Full opinion text
YANKWICH, District Judge. By this suit in equity, the Government seeks a decree adjudging that certain practices engaged in by the defendants and certain contracts entered into by them, unreasonably restrain interstate trade and commerce in violation of Section 1 of the Sherman Anti-Trust Act, and substantially lessen competition and tend to create a monopoly in a line of commerce, in violation of Section 3 of the Clayton Act. The Government asks us to declare the exclusive supply provisions in the contracts and the practices flowing from them to be void and of no effect. In addition, we are asked to enjoin the defendants, in perpetuity, from entering into or enforcing any contract, agreement, or understanding, express or implied, with any independent service station operator or garage operator, or from inducing or compelling, or attempting to induce or compel, any such person from entering into any contract, agreement or understanding, which has any of the following requirements: (a) That the Independent Service Station Operator or Garage Operator shall secure all his requirements of petroleum products from defendant Standard, or shall not handle the petroleum products of any other company ; (b) That the Independent Service Station Operator, or Garage Operator shall secure all his requirements of any one or more types of automobile accessories from or through defendants Standard and Standard Stations, Inc., or will not handle accessories competitive with those distributed or sponsored -by defendants, Standard and Standard Stations, Inc. (c) That the sale of any petroleum product or automotive accessories to any Independent Service Station Operator, or Garage Operator shall be conditional on the sale of other petroleum products or automotive accessories. The action was instituted on January 2, 1947. Many proceedings have taken place before the trial and an extensive file has been built up. However, as a case of this character must be determined on the basis of facts existing at the time of the trial, it is not necessary to give a detailed analysis of the pleadings in the case or of all the proceedings before the court. What precedes is sufficient for the purpose of the discussion to follow. I. The Proved Facts. Notwithstanding the lengthy trial and the large number of exhibits introduced, the issues in the case are rather narrow, as will appear further on in the opinion when we expound the legal principles which control the case. There is, therefore, no need to review elaborately the facts proved. A brief summary will suffice. The defendant Standard Oil Company of California is a Delaware corporation with its principal California office at San Francisco, California. It is engaged in the business of producing, transporting, refining and marketing petroleum and petroleum products, principally in the states of California, Oregon, Washington, Arizona, Nevada, New Mexico, Idaho and Utah. The defendant Standard Stations, Incorporated, is a corporation organized under the laws of Delaware with its principal California office at San Francisco. It is a wholly-owned subsidiary of Standard Oil Company of California, and is engaged in the business of managing service stations in the seven states just mentioned. The number of these stations is 1063. As the issues have been narrowed by the proof, no further reference need he made to stations so operated, which have been referred to in the evidence as “employe operated stations.” The Government does 'not question (indeed, it could not) the right of the Standard Oil 'Company of California to operate its own stations and sell therein any product it manufactures or distributes. Hence when we refer to “Standard” in what follows, it will be understood that the reference is to Standard Oil Company of California, the parent company, actually engaged in what, for brevity, we shall call “the oil business”. The evidence in the cases shows that, as of March 12, 1947, Standard, in addition to the company operated service stations, had 7,145 contractual arrangements with 5,197 stations in the area. The relationship of Standard to these stations was governed by the five types of agreement entered into with the operators of the stations. They were: (1) “Dealer Agreements,” of which there were 1,656, containing the following clause: “1. Standard Oil Company of California, a corporation hereinafter called ‘Company’ agrees to sell to - hereinafter called ‘Dealer’, and Dealer agrees to buy from Company, all of Dealer’s requirements of petroleum products used or sold or bought to be used or sold by Dealer at-. The petroleum products to meet Dealer’s requirements hereunder shall be those brands of gasoline, lubricating oils, and other petroleum products sold by Company to its dealers generally in Dealer’s vicinity. (2) “Distributor Agreements”, of which there were 556, having the following provisions : “Company agrees to sell to Distributor, and Distributor agrees to buy from Cqmpany and stock and offer for sale all of Distributor’s requirements of petroleum products used or sold or bought to be used or sold by Distributor in the conduct of his business on the premises hereinafter described. The petroleum products to meet Distributor’s requirements hereunder shall be those brands of gasoline, lubricating oils and other petroleum products currently sold at service stations operated by Standard Stations, Inc., in Distributor’s vicinity, and Distributor agrees not to store, handle, distribute, or sell any other brand or brands of petroleum products at or from the station.” (3) “Petroleum Products and Equipment Agreements”, of which there were 912, carrying this clause: “1. Standard Oil Company of California, a corporation, hereinafter called ‘Company’, agrees to sell to - hereinafter called ‘Dealer’, and Dealer agrees to buy from Company, all of Dealer’s requirements of petroleum products used .or sold or bought to be used or sold by Dealer at -. The petroleum products to' meet Dealer’s requirements hereunder shall be those brands of gasoline, lubricating-oils, and other petroleum products sold by Company to its dealers generally in Dealer’s-vicinity.” (4) “Dealer Agreement TBA”, of which there were 2,221, having this clause: “1. Standard Oil Company of California, hereinafter called ‘Company’, agrees-to - hereinafter called ‘Dealer’, and Dealer agrees to buy from Company, all Dealer’s requirements of petroleum products used, sold, or bought to be used or sold, by Dealer at -, hereinafter called ‘said premises’. The petroleum products to meet Dealer’s requirements hereunder shall be those brands - of such products generally sold by Company to its-Dealers.” (5) “Sublease Agreements”, of which there were 1,800, containing the following; clause: “Lessee shall handle and sell on the leased, premises only such petroleum products as-are sold Lessee by Lessor, and Lessee agrees-not to store, handle, sell, or distribute on. or from said premises any petroleum products of any description other than those petroleum products sold to Lessee by Lessor. The price payable by Lessee to Lessor for said petroleum products shall be Lessor’s posted price for the same or similar products to its Dealers generally in Lessee’s vicinity at time and place of delivery.” The choice of the type of agreement was the dealer’s. And the agreements were terminable by him on six months’ notice. Each of these agreements contained provisions