UNITED SHOE MACHINERY REVISITED
| Date | 01 July 2004 |
| Published date | 01 July 2004 |
| Pages | 345-408 |
| DOI | https://doi.org/10.1016/S0193-5895(04)21006-5 |
| Author | Roger D. Blair,Jill Boylston Herndon |
UNITED SHOE MACHINERY
REVISITED
Roger D. Blair and Jill Boylston Herndon
ABSTRACT
In United States v. United Shoe Machinery Corp., United Shoe Machinery
(USM) was found guilty of illegal monopolization due to its leasing practices.
Existing scholarship on this case largely focuses on the issue of leasing
versus selling. In this article, we provide a more comprehensive analysis of
this important decision. In addition, we examine USM’s antitrust experience
before and after the famous 1953 case. We find that USM’s business practices
were largely procompetitive and, therefore, did not warrant condemnation.
1. INTRODUCTION
When Congress enacted the Sherman Act in 1890, it condemned “[e]very person
who shall monopolize...any part of the trade or commerce among the several
States.”1Since the statutory language failed to articulate what constituted illegal
monopolization, it was left to the federal courts to develop the standards for
illegal monopolization in a common law fashion. One of the major steps in the
evolutionary process was Judge Wyzanski’s opinion in United Shoe Machinery
(USM).2In spite of the fact that this is only a district court opinion, its importance
in understanding the modern test for illegal monopolization can be seen by its
continuing prominence in the casebooks.3This case has also attracted academic
commentary – some favorable and some unfavorable – evaluating the wisdom of
Antitrust Law and Economics
Research in Law and Economics, Volume21, 345–408
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0193-5895/doi:10.1016/S0193-5895(04)21006-5
345
346 ROGER D. BLAIR AND JILL BOYLSTON HERNDON
the court’s ruling.4In this article, we do two things. Primarily, we evaluate Judge
Wyzanski’s opinion. But we also examine USM’s rich antitrust experience before
and after the 1953 case.
We examine USM from the perspective afforded by the modern test of illegal
monopolization articulated in the Supreme Court’s Grinnell decision:
The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of
monopoly power in the relevant market and (2) the willful acquisition or maintenance of that
power as distinguished from growth or development as a consequence of a superior product,
business acumen, or historic accident.5
Although Grinnell occurred after USM, this standard frames the economic inquiry
in a useful way as it distinguishes the structural and behavioral components of
illegal monopolization.6
In our analysis, we do not focus exclusively on USM’s leasing system, which
has received considerable academic attention. Instead, we examine each of
the court’s competitive concerns and show why USM’s practices can be better
characterized as procompetitive rather than anticompetitive.
2. ANTITRUST HISTORY OF THE UNITED SHOE
MACHINERY CORPORATION
Prior to the 1953 case, USM had considerable experience battling the govern-
ment’s challenges to its practices, and it fared considerably better in its earlier
skirmishes than it did in 1953. A review of USM’sprevious antitrust experience is
helpful in understanding its subsequent structure and conduct. Thus, we begin our
analysis with some background on the formation of the United Shoe Machinery
Corporation, the characteristics of the shoe machinery market, and USM’s role in
that market.
2.1. Formation of the United Shoe Machinery Corporation
USM’s birth can be traced to February 1899 when sevencompanies (two of which
were subsidiaries) merged to form the United Shoe Machinery Company of New
Jersey (USM-NJ).7The original companies were Goodyear Shoe Machinery
Company (and its subsidiary, International Goodyear Shoe Machinery Company),
Consolidated & McKay Lasting Machine Company, McKay Shoe Machinery
Company, Davey Pegging Machine Company, and Eppler Welt Machine Com-
pany (and its subsidiary, International Eppler Welt Machine Company).8These
United Shoe Machinery Revisited 347
companies were manufacturers, sellers, lessors, and patentees of shoe machinery.
Although the combined market share of the first three companies was on the
order of 60% or more, the machines that they manufactured actually performed
different functions for the most part.9Consequently, the merger could fairly be
characterized as a conglomerate merger of the product extension variety, rather
than a horizontal merger.10 Since the merging firms were not actually competing
at the time of the merger, there was no obvious competitive significance.11 This,
of course, is usually the case for conglomerate mergers.
The newly formed company made the following business decisions that it
continued until the 1953 suit: (1) It consolidated its manufacturing activities in its
Beverly, Massachusetts plant. (2) It formed a service organization that provided
the maintenance, repair, and informational requirements of its customers without
separate charge. (3) It pursued a policy of leasing rather than selling many of its
machines, a practice that previously had been followed by the key constituent
companies.12 As we will see, these last two practices were central to Judge Wyzan-
ski’s decision in the 1953 antitrust dispute. Before turning to this pivotal case,
however, we review United Shoe’s earlier antitrust battles with the government.
2.2. The 1918 Decision13
In 1911, twelve years after the formation of the United Shoe Machinery Company
of New Jersey,the government filed suit against USM-NJ alleging that the original
merger, as well as subsequent acquisitions, constituted a combination in restraint
of trade in violation of Section 1 of the Sherman Act.14 The government also
charged USM-NJ with Section 2 monopolization violations.15 Aside from the
original merger, the government’s chief competitive concern focused on USM-
NJ’s leasing practices.16 The district court found in favor of USM-NJ, and the
government appealed. The Supreme Court, in a divided opinion, upheld the lower
court’s ruling, which found the company’s structure and conduct competitively
unobjectionable.
As for the merger itself, the district court did not find any antitrust violation
for two principal reasons. First, the court did not consider the merging companies
to have been competitors because they were not producing substitutable goods;
rather, the companies were producing complementary goods.17 In a related
decision – addressing the government’s criminal case against the officers of
USM-NJ on the same allegations – the Supreme Court commented that
it is hard to see why the collective business should be any worse than its component parts. It
is said that from 70 to 80 per cent of all the shoe machinery business was put into a single
To continue reading
Request your trial