds you the theory of Justice Holmes in a railroad and not an antitrust case is the first impact is what counts.

That does not seem logical and it does not seem to be consonant.

With Your Honors’ decision in the AMEC case cited in our brief, a tax case that where plaintiff has transferred the obligation he undertook, he no longer has a cause of action.

But as the cases now shaped, the passing on defense is very different from it has been in any other case before.

Because the courts below did hold despite what Mr. Hayes said and our brief gives the references that the lease terms and rental rates between the parties were reasonable.

The District Court refused to find them unreasonable and in other comments, the District Court said granted that they are reasonable and leases are lawful the defendant is still liable.

The leases then were alright.

They are not objectionable.

It’s inability to but that is objectionable.

Ralph M. Carson:

Now, when you come to the inability to buy, what the plaintiff has done is to total up, to fabricate, to total up the so called purchase price.

That purchase price certainly could not be asserted before 1955 when the complaint was filed.

In fact it was only calculated in 1961.

That perhaps makes no difference, but I point out to the Court that in year after year during the 16 years of this alleged violation, Hanover not only was making up profit year by year after paying the $0.8 of per lease charges.

But according to a stipulation that is in the record and cited in our brief, in making this profit, it calculated the cost in which it put in the cost of shoe machinery so that by the time the suit was filed, Hanover had been completely paid.

This is the first time passing on has come before this Court since Justice Brandeis intimated in the Kiel case back in 1922 that it might be valid defense and that was an antitrust case, cited in our briefs.

I think it is high time if this issue comes to be determinated that the Court recognize the equity of not allowing a satisfied lessee who has been indemnified out of his resale prices to victimize the defendant with a treble-damage charge which is not an injury because at the time of the lease payments the transactions were lawful according to the courts below.

Another point which is dealt with a great deal in the briefs, but I believe I now have a shorter —

Byron R. White:

Can I interrupt just a moment there?

Ralph M. Carson:

Of course Your Honor, you are welcome.

Byron R. White:

Does this record answer the question of whether Hanover would have been in better shape if the lease charges had been lower?

They may have passed it on — they may have passed it on but–

Ralph M. Carson:

No.

It is true you could day and let us say that on a certain machine clicker they may even have $5 a month, suppose there were $4, Hanover would have paid $4 instead of $5 bit remember all competitors would too.

And what Justice Brandeis pointed out in the Kiel case if they are all treated alike and they all get the benefit of the same change and they are competing with each other not with the United, who can decide that it would make any difference.

Of course Judge Goodrich says maybe they could have bought more leather.

I don’t see that that’s a connected proposition.

What I was coming, I don’t know if I have answered Your Honor’s question, what I was coming to say was to simplify the calculating — the damage calculation point.

I think Mr. Hayes has given me the opening that I require.

I cannot of course involve this Court in the details of an elaborate calculation the District Court went through.

Hanover has attached as an appendix to its brief the written description by Judge Sheridan who was certainly very patient about the matter as to how he saw the damage calculations.

Now, this written description, I criticize in two particulars that I have already adverted to and that I recall to Your Honors as determinating, the tax benefit of the lease payments actually made and the cost of capital consideration.

Now the cost of capital is defined by the District Court as the rate of return which investors expect on the money they put in the company.

And the conception is that if Hanover spends a million dollars buying shoe machinery, it’s a lost of money unless it makes out of that shoe machinery what the return has to be put to investors on the million dollars that they have put in.

The concept is described abundantly in the record.

The only thing that both Judge Sheridan and Mr. Hayes have criticized about it is what I freely admit that the cost of capital could be computed different ways.

But that there is such an item as cost of capital to be taken into account in a fair comparison Your Honors of leasing versus ownership is agreed by both sides.

In fact, I would like to emphasize what the briefs should bring out that when Hanover purchased used shoe machinery from United pursuant to the decree and the prices of this machinery were worked out in negotiations between shoe manufacturers as a group and United.

Each side had an economist Dr. Joel Dean and Dr. Robert Anthony, and each economist said, “In reaching this price, we have got to compute the cost of capital for the entire group”.

Dean said it was 10%. Anthony said it was 18%. I only cite this to illustrate that it is an item that exists.

Ralph M. Carson:

And if you’re going to look at purchase versus lease contemporaneously when Hanover had to make the decision which I would say is the only fair way to look at it, you would have to look at it at the time the decisions were supposititiously made that is 39, 40, 41 and so on when Hanover actually leased, but now it says, it would have liked to buy.

Now as it happens, the arithmetical consequences of the two methods are laid out clearly in exhibits before the Court.

There are three or four of these great exhibits so called the lightest of calculations made by statisticians on assumptions of counsel.

They omit taxes and cost of capital.

