CHAPTER VIII

THE UNITED SHOE MACHINERY COMPANY!

Practically all of the shoes now made in this country are manufactured by machinery. In 1915 there were over 1,500 manufacturers of shoes scattered throughout the country, producing annually in the aggregate more than 300,000,000 pairs of machinemade shoes. A very important group of these machines is that used to prepare and attach the soles to the uppers, a process known in the trade as bottoming. The more important of the bottoming machines, without which factory shoes can not profitably be made, are the lasting machines, the welt-sewing machines, the outsole-stitching machines, the heeling machines, and the metallic-fastening machines. By the year 1899, through a process of combination, there had developed a dominating concern in the manufacture of each one of these groups of machines. The Consolidated and McKay Lasting Machine Company under letters patent manufactured 60 per cent of the lasting machines made in this country; the Goodyear Shoe Machinery Company produced 80 per cent of the outsole-stitching machines, and 10 per cent of the lasting machines; and the McKay Shoe Machinery Company made 70 per cent of the heeling machines, and 80 per cent of the metallic-fastening machines.3

1 On the United Shoe Machinery Company see: Original Petition in United States v. United Shoe Machinery Company in the district court of the United States for the eastern district of Missouri; Brief for the United States in United States v. United Shoe Machinery Company (no. 207); 227 U. S. 202-218; 222 Fed. Rep. 349-415; 247 U. S. 32–91; 264 Fed. Rep. 138–175; Report of the Senate Committee on Interstate Commerce on the Control of Corporations, 1913; Hearings on Trust Legislation held before the House Committee on the Judiciary, 1913-1914; Roe, Journal of Political Economy, 21, pp. 938-953, and 22, pp. 43-63.

2 For a description of these machines and of the process of shoe manufacture, see Brief for the United States (no. 207), pp. 7-15.

3 See 227 U. S. 215. Mr. Winslow, president of the United Shoe Machin

The heads of the Consolidated Company and the Goodyear Company in negotiations begun in 1898 discussed a "working agreement" between the two companies, but this proposed arrangement was given up because of the objections of the head of the Goodyear Company. This gentleman, who was a lawyer, "had a sort of indefinite idea that it might be deemed to be a combination in restraint of trade," and he therefore insisted upon a complete consolidation, the illegality of which (as a device for organizing trusts) was less certain at that time.1

Accordingly on February 7,1899, the United Shoe Machinery Company was incorporated in New Jersey with an authorized capital stock of $25,000,000. The new company acquired all the stock of the three concerns mentioned above, as well as four other concerns, to wit, the International Goodyear Shoe Machinery Company, the Davey Pegging Machine Company, the Eppler Welt Machine Company, and the International Eppler Welt Machine Company. These companies conveyed to the United Company all of their business, including their patent rights in the United States and foreign countries.3 The United Company thus became an operating concern. It soon concentrated the manufacture of its machines at a new plant in Beverly, Massachusetts; and here the greater number of its machines. are now made. The effect of the combination of 1899, according to counsel for the government, was to give one concern control over 70 to 80 per cent of the total output of bottoming room machinery (the company, it should be noted, did not secure. control of the machinery used in the sole leather room, the stitching room, or the finishing room). After its organization the United Company acquired some fifty other concerns manufacturing shoe machinery or supplies. As the result of the original combination and subsequent acquisitions the United Company obtained a complete line of the principal and auxiliary ery Company, testified that the McKay Shoe Machinery Company produced nearly all of the heeling and metallic-fastening machines that were being made in the United States. 247 U. S. 81.

1 247 U. S. 77.

2 Ibid., 38-39.

* Ibid., 39.

4 227 U. S. 205.

5 Brief for the United States (no. 207), p. 67.

machines used in the bottoming of shoes. Formerly, as stated above, certain companies had held a monopolistic position with respect to individual bottoming room machines, but no one had a full line, and no one has a full line at the present time, except the United Shoe Machinery Company.1

Not only is the United Company the only American concern possessing a full line, but it has a highly monopolistic position in the manufacture of the leading bottoming room machines,-and it is with respect to bottoming room machinery that the controversy of the government with the United Company deals. In the Brief for the United States there is an exhibit that shows the number of principal bottoming machines (together with clicking machines) which the United Company and its competitors had out on March 1, 1911.2 This exhibit is reproduced below, the percentages being supplied by the author.

