Intellectual Property Law for Engineers, Scientists, and Entrepreneurs. Howard B. Rockman
of the early twentieth century have been almost entirely supplanted by the operation of buses and a few light rail train systems these days. Many commentators write that the Great Depression of the 1930s resulted in the closure of many streetcar lines in North America, but the onset of WWII delayed the closure of some streetcar lines as civilians used them to commute to war‐related factory jobs during a time when rubber tires and gasoline were rationed. After WWII, automobile use continued to increase, and was assisted in the 1940s and 1950s by the passage of the Trans‐Canada Highway Act of 1948. Also, the Federal Aid Highway Act of 1956 in the United States was enacted. Some commentators have stated that declining ridership and traffic jams caused on city streets by streetcars are often cited as reasons to shut down the remaining streetcar lines in various cities. However, while these facts may or may not be true, the demise of city streetcars systems was aided by several companies in the United States who took unlawful measures to increase the sales of their products.
The abandonment of city streetcar systems in the mid‐twentieth century led to accusations of a conspiracy that a combination of automobile, oil, and tire manufacturers purposefully shut down streetcar systems to further the use of buses, gasoline, and rubber tires, which products the alleged conspirators were selling.
On April 9, 1947, nine corporations, including National City Lines, Pacific City Lines, General Motors, Firestone Tire Company, Mack Manufacturing Corporation, Phillips Petroleum, Standard Oil of California, and Federal Engineering Corporation, along with seven individuals, were indicted by the U.S. Justice Department, criminally charging them with, among other things, conspiring to monopolize certain portions of interstate commerce in the public transit sector, in violation of Section 2 of the United States Sherman Anti‐Trust Act. The defendants were charged, more specifically, with having conspired to monopolize the portion of interstate commerce in the United States consisting of the sale of buses, petroleum products, tires, and tubes used by local transportation systems in those cities in which two of the defendants, National and Pacific, owned, controlled, or had a substantial financial interest in the streetcar systems. The indictment stated that the supplier defendants, which were Firestone, Standard Oil, Phillips, General Motors, and Mack, would furnish capital to defendants, National and Pacific, and these two latter companies would purchase city streetcar companies, dismantle the streetcar systems, and then cause their operating companies to purchase from the supplier companies substantially all their requirements of tires, tubes, and petroleum products. Or the city transit systems were converted from trolleys to buses. It was also alleged that the money made available by the supplier defendants would be utilized by National and Pacific to purchase control of, or a financial interest in, local public transportation systems in various states. It was also alleged that National and Pacific and their operating companies would not renew or enter into any new contracts for the purchase or use of products, such as tires, tubes, oil, and buses, other than from the supplier defendants once the conversion was completed.
The facts upon which these allegations in the indictment were based are that, as of April 1, 1939, one of the defendants, National City Lines, Inc., had risen from a humble beginning in 1920, operating two second‐hand buses in Minnesota, to ownership or control of 29 operating transportation companies located in 27 cities in 10 states across the United States. When the indictment was returned in 1947, defendants Pacific and National had expanded their ownership or control to 46 transportation systems located in 45 cities in 16 U.S. states. The supplier defendants were manufacturers and marketers of buses, tires, tubes, and petroleum products, necessarily used by the local operating bus companies of National and Pacific City Lines.
National and Pacific City Lines and their suppliers entered into various oral and written agreements where the operating companies for the transit systems, National and Pacific, purchased preferred stock from the supplier defendants at prices in excess of the prevailing market prices, amounting to over US$9 million. The money received from the sale by National and Pacific of such stock was used to acquire control of, or a substantial financial interest in, various local transportation companies throughout the entire United States. The respective supplier defendants then entered into separate 10‐year contracts with National and Pacific, under which all of the buses, tires, tubes, and petroleum product requirements of the National and Pacific operating companies were purchased from the supplier defendants, with an agreement not to buy any of these products from any party competing with the supplier defendants. Existing purchase contracts of all the operating companies with competitive suppliers were terminated at their earliest possible time, and the operating companies began equipping all their units with defendant supplier products, including buses, to the exclusion of any products competitive with them. National and Pacific also agreed that they would not renew or enter into any new contracts with other competitors of such products, or change any then existing equipment or purchase any new equipment using any fuel or means of propulsion other than gasoline.
National City Lines had been organized in 1936 as a holding company to acquire and operate local transit companies. Pacific City Lines was organized to acquire local transit companies on the Pacific coast, and began business in January 1938. There was another company, American City Lines, that was organized to acquire local transportation systems in the larger metropolitan areas in various parts of the United States in 1943, and American merged with National in 1946.
In a decision rendered by the Seventh Circuit Court of Appeals on January 31, 1951, upholding the previous District Court’s and jury’s conviction of the defendants on charges of monopolization, the Appellate Court found that, in 1938, National City Lines conceived the idea of purchasing transportation systems in cities where streetcars were deemed to be no longer practical, possibly due to the Depression and a trend at supplanting streetcar systems with passenger buses. National City Lines’ capital was limited, and its earlier experience in public financing showed that it could not successfully finance the purchase of an increasing number of operating companies in various parts of the United States by normal financing means. As a result, National City Lines devised the plan of procuring funds from manufacturing companies whose products National City’s operating companies were using constantly in their bus operating business.
National approached General Motors, which manufactured and delivered buses to the various sections of the United States. National also approached Firestone, whose business of manufacturing and supplying tires also extended throughout the United States. In the Midwest, where a large part of its operating subsidiaries were to be located, National City Lines solicited investment of funds from Phillips Petroleum, which operates throughout the Midwest but not on the east or west coast. Pacific City Lines undertook the procurement of funds from General Motors and Firestone, as well as from Standard Oil of California. Mack Truck Company was also solicited for funds. The Court of Appeals held that evidence was clear that, when any one of these manufacturing suppliers was approached, they appeared interested in helping finance National and Pacific under the condition that it should receive a contract for the exclusive use of its products in all of the operating companies of National and Pacific, so far as buses and tires were concerned, and, as to the oil companies, in the territory served by the respective petroleum companies.
It appears from the Appellate Court opinion that the District Court jury was justified in inferring that the proposal for financing came from National City Lines, but that the proposal of exclusive contracting was created by the suppling companies. Eventually, each supplier entered into a written contract of long duration, whereby National and Pacific City Lines, in consideration of the supplier’s help in providing financing, agreed that all of National’s and Pacific’s operating subsidiaries should use only the supplier’s products.
Based on these facts, the Court of Appeals of the Seventh Circuit upheld the conviction of the defendants on charges of monopolization. Another factor in the case was that, after National City Lines and Pacific City Lines purchased the various streetcar operating companies, they ripped up the rails in the different cities, tore down the electric lines, and dismantled and even sometimes burned the streetcars. Usually, the systems would be converted to buses within 90 days of National or Pacific’s financial involvement. The first electrified surface transportation system that was demolished and replaced by buses was in New York City.
Strangely enough, however, even though the federal government won the lawsuit against these defendants, no meaningful