And there are on the other side, our calculations which include them and those are exhibits 48, 51 and 52.

Only the first two, I am sorry to say, are reprinted in the joint appendix.

And the allowance for these two items on the basis of contemporaneous choice shows uncontestably that purchase would have cost $949,000 more than leasing did.

And that of course is why as I would assume, Hanover was content to lease.

Now this approach does not rest exclusively on my I say so as an advocate.

I cite the statement of Hanover’s expert at page 562 of the record where he said “Is it your point that the lightest of calculations and those are the plaintiff’s calculations omitting cost of capital, etcetera, the lightest of calculations were not documents which would be presented to management in order to decide whether to buy or to lease”.

“Oh, definitely not” he says.

On the other hand, he says that what we have computed with the allowance of these factors at page 561 is basically the kind of thing that one would present to management to decide whether or not to buy or to lease and he says elsewhere at page 547 in relation to Mr. Justice Fortas to taxes in this context.

This is the plaintiffs’ expert Richard M. Syrt, I would heartily endorse the notion of introducing taxes on making a decision on preparing data for management to make a decision as to whether they should purchase or not.

So here it is perfectly clear that the issue that the Court has to decide in balancing these enormous amounts of money and these recounted calculations, it is a simple common sense question in deciding the equities between the parties as to relative costs of the two methods.

Do you look at it at the time when the plaintiff deprived of the right to purchase, wanted to purchase and could not which we say or do you look at it in a way which Mr. Hayes persuaded the District Court to err by miracle of advocacy, taking this great volumes saying these are the assumed cost of purchase, tell me whether or not the cost of capital and taxes should go into those.

And the expert says “Oh no of course you can’t do it backwards.

You can’t do it backwards, if you made the decision leaving them out.”

Well says Dr. Syrt, “I am not going to put them in”.

Now that as I would perhaps emphasize I perhaps summed up all too briefly is where the case stands on damages and I think a gross injustice has been done by leaving out these prime economic factors built into the question of purchase, but perhaps even the worst thing that is not really mentioned in our brief because we had too much to talk about is what Your Honors are constantly familiar with on installment sales, this plaintiff has added together without discount for present value all the lease payments over 16 years.

You got a total and he has compared it with a single purchase price.

Of course everybody knows that one purchase is cheaper than 16 time payments in point of adding gross dollars.

But the discount for present value is what brings it back to a fair comparative status.

Earl Warren:

According to your argument, what would be the damages in this case?

Ralph M. Carson:

None, none.

On what I have just said Your Honor a part from all other factors, lack of demand and so on the inability to purchase cost Hanover nothing and if it had bought, it would have been $900,000 more costly.

So there are no damages.

And I would not of course it seems to me from where I stand, be at all affronted by the possibility that an antitrust violator has in given case created no damage.

I seem to find in the commentators and occasionally — in the judicial opinions the suggestion that where a monopoly is found we have got to find someone to punish and the plaintiff, whoever comes into court with a statutory counsel fee he is the Private Attorney General who administers the punishment.

I do not think the vindication of majesty of the law rests solely on private plaintiffs or rests on any important particular.

If the government failed in a criminal indictment in 1913 on the judgment of Your Honors’ predecessors, if the government failed in the Bill of Equity in 1923, was it, on the decision of the Court at that time.

Ralph M. Carson:

And if the Clayton Act violations were repaired as they were in the third case then I do not think that when United comes to a judgment that on a new development in the law due to the American Tobacco case, there is a correction that must be made and there is a violation.

I do not think it inheres in the angel of justice to find some private person who is got to make money out of it.

Judge Wyzanski cured the errors, the violations.

He laid down a strict decree and in the case number 597 that have come before Your Honors at the end of the month, you will find that decree has been scrupulously complied with.

Now that is the form of redress that majesty of the law.

Abe Fortas:

Well damages — damages are —

Ralph M. Carson:

Sir?

Abe Fortas:

Damages all throughout the law and particularly in antitrust law is something of an artificial concept, isn’t it?

Ralph M. Carson:

Yes, it is.

Abe Fortas:

That is to say it is not the same thing as a congressional direction to unring the bell to —

Ralph M. Carson:

A congressional direction what sir?

Abe Fortas:

To unring the bell, unring bell, it is not the same as a congressional direction to try to unravel unravelable events and thus speculate as to what would have happened if the world had been different and if the allegedly monopolistic or restrictive practices had not been engaged in.

And that is to say as I understand it there have been certain conventions that lawyers and judges have summed up by the word damages.

Ralph M. Carson:

Yes sir.

I fully accede and realize that (Voice Overlap)

Abe Fortas:

And I admire your candor in suggesting that the consequence of your approach in this case would — and the candor of your arithmetic in suggesting consequence of the approach in this case in that liability would be found, would be no damages.