which, both by the language used and the limitations of liability, stressed the character of the agreement as seeking to establish the dealer as an independent contractor. Dealer Agreements (Class I) contained the most elaborate provisions. They are here given in full: “6. Dealer acknowledges that he has thoroughly inspected the pumps, tankage, containers, pipes, and other facilities on the premises and that the same are in good condition, and while this agreement is in force Dealer agrees to so keep the same at Dealer’s own cost and expense; provided, however, that Company may, at its discretion, maintain and repair said facilities. Dealer further agrees to protect, defend, and hold harmless the Company against all claims for damage to property (including Dealer’s property), or injury to or death of persons, directly or indirectly resulting from any acts or omissions of Dealer or Dealer’s employees in or about said premises, either in the maintenance or operation of the tanks, containers, pipes, pumps and other facilities thereon, or in the vending therefrom of the products .and goods handled by Dealer hereunder. “7. In the performance of this agreement Dealer is engaged in an independent business and nothing contained shall be construed as reserving to Company any right to control Dealer with respect to his conduct in the performance of this agreement. Company reserves no right to exercise any control over any of Dealer’s employees and all employees of the Dealer shall be entirely under the control and direction of Dealer who shall be responsible for their actions and omissions. Dealer will, at his own expense, during the term hereof, maintain full insurance under any Workmen’s Compensation Laws effective in said state covering all persons employed by and working for him in connection with the performance of this agreement, and upon request shall furnish Company with satisfactory evidence of the maintenance of such insurance. Dealer accepts exclusive liability for all contributions and payroll taxes required under Federal Social Security Laws and State Unemployment Compensation Laws as to all persons employed by and working for him in connection with the performance of this agreement. “8. Any tax, or the amount thereof, now or hereafter imposed, levied or assessed by any governmental authority upon, measured by, incident to, or as the result of the transaction herein provided for, or the transportation, production, or manufacture of the goods, the subject matter of this agreement, shall, if collectible or payable- by the Company, be paid by the Dealer on demand by the Company, as tax collectible or as an increase in the prices otherwise herein provided for.” The other types of agreement aimed to achieve the same result. The history of the use of the various types of agreement shows that, beginning in 1938, the dealer agreements began to supersede the authorized distributor agreements which had obtained before that date, and that, beginning with the year 1944, Type 4 (TBA) came into almost exclusive use. There is duplication of agreements in that a single station may operate under several types of agreement. Hence the actual number of gas station outlets is 5,197. The number of stations operating under Form 2 has since been reduced to 232. In addition to this, Standard had 742 open accounts and 1,063 company-operated stations, or, as they have been called in this case, employe-operated stations. The evidence in the record shows beyonot cavil that the effect of these agreements was to limit the dealer operating under any of them to the handling of the petroleum products of Standard and also to the marketing of tires, tubes, batteries and accessories controlled or handled by Standard. If they handled others, they did not do so openly. The agreements were so interpreted -by those operating under them,— as various operators from various states testified. Indeed, witnesses of the defendant very forthrightly stated that the operators were expected to confine themselves to Standard products and accessories, the exception being only those rare cases— especially during the War — when they were unable to supply the quantity asked, in which event, the supervising employes of Standard would “shut their eyes” to the infractions. The record also shows that, as to tires, tubes and batteries, Standard reserved the right to determine the amounts it would furnish. As to the other accessories, — which included spark plugs, sun visors, fan belts, hub. caps, and all small parts of automobiles which can easily be replaced at a service station — the requirement was up to the dealer himself. Tires, tubes and batteries were not, as a rule, sold to operators of stations other than those under contract with Standard, — especially during the time of shortage. Its petroleum products and accessories were sold to other station operators, particularly after the war scarcity ended. The representatives of other companies manufacturing petroleum products, tires, tubes, batteries and other accessories, testified that they, could not sell their products to stations under contract with Standard, except in rare instances, and that, surreptitiously. When a station was converted into a Standard station, whatever custom in non-Standard products they had before ceased. To maintain the good will of the operators of the stations, Standard assisted them financially, made loans which were later discounted, furnished many valuable services, and expended large sums of money in advertising, in educating the operators in the manner of handling the products, in building the stations, adding facilities to them, repairing and improving them, — all of which meant large expenditures of money. As a result, Standard has a $16,500,000 capital investment in the dealer stations. When salesmen or supervisors of Standard found competitive products, they “urged”,- — as they testified — or, as the operators testified, showed their displeasure,, and, practically “ordered” their discontinuance or substitution. Many of the competitive products so offered for sale and. shut out of the stations under contract with Standard were, produced outside of the States in which the stations were located, or were shipped' in interstate commerce. So there cannot be any question that, at least so far as these products are concerned, the practice to which the Government complains, affected the flow of goods and products in interstate commerce.