International Business MacHines Corp. v. United States

Background

A manufacturer that leased tabulating machines required lessees to use only the company’s specially punched cards in those machines. The Government sued the maker and its competitors, saying the lease condition and a related agreement among rivals stopped others from selling suitable cards and created a monopoly in the card market. The facts showed the maker sold about 3,000,000,000 cards a year, had about 81% of sales, and earned substantial profits from card sales.

Reasoning

The Court considered whether the lease condition violated §3 of the Clayton Act, which bars a lessor from conditioning machine leases so the lessee may not use a competitor’s supplies when that condition may substantially lessen competition or tend to create a monopoly. The Court held the condition was effectively a ban on competitors’ cards, that the record showed the practice tended to create monopoly, and that the statute covers such tying clauses even if the machines or parts are patented. The maker’s arguments — that patents or protection of “good will” justified the clause — were rejected because the law forbids tying clauses that tend to suppress competition.

Real world impact

The ruling upholds the injunction against leasing machines on the condition that customers buy only the lessor’s cards. Manufacturers may require cards to meet specifications or warn customers about unsuitable supplies, but they may not use lease conditions to block competitors and create monopoly in the card market.

Dissents or concurrances

Justice Roberts did not take part in the decision.