Ralph M. Carson:

In some case (Voice Overlap)

Abe Fortas:

But what’s been bothering me Mr. Carson is that, it seems to me that trying to think about analogous situations as we do roughly now in analogous situations that that would probably the consequence of the adoption of your theory and great many treble-damage cases right across the boards that you can confine it to the case of the left shoe or the right shoe or shoe machinery of this particular situation.

Ralph M. Carson:

With difference, I should not myself feel that was so.

I am of course speaking only on this record and in relation to the rights of my client and the facts of this case but I would not assume — I would not think that because lease only, the inability to buy was not condemned by Judge Wyzanski in this case.

And therefore, Hanover on that ground among others had no standing.

I would not think that for that reason all other plaintiffs are out of Court.

Abe Fortas:

How about the market exclusion cases that is to say where access to a particular product or particular market has been denied.

I have been trying to reason through the hypothetical case of that sort accepting your theory with respect to damages?

Ralph M. Carson:

I am under some handicap if I’m obliged to answer with respect to a state of fact in Your Honors mind but not my own.

Abe Fortas:

Well, I am afraid it has to be in your mind than it has to be in our mind as to courts.

We cannot decide your case in vacuum.

Ralph M. Carson:

No.

Abe Fortas:

It might be nice if we could, but we can’t.

Ralph M. Carson:

I do not say in vacuum.

Ralph M. Carson:

I say in context to the law and with a strict adherence to the decision which is relied on under the Clayton Act as the basis of this recovery.

Now this comes germane to whatever I was next going to say.

Excuse me sir, if I attempted to answer Your Honors point, I am not sure that I have dealt with it all.

You have warned me that I must not claim too much.

Abe Fortas:

That is in your mind whether you have attempted to answer it or not.

I asked you the questions and you stated your response.

Ralph M. Carson:

I have responded the best way I can.

Let me look the particular point which is here.

Under the rule of the AMEC case in Clayton Act, Section 4, it is the decree in the underlying government case that has the effect of an estoppel and an estoppel only so far as the decree goes and one of the differences between Mr. Hayes and myself is how far the decree goes and our brief makes it perfectly clear that we say not only does Judge Wyzanski not condemned lease only by itself, but this Court had approved lease only up until 1953 or 1954 when you affirmed Judge Wyzanski.

And Judge Wyzanski himself thought that you had approved it and Judge Wyzanski dismissed the clause in the government’s complaint paragraph 61 which attacked the refusal to sell, but I go further.

In view of the fact that Judge Sheridan’s interpretation of the decree was so different not only from our own, but from that of another District Judge, Judge Berk in the Western District of New York in the Coon case, the complaint is a copy of the Hanover complaint.

In view of that, we asked Judge Wyzanski in exercise of his reserved jurisdiction of the government case to amend or interpret his own decree.

Hanover appeared and opposed and the government counsel, being the government case appeared.

Judge Wyzanski in difference to Judge Sheridan refused to interfere on account of comity of coordinate courts.

But he said, have you not considered the practice that the Supreme Court approves in Erie against Tompkins case of certifying the question from the Treble Damage Court to the Antitrust Court.

In the course of that colloquy, Judge Wyzanski had before him as I said government counsel and the interesting colloquy which he had with government counsel appears on pages 19 and 21 of our brief and it is in the record and not to read too long because you have it all before you, Judge Wyzanski made this arresting remark addressed to government counsel who under the rule of the AMEC case was the party entitled to enforce the estoppel that Hanover would enforce.

The Judge said at page 20 “Now that you are here, are you not aware from being here on previous occasions that the government never contended and I never ruled as Judge Sheridan supposes the matter was decided.”

That was a clear information and the Court of Appeals thought it was a clear information that Judge Wyzanski thought that Judge Sheridan was wrong in interpreting the decree and decision of Judge Wyzanski.

Abe Fortas:

And you are suggesting that we are to give that some way?

Ralph M. Carson:

Yes.

Abe Fortas:

In the context of the record as it appears from page 123 and following.

Ralph M. Carson:

Yes sir.

Abe Fortas:

The government counsel said that he was not there to discuss the merits of the matter.

Ralph M. Carson:

Yes.

Abe Fortas:

And Judge Wyzanski went on as the record shows.

Ralph M. Carson:

Yes.

Abe Fortas:

And you are suggesting us that we ought to take this remark —

Ralph M. Carson:

Yes.

Abe Fortas:

— which have just quoted of Judge Wyzanski as having some legal or judicial way.

Ralph M. Carson:

Yes, particularly since we tried to implement it.

Ralph M. Carson:

We did not think we have come before this Court and say that is the binding construction because Judge Sheridan made a construction.

