The Vendo Company

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IN THE ~:fA TTER OF THE VENDO CO:MP ANY CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 7 OF THE CLA 1.'TON ACT Docl.;et 6646. Compla..int, Oct. 1956-Deci.s-ion, SqJt. , 1957 Consent order requiring the nation s largest manufacturer of soft drink vending machines, with main office in Kansas City, :Mo., to make available to competitors the patents for coin-operated vending machines which it acquired by absorbing a major competitor, Vendorlator Manufacturing Company, of Fresno, Calif. ; prohibiting it from acqni ring for 10 years the capital stock or assets of any company in the united States making 01' selling vending machines built to dispense bottled drinks; and prohibiting , after one year, from manufacturing vending machines under the Yen dorlator patents except for replacement purposes, and from using on goods it makes or sells the trade-mark "VMC", to which it is to retain title and which it is to permit others to use on machines produced under the Yendorlator patents.

COl\fPLAINT The Federal Trade Commission, having reason to believe that the party respondent named in the caption hereof and hereinafter more particularly designated and described, has violated and is now violating the provisions of Section 7 of the Clayton Act (D. Title 15, Sec. 18) as amended and approved Dec.member 29 , 1950 hereby issues its complaint, pursuant to Section 11 of the aforesaid Act (D. C. Title 15, Sec. 21) charging as follows: PARAGRAPH 1. Respondent The Vendo Company (hereinafter reerred to as "respondent" ) is a corporation organized and .existing under the hn,s of the State of :Missouri with its office and principal plac.e of business at 7400 E. 12th Street, Kansas City, :l\Iissouri. m. 2. Vendorlator :Manufa.cturing Company (hereinafter referred to as "V endOl~lator ) is, or at all times pertinent herein was a corporation organized and existing under the laws of the State California. 'with its office and principal place of business at 2550 S. Railroad Avenue, Fresno, California.

PAn. 3. Respondent is engaged in the production and sale of a variety of produc.ts in commerce, as "commerce~' is defined in the Clayton ~\.ct. In the year endii1g Dec.member 31 , 1955 , respondent' sale. of an products aggregated approximately . $20 700 000. Such production and sale. in commerce included the production and sale of c.oin operated vending machines built to dispense bottled soft ch'inks. In the year ending December 31 , 1955~ respondent~s sales of these products aggregated approximately $11 500 000. Respondent Decision 54 F.

, and prior to the acquisition described in Paragraph 5 hereof was the largest manufacturer of coin operated vending machines built to dispense bottled soft drinks in the United States. m. 4. Prior to September 18, 1956, Vendorlator was engaged in asthe production and sale of a va.riety of products in commerce, commerce is defined in the Clayton Act. In the year ending Tune 30, 1055, Vendorlator s sales of all products aggregated approximately $11 000 000. Such production and sale in comme.rce included production and sale of coin operated vending machines built to dispense bottled soft drinks. In the year ending June 30, 1955 V endorlator sale of these products aggregated approximately 000 000.

PAn. 5. There are approximately 1G companies in the United States engaged in the manufacture and sale of coin operated vending machines built to dispense bottled soft drinks. The combined sales of the. respondent and Vendorlator for the year 1955 and for many years last. past have accounted for over 50% of the market involved. m. G. On or about September 18 , 195(-), respondent acquired all the outstanding capital stock, assets and business of Vendorlator including its patents and good ",ill, in exchange for 2G7 464 shares of common stock of Vendo. The former shares of common stock of endorla tor wasYendorlator "'ere eliminated and cancelled and V merged into The Vendo Company. Prior to said acquisition respondent and Vendorlator were compe.ti tors in the production and sale. of coin operated vending machines built to dispense bottled soft drinks in the United States.

P .\R. 7. The acquisition of the stock and assets of Vendorlator by respondent, as above described, may have the eflect of substantially lessening competition or tending to create a. monopoly in the production and sale of eoin operated vending machines built to dispense bottled soft drinks in the United States. PAR. 8. The foregoing acquisition, acts and practices of respondent as hereinbefore alleged and set forth constitute a. violation of Section 7 of the Clayton Act. (V. C. Title. 15, Sec. 18) as amended and a.pprovec1 December 29 , 1950.

Jlli' . John T. lValker and ill)'. Joseph P. Dufl'e8ne for the Commission.

Covington B1l:7'li. n.g~ by .:.111'. 11 ((-1"i' Y L. Shn:idc7'man. of 'Vashington, D. , and Gage: Iiil1i;:c: Jioo1'e: Park&: Jach~8on of Kansas City, ~lo. for respondent.