MACHINES PUT OUT TO SHOE MANUFACTURERS IN THE UNITED STATES, MARCH 1, 1911

1 Brief for the United States (no. 207), p. 134.

2 This table was constructed from the uncontradicted evidence of eightyfive witnesses, from an exhibit of the United Company, and from other sources. See Brief for the United States (no. 207), p. 150.

The figures for these machines are reproduced in the opinion of Justice Clarke (247 U. S. 89), who states that they are not seriously disputed by counsel for the United Shoe Machinery Company.

From this table it appears that in only one bottoming room machine the outsole-stitching machine-did the United Shoe Machinery Company have important competition. The independent companies made (1911) 22.07 per cent of the outsolestitching machines; and the United Company made 77.93 per cent. Of every other machine the United Company made at least 94 per cent, and in some cases 100 per cent. Taking all these machines together the trust made 96.56. per cent. The petition of the government even charged that the United Company made 981⁄2 per cent of the machinery and supplies used in the bottoming of shoes.1

In addition the shoe machinery trust had a very strong hold on the business of foreign countries.2 The British United Shoe Machinery Company supplied all of the installed shoe machinery equipment in Ireland, practically all in Scotland, and some 80 per cent in England. Other affiliated companies furnished 90 per cent of the shoe machinery equipment of Italian factories, and 75 per cent of that of French factories. United machines were sold also in Germany, Austria, Belgium, Russia, Denmark, Norway, Sweden, Spain, Switzerland, and undoubtedly other

countries.

To what may be the ability of the United Shoe Machinery Company to attain a monopolistic position in the industry be attributed? It can not be ascribed to tariff barriers. There have been duties on the importation of shoe machinery (though none since 1913), yet the ability of the United Company to compete so effectively in foreign lands shows conclusively that its strong position at home is not to be explained in this way. Neither does it appear to have benefited by railway favors. Furthermore, no monopoly of a natural resource has been effected. To what, then, may it be attributed?

In the first place, the strength of the shoe machinery trust was due to the original act of combination in 1899. The mere

1 Original Petition in United States v. United Shoe Machinery Company, pp. 15-16.

2 See the Shoe and Leather Trade series of the Department of Commerce and Labor, 1912-1913.

union under one management of a group of concerns, each of which had a dominant position in its special line of bottoming room machinery, gave the United Company a substantial monopoly of all such machinery. A vital question is the proper public policy to be adopted with respect to such combinations. In this connection the remarks of the Supreme Court are of interest. Speaking of the organization of the United Shoe Machinery Company in 1899 it said: "On the face of it the combination was simply an effort after greater efficiency. The business of the several groups that combined, as it existed before the combination, is assumed to have been legal. The machines are patented, making them a monopoly in any case . . . and it may be assumed that the success of the several groups was due to their patents having been the best. As, by the interpretation of the indictment below, 195 Fed. Rep. 591, and by the admission in argument before us, they did not compete with one another, it is hard to see why the collective business should be any worse than its component parts. It is said that from seventy to eighty per cent. of all the shoe machinery business was put into a single hand. This is inaccurate, since the machines in question are not alleged to be types of all the machines used in making shoes, and since the defendants' share in commerce among the States does not appear. But taking it as true we can see no greater objection to one corporation manufacturing seventy per cent. of three noncompeting groups of patented machines collectively used for making a single product than to three

1 In this case the Supreme Court did not find that the companies combined were noncompeting; it merely accepted the construction put on the indictment by the lower court. But in 247 U. S. 41, 47, the Court (four judges) did assert that the companies that united to form the United Shoe Machinery Company were not competitive. However, the dissenting opinion (three judges) declared that some of the companies were competitive, and introduced testimony of the leading officials of the company that substantiated this contention (247 U. S. 82-83). The matter is highly important since the decision of the Supreme Court turned on this point. By the majority opinion the United Shoe Machinery Company was declared to be in essence a union of several patent monopolies, which was not forbidden by the Sherman Act. For a discussion of the decisions of the Supreme Court, see pp. 431, 432.