In the instant case, this court concludes that the
non-competition covenants exacted from Stoner and Stoner
Manufacturing were ancillary to the main purpose of lawful
contracts. From the view of both plaintiff and defendant, the
sale and acquisition of Stoner Manufacturing was clearly the
purpose behind the execution of the agreements. In fact, this
court finds plaintiffs' contention that the main purpose of the
sale and acquisition was to eliminate Stoner from competition to
be incredible, particularly in view of the fact that it was
Stoner who first approached Vendo concerning Vendo's possible
purchase of Stoner Manufacturing and it was Stoner who sought the
ten year as opposed to five year payout, which resulted in the
terms of the covenants being increased from five to ten years.
Moreover, based on the fact that Stoner became involved with
Lektro-Vend within a year or two after selling Stoner
Manufacturing, and considering the substantial financial
commitment of Vendo in purchasing Stoner Manufacturing, it
appears to this court that the restrictive covenants in the
instant case were clearly necessary to protect Vendo's interests
in the acquired business and employment of Stoner.
Additionally, plaintiffs' contention that the restrictive
non-competition covenants are overbroad is without merit under
the circumstances of this case.
Before the 1959 acquisition, it is indisputable that Stoner
Manufacturing as well as Vendo operated throughout the United
States and abroad and that Stoner Manufacturing's contract
provided for additional payments from Vendo based on world-wide
sales. Nevertheless, in addition to the preposterous contention
that Vendo's real purpose for the 1959 acquisition was to obtain
the covenants, plaintiffs argue that the covenants were illegal
(a) because they were "couched in terms of prohibiting
competition wherever the acquiring company (Vendo) was operating
or intended to operate" rather than being phrased in terms of
Stoner's operations, and (b) because they applied to "all
products Vendo manufactured and sold" rather than just those
manufactured by Stoner.
Even apart from the fact that we are dealing with "in-term" and
not post-term covenants, there is not the slightest basis for
holding the covenants illegal on either of the suggested grounds.
It should be emphasized that Stoner's misconduct did not relate
to some foreign land or some product far removed from Stoner's
prior operations. On the contrary, the secret development of the
Lektro-Vend machine took place right in Aurora, Illinois, and the
Lektro-Vend machine was also a candy-vending machine.
Also, Stoner's misconduct took place not long after the
execution of the 1959 agreements. In these circumstances, there
was no attempt whatever to enforce the covenants as to any place
or any product which the plaintiffs could conceivably claim was
"over broad". Vendo's state court suit and the judgments it
obtained were based only on activities of Stoner in the United
States and on Vendo's loss of its U.S. market share with respect
to candy machines. That being so, plaintiffs' objection to the
phrasing of the covenants is irrelevant. See, e.g., Newburger,
Loeb & Co. v. Gross, 563 F.2d 1057, 1082-83 (2nd Cir. 1977),
cited by the plaintiffs: "Thus, Gross has not proved that the
Partnership knowingly enforced the arguably overbroad portion of
the non-competition clause."
Additionally, there is authority for the position that,
irrespective of the language used in a non-competition covenant,
if the violation takes place within the area in which the
restraining covenant would be reasonable, the covenant should be
enforced limited to the area in which the restraint is
reasonable. J.D. Calamari & J.M. Perillo, The Law of Contracts
(1st Ed. 1970).
While it might be argued that the ten year restrictive
covenants in this case are overbroad, that is not the essential
inquiry here. Of primary importance is the "market impact" of the
alleged restraint (GTE Sylvania, supra, 433 U.S. at 50, 97 S.Ct.
at 2557), and "the challenged restraint's
impact on competitive conditions" (National Society of
Professional Engineers, supra, 435 U.S. 688, 98 S.Ct. 1363). The
way in which a covenant is phrased tells nothing about its
"market impact". And, unless there is a significant adverse
"market impact", the covenant does not violate the Sherman Act.
In Northwest Power, the Court specifically stated that "[t]o
prove an antitrust violation under the rule of reason,
[plaintiff] must show the defendants' conduct adversely affected
competition." Northwest Power Products, Inc. v. Omark Industries,
Inc., 1978-2 Trade Cases ¶ 62,142 (5th Cir.) at p. 75,042.