® The character of the result and its legality, as well as the legality of the restrictive clauses themselves are questions of law. To them we now direct our attention. II. The Law Today. (A) Exclusive Supply Provisions: The case does not require an extended review of the principles which courts have evolved in interpreting the Sherman AntiTrust Act, 15 U.S.C.A. §§ 1-7, 15 note, and Clayton Act, 15 U.S.C.A. § 12 et seq. I have had occasion to discuss the scope and nature of anti-trust legislation and its application both to activities which are local and to those which transcend state limits, in several opinions. There is another reason for confining ourselves to the more recent decisions of the Supreme Court: They have modified, to a great extent, some of the legal norms declared in prior cases. And the problem in this case can be narrowed down to two rather simple inquiries. They are: (a) Are agreements of the type involved in this case, — as summarized briefly in the preceding portion of the opinion, — violative of either or both the statutes? Which, in reality, comes down to this: Is an agreement by an oil company, engaged in the production and distribution of petroleum products, and the sponsoring and distribution of automobile parts and accessories, which obligates a gasoline station operator to supply his full requirements of petroleum products, tires, tubes, batteries, and other accessories, from the company, of itself, a violation of either of the Acts? If the answer to this question is in the affirmative, the inquiry is at an end. (b) If in the negative, we must determine whether the effect of the agreement as a restraint on commerce makes it invalid under either ■or both Acts. Seeking an answer to these inquiries, I begin with the assumption that the General Motors exclusive supply case is still the law. Which means that, at least under the Clayton Act, an agreement by a dealer that, in consideration of being permitted to deal in a certain product, he will not sell or offer to sell any products not manufactured or handled by the particular manufacturer, is not per se illegal. The opinion in the General Motors case states the question involved tersely. The Court had before it an agreement which, not only indirectly forbade the handling of the products of other manufacturers, but prohibited specifically their use or sale in these words: “ ‘Dealer agrees that he will not sell, offer for sale, or use in the repair of Chevrolet motor vehicles and chassis second-hand or used parts or any part or parts not manufactured by the Chevrolet Motor Company * * ” This eliminated not only parts not manufactured by them, but also second-hand and used parts. A complete monopoly was achieved. At the same time, the dealer was not granted exclusive selling rights in new parts and accessories. General Motors was, therefore, free to grant to other dealers in the same territory the same rights. The trial court dismissed the bill for want of equity. Affirming the decree, the Supreme Court said: “Upon the evidence adduced at the trial, the District Court found that the effect of the clause had not been in any way substantially to lessen competition or to create a monopoly in any line of commerce.” I take this language to mean that, even when we are confronted with a contract which shuts out competition, we must, under the Clayton Act, determine its effect on the line of commerce. Under the Sherman Act, the reasonableness or unreasonableness of the restraint is, — since the first Standard Oil decision in 1911, — an element to be considered. Both are questions of fact, the solution of which rests upon the conditions obtaining in each particular case. The Socony-Vacuum case and other cases which followed it express the view that the economic wisdom or unwisdom, or the economic benefit or detriment, of a restriction on commerce is not material, especially when we are dealing with a practice, such as price-fixing, which is illegal per se. But, at the same time, economic effect becomes material if we are dealing with a restraint other than price-fixing, a restraint which is monopolistic. Because, when this is the situation, it must appear that there is substantial lessening of competition or monopoly under the Clayton Act, before we can place a judicial interdict on it. We find this language in the Socony-Vacuum case: “Secondly, the fact that sales on the spot markets were still governed by some competition is of no consequence. For it is indisputable that that competition was restricted through the removal by respondents of a part of the supply which but for the buying program would have been a factor in determining the going prices on those markets. But the vice of the conspiracy was not merely the restriction of supply of gasoline by removal of a surplus. As we have said, this was a well organized program. The timing and strategic placement of the buying orders for distress gasoline played an important and significant role. Buying orders were carefully placed so as to remove the distress .gasoline from weak hands. Purchases were timed. Sellers were assigned to the buyers so that regular outlets for distress gasoline would be available. The whole scheme was carefully planned and executed to the end that the distress gasoline would not overhand the markets and depress them at any time. And as a result of the payment of fair going" market prices a floor was placed and kept under the spot markets. Prices rose and jobbers and consumers in the midwestern area paid more for their gasoline then they would have paid but for the conspiracy. “Competition was not eliminated from the markets; but it was clearly curtailed, since restriction of the supply of gasoline, the timing and placement of the purchases under the buying programs and the placing of a floor under the spot markets obviously reduced the play of the forces of supply and demand. “The elimination of so-called competitive evils is of no legal justification for such buying programs. The elimination of such conditions was sought primarily for its effect on the price structures. Fairer competitive prices, it is claimed, resulted when distress gasoline was removed from the market. But such defense is typical of the protestations usually made in price-fixing cases. Ruinous competition, financial disaster, evils of price cutting and the like appear throughout our history as ostensible justifications for price-fixing. If the so-called competitive abuses were to be appraised here; «the reasonableness of prices would necessarily become an issue in every price-fixing case. In that event the Sherman Act would soon be emasculated; its philosophy would be supplanted by one which is wholly alien to a system of free competition; it would not be the charter of freedom which its framers intended.” (B) Effect of Restriction: What Mr. Justice Douglas says applies with greater force to a restrictive-practice other than price-fixing. The fact that it may be beneficial is not material, if, in effect, it is an unreasonable restraint. Judge Learned Hand stressed these very points in the Fashion Originators’ Guild case. He applied the reasoning of the Socony-Vacuum case to a case not involving price-fixing. And, with that clarity of language so characteristic of his writing, he showed that economic benefits cannot be taken into consideration if, in fact, there be substantial restriction of commerce. The opinion says: “ * * * Many trade combinations which affect competition are lawful, when they are designed to prevent trade ‘abuses’; they are ‘reasonable,’ though perhaps to say so is no more than to state the problem. Appalachian Coals, Inc. v. United States, 288 U.S. 344, 374, 53 S.Ct. 471, 77 L.Ed. 825; Sugar Institute v. United States, 297 U.S. 553, 598, 56 S.Ct. 629, 80 L.Ed. 859. Certainly it is not true that the lawfulness of every combination depends upon whether it ‘reasonably’ corrects trade ‘abuses’; there are some combinations that nothing will excuse. The accepted rubric for this is that when the means are unlawful per se, the purposes of the confederates will not justify them. Sugar Institute v. United States, supra, 297 U.S. 553, at page 599, 56 S.Ct. 629, at page 642, 80 L.Ed. 859. The most recent example of this is the Supreme Court’s reaffirmation of the unconditional illegality of price-fixing, in spite of the probability that the combination in fact benefited the industry. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129. However grave the industrial disorders, that remedy was not permissible; the industry may restore itself by many devices, but not by all. * * * Price fixing is not, however, the only means unlawful per se; the interest of the consumer is not all that determines the ‘reasonableness’ of a contract ‘in restraint of trade.’ It is also unlawful to exclude from the market any of those who supply it — assuming that there is no independent reason by virtue of their conduct to justify their exclusion —and it is no excuse for doing so that their exclusion will result in benefits to consumers, or to the producers who remain. W. W. Montague & Co. v. Lowry, 193 U.S. 38, 47, 24 S.Ct. 307, 48 L.Ed. 608; Eastern States Retail Lumber Dealers Association v. United States, 234 U.S. 600, 611, 34 S.Ct. 951, 58 L.Ed. 1490, L.R.A. 1915A, 788; Bindcrup v. Pathe Exchange, 263 U.S. 291, 311, 312, 44 S.Ct. 96, 68 L. Ed. 308; Anderson v. Shipowners Association, 272 U.S. 359, 363, 47 S.Ct. 125, 71 L.Ed. 298; Bedford Cut Stone Co. v. Journeymen Stone Cutter’s Association, 274 U.S. 37, 54, 47 S.Ct. 522, 71 L.Ed. 916, 54 A.L.R. 791; Paramount Famous Corporation v. United States, 282 U.S. 30, 43, 44, 51 S.Ct. 42, 75 L.Ed. 145; United States v. First National Pictures, Inc., 282 U.S. 44, 54, 51 S.Ct. 45, 75 L.Ed. 151; National Harness Association v. Federal Tr. Comm., 6 Cir., 268 F. 705, 712; Wholesale Grocers Ass’n v. Federal Tr. Comm., 5 Cir., 277 F. 657, 663; Butterick Publishing Co. v. Federal Tr. Comm., 2 Cir., 85 F.2d 522. There is another reason supporting this conclusion. A successful combination among a part of the producers to exclude others, even when not accompanied by an agreement fixing prices, puts into their hands collectively the power to control the supply and with it the price. The fact that that power is not at the moment exercised is of no assurance that it may not be; if the effort succeeds and the combination is not disrupted, it may at any time be used, and there will then be no protection to the consumer. ‘‘Finally, it is of no consequence that the Guild does not supply the whole market for women’s dresses; it aims at a monopoly however small its share of total sales. The reason is as follows: Although all dresses made after one design are fungibles, the different designs themselves are not fungibles. Each has its own attraction for buyers; each is unique, however trifling the basis for preferring it may be. Hence to attempt to gather to oneself all : possible reproductions of a given design is to attempt to create a monopoly, as at once appears from the fact that a copyright for it — and a fortiori a design patent upon it —would be ranked as a monopoly. It is true that the sanction of that monopoly may be very weak; it depends upon the design’s attractions above other designs, often not a very important margin of advantage. But the same is true of nearly all monopolies, for there are substitutes for most goods. As to each design therefore the Guild is seeking to establish a monopoly; and it is unimportant whether its gross sales are large or small, as compared with those of all women’s dresses. For these reasons the combination was unlawful per se; the Commission was right in refusing to hear any evidence in its excuse, for it could have no excuse; the case is the same as Millinery Creators’ Guild v. Federal Trade Commission, supra, 2 Cir., 109 F.2d 175.” The teaching of these cases is this: When we are dealing with price-fixing, we are dealing with a contract which is invalid per se and violative of the Act. However, when we consider any other restrictions, their legality must be determined by the nature of the contract in relation to the line of commerce which it may affect. A contract by a manufacturer of a product which binds an agent who is used as an outlet to the exclusive use of his product is not necessarily a violation of either the Sherman Act or the Clayton Act. But it may be so under the Sherman Act, if it result in an unreasonable restraint of trade, and under the Clayton Act, if it result in a monopoly in a line of commerce or lessens competition substantially. The more recent decisions of the Supreme Court reaffirm these principles. To quote from Federal Trade Commission v. Morton Salt Company: “The statute requires no more than that the effect of the prohibited price discriminations ‘may be substantially to lessen competition * * * or to injure, destroy, or prevent competition.’ After a careful consideration of this provision of the Robinson-Patman Act [15 U.S.C.A. § 13], we have said that ‘the statute does not require that the discrimination must in fact have harmed competition, but only that there is a reasonable possibility that they “may” have such an effect.’ Corn Products Refining Co. v. Federal Trade Comm., 324 U.S. 726, 742, 65 S.Ct. 961, 969, 89 L. Ed. 1320. Here the Commission found what would appear to be obvious, that the competitive opportunities of certain merchants were injured when they had to pay respondent substantially more for their goods than their competitors had to pay. The findings are adequate. “Fourth. It is urged that the evidence is inadequate to support the Commission’s findings of injury to competition. As we have pointed out, however, the Commission is authorized by the Act to bar discriminatory prices upon the ‘reasonable possibility’ that different prices for like goods to competing purchasers may have the defined effect on competition. That respondent’s quantity discounts did result in price differentials between competing purchasers sufficient to influence their resale price of salt was shown by evidence.” The following quotation from the American Crystal Sugar case is also enlightening: “The statute does not confine its protection to consumers, or to purchasers, or to competitors, or to sellers. Nor does it immunize the outlawed acts because they are done by any of these. Cf. United State v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129; American Tobacco Co. v. United States, 328 U.S. 781, 66 S.Ct. 1125, 90 L.Ed. 1575. The Act is comprehensive in its terms and coverage,, protecting all who are made victims of the forbidden practices by whomever they may be perpetrated. Cf. United States v. South-Eastern Underwriters Ass’n. supra, 322 U. S. at page 553, 64 S.Ct. at page 1173, 88 L.Ed. 1440. “Nor is the amount of the nation’s sugar industry which the California refiners control relevant, so long as control is exercised effectively in the area concerned. Indiana Farmer’s Guide Pub. Co. v. Prairie Farmer Pub. Co., 293 U.S. 268, 279, 55 S.Ct. 182,. 