This is an appeal, section 238 of the Judicial Code, 28 U.S.C.A. § 345, from so much of a decree of a District Court for Southern New York as enjoins the appellant from leasing its tabulating and other machines upon the condition that the lessees shall use with such machines only tabulating cards manufactured by appellant, as a violation of section 3 of the Clayton Act, 38 Stat. 731, 15 U.S.C. § 14 (15 U.S.C.A. § 14).
The government brought the suit against appellant and three other corporations, all manufacturers of machines performing substantially the same functions as appellant's, to restrain the use by each of the defendants of a specified type of lease of their machines as a violation of the Clayton Act (38 Stat. 730), and to declare void under the Sherman Anti-Trust Act (15 U.S.C.A. §§ 1-7, 15 note) a contract into which they had entered, by which each agreed to use that type of lease, and not to solicit the lessees of machines of the others to purchase tabulating cards which it manufactures. The case was tried upon the pleadings and a stipulation of facts, in which the defendants consented to a decree canceling their agreement with each other. Two of the defendants have been eliminated from the suit; one by dissolution and the other by merger with appellant. A third defendant, Remington Rand, Inc., has stipulated that the decree to be entered against it shall conform to that entered against appellant upon this appeal.
Appellant's machines and those of Remington Rand, Inc., are now the only ones on the market which perform certain mechanical tabulations and computations, without any intervening manual operation, by the use in them of cards upon which are recorded data which are the subject of tabulation or computation. Appellant manufactures three types of machines, known as punching machines, sorters, and tabulators. The punching machines are used to perforate cards, called tabulating cards, in such manner that the positions of the perforations indicate numerical or other data. When the cards are passed through the sorter or tabulator, control of its mechanism is effected by electrical circuits established by contacts through the perforations. The cards are thus made permanent records of information, and by the perforations are given such form that they may be used, as often as required, to control the function of the machines through which they are passed. The sorting machines are used to sort the perforated cards so as to classify them by the selection and segregation, in the desired manner, of those signifying any particular type of information. The tabulating machines are used to record the information denoted by the perforated cards or to make computations based upon it. In the Remington Rand machines the control is not electrical, but is accomplished by the use of cards which admit of the movement, into the perforations, of small pins which, by linkage, guide the mechanical operation of the machine so as to effect the desired result.
To insure satisfactory performance by appellant's machines it is necessary that the cards used in them conform to precise specifications as to size and thickness, and that they be free from defects due to slime or carbon spots, which cause unintended electrical contacts and consequent inaccurate results. The cards manufactured by appellant are electrically tested for such defects.
Appellant leases its machines for a specified rental and period, upon condition that the lease shall terminate in case any cards not manufactured by the lessor are used in the leased machine. A special form of lease has been granted to the government by which it is permitted to use cards of its own manufacture upon paying a 15 per cent. increase in the rental of the leased machines, but upon condition that the lease shall be terminable if the government uses such cards without payment of the additional rental.
Appellant insists that the condition of its leases is not within the prohibition of the Clayton Act (38 Stat. 730), and it has assigned as error the conclusion of the District Court that the condition tends to create monopoly. But its principal contentions are that its leases are lawful because the protection secured by the condition does not extend beyond the monopoly which it has acquired by patents on the cards and on the machines in which they are used, and that in any case the condition is permissible under section 3 of the Clayton Act (15 U.S.C.A. § 14) because its purpose and effect are only to preserve to appellant the good will of its patrons by preventing the use of unsuitable cards which would interfere with the successful performance of its machines.