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LYONS v. WESTINGHOUSE ELEC. CORP.

October 13, 1964

Joseph H. LYONS and Jessie H. Lyons, individually and as copartners doing business under the name and style of Lyons Electrical Distributing Company, Plaintiffs,
v.
WESTINGHOUSE ELECTRIC CORPORATION and General Electric Company, Defendants



The opinion of the court was delivered by: MCLEAN

This is a private treble damage anti-trust action. Plaintiffs charge that defendants Westinghouse Electric Company ('Westinghouse') and General Electric Company ('General Electric') have conspired and combined to restrain and monopolize interstate commerce in electric lamps, in violation of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1, 2), and to enforce exclusive dealing in such lamps, in violation of Section 3 of the Clayton Act (15 U.S.C. § 14). Plaintiffs further assert that, without regard to any agreement or concert of action between them, each defendant, acting individually, has violated each of these statutes. Plaintiffs claim that defendants' illegal conduct has caused plaintiffs damage in the amount of $ 1,250,000 which, when trebled, amounts to $ 3,750,000, for which recovery is sought against both defendants. Plaintiffs also claim as against Westinghouse alone an additional item of damage of $ 180,000 which, when trebled, adds $ 540,000 to the claim against Westinghouse.

There is no doubt that both defendants have sold lamps in interstate commerce. It is conceded that this court has jurisdiction of the subject matter of this action and of the parties.

 The parties have submitted voluminous findings of fact. Those submitted by Westinghouse are the most exhaustive. I have adopted the Westinghouse findings in the main, after checking them against the record, amending them where necessary or desirable, and eliminating those findings which are argumentative. I shall not repeat here all the many facts embodied in these detailed findings. The purpose of this opinion is to outline as briefly as possible the issues involved in this litigation, to summarize the essential facts which relate to those issues, and to record the reasons which have led me to the conclusions which I have reached concerning them.

 From June 1944 to December 1951 plaintiffs, husband and wife, were partners doing business as Lyons Electrical Distributing Company ('Ledco'). Joseph Lyons was the dominant partner, in complete control of the business, hence to all intents and purposes we have here a single plaintiff. I shall frequently refer to plaintiffs, in the course of this opinion, as Ledco.

 Ledco was a so-called B agent of Westinghouse, engaged in distributing electric lamps, known colloquially as light bulbs. Ledco also distributed lamps manufactured by a wholly separate company, Sylvania, which is not a defendant here. This action, begun in 1952, is the last of a series of litigations between Ledco and Westinghouse. It is the first in which General Electric has been involved.

 Ledco went out of business at the end of December 1951, owing money to Westinghouse. Westinghouse shortly thereafter brought two successive actions against Ledco in the state court. The first was a replevin action to recover property of Westinghouse, i.e., lamps, in Ledco's possession. The second was an accounting action to recover moneys due Westinghouse. Each action eventually terminated in Westinghouse's favor after protracted litigation. In the accounting action Westinghouse recovered a judgment for $ 92,784.31 which was affirmed by the Appellate Division in 1961. The New York Court of Appeals denied leave to appeal. Westinghouse Electric Corp. v. Lyons, 13 App.Div.2d 738, 216 N.Y.S.2d 655 (ist Dept.), application for leave to appeal denied, 10 N.Y.2d 707, 221 N.Y.S.2d 1027, 178 N.E.2d 191 (1961). Westinghouse subsequently, after still another suit, obtained a partial satisfaction of this judgment primarily from a surety on Ledco's bond, but a substantial portion of it, i.e., $ 37,508.03, remains unpaid to this day.

 In its answer in the accounting action, Ledco asserted as a defense that Westinghouse had violated the antitrust laws. At about the same time, Ledco began this action in this court, joining General Electric as a defendant with Westinghouse. The state court held in the accounting action that the antitrust claim was not proven. Westinghouse then asserted in this court, upon a motion for a stay, that the antitrust claims were res judicata, but the Court of Appeals disagreed, holding that the state court could not dispose of these claims with finality and that therefore they could still be litigated in this court. (Lyons v. Westinghouse Electric Corp., et al., 222 F.2d 184 (2d Cir. 1955)). The state court litigation having at last been concluded in 1961, the present action proceeded to trial toward the end of 1963.