(Emphasis added). "Absent anti-competitive effect, an unlawful
intent will not establish a rule of reason violation . . . nor
will the use of unfair methods of competition." H & B Equipment
Co. v. International Harvester Co., 1978-2 Trade Cases ¶ 62,136
(5th Cir. at p. 75,012).
Plaintiffs have failed to carry their burden of establishing an
adverse "market impact" that would render these covenants
unreasonable under the Rule of Reason and, therefore, violative
of § 1 of the Sherman Act. E.g., United States v. Empire Gas Co.,
537 F.2d 296, 307-08 (8th Cir. 1976); Newburger, Loeb & Co. v.
Gross, 563 F.2d 1057, 1082-83 (2d Cir. 1977).
As the following discussion makes clear, plaintiffs have not,
nor could they in this court's opinion, establish that the five
year restrictions, the enforcement of which were limited to the
Aurora, Illinois area, adversely affected the market or
competition so as to render these covenants unreasonable and
violative of the anti-trust laws.
Finally, this court concludes that neither plaintiffs' § 2
Sherman Act claim nor its § 7 Clayton Act claim is supported by
the record so that these otherwise lawful restrictive covenants
are rendered unlawful by these other alleged monopolistic
Section 2 of the Sherman Act provides in pertinent part that:
Every person who shall monopolize, or attempt to
monopolize, . . . any part of the trade or commerce
among the several States, or with foreign nations,
shall be deemed guilty of a misdemeanor. . . .
In order to prove an attempt to monopolize, the plaintiff must
establish: (1) the relevant market in which the attempt allegedly
took place; (2) a dangerous probability that the defendant would
have achieved monopoly power in that market; and (3) the
defendant's specific intent to achieve such monopoly power. See,
e.g., Walker Process Equipment, Inc. v. Food Machinery & Chemical
Corp., 382 U.S. 172, 177-78, 86 S.Ct. 347, 350, 15 L.Ed.2d 247
(1965); Mullis v. Arco Petroleum Corp., 502 F.2d 290, 295-97 (7th
Plaintiffs do not contend that Vendo ever had a monopoly — an
initial prerequisite to "monopolization" under Section 2 of the
Sherman Act. Instead, plaintiffs charge that Vendo has attempted
to monopolize the manufacture of "coin operated food and beverage
vending machines" in violation of Section 2.
However, as the Supreme Court pointed out in American Tobacco
Co. v. United States, 328 U.S. 781, 785, 66 S.Ct. 1125, 1127, 90
L.Ed. 1575 (1946), the offense of attempt to monopolize requires
proof of "the employment of methods, means and practices which
would, if successful, accomplish monopolization, and which,
though falling short, nevertheless approach so close as to create
a dangerous probability of it. . . ."
Plaintiffs have failed to prove the requisite elements of a
Section 2 offense for the following reasons.
In arguing that Vendo had the requisite power to support a
finding of dangerous probability, plaintiffs offer bare
statistics as to Vendo's size, market share, sales, and profits
and then sweepingly conclude that "[t]he evidence in this record
has sufficient specificity as to relevant market, total market
and market shares to satisfy any standards that may be required
under the reported cases." However, plaintiffs not only
misconceive the applicable legal standard, but, in addition, an
analysis of Vendo's business refutes any notion of a dangerous
probability of achieving monopoly power.
Although not dispositive of the instant case, Vendo's business
subsequent to the purchase of Stoner Manufacturing is worth
Plaintiffs cite the fact that Vendo's sales and profits
increased from 1955 to 1966, yet fail to note that between 1960
and 1963, the initial years of the "fabulous 60's", Vendo's sales
declined from $61 million to $52 million and its profits fell
from $3.1 million to $1.9 million. In 1966, the best year Vendo
ever had, its net income as a percentage of sales was only 7%.
Since then that figure has averaged only 0.7%, sales have been
stagnant (even ignoring inflation), and profits have declined,
culminating in significant losses in the last four years
totalling nearly ten million dollars.