185, 79 L.Ed. 356; United States v. Yellow Cab Co., 332 U.S. 218, 225, 67 S.Ct. 1560, 1564, 91 L.Ed. 2010, the conspiracy being shown to affect interstate commerce adversely to Congress’ policy. Congress’ power to keep the interstate market free of goods produced under conditions inimical to the general welfare, United States v. Darby, 312 U.S. 100, 115, 61 S.Ct. 451, 457, 85 L.Ed. 609, 132 A.L.R. 1430, may be exercised in individual cases without showing any specific effect upon interstate commerce, United States v. Walsh, 331 U.S. 432, 437, 438, 67 S.Ct. 1283, 1286, 91 L.Ed. 1585; it is enough that the individual activity when multiplied into a general practice is subject to federal control, Wickard v. Filburn, supra [317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122], or that it contains a threat to the interstate economy that requires preventive regulation.” (C) The Meaning of “Unreasonable” and “Substantial”: What precedes calls for a further inquiry into what is or what is not unreasonable restraint and what is or what is not a substantial lessening of competition. The words “reasonable” or “unreasonable” do not occur in the Sherman AntiTrust Act. They were read into the Act by the decisions of the Supreme Court. The phrases which forbid practices which result in substantial lessening of competition or monopoly occur in the Clayton Act. All these terms have a pragmatic content. The Courts, in applying them, have sought to evolve concrete criteria by which the effect of a particular practice on competition should be gauged. Their scope and limit was stated by the Court in Fashion Originators’ Guild of America v. Federal Trade Commission: “If the purpose and practice of the combination of garment manufacturers and their affiliates runs counter to the public policy declared in the Sherman and Clayton Acts, the Federal Trade Commission has the power to suppress it as an unfair method of competition. From its findings the Commission concluded that the petitioners, ‘pursuant to understandings, arrangements, agreements, combinations and conspiracies entered into jointly and severally’, had prevented sales in interstate commerce, had ‘substantially lessened, hindered and suppressed’ competition, and had tended ‘to create in themselves a monopoly.’ And paragraph 3 of the Clayton Act 15 U.S.C. A, § 14, declares ‘It shall be unlawful for any person engaged in commerce, * * * to * * * make a sale or contract for sale of goods, * * * on the condition, agreement or understanding that the * * * purchaser thereof shall not use or deal in the goods, * * * of a competitor or competitors of the * * * seller, where the effect of such * * * sale, or contract for sale * * * may be to substantially lessen competition or tend to create a monopoly in any line of commerce.’ The relevance of this section of the Clayton Act to petitioners' scheme is shown by the fact that the scheme is bottomed upon a system of sale under which (1) textiles shall be sold to garment manufacturers only upon the condition and understanding that the buyers will not use or deal in textiles which are copied from the designs of textile manufacturing Guild members; (2) garment manufacturers shall sell to retailers only upon the condition and understanding that the retailers shall not use or deal in such copied designs. And the Federal Trade Commission concluded in the language of the Clayton Act that these understandings substantially lessened competition and tended to create a monopoly. We hold that the Commission, upon adequate and unchallenged findings, correctly concluded that this practice constituted an unfair method of competition. “Not only does the plan in the respects above discussed thus conflict with the principles of the. Clayton Act; the findings of the Commission bring petitioners’ combination in its entirety well within the inhibition of the policies declared by the Sherman Act itself. Section 1 of that Act make illegal every contract, combination or conspiracy in restraint of trade or commerce among the several states; Sec. 2 makes illegal every combination or conspiracy which monopolizes or attempts to monopolize any part of that trade or commerce. Under the Sherman Act ‘competition not, combination, should be the law of trade.’ National Cotton Oil Co. v. Texas, 197 U.S. 115, 129, 25 S.Ct. 379, 381, 382, 49 L.Ed. 689. And among the many respects in which the Guild’s plan runs contrary to the policy of the Sherman Act are these: it narrows the outlets to zvhich garment and textile manufacturers can sell and the sources from retailers can buy. (Montague & Co. v. Lowry, 193 U.S. 38, 45, 24 S.Ct. 307, 309, 48 L.Ed. 608; Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, 48, 49, 33 S. Ct. 9, 14, 15, 57 L.Ed. 107); subjects all retailers and manufacturers who decline to comply with the Guild’s program to an organized boycott (Eastern States Retail Lumber Dealers’ Ass’n v. United States, 234 U.S. 600, 609-611, 34 S.Ct. 951, 953, 954, 58 L.Ed. 1490, L.R.A.1915A, 788); takes away the freedom of action of members by requiring each to reveal to the Guild the intimate details of their individual affairs (United States v. American Linseed Oil Co., 262 U.S. 371, 389, 43 S.Ct. 607, 611, 67 L.Ed. 1035); and has both as its necessary tendency and as its purpose and effect the direct suppression of competition from the sale of unregistered textiles and copied designs (United States v. American Linseed Oil Co., supra, 262 U.S. at page 389, 43 S.Ct. at page 611, 67 L.Ed. 1035). In addition to all this, the combination is in reality an extra-governmental agency, which ; prescribed rules for the regulation and re- I straint of interstate commerce, and provides extra-judicial tribunals for determination and punishment of violations, and thus ‘trenches upon the power of the national legislature and violates the statute.’ Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 242, 20 S.Ct. 96, 101, 44 L.Ed. 136. “Nor is it determinative in considering the policy of the Sherman Act that petitioners may not yet have achieved a complete monopoly. For 'it is sufficient if it really tends to that end and to deprive the public of the advantages which flow from free competition.’ United States v. E. C. Knight Co., 156 U.S. 1, 16, 15 S.Ct. 249, 255, 39 L.Ed. 325; Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 237, 20 S.Ct. 96, 105, 44 L.Ed. 136.” The approach to the problem has changed, as later cases indicate.' But the test of reasonableness is the same which the court laid down in the first case. As there stated, while the Act defines the boundaries which could not be transgressed, it leaves the application of the standard laid down “to be determined by the light of reason, guided by the principles of law and the duty to apply and enforce the public policy embodied in the statute, in every given case whether any particular act or contract was within the contemplation of the statute.” And the test under the Clayton Act is equally practical. The validity or invalidity of a contract or practice is determined by a consideration of the methods of re- straint which the particular contract or practice impose and the effect which they may have. The more recent cases interpret the language of the statute to include not only probable effects but also possible effects. In summary, when we are asked to determine unreasonableness of restraint under the Sherman Act, or substantiality in lessening competition or tendency to create a monopoly in a line of commerce; under the Clayton Act, we must envisage j the entire situation affected by the prac- i; tices, and relate it to the object of both> statutes, which is to maintain freedom in k interstate commerce and trade and to prevent all attempts to monopolize them. At times, courts speak of the “detPiment” to the public resulting from a practice. But they do not intend to legalize restraints which may be beneficial to the public. As said by Judge Learned Hand: “Be that as it may, that was not the way that Congress chose; it did not condone ‘good trusts’ and condemn ‘bad’ ones; it forbade all. Moreover, in so doing it was not necessarily actuated by economic motives alone. It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few. These