 I will first consider the case against General Electric, a latecomer to the Ledco-Westinghouse feud. At the risk of what may seem to be oversimplification, I will confine myself in this summary to the barest essentials. The history of the lamp business and of General Electric's control over it, a history which goes back to the closing decades of the 19th century, interesting as it is, need not be recounted in detail in order to understand the issues which are involved here. The agency system of selling lamps, which I shall discuss briefly hereinafter, has many ramifications and complications, most of which need not now be recited. Many of these details, as far as they are important, are set forth in the findings.

 Prior to 1912, General Electric had acquired the basic patents pertaining to electric lamps. In 1912 General Electric licensed Westinghouse under those patents. By virtue of the license agreement, General Electric had the right to prescribe the prices, terms of sale and methods of sale to be observed by Westinghouse. Westinghouse was limited in the amount that it could sell to a certain 'quota,' expressed in terms of a percentage of the total sales of both companies. General Electric exercised its control through an official known as a 'supervisor,' who saw to it that Westinghouse complied with the agreement. The prices, terms of sale and method of sale of the two companies were identical.

 General Electric marketed many of its lamps through agents, although it sold some directly to large consumers. The agents were to two principal kinds, which have come to be known as the 'serving agent' and the 'served agent.' The serving agent corresponds to the wholesaler, in a seller-buyer relationship, and the served agent to a retailer. General Electric consigned its lamps to the serving agent who in turn consigned them to the served agent who sold them to the public. The served agent, after deducting his compensation, accounted for the proceeds of the sale to his supplier, the serving agent, who in turn, after deducting his compensation, accounted for them to General Electric.

 Pursuant to the license agreement, Westinghouse had its own complex of serving and served agents doing business in the same way. The forms of contract between Westinghouse and its agents were subject to the approval of the General Electric supervisor and were identical with those employed by General Electric. General Electric would not permit one of its agents to act as an agent of Westinghouse.

 In the early 1920's the United States Government attacked these arrangements under the antitrust laws. It attacked both the General Electric-Westinghouse license and the agency system itself. The attack was unsuccessful. The Supreme Court sustained both the agency system as such, when operated independently, and the General Electric-Westinghouse license which gave General Electric control over Westinghouse's lamp business. United States v. General Electric Company, 272 U.S. 476, 47 S. Ct. 192, 71 L. Ed. 362 (1926). The rationale of the decision, at least as far as the General Electric-Westinghouse license was concerned, was that the control exercised by General Electric was valid because General Electric owned the necessary patents and could therefore properly restrict Westinghouse in the use of those patents under the license.

 In 1927 the basic patents were near to expiration. General Electric had other patents, many of them relating to lamps and lamp machinery, but it is not disputed that these patents were far less fundamental than the original ones upon which the 1912 license agreement was based. In 1927 General Electric and Westinghouse entered into a new agreement which superseded the 1912 agreement. It also licensed Westinghouse under the General Electric patents. It also limited Westinghouse's sales to a fixed percentage of the total sales of the two companies, and it also empowered General Electric to fix Westinghouse's prices, terms of sale and methods of sale. The supervision by the General Electric supervisor continued. In effect this contract required Westinghouse to continue the agency system.

 In 1941 the Government renewed its attack on the licensing arrangements and the agency system by instituting an action for an injunction against General Electric, Westinghouse and other General Electric licensees, in the United States District Court for the District of New Jersey. Shortly after the action was begun Westinghouse accepted a consent decree which provided, however, that it would not become effective unless and until General Electric, who had decided to contest the suit, was enjoined. Trial of the case was postponed during the war. It was finally tried against General Electric and certain other defendants in 1946. The decision of the court (Forman, J.) was filed on January 19, 1949. United States v. General Electric Company, et al., 82 F.Supp. 753 (D.N.J.1949). The decree was finally entered in 1953 after a supplemental opinion on the form of relief. United States v. General Electric Company, et al., 115 F.Supp. 835 (D.N.J.1953). No appeal was taken and the decree therefore became final.

 Judge Forman decided that the General Electric-Westinghouse license was invalid and that General Electric had monopolized commerce in lamps, a monopoly to which Westinghouse, by virtue of the license agreement, was a party. In reaching this result, he held that General Electric's control over Westinghouse's lamp business could no longer be justified on the patent theory, because the patents licensed under the 1927 agreement were not as significant as those which were licensed by the 1912 agreement which the Supreme Court had upheld in 1926. Judge Forman, however, refused to invalidate the agency system as such. He found that the system was essentially the same as that which was involved in the 1926 case, and that consequently, the government's attack upon it was precluded on principles of res judicata and stare decisis. He also found that the agency was a bona fide one, not a sham. He found that such deviations as had occurred in practice from the strict terms of the agency contracts were not significant enough to require the conclusion that the contracts, as the government claimed, were only devices for concealing what was in fact a seller-buyer relationship.