Vendo's failing health is reflected in its market share
statistics as well. In every area of its business, Vendo's share
has declined. In operator products, Vendo fell from a high of
22.5% in 1966 to a low of 7.4% in 1974. As the Illinois Supreme
Court found in the ten years following the Stoner acquisition,
Vendo's share of the candy market was cut in half. 58 Ill.2d at
311, 321 N.E.2d 1. By 1972, Vendo was completely out of the candy
and cigarette vending machine business. Under plaintiffs'
definition of the relevant market and the figures they have
offered, Vendo's share declined from 33% in 1966 to 24% in 1973.
Plaintiffs argue that 1959-66 is "the time period most
immediately relevant to this suit." Even if this were correct —
and no support is cited for such a contention — the test in an
attempt case (as previously indicated) is whether there is
dangerous probability that defendant would attain monopoly power.
Here, rather than speculating as to what would happen in the
future (as most courts must of necessity do in evaluating alleged
attempts to monopolize), this court has the benefit of observing
what actually happened in the marketplace. Vendo did not achieve
a monopoly or come dangerously close.
Furthermore, plaintiffs do not offer one case in which a
finding of an attempt to monopolize was based on a market share
of the size attributed to Vendo — even apart from the fact that
Vendo's share has been declining. Compare, e.g., United States v.
Empire Gas Corp., 537 F.2d 296, 305-07 (8th Cir. 1976), cert.
denied, 429 U.S. 1122, 97 S.Ct. 1158, 51 L.Ed.2d 572 (1977);
Hiland Dairy, Inc. v. Kroger Co., 402 F.2d 968, 973-75 (8th Cir.
1968), cert. denied, 395 U.S. 961, 89 S.Ct. 2096, 23 L.Ed.2d 748
(1969); Cal Distributing Co. v. Bay Distributors, Inc.,
337 F. Supp. 1154, 1159-60 (M.D.Fla. 1971); Allen Ready Mix Concrete
Co. v. John A. Denie's Sons Co., 1972 Trade Cases ¶ 73,955
(W.D.Tenn.) at pp. 92,005-07; SCM Corp. v. Radio Corp. of
America, 318 F. Supp. 433, 472-73 (S.D.N.Y. 1970); Diamond
International Corp. v. Walterhoefer, 289 F. Supp. 550, 578 (D.Md.
1968). Indeed, these cases demonstrate that not even a 50% market
share is in itself sufficient to establish the requisite
In Empire Gas, supra, the Eighth Circuit held that, ". . .
even if we accept the Government's survey as proof that Empire
had 50% of the Lebanon market and 47% of the Wheaton market, that
alone is not sufficient to show a dangerous probability of
success." 537 F.2d at 305. The Government argued that Empire's
large market shares in conjunction with its anticompetitive
conduct gave rise to a dangerous probability that it would be
able to control prices in the two markets. The Court concluded,
however, that there was no proof that the "competitors in these
areas were susceptible to Empire's intimidation." (Ibid, emphasis
the Court's.) The Court added:
There is insufficient proof that the competitors of
Empire: (a) raised or fixed prices because of
Empire's threats; (b) stopped soliciting Empire
customers; or (c) decided not to enter the LP
business or decided to leave the business on account
of defendant's action.
Ibid. Nor was the Court persuaded on the dangerous probability
issue by the Government's expert economist who testified at the
trial on the issue. The Eighth Circuit summarized its ruling on
this issue as follows:
Taking the evidence of dangerous probability of
success as a whole, as is proper in an antitrust
case . . . we cannot find the requisite proof. The
Government established that: (a) Empire had a large
share of the market in Lebanon and Wheaton in 1972:
about 50%; (b) it has engaged in anticompetitive
conduct in various areas, which has not been shown to
have been effective in the Lebanon or Wheaton areas;
(c) the price of LP in Lebanon may be slightly higher
than in some other areas, but the reasons for this
are a matter of speculation; (d) the defendant has
had a fairly high rate of profit for the past ten
years. We cannot conclude from this inconclusive
evidence that there is a dangerous probability that
the defendant will be able to monopolize the LP gas
business or exert control over prices or competition
in the Lebanon or the Wheaton market areas.
537 F.2d at 306. See also, e.g., Diamond International Corp.,
supra, similarly holding that even a 51% share was insufficient
in the circumstances of that case. 289 F. Supp. at 578.