INITIAL DECISION BY FRANK J-In:n, l-IEARIXG EX.DIIXmt , (D. Pursuant to the provisions of the. Clayton Act, Section 7 Tit.le 15, Sec. 18) as amended and approyed December 2D , lD50, and Sec. 11 of said act (U. C. Title 15, See. 21), the Federal Trade THE VENDO CO. 255 253 Decision Commission on October 11 , 1956, issued and subsequently served its complaint in this proceeding against respondent The Vendo Company, a corporation existing and doing business under and by virtue of the laws of the State of :Missouri, with its office and principal place of business located at 7400 East Twelfth Street, Kansas City, :Missouri.

After a number of hearings for the reception of evidence in support of the allegations of the complaint, all counsel jointly moved for a suspension of further hearings under the provisions of 3.25 of the Rules of Prae6ce, which motion was granted for two weeks and thereafter, on July 24, 1957, there was submitted to the undersigned hearing examiner an agreement bet'"een respondent and counsel supporting the complaint providing for the entry of a consent order. By the terms of said agreement, respondent admits all the jurisdictional facts alleged in the complaint and agrees that the record may be taken as if findings of jurisdictional facts had been duly made in accordance ",ith such allega60ns. By such agreement, respondent waives any further procedural steps before the hearing examiner and the Commission; ,yaives the making of findings of fact and conclusions of la",; and ,,-nives all of the rights it may hrn" to challenge or contest the validity:r of the order to cease and desist entered in accordance with this agreement. Such agreement further provides that it disposes of aJl of this proceeding as to all parties; that the record on which this initial decision and the decislon of the Commission shall be based shall consist solely of the complaint and this agreement; that the. latter shall not. become a part of the oflicial record unless and until it beeomes a part of the decision of the Commission; that the agreement is for settlement purposes only and does not constitute an adnussion by respondent that it has viobted the law as alleged in the complaint.

Said agreement provides that it stems from disclosures at hearings before the hearing examiner in this proceeding to the effect that the acquisition questioned in the complaint arose out of the patent controversy between respondent and the former V enc1orlator ~Ianufaeturing Company (nmv Fresno V Company), and that prior to the acquisition by respondent of the assets of the fornler Vendorlntor ~Ianufaeturing Company, the latter had committed most of its production facilities to producing machines infringing a basic patent mvned by Vendo and had actually manufactured and sold infringing machines in substantial quantities.

. Said agreement provides that it. is contended by respondent that the Vendorlator :Manufacturing Company sllccessfully competed in the manufacture and sale of vending machines built to dispense bottled drinks only because of it.c: infringement of a basic patent Decision 54 F. T. C. held' by. The \Tendo Company and, that upon prosecution of. its rights under the patent Vendo would have eliminated Vendorlator as a significant competitive entity in this line of commerce. Although the validity of respondent's patent and the claimed infringement by the Vendorlator l\Ianufacturing Company were not adjudicated, a shm,ing "as made in the record that the Vendorlator :Manufacturing Company probably had infringed upon a basic patent of respondent for a period of about two years, and at the time of the acquisition more than eighty percent of the production of the Vendorlator j\Ianufaeturing Company was of such machines, and it, therefore. appears that the only assets that respondent should be required to divest are those relating to the production of non-infringing machine. by the Vendorlator l\Ianufacturing Company. The only important assets which are in this category and which would be of significant value to an actual or potential competitor of respondent are believed to be the. patents dealt with in the order herein contained. The following order requires the respondent to make available to the public all the patents acquired from Venclorlator l\lanufacturing Company. In the light of all the circumstances it would appear that the order is in the public interest and that competition would be stimulated by requiring the respondent to license to interested parties, whether they are existing competitors or new entries in the fie.ld, the former Vendorlator patents rather than sell them under an order of divestiture, which 'yonld have the effect of again limiting the availability of these patents to a. single manufacturer.

Such agreement provides that the following order may be entered in this proceeding by the Commission without further notice to respondent. 'Vhe.n so entered it. shan have the. same force and eflect as if entered after a full hearing, and may be altered, modified, or set aside in the manner prm-ided for ot.her orders, and that the complaint may be used in construing the terms of the. order. The hearing examiner having considered the agreement and proposed order, and being of the opinion that they provide the best possible basis for settlement and disposition of this proceeding, the agreeme.nt is hereby accepted, the following jurisdictional findings made, and the following order issued.

1. Respondent The Vendo Company, is a. corporation existing and doing business under the laws of the State of :Missouri, with its office and principal place of business located at 7400 East T',elfth Street, Kansas City, :Missouri.

The Vendorlator l\Ianufacturing Company, a "holly-m\ned subsidiary of The Vendo Company, is a corporation existing and doing THE VENDO co. 257 253 Order business. under the laws of the State of California, "ith its office and principal place of business at 2550 South Railroad Avenue Fresno, California.

. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding . is in the public interest.