considerations which we have suggested only as possible purposes of the Act, we think the decisions prove to have been in fact its purposes. It is settled, at least as to § 1, that there are some contracts restricting competition which are unlawful, no matter how bencficient they m-ay be; no in^dustrial exigency will justify them; they are absolutely forbidden. Chief Justice Taft said as much of contracts dividing a territory among producers, in the often quoted passage of his opinion in the Circuit Court of Appeals in United States v. Addyston Pipe & Steel Co., 6 Cir., 85 F. 271, 291, 46 L.R.A. 122.” The harm to the public is gauged by the effect of the practices on the free flow of goods in interstate commerce and the maintenance of competition in that field. Consequently, practices which are likely to curtail or affect injuriously a' measurable or sizeable part of commerce^ are prohibited under both Acts. As I understand the pleadings, and the Government’s position at the beginning of the trial,, a judgment is sought decreeing that the clause in the contracts which, by its language and actual effect, as shown by the evidence, restricts the stations not employe-operated to the sale and use of petroleum products and accessories produced or supplied by Standard is illegal per se. We cannot agree. To the contrary, as we read the cases, exclusiveness of outlet is not, in itself, illegal. It becomes illegal only if it result in a substantial lessening of competition or the creation of monopoly in the line of commerce. Indeed, the opinion of the Court in one of the latest cases on the subject indicates clearly that,— to use the language of Mr. Justice Douglas, —“the use of monopoly power, however lawfully acquired, to foreclose competition, to gain a competitive advantage, or to destroy a competitor, is unlawful.” The phrase “line of commerce” in the Clayton Act is to be given a broad and not a narrow meaning. It should be interpreted, not with relation to a particular outlet, but with relation to the entire “picture”, — if one may be permitted to use the best colloquial equivalent to the German word gestalt (configuration). So the determination of monopoly in any “line of commerce” cannot be made to rest solely on the fact that certain outlets are closed. For, without indulging in a reductio ad absurd:tm, if we say that interfering with any outlet is, in itself, a monopoly, we find ourselves in the position of contending that, assuming one controlled station outlet, we have a monopoly as to it. To amplify: It is common knowledge that national merchandising firms like Sears, Roebuck & Company, or Montgomery Ward, own establishments the country over. It is also well known that they control the type of goods which are sold in the branches, which they use as outlets, and which they own. But, assume that they did not own the branches, and that they operated some of them, under one of these various contract arrangements used here,- — say a TBA contract. To my mind, it would be unrealistic to contend that, under such circumstances, the control of one or several such outlets would constitute a monopoly. For this reason, I take the words “in any line of commerce” to mean a complete line of activity, not a small segment. This interpretation finds support in the following language of the Supreme Court: “The exercise of Congressional power under the Sherman Act, 15 U.S.C.A. §§ 1-7, 15 note, the Clayton Act, 38 Stat. 730, the Federal Trade Commission Act, 15 U.S.C.A. § 41 ct seq., or the National Motor, Vehicle Theft Act, 18 U.S.C.A. § 408, has never been thought to be constitutionally restricted because in any particular case the volume of the commerce affected may be small. The amount of the commerce regulated is of special significance only to the extent that Congress may be taken to have excluded commerce of small volume from the operation of its regulatory measure by express provision or fair implication.” We must, therefore, ascertain the actual effect of the challenged clause on interstate commerce. (D) Infra and Interstate Activities: Before doing so, we refer to the contention that the activities of Standard are local in character. Recent cases have obliterated the rigid distinction between intrastate and interstate activities. Activities purely local which interfere with interstate commerce come under the interdiction of the anti-trust statutes. The control of a commodity originating in interstate commerce, although exercised after it comes to rest in a state, does not take it out of the purview of the Sherman or Clayton Acts, if the flow is continuous, and if the restrictions affect it. The latest decisions give effect to the broad definition of commerce contained in one of. the older and leading cases on the subect: “The evidence shows that they and other defendants conspired to burden the free movement of live poultry into the metropolitan area. It may be assumed that some time after delivery of carload lots by interstate carriers to the receivers the movement of the poultry ceases to be interstate - commerce. Public Utilities Comm’n v. Landon, 249 U.S. 236 [237], 245, 39 S.Ct. 268, 63 L.Ed. 577; Missouri v. Kansas Natural Gas Co., 265 U.S. 298, 309, 44 S.Ct. 544, 68 L.Ed. 1027; East Ohio Gas Co. v. Tax Comm., 283 U.S. 465, 470, 471, 51 S. Ct. 499, 75 L.Ed. 1171. But we need not -decide when interstate commerce ends and that which is intrastate begins. The control of the handling, the sales and the prices at the place of origin before the interstate journey begins or in the state of destination where the interstate movement ends may operate directly to restrain and monopolize interstate commerce.” Without detailing the distributive system used by Standard, it is evident that there is constant interstate flow of the products it produces and distributes. And the interstate origin of the many competitive products, automobile supplies and accessories is also established. This satisfies fully the requirement of the statutes. For, if the exclusive supply agreements complained of by the Government he unreasonable or monopolistic in effect, they would affect the flow of commerce in several ways: (1) by channeling the products of Standard, regardless of interstate or intrastate source, through an excusive group of outlets; '(2) by denying to dealers the right to buy them; and (3) by denying to manufacturers of competitive products the right to sell to the controlled outlets. Whether they actually have such effect is our final inquiry. III. The Consequences of the Exclusive. Supply Provisions. (A) The “Appreciable Segment” Test: In the Associated Press case, the Supreme Court has set out criteria for determining the forbidden character of restrictive outlets under the Sherman Act, which are pertinent to the facts in this case: “The restraint on trade in news here were no less than those held to fall within the ban of the Sherman Act with reference to combinations to restrain trade outlets in the sale of tiles, Montague & Co. v. Lowry, 193 U.S. 38, 24 S.Ct. 307, 48 L.Ed. 608; or enameled ironware, Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, 48, 49, 33 S.Ct. 9, 14, 15, 57 L.Ed. 107, or lumber, Eastern States Retail Lumber Dealers’ Ass’n v. United States, 234 U.S. 600, 611, 34 S.Ct. 951, 954, 58 L.Ed. 1490, L.R.A.1915A, 788; or women’s clothes, Fashion Originators’ Guild v. Federal Trade Commission, supra; or motion pictures, United States v. Crescent Amusement Co., 323 U.S. 173, 65 S.Ct. 254 [89 L.Ed. 650]. Here as in the Fashion Originator’s Guild case, supra, 312 U.S. at page 465, 61 S.Ct. at page 707, 85 L.Ed. 949, ‘the combination is in reality an extra-governmental agency, which prescribes rules for the regulation and restraint of interstate commerce, and provides extra-judicial tribunals for determination and punishment of violations, and thus “trenches upon the power of the national legislature and violates the statute.” Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 242, 20 S.Ct. 96, 107, 44 L.Ed. 136.’ By the restrictive By-Laws each of the publishers in the combination has, in effect, ‘surrendered himself completely to the control of the association,’ Anderson v. Shipowners’ Ass’n, 272 U.S. 359, 362, 47 S.Ct. 125, 126, 71 L. Ed. 298, in respect to the disposition of news in interstate commerce. Therefore this contractual restraint of interstate trade, ‘designed in the interest of preventing competition,’ cannot be one of the ‘normal and usual agreements in aid of trade and commerce which may be found not to be within the [Sherman] Act * * *.’ Eastern States Lumber Dealers’ Ass’n v. United States supra, 234 U.S. at pages 612, 613, 34 S.Ct. at pages 954, 955, 58 L.Ed. 1490, L.R.A.1915A, 788.” This is anticipatory of the criterion of “appreciable segment” as a test of unreasonableness or monoplistic substantiality, established in later cases. Some writers have expressed the view that the more recent decisions, and especially the Yellow Cab decision, substitute a new and uniform concept or standard of illegality for the older ones under the Sherman Act, which considers the effect on “an appreciable segment” of commerce the test. They see in this the abandonment of the older, “quantitative” postulate which related the amount of the commerce involved to the whole commerce in the nation. But I find the nucleus of this norm not only in the Associated Press case, but in older cases. Thus, in a case involving control of advertising media in a certain field as the basis for a damage action under the Sherman Anti-Trust law, the Supreme Court held that it was invalid, although it applied to a limited geographic area or to a part of the commerce only. The Court used this language: “The record contains no suggestion by respondents or by either court that petitioner’s allegations are not sufficient to charge a violation of Secs. 1 and 2. Its right to recover does not depend upon the proportion that respondents control of the total farm paper advertisements in the entire country, and it was not required to prove that respondents imposed a restraint or attempted monopolization that would affect all commercial advertisements in all farm papers wherever published or circulated. The provisions of Secs. 1 and 2 have both a geographical and distributive significance and apply to any part of the United States as distinguished from the whole and to any part of the classes of things forming a part of interstate commerce. Standard Oil Co. v. United States, 221 U.S. 1, 61, 31 S.Ct. 502, 55 L.Ed. 619, 34 L.R.A.,(N.S.), 834, Ann.Cas.l912D, 734.” And there is one lower court, well considered decision which found an illegal restriction in a limitation to a particular large customer, — the United States Government. It was insisted at the oral argument that the late cases, especially the Yellow Cab case, having arisen under the Sherman Act, do not control here. Granted that these rulings interpret that Act, they are, nonetheless, applicable to the present case for the obvious reason that the Government in this case charges violations of both the Sherman and Clayton Acts. As a rule, language used in interpreting one statute is not conclusive of the meaning of other kindred statutes. HoweYer, the history of Anti-Trust legislation shows that less is required to prove illegality under the Clayton Act than under the Sherman Act. Rightly. For the object of the Qayton Act was to declare illegal, in their incipiency, acts which would only be illegal under the Sherman Act in their full fruition. Differently put, what, in its result, is an unreasonable restraint under the Sherman Act is, in its beginning, a substantial restraint under the Clayton Act, if it is of a nature likely to achieve such result. It is argued that to apply this criterion would result in anomalous situations: If the operators of stations, instead of agreeing to buy their “requirements” of petroleum products, agreed to buy a definite quantity over a period of time, sufficient to satisfy their needs, this arrangement would, just as effectively, shut out competition. And yet, it is insisted that, although such arrangement would achieve the same result, it would not fall within any of the prohibitions of the anti-trust statutes. But there is a distinction between the two situations. When a dealer agrees to take a specific amount of a product, there is a likelihood that he may, in case of failure of the supplier to comply with the agreement, or unexpected shortages or increased demands, or a desire to anticipate such shortages or demands, by overstocking, — seek competitive products. There is thus a possibility of access by competitors to the particular outlets. Under the “requirements” contracts, the chance is completly cut off. Briefly stated, without a “requirements” contract, competitors may, in time, induce dealers to handle their products. With a contract, they never can. There is opportunity to deal with the competitors, and, hence, possibility, — nay, probability, of freedom of action, when there is no restrictive contract. There is complete and final absence of freedom of dealing during the life of a contract, when it calls for exclusion. The shut-out is just as effective as an agreement to boycott products originating in interstate commerce. Both “restrain or control the supply entering and moving in interstate commerce” (B) Restraint: Entire or Fractional: (1) Comparative Figures: The turn which our consideration of the case has taken calls for a statement of additional facts which, in fairness to the defendants, should be referred to, because they are the foundation for the contention that the practices here under attack do not violate either statute. They also serve to point to the fact that, in this case, the problem which confronts the court is to determine, in the light of the latest cases of the Supreme Court, which of the two methods of assaying certain specific facts which, in the main, are not in dispute, should control. The facts to be alluded to present one facet of the problem. The practices which the Government seeks to prohibit are not of recent origin. To the contrary, they have been in effect for over 15 years. They are employed not only by Standard, but also, as Standard sought to show at the trial, — by its competitors in the Western Area, especially the “majors,” — Associated, Shell, General Petroleum, Texas Co., Union Oil Co., Richfield. Standard introduced, as a part of its defense, the various types of agreement through which the “majors” exercised control over the products sold at stations under contract to them. This, in order to show that the “prevalent practice” achieved exclusive control in one way or another. (Tr. pp. 1768 et seq., 1797 et seq.) The following statistical data, culled from the record, show the comparative position of Standard in relation to its major