Even plaintiffs' economist testified that knowledge of a firm's
market share is an insufficient basis for determining that firm's
market power. He stated that, besides market share, one needs to
know such things as the nature of the products being produced,
the ease of entry into the market, and the market shares of other
competitors. Plaintiffs offered the court little or no
information on competitors' market shares, and their economist
made no attempt to gather such information in arriving at his
opinions.*fn7 The evidence with regard to ease of entry
contradicts his opinion on market power.
In Empire Gas,*fn8 supra, even concededly predatory conduct
plus a 50% market
share (and over 3,000 non-competition covenants) were found by
the Eighth Circuit to be insufficient to establish any real
hazard to competition in the relevant market and thus were found
to be insufficient to satisfy the dangerous probability test. 537
F.2d at 306-07. See also Hiland Dairy, Inc. v. Kroger Co.,
402 F.2d 968, 973-75 (8th Cir. 1968), cert. denied, 395 U.S. 961, 89
S.Ct. 2096, 23 L.Ed.2d 748 (1969) (holding that "loss leader"
sales in that case did not give rise to dangerous probability of
In this case, the acts claimed by plaintiffs were not predatory
and are nowhere near sufficient to create such a danger of
monopoly, not only because of Vendo's declining market position,
but more significantly because the acts relied upon — Vendo's
acquisitions, its alleged policy concerning non-competition
covenants, and the state court suit against Stoner and Stoner
Investments — have not been directed toward or caused any injury
to other companies in the vending machine industry. Plaintiffs do
not even contend that Vendo ever sought to injure companies such
as National Vendors, Automatic Products, and RMI, which have in
fact captured large market shares while Vendo's market position
has deteriorated. Indeed, plaintiffs concede that Automatic
Products was unhindered by Vendo's alleged overt acts. By
contrast, in Kearney & Trecker v. Giddings & Lewis, Inc.,
452 F.2d 579 (7th Cir. 1971 cert. denied 405 U.S. 1066, 92 S.Ct.
1500, 31 L.Ed.2d 796 (1972),*fn9 the overt acts, had they been
successful, would have led to control of the market.
The primary evidence offered by plaintiffs of Vendo's specific
intent to establish monopoly power is the inference that
plaintiffs would have this court draw that Vendo's negotiation
and enforcement of the non-competition covenants were overt acts
in furtherance of an attempt to monopolize.*fn10 However, a
specific intent to
monopolize cannot be inferred from these acts. As the Ninth
Circuit held in Chisholm Bros. Farm Equipment Co. v.
International Harvester Co., 498 F.2d 1137, 1145 (9th Cir.),
cert. denied, 419 U.S. 1023, 95 S.Ct. 500, 42 L.Ed.2d 298
(1974): ". . . the evidence did not disclose that [defendant's]
actions were not predominantly motivated by legitimate business
objectives. Accordingly, [plaintiffs'] case under Section 2 of
the Sherman Act must fail."
Specific intent to monopolize also cannot be inferred from
Vendo's acquisitions. There is no evidence that any acquisition
was anticompetitive in intent or effect, and given the fact that
there was no evidence that Vendo's acquisitions of Vendorlator
and Stoner Manufacturing combined harmed competition or injured
other competitors, specific intent to monopolize cannot be
inferred from them. Similarly, in United States v. Columbia Steel
Co., 334 U.S. 495, 533, 68 S.Ct. 1107, 1127, 92 L.Ed. 1533
(1948), the Supreme Court refused to infer specific intent to
monopolize from a large acquisition by U.S. Steel; according to
the Court, ". . . the acquisition of a firm outlet to absorb a
portion of Geneva's rolled steel production seems to reflect a
normal business purpose rather than a scheme to circumvent the
Finally, no specific intent to monopolize can be inferred from
Vendo's alleged policy of requiring and enforcing covenants not
to compete. The covenants in the employment and acquisition
agreements with Stoner and Stoner Investments, as already
discussed, were reasonable in scope and duration as enforced and
ancillary to the lawful acquisition and there is no evidence that
they had a damaging effect on competition. Furthermore, there is
no evidence that other covenants which Vendo obtained or sought
to enforce were intended to have or did have a damaging effect on
competition or plaintiffs.