 Some years before Judge Forman rendered his decision in 1949 invalidating the 1927 license agreement, Westinghouse had terminated that agreement, with General Electric's consent. The termination became effective on August 1, 1945. It will be observed that this event occurred early in the course of Ledco's agency with Westinghouse, over six years before Ledco went out of business.

 Despite the years that have elapsed since August 1, 1945, several Westinghouse officials who participated in making the decision to terminate the license agreement, and who participated in the negotiations with General Electric leading to that termination, are still alive and testified at the trial. I believe their testimony. I find as a fact that the termination was made in good faith, for sound business reasons, and that it was not, as plaintiffs assert, a mere pretense. I also find that upon the termination of the agreement all control by General Electric over the lamp business of Westinghouse, including the operations of the General Electric supervisor, came to an end. Indeed, all dealings in lamps between the two companies ceased, except that for a time, until Westinghouse could get them into production, General Electric sold to Westinghouse certain less popular types of lamps which General Electric manufactured. After August 1, 1945 each company conducted its own lamp business in competition with each other. Westinghouse's percentage of the total lamp market increased from 21.8 per cent in 1945 to 25.2 per cent in 1950. General Electric's share decreased from 57.4 per cent to 53.8 per cent for the respective years.

 Each company put out its own price lists and terms of sale and forms of agency contracts. It is true that at the outset Westinghouse's price lists, terms of sale and contract forms were substantially identical with those which it had used prior to August 1, 1945 when they had been dictated by General Electric. As time went on, some differences developed. Westinghouse hit upon some new ideas for types of agencies and made various other changes in the procedures which it had previously followed. Despite these changes, I believe it fair to say that in the main, Westinghouse's procedures continued to be substantially the same as before, and substantially the same as General Electric's. The published price lists of the two companies continued to be the same. Any price competition between them took the form of differences in discounts from list prices rather than in the list prices themselves. By and large, Westinghouse's lamp business was 'parallel' to General Electric's. But 'conscious parallelism' is not, in and of itself, a violation of the antitrust laws. Theater Enterprises Inc. v. Paramount Film Distributing Corp., 346 U.S. 537, 74 S. Ct. 257, 98 L. Ed. 273 (1954).

 The fundamental question, as far as this aspect of the case is concerned, is whether after August 1, 1945 there was any agreement or concert of action between General Electric and Westinghouse, any combination or conspiracy between them, to restrain or monopolize commerce in lamps. After considering all the evidence, I find that there was not. The evidence tending to show that each company acted independently of the other is sufficient to establish this fact and to outweigh any inferences which, in the absence of such evidence, might be drawn from the similarity in procedures which I have noted.

 As to General Electric, plaintiffs' claim depends upon establishing that General Electric conspired or combined with Westinghouse, to plaintiffs' damage. Ledco was not a General Electric agent. It had no contract with General Electric. There is no basis for any claim against General Electric by virtue of any action taken by General Electric individually, apart from conspiracy. The fact, if it be a fact, that General Electric was unwilling to hire Ledco as a General Electric B agent, in the absence of any conspiracy between General Electric and Westinghouse, is immaterial. As to General Electric, plaintiffs must prove conspiracy or fail. I hold that plaintiffs have failed to prove the conspiracy which they allege, i.e., a conspiracy continuing after August 1, 1945 down through 1951. Although Judge Forman's decision, binding upon General Electric but not upon Westinghouse, is an adjudication that the General Electric-Westinghouse license agreement amounted to an illegal combination to monopolize, this agreement terminated on August 1, 1945. Plaintiffs do not claim that they sustained any damage up to that point or for years afterward. There is thus no causal connection between that illegal combination and plaintiffs' alleged damage, hence the existence of this combination up to August 1, 1945 is immaterial here. There is therefore no need to consider, as far as General Electric is concerned, whether plaintiffs in fact suffered any damage. The action against General Electric will be dismissed.

 Since General Electric did not conspire with Westinghouse after August 1, 1945 it necessarily follows that Westinghouse did not conspire with General Electric. But as to Westinghouse, there is more to plaintiffs' claim than the charge of conspiracy. Plaintiffs contend that Ledco's agency contract with Westinghouses ...


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