competitors, omitting, for brevity the comparative number of stations: Gasoline Sales. (000 gallons) Replacement Battery Sales. Certain general inferences were drawn from these facts, at the argument. They are: The actual increase in the sale of petroleum products corresponds to the rise in the whole industry. The number of outlets over a period of ten years has been reduced from an average of 7,650 to 6,000. Between 1936 and 1946, Standard sales of gasoline increased 58.8 per cent. The industry increase for the same period was 64.7 per cent. For lubricating oil, Standard’s increase was 62.9 per cent, the industry increase, 104.8 per cent. As to batteries, the increase in units for Standard was 46.5 per cent, for the industry, 41.8 per cent. The comparative figures, as to the increase for some of the other companies are: Gasoline: Union Oil Company, 90 per cent; General Petroleum, 165 per cent; and Tidewater Associated, 34 per cent. Lubricating Oil: Union Oil Company, 98.2 per cent; General Petroleum, 174.9 per cent; and Tidewater Associated, 54.8 per cent. Macmillan dispense their lubricating oil through some 10,000 accounts in the seven Western states. For Pennzoil Company, the outlets in 1916 were 2,000, in 1946, 12,-000. For Arthur Haven Company, the outlets were 3,500 in 1946, in 1947, 7,000. During this period, the number of outlets for Standard was 5,197. During the same period, the number of independent stations which handle gasoline of different companies, or, what has been referred to as “split pump” accounts, has increased, although they represent only 1.6 per cent of all the stations. Between 1931 and 1941,- — ■ a ten-year period, — Standard constructed only 8 per cent of the newly constructed service stations upon vacant sites. Between 1942 and 1947, Standard’s proportion of new construction was 8.7 per cent. (2) The Other Side of the Shield: The other aspect of the problem must take into consideration the following facts: The gallonage of gasoline marketed has risen and the value of the commerce in petroleum and other products was $68,000,-000 in 1947. The following statistical data bear on the extent of this commerce. Total Gross Quantities of Gasoline Shipped from Standard Oil Company of California Refineries (Richmond, El Segundo and Bakersfield). (42 gallon barrels) Year Calif. Ariz. Nevada Oregon Wash. Utah Idaho 1946 15,371,753 698,933 391,715 3,289,260 3,827,403 45,351 2,254 1947 18,106,78S 931,199 418,062 3,707,282 3,161,576 36,551 920 Note: Gasoline shipped above is in general delivered to Company’s storage. Requirements of all classes of trade are filled from such storage, and the Company has no records which would show what part of the above gasoline was received for distribution or sale to retail outlets. Total Gross Quantities of Automotive Lubricating Oil Sold by Standard Oil Company of California and Standard Stations, Inc. Such Oils were Shipped from Richmond and El Segundo Refineries (42 Gal. Barrels) Year Calif. Ariz. Nevada Oregon Wash. Utah Idaho 1946 492,226 27,012 9,569 63,525 79,982 17,016 14,177 1947 570,012 26,549 9,503 62,002 81,153 18,665 14,955 Note: Company records are not kept showing shipments by state of destination. Above represents sales by States — export sales are not shown. Total Gross Quantities of Gasoline Purchased or Acquired by Standard Oil Company of California (Other Than from Its Own California Refineries). (42 gallon barrels) Note: The above gasoline was acquired by purchase. Total Gross Quantities of Gasoline Sold by Standard Oil Company of California to Retail Dealers' — (42 Gallon barrels). Year Calif. Ariz. Nev. Oregon Wash. Utah Idaho 1946 3,225,122 393,467 197,310 861,865 1,038,245 331,431 347,054 1947 3,937,558 431,385 223,973 1,040,264 1,233,551 365,244 393,200 Total Gross Quantities of Automotive Lubricating Oils Sold by Standard Oil Company of California to Retail Dealers.) (42 gallon barrels) 1946 72,928 8,871 4,450 19,475 23,448 7,469 7,830 1947 77,128 8,432 4,373 20,342 24,148 7,134 7,686 Total Gross Quantities of Gasoline Sold at Retail Outlets Operated by Standard Oil Company of California (Standard Stations, Inc.) (42 Gallon Barrels). Year Calif. Arizona Nevada Oregon Wash. Utah Idaho 1946 4,990,166 285,078 90,125 439,695 548,110 110,693 57,548 1947 ' 5,343,888 293,355 112,179 502,070 604,133 121,109 67,200 Total Gross Quantities of Automotive Lubricating Oils Sold at Retail Outlets Operated by.Standard Oil Company of California (Standard Stations, Inc.) (42 Gallon Barrels). 1946 80,064 5,836 1,796 8,213 10,458 2,317 1,272 1947 77,265 5,210 1,969 8,311 10,380 2,259 1,369 Total Number of Tires, Tubes, Batteries and Other Automotive Accessories Shipped by Companies Manufacturing or Supplying the Same to’ Standard Oil Company of California and/or Standard Stations, Inc., or to Others On the Order of Standard Oil Company of California and/or Standard Stations, Inc., from States Outside of California, Oregon, Washington, Arizona, Nevada, Idaho, and Utah. Note: Source: (1) Alabama; (2) Pennsylvania; (3) Texas; (4) Oklahoma; (5) Michigan (3) Tlie Inconclusiveness of Comparative Figures: Over the Government’s objection, I allowed many comparative statistics, of which the foregoing are examples, to go into the record. This was consistent with the view that in resolving the issues of this case, the potential or actual effect of the agreements is important in determining unreasonableness of restraint under the Sherman Act and substantiality of restraint or tendency to create monopoly under the Clayton Act. But, while the comparative figures bear on the question, they are not determinate. Substantiality of restraint or tendency to create monopoly is established by (a) the market foreclosed, — here represented by the controlled units, — and (b) the volume of controlled business, totalling here in value $68,000,000. Fractionally speaking, the business done by the competitors with their own outlets or with those under contract is much greater than the business of Standard,- — both in volume and in money value. Nevertheless, the business of Standard is considerable. In effect, it amounts to a substantial lessening of competition and a monopoly of a sizeable segment of a line of commerce in a definite area — the seven Western states. What has the tendency to achieve such result becomes, in actual effect, an unreasonable restraint. Even before adopting the “appreciable segment” test, the Supreme Court sought to avoid a rigid formula for finding reasonableness or unreasonableness. In the Trenton Potteries case, Mr. Justice Stone stated: “Reasonableness is not a concept of definite and unchanging content. Its meaning necessarily varies in the different fields of the law, because it is used as a convenient summary of the dominant considerations which control in the application of legal doctrines. Our view of what is a reasonable restraint of commerce is controlled by the recognized purpose of the Sherman Law itself. Whether this type of restraint is reasonable or not must be judged in part at least, in the light of its effect on competition, for, whatever difference of opinion there may be among economists as to the social and economic desirability of an unrestrained competitive system, it cannot be doubted that the Sherman Law and the judicial decisions interpreting it are based upon the assumption that the public interest is best protected from the evils of monopoly * * * by