There was, in short, no proof of "predatory conduct directed to
accomplishing the unlawful purpose" of achieving monopoly power;
and without such proof, there can be no § 2 liability. Chisholm
Bros. Farm Equipment, supra, 498 F.2d at 1144, quoting Hallmark
Industry v. Reynolds Metals Co., 489 F.2d 8, 12 (9th Cir. 1973),
cert. denied, 417 U.S. 932, 94 S.Ct. 2643, 41 L.Ed.2d 235 (1974).
Taking into account Vendo's "capacity to commit the offense the
scope of its objective, and the character of its conduct" and
more fundamentally its "actual or threatened impact on
competition in the relevant market", as Kearney & Trecker
requires (452 F.2d at 598), plaintiffs' § 2 contention must be
While at first blush plaintiffs § 7 Clayton Act claim may
appear to be meritorious, plaintiffs have failed to establish the
adverse market impact of Vendo's acquisition of Stoner
Contrary to plaintiffs' contention, as this court views the
evidence presented, it appears that rather than "substantially
lessening competition" the merger in the instant case, if it
affected the relevant line of commerce at all, affected it in
such a way as to promote competition.
Nevertheless, in establishing a § 7 violation, plaintiffs must
demonstrate an adverse market impact. Plaintiffs have failed to
do this. Rather, they have proffered statistics, which while
sufficient to withstand a motion to dismiss, do not establish a
substantial lessening of competition.
The fact that Stoner was able to take the money he received
from his sale of Stoner Manufacturing and his employment with
Vendo and set up Lektro-Vend, a new vending machine manufacturer,
which plaintiffs contend could have been a significant
competitor, does not satisfy plaintiffs burden that Vendo's
acquisition of Stoner Manufacturing substantially lessened
Plaintiffs have not adduced the slightest evidence of any
anticompetitive effects of the acquisition. Indeed, the evidence
the contrary. As plaintiffs admit, Stoner's share of the national
candy vending machine business had dropped from 71% in 1955 to
only 31% at the time of the acquisition in 1959. And, as the
Illinois Supreme Court found, during 1959 to 1969 following the
acquisition, Vendo's share of this business declined from 31% to
Plaintiffs have erred in assuming that even a true horizontal
merger can be condemned merely on the basis of statistical
evidence of market shares. Such an approach has been repeatedly
condemned by the Supreme Court and other federal courts,
including the Seventh Circuit.
As the Supreme Court held in Brown Shoe Co. v. United States,
370 U.S. 294, 321-322, 82 S.Ct. 1502, 1522, 8 L.Ed.2d 510 (1962),
". . . Congress indicated plainly that a merger had to be
functionally viewed, in the context of its particular industry,"
and ". . . only a further examination of the particular
market — its structure, history and probable future — can provide
the appropriate setting for judging the probable anticompetitive
effect of the merger." 370 U.S. at 322 n. 38, 82 S.Ct. at 1522 n.
On that basis, in United States v. General Dynamics Corp.,
415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974), affirming Judge
Robson's dismissal of a Government § 7 action, the Supreme Court
. . the District Court was justified in viewing the
statistics relied on by the Government as
insufficient to sustain its case. Evidence of past
production does not, as a matter of logic,
necessarily give a proper picture of a company's
future ability to compete. . . . Thus, companies that
have controlled sufficiently large shares of a
concentrated market are barred from merger by § 7,
not because of their past acts, but because their
past performances imply an ability to continue to
dominate with at least equal vigor.
Irrespective of the company's size when viewed as a
producer, its weakness as a competitor was properly
analyzed by the District Court and fully
substantiated that court's conclusion that its
acquisition by Material Service would not
`substantially . . . lessen competition. . . .'
415 U.S. at 501, 503-504, 94 S.Ct. at 1195.
Notwithstanding the Government's proof in that case that the
merger resulted in a combined market share of nearly 22%, the
Supreme Court concluded:
Irrespective of the markets within which the
acquiring and the acquired company might be viewed as
competitors for purposes of this § 7 suit, the
Government's statistical presentation simply did not
establish that a substantial lessening of competition
was likely to occur in any market.
415 U.S. at 511, 94 S.Ct. at 1200.