We said we tried to implement it by asking for a reference and certification of questions such as Your Honors’ approved in the National Gypsum case to avoid multiple and conflicting decisions.

And Judge Sheridan for reason still not clear to me refused to depart from the decision that he had made which was in the other direction.

What did the Court of Appeals say on that score?

Ralph M. Carson:

The Court of Appeals said that there’s much merit in United’s construction of this language and much merit in United’s statement that the decree of Wyzanski did not hit lease only.

But the Court of Appeals said unfortunately the application is not timely.

The application was made by us as soon as we could after Judge Sheridan rendered his decision and before judgment.

And there is authority in the books that when you do have a proper reference question it’s fit and proper to first take the opinion of the trial court.

Because it may well be that it would be superfluous to go to a reference if on other grounds the case goes off another ground.

The Court of Appeals I think felt and said that our position had much merit let us say, but for reasons that are not clear to me, it could not take, accept our argument even though directed to the maintenance of a just result in a basic feature of the case which is the meaning of the underlying government decree.

Abe Fortas:

Is that material relating to the proceedings before Judge Wyzanski taken and clear part of the record before us?

Ralph M. Carson:

Yes, Your Honor.

We made a motion for rehearing at the tax —

Abe Fortas:

It seems the affidavit of — your affidavit is that right?

Ralph M. Carson:

Yes, sir.

Abe Fortas:

And you would consider that it is part of the record before us?

Ralph M. Carson:

Yes, sir.

I do think so.

Abe Fortas:

Because — was there any objection that you’re including that as annexed to you affidavit?

Ralph M. Carson:

No, there was none.

We made a new motion for new trial under the rule and I attached that and it was a subject of discussion before Judge Sheridan.

Now that this is a basic point and the meaning of the decree is so vital and $5 million turns on it and the case had lasted in the District Court for years and years.

Abe Fortas:

Judge Wyzanski said he would not going to pass on it?

Ralph M. Carson:

Yes.

Not unless he is invited to by the Court having jurisdiction.

Now I have not had time to emphasize the lack of demand and inadequacy of the finding that Hanover would have bought machines.

That is basic to the whole the case and all the District Judge said, is it likely would have bought machine.

Justice Bernnan:

Mr. Carson, I suppose the Court’s affirmance to Judge Wyzanski decree, this Court’s affirmance.

Ralph M. Carson:

Yes.

Justice Bernnan:

— in some position to say what it was we thought we affirmed?

Ralph M. Carson:

Your affirmance was a per curiam.

Justice Bernnan:

Even so.

Ralph M. Carson:

And it affirmed what he found and what he —

Justice Bernnan:

It affirmed his decree is not?

Ralph M. Carson:

Sir?

Justice Bernnan:

It affirmed his decree?

Ralph M. Carson:

It is indeed.

Justice Bernnan:

May we not say what we thought we have heard?

Ralph M. Carson:

Of course you may and I think you should take into account in doing so, but I refer to my brief where counsel for the government said lease only was not attacked on the appeal.

Thank you.

Earl Warren:

Mr. Hayes, you have few moments.

James V. Hayes:

Just a few moment and I hope will not consume them all Mr. Chief Justice.

I am going to make no effort whatever to reply to the bits and pieces of testimony and to the truncated version of the colloquy before Judge Wyzanski.

The record speaks for itself and the answer can be more readily be found and more clearly stated in the very elaborate and careful findings of Judge Sheridan in the court below.

I do want to refer to one thing.

Mr. Carson’s separation so far as the government action is concerned between lease only and the leasing provisions.

As if there were separate and distinct things.

They were things that went together, operated together and it was the combination of them that caused the monopolization.

As a matter of fact, it is plain, ordinary common sense that if United had a leasing practice whereby it could lease machines, with all of these exclusionary provisions where at the same time said to the shoe manufacturer, “You may buy the machines if you want”, the exclusionary practices would be nothing.

A manufacturer if get out from shoe manufacturer, if he get our from under by just buying the machines.

As we say in our brief, it was the lease only that made the exclusionary practices really effective.

I have to say that under those circumstances, lease only was not condemned as to me to do violence to simple logic. Just a little sideline, Mr. Carson said we weren’t damaged by any of these practices.

Well what happened that run into my head.

Take this free service supposedly, a service without a separate charge.

We show in the trial below that the portion of United Rentals that were taken care, have I finished —

Earl Warren:

Finish your statement.

James V. Hayes:

— by taken cared of by the service charges amounted to $239,000 when Hanover bought the machines, and five years later incurred actual cost of service despite the great raise in rates paid, the service cost amounted to a $118,000.

So even on that, they were substantially damaged.

I thank Your Honors for your generosity and time.