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Pick Mfg. Co. v. General Motors Corp.

December 19, 1935


Appeal from the District Court of the United States for the Eastern District of Wisconsin; Ferdinand A. Geiger, Judge.

Author: Lindley

Before SPARKS and ALSCHULER, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

This is an appeal from a decree dismissing for want of equity a bill of complaint alleging violation of the provisions, particularly section 3, of the Clayton Act, 15 U.S.C.A. § 14.

Appellant manufactures and sells replacement parts for various kinds of automobiles, including those manufactured and sold by General Motors Corporation and its subsidiaries. General Motors manufactures, and its subsidiaries, the Buick Motor Company and Chevrolet Motor Company, sell automobiles. They also manufacture, and have manufactured by others, according to specification, and sell repair and replacement parts for such automobiles. Certain other subsidiaries make and sell to the trade, generally, replacement parts for cars other than those built by General Motors. In the sale of such parts, therefore, appellant and appellees are competitors.

Each contract of the Chevrolet Motor Company with its distributor of, or dealer in, Chevrolet cars and replacement parts contains substantially the following: "Dealer will agree that he will sell genuine, new Chevrolet parts and accessories at not more than the current list price issued by seller. Dealer will agree 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 or authorized by the Chevrolet Motor Company, division of General Motors Corporation. It is agreed that dealer is not granted any exclusive selling rights in genuine Chevrolet parts."

The contract of the Buick Company is to the same effect.

Appellant contends that the inevitable effect of these provisions is to prevent dealers in General Motors cars and replacement parts from purchasing and using for General Motors cars replacement parts manufactured by appellant and other independent makers of such parts; that competition in the sale of replacement parts is and will be thereby substantially lessened and decreased; and that, therefore, the contractual provisions are in violation of the Clayton Act.

Appellees deny that the effect of the contractual provisions aforesaid is or will be to lessen competition in the sale of replacement parts, or that any monopoly was attempted or intended or has, in fact, resulted or will result.

It appears in evidence that General Motors gives the purchaser of each of its cars a warranty against defects in material and workmanship for a period of 90 days, or until the vehicle has been driven 4,000 miles, whichever event shall first occur, and that the warranty does not apply to any vehicle which shall have been repaired or altered so as, in the judgment of the manufacturers, to affect its stability and reliability. Appellees contend and the trial court found that the provisions in the agreements with dealers complained of are, therefore, reasonable and necessary to further and protect their business as well as the interests of buyers of cars of their manufacture.

The District Court said: "That the provision in the contracts with its dealers, whereby the dealer agrees not to sell, offer for sale or use in the repair of automobiles for which he is a dealer, secondhand or used parts or any part or parts that are not genuine or authorized is entirely appropriate and legitimate in carrying out the above mentioned warranties, policies or obligations of the manufacturer to customers and to others and is proper and reasonable in the furtherance and protection of its business. That the effect of the complained of clause in the dealers' contracts has not been in any way to substantially lessen competition or to create a monopoly in any line of commerce, and the contract is not in violation of * * * section 3 of the Clayton Act."

In the restatement of the law of contracts of the American Law Institute, c. 18§ 516, p. 1001, the legal effect of the Clayton Act is simply defined as follows: "* * * If a seller * * * is engaged in interstate commerce it is illegal to sell or to lease on the condition or agreement that the purchaser or lessee shall not use or deal in the goods of a competitor if the effect of the agreement will be to lessen competition substantially."

With this statement we are in accord, and the cases relied upon by appellant, we believe, support the same and do not negative validity of the contractual provisions now under consideration.

Thus, in Lord v. Radio Corporation (D.C.) 24 F.2d 565, affirmed (C.C.A.) 28 F.2d 257, certiorari denied, 278 U.S. 648, 49 S. Ct. 83, 73 L. Ed. 560, Radio Corporation was the manufacturer of a patented circuit for radios. It granted to competing manufacturers of radios, licenses to manufacture these circuits, with the conditions that the competing manufacturers buy also from the manufacturer, and place in the radios made and sold by the licensee under the license, tubes which the licensor alone manufactured. This the court found to be in direct conflict with the provisions of the Clayton Act, i. e., illegal, because made on the ...

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