Hartford-Empire Co. v. United States, 323 U.S. 386 (1945), was a patent-antitrust case that the Government brought against a cartel in the glass container industry.. Upon the Government's petition for reconsideration or clarification, the Court adhered to the earlier ruling but added to it. . The cartel, among other things, divided the fields of manufacture of glass containers, first, into blown glass (allocated to Corning Glass Works) and pressed glass, which was subdivided into: products made under the suction process (allocated to Owens-Illinois Glass Co.), milk bottles (allocated to Thatcher Mfg. Co.), and fruit jars (allocated to Ball Bros. plus a fixed production quota for Owens-Illinois, and Hazel-Atlas Co.).United States v. Hartford-Empire Co., 46 F. Supp. 541, 615 (N.D. Ohio 1942); Hartford-Empire v. United States: Integration of the Anti-Trust and Patent Laws, 45 601, 614 (1945). The trial court found the cartel violative of the antitrust laws and the Supreme Court agreed that the market division and related conduct were illegal. The trial court required royalty-free licensing of present patents and reasonable royalty licensing of future patents. A divided Supreme Court reversed the requirement for royalty-free licensing as "confiscatory," but sustained the requirement for reasonable royalty licensing of the patents.
Background
The technology involved in this case concerned the manufacture of glass containers—notably, the "gob feeder" machinery for manufacturing jars, bottles, and other glass containers. The gob feed type of machine automatically makes glass containers by dropping a gob of molten glass through a hole into molds in a forming machine, the size and shape of the glass delivered being controlled by a mechanism known as a feeder machine; the feeder and the forming machine together constitute one fully automatic unit. At the time of the suit, Hartford-Empire Company owned or controlled all of the gob feeding patents in the glass container industry, and its business was the exploitation of these patents. Another type of machine is known as the "suction" machine, and it automatically sucks molten glass into a mold for blowing bottles.Hartford-Empire Co., 46 F. Supp. at 546–47.
The suction machinery was the first fully automatic glassware manufacturing machinery produced. Owens put it on the market in 1903 and controlled the patents on it. Owens licensed the use of the machinery to different manufacturers for only specific kinds of glassware, and thus set a market-division pattern that was later followed by Hartford in the licensing and leasing of its automatic feeders. For example, Owens licensed Ball Brothers to make fruit jars and licensed Hazel-Atlas to manufacture wide mouth glassware. After Hartford developed the gob feeder, which largely superseded the suction machinery, Hartford licensed and leased gob feeders in much the same manner that Owens had licensed its suction machines, that is, by issuing licenses to make only specific kinds of glassware. After patent interferences developed between Hartford and Empire, a subsidiary of Corning Glass, the companies settled their disputes by a 1916 agreement in which Hartford was granted an exclusive license by Corning's subsidiary to use the latter's patented glass making apparatus and processes for the production of glass containers while Corning obtained the exclusive right to Hartford's machinery and patents in Corning's lines of ware—the pressed and blown field or the non-container field. This gave Hartford a free hand in the glass container field.46 F. Supp. at 548.
From 1916 to 1924, competition arose between Hartford and Owens over gob feeder technology, including patent interferences and extensive litigation. In 1924, Hartford and Owens entered into an agreement giving Hartford an exclusive license on Owens's patents relating to feeders and forming machines, and giving Owens the right to use the Hartford patents for the manufacture of glassware. Owens was not to sell or license any of its gob feeding machinery and was not to engage in the pressed and blown glass fields that had previously been reserved to Corning. Owens received one-half of Hartford's licensing income over and above $600,000 per year. It was understood that Owens would be the only company operating with suction machinery. Hartford and Owen then proceeded to buy up the other patents in the glassware industry. Hazel-Atlas resisted Hartford and Owen until 1932, when Hartford, Owens and Hazel-Atlas entered into a series of agreements settling patent infringement litigation. Hartford granted to Hazel-Atlas the right to use Hartford patents and inventions, but Hazel-Atlas was not to license or sell such patents and inventions to anyone. Hazel-Atlas granted to Hartford the right to use Hazel-Atlas patents and inventions. Hazel-Atlas agreed to pay Hartford royalties for the use of the Hartford inventions. Hazel-Atlas was excluded from the pressed and blown field, which had previously been reserved to Corning. Hazel-Atlas and Owens were each to receive one-third of Hartford's licensing income over and above $850,000 per year. At this point the remaining opposition to Hartford collapsed and substantially everyone in the industry took a license from Hartford. By December 1939 when the Government brought this antitrust suit, only four small companies engaged in the manufacture of glassware were not under license and lease from Hartford; they represented less than 4% of the total production in the industry; and Hartford was suing three of them for patent infringement.46 F. Supp. at 549-50.