ORDER Respondent, The Vendo Company, Is hereby orde')' ed and di'J'ected as follows:

1. Di'&'estit'll/re of Patents. Respondent shall divest itself of the exclllsiye right to manufacture, use or sell machines under the teachings of the following three groups of patents acquired in the purchase of assets challenged by the complaint:

(a) Patents relating to models based on the opensided cylinder design (:Models Vl\IC-149, Vl\iC-1DO, ~1C-231, ~lC-242, V:MC- 302, and VJ\lC-340) :

Title Patent Number 290,2T5 ------------- Bottle Vending l\Iachine 597 290 ------------- Heta inel~ 1'01' VenclabJe Merchandise 693,300 ------------- Vending Machine 680 049 ------------- DeJi,-en- and Hetaining Mecl1anism for l\lercl1andise Dispensing .Appfll'atns (b) Patent relating to models based on the rotating basket design (:Moclels ,~lC-27 and Vl\lC-33) :

Patent Number1' PUle 610 100 ------------- Coin Controlled Vending Machine (c) Pa.tent Nt/.1nbe1' Title 307 450 ------------- Vending Machine 391,866 ------------- Circuit Controller 2,482 245 ------------- Dispensing Apparatus 633,058 . ------------ Dispensing Apparaus . 2,648,417 ------------- Coin-Controlled Mechanism 667,880 ------------- Coin Changing l\lechanism ti75 901 ------------- Coin Control Protectiye System for Vending Machines 727 654 ------------- Coin Conditioned Selective Vending ~lachine respondent shall accomplish such divestiture by offering any applicant, for anyone or more of the above patents or group of patents a non-exclusive license to make, use and sell machines under the teachings of the patent or patents involved. Upon receipt of a written request for a license under the provisions of this paragraph, respondent shall advise the. applicant in writing of the. royalty which Order 54 F.

it deems reasonable for the patent or group of patents involved in the request. If the parties are. unable to agree upon a reasonable royalty ,within sixty (60) days from the date the written request is received by respondent, the applicant therefor shall have the right to submit the question of reasonable royalty to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, and the respondent shall consent to such arbitration. Unle.ss the parties to the arbitration proceeding agree upon an arbitrator within thirty (30) days after the applicant has initiated the arbitration proceeding, a single arbitrator shan be appointed by the American Arbitration Association in accordance with its rules then obtaining; the award of the arbitrator shall be final and binding upon both parties. The reasonable royalty, as once finally determined by the arbitrator, shall apply to all licenses of the same patent or group of patents thereafter granted, and any licensee who had previously obtained a license under the patent group of patents sha.ll have the right, at his option, to hate the royalty rate determined by the arbitrator applied retroactively to the date of the application to the arbitrator which.h resulted in such determination.

(d) Beginning one year after the efiective date of this order respondent shall discontinue manufacturing any vending machines or parts thereof, except those made specifically for replacement use under a.ny of the patents listed above in parts (a) and (b). 2. Di.vests' u1'e of Exchrsive U8e of T'J'(lde-?n((?'ll~ Beginning one year after the eflective date of this order, respondent sha.ll not employ the trade-mark "\~fC" on goods which it manufactures or sells. Respondent. sha.ll retain title to the trade-mark "V~fC " and shall permit any licensee under the provisions of paragraph 1 above to employ such trade-mark on the vending machines built to dispense bottled soft. drinks "which are produced under either group of patents listed in parts (a) and (b) of paragraph 1 above. Respondent, in granting such a license, sha.ll permit the licensee to inform the trade that the vending machines produced under the license are manufactured and sold under patents formerly 0'vned by Vendorlator :Manufacturing Company of Fresno, California, and the trade-mark may be used to identify the. patented machines. 3. PTohibiNon Against Fu..fu. e Acqu~ s-ition.s. Respondent shall cease and desist. for a period of ten (10) years after the efl'e-ctive date of this order from acquiring, directly or indirectly, through subsidiaries or otherwise, by merger, consolidation, purc.hase of physical assets, or acquisition of stock or other share capital, any interest in THE VENDO CO. 259 253 Decision any company in the United States which manufactures and sells vending machines built to dispense bottled drinks. 4. Effective Date. The provisions of this order shall become effective immediately upon entry of the order by the Commission. 5. Retention of J~~1'isdiction. Jurisdiction of this proceeding reta.ined so that respondent may at any time hereafter petition the Commission for construction or modification of this order, which the Commission will consider, and upon proper showing by respondent allow to the extent it finds such construction or modification to be warranted and consistent with Section 7 of the Clayton Act. DECISION OF THE COl\DIISSION Pursuant to Section 3.21 of the Commission s Rules of Practice the initial decision of the hearing examiner did, on the 5th day of September, 1957, become the decision of the Commission. Decision 54 F.