A series of purchases, agreements and mergers occurred that resulted in a situation where more than 94% of the total production of glassware on feeders was on feeders owned or controlled by Hartford, representing more than 96% of the total production on all types of glassware-making machinery. According to the district court, it was impossible for anyone to obtain glassware-making machinery except by virtue of a license from Hartford. Owens consistently refused to sell or license its suction machinery. The result was that no new concern could engage in the manufacture of glass containers except with the consent of Hartford, and that kept newcomers out of the industry.46 F. Supp. at 551-52.
Proceedings in district court
The United States sued the leading manufacturers of glass containers for violating the antitrust laws by "unlawfully conspiring, monopolizing, attempting to monopolize, and by unlawfully contracting, combining, and conspiring to restrain interstate and foreign trade and commerce, and more particularly by acquiring and maintaining monopolies of (a) patents covering the manufacture and licensing of glass-making machinery, (b) the manufacture and distribution of glass-making machinery, and (c) the manufacture, distribution, and sale of glass products, and by excluding others from the fair opportunity to engage freely and unrestrictedly in the interstate and foreign trade and commerce in said machinery and glass products."United States v. Hartford-Empire Co., 46 F. Supp. 541, 545 (N.D. Ohio 1942).
After 112 days of trial and a 12,000-page record, the district court found "that this violation of the laws was as deliberate as any that I can find in a review of anti-trust cases. The evidence is so conclusive that I can arrive at no other conclusion."46 F. Supp. at 553.
The court found that the 1916 agreement between Hartford and Empire to settle their patent interferences was a division of glassware markets "leaving the container field to Hartford and the non-container field to [Corning's subsidiary] Empire." In addition, the agreement "eliminated the impending competition between Hartford and the Corning interests in the glass making machinery field." The 1922 agreements "effectuated a merger of the Hartford-Fairmont and Empire companies into . . . the Hartford-Empire Company." In addition, "[t]he relations between Hartford and Corning were renewed and strengthened."46 F. Supp. at 555. The court stated of these agreements: "This plainly is an illegal, cooperative effort upon the part of Corning and Hartford to use the patent strength of each to protect the exclusive fields of the other. It is a cooperative effort for the purpose of maintaining monopolies."46 F. Supp. at 556. The court found that the parties' purpose and the result was monopolistic: [I]t is plain that the purpose of entering into this contractual relationship, both in 1916 and 1922, was, from Hartford's viewpoint, to eliminate Empire as a possible competitor in automatic machinery, to obtain Corning's support in getting and maintaining a monopoly on automatic machinery, and to eliminate Corning as a manufacturer in the container field; and, from Corning's viewpoint, to obtain from Hartford a monopoly in the manufacture of non-container ware.
The result of these contracts was to give Corning the power to exclude all others from Corning's fields. During the years that followed down to the filing of the complaint herein, there are many instances where manufacturers were kept out of Corning's fields, either by Hartford alone or by Corning's refusal to consent to their entrance into its fields.
The court found that while defendant Hartford's monopolistic purpose was to maximize its patent royalty income, defendant Owens's "main purpose was different. Owens wanted stabilization of the industry in the marketing of glass products so that higher prices might be charged. A means to that end was the control of the [gob] feeder business in the hands of one concern, with enough control retained to enable it to keep everyone in line."46 F. Supp. at 558. The operational plan of the two defendants was: The procedure to be followed in arriving at the ultimate goals of Hartford and Owens was the elimination of competition between themselves and their respective gob and suction processes, an attack against all outsiders until Hartford had complete control over all automatic machinery used in the production of glassware, and then the licensing by Hartford of every glassware manufacturer in the industry. Immediately after the agreement of April 9, 1924, the two companies began a systematic program for the elimination of all competition.46 F. Supp. at 564.
One of the purposes of the 1924 agreement between Hartford and Owens, the court found, "was the elimination of competition between the gob feed process and the suction process." There was no doubt, the court said, "that one of the primary purposes in entering into the agreement was to divide the industry into two branches, to wit, suction, to be controlled by Owens, and gob feed, to be controlled by Hartford. Furthermore, as a result of the elimination of competition in the gob feed process, the industry could be stabilized. It would, of course, be futile to eliminate competition in the gob feed process if competition between the suction and gob processes was to continue."46 F. Supp. at 567. A Hartford internal memorandum said: " H-F. shall restrict the issuance of further licenses in the container field in such manner . . . as shall preserve the general principle of preventing over plant-investment and over-production, as well as keeping the licenses out of the hands of objectionable and irresponsible parties. In like manner, Owens shall restrict the licensing of its suction feed and all developments thereof in such a way as to maintain a similar position." Another Hartford memorandum said that "this arrangement will practically divide the industry, so far as our two companies are concerned, into two branches—the suction process branch controlled by Owens and the gob feed branch controlled by H-F."46 F. Supp. at 566-67. Given these and similar documents, the court said, it was not necessary for it "to resort to inferences" to ascertain the defendants' monopolistic intent.46 F. Supp. at 568-69.