B-14200, JANUARY 13, 1941, 20 COMP. GEN. 368

B-14200: Jan 13, 1941

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MAY BE ACCEPTED IF IT HAS BEEN DETERMINED AS A RESULT OF ADVERTISING THAT NO DEVICES OF OTHER MANUFACTURERS WILL MEET THE GOVERNMENT'S NEEDS AT LOWER COST. 1941: I HAVE YOUR LETTER OF DECEMBER 20. THE VOLUME OF REPORTS PRODUCED IS SUFFICIENT TO WARRANT THE INSTALLATION OF MOTOR-DRIVEN CARBON SEPARATORS AND FORM BURSTERS. IT WILL BE GREATLY APPRECIATED IF ADVICE IS FURNISHED AS TO WHETHER YOUR OFFICE WOULD OBJECT TO THE PROPOSED TRANSACTION. PROPOSES TO MAKE THE EQUIPMENT AVAILABLE TO THE GOVERNMENT ARE AS FOLLOWS: THE UNDERSIGNED USER IS NOW BEING SUPPLIED WITH MARGINALLY PUNCHED CONTINUOUS STATIONERY BY THE STANDARD REGISTER COMPANY. MAY NOT BE EXERCISED SO LONG AS USER CONTINUES TO USE SAID DEVICE FOR THE PURPOSE FOR WHICH IT WAS CONVEYED.

B-14200, JANUARY 13, 1941, 20 COMP. GEN. 368

ADVERTISING - PROPRIETARY ARTICLES A PROPOSAL TO FURNISH FORM-SERVICING OFFICE EQUIPMENT FOR USE WITH FORMS TO BE SUPPLIED BY THE VENDOR, AND RESERVING A REPURCHASE OPTION IN THE VENDOR, MAY BE ACCEPTED IF IT HAS BEEN DETERMINED AS A RESULT OF ADVERTISING THAT NO DEVICES OF OTHER MANUFACTURERS WILL MEET THE GOVERNMENT'S NEEDS AT LOWER COST. A CONTRACT FOR FORM-SERVICING OFFICE EQUIPMENT FOR USE WITH FORMS TO BE SUPPLIED BY THE VENDOR WHICH RESERVES A REPURCHASE OPTION IN THE VENDOR MAY NOT BE REGARDED AS ELIMINATING THE NECESSITY OF COMPETITION IN THE PURCHASE OF FORMS, AND IF THE VENDOR ATTEMPTS TO EXERCISE ITS REPURCHASE OPTION, BECAUSE OF THE USE OF FORMS MADE BY OTHER CONCERNS, THE MATTER MAY BE REFERRED TO THE ATTORNEY GENERAL FOR APPROPRIATE ACTION TO DETERMINE THE VALIDITY OF THE "TYPING CLAUSE" IN THE AGREEMENT.

COMPTROLLER GENERAL WARREN TO THE FEDERAL WORKS ADMINISTRATOR, JANUARY 13, 1941:

I HAVE YOUR LETTER OF DECEMBER 20, 1940, AS FOLLOWS:

THE WORK PROJECT ADMINISTRATION DESIRES TO OBTAIN FROM THE STANDARD REGISTER COMPANY, DAYTON, OHIO, CERTAIN MOTOR-DRIVEN CARBON SEPARATORS AND FORM BURSTERS FOR USE IN CONJUNCTION WITH INTERNATIONAL BUSINESS MACHINE TABULATING EQUIPMENT PRODUCING REPORTS UTILIZING STANDARD REGISTER COMPANY'S CONTINUOUS FORMS.

IT HAS BEEN DETERMINED THAT THE CONTINUOUS FORM MANUFACTURED BY THE STANDARD REGISTER COMPANY MOST ADEQUATELY MEETS THE REQUIREMENTS OF THE ADMINISTRATION. IN THE LARGER STATES, THE VOLUME OF REPORTS PRODUCED IS SUFFICIENT TO WARRANT THE INSTALLATION OF MOTOR-DRIVEN CARBON SEPARATORS AND FORM BURSTERS. THE STANDARD REGISTER COMPANY HAS ADVISED, HOWEVER, THAT THE AUXILIARY EQUIPMENT DESIRED CAN ONLY BE BE OBTAINED ON THE BASIS OF AN AGREEMENT CONTEMPLATING THE PAYMENT BY THE GOVERNMENT TO THE COMPANY OF AN AMOUNT EQUAL TO THE APPROXIMATE LABOR AND MATERIAL COST, WITH THE PROVISION THAT THE COMPANY RETAINS AN OPTION TO REPURCHASE THE EQUIPMENT IN ACCORDANCE WITH THE TERMS OUTLINED IN THE ATTACHED STANDARD AGREEMENT.

THE EQUIPMENT HERE INVOLVED IN PROPRIETARY, AND SINCE THIS AGENCY HAS BEEN UNABLE TO LOCATE A PRECEDENT WHERE THE GOVERNMENT HAS ENTERED INTO AN AGREEMENT OF THIS TYPE, IT WILL BE GREATLY APPRECIATED IF ADVICE IS FURNISHED AS TO WHETHER YOUR OFFICE WOULD OBJECT TO THE PROPOSED TRANSACTION.

THE TERMS OF THE AGREEMENT BY WHICH THE STANDARD REGISTER CO. PROPOSES TO MAKE THE EQUIPMENT AVAILABLE TO THE GOVERNMENT ARE AS FOLLOWS:

THE UNDERSIGNED USER IS NOW BEING SUPPLIED WITH MARGINALLY PUNCHED CONTINUOUS STATIONERY BY THE STANDARD REGISTER COMPANY, OF DAYTON, OHIO, HEREIN CALLED STANDARD, AND DESIRES TO INSTALL ON ITS PREMISES THE FORM- HANDLING DEVICE DESCRIBED BELOW FOR THE BETTER HANDLING OF SUCH STATIONERY: DESCRIPTION OF DEVICE SERIAL NO.

THEREFORE IN CONSIDERATION OF THE SUM OF ? . . . BEING STANDARD'S APPROXIMATE LABOR AND MATERIAL COST, STANDARD HEREBY BARGAINS, SELLS, AND CONVEYS TO USER THE SAID FORM-HANDLING DEVICE, FOR THE PURPOSE OF SERVICING FORMS SUPPLIED BY STANDARD. IN FURTHER CONSIDERATION OF THE TERMS HEREOF AND OF STANDARD SELLING SAID DEVICE TO USER AT SAID APPROXIMATE LABOR AND MATERIAL COST, USER HEREBY GRANTS TO STANDARD THE OPTION TO REPURCHASE THE FORM-HANDLING DEVICE UPON 60 DAYS' NOTICE OF ITS INTENTION TO EXERCISE SAID OPTION, WHICH OPTION, HOWEVER, MAY NOT BE EXERCISED SO LONG AS USER CONTINUES TO USE SAID DEVICE FOR THE PURPOSE FOR WHICH IT WAS CONVEYED.

AT THE TIME WHEN THE OPTION ABOVE REFERRED TO IS EXERCISED STANDARD WILL REPAY TO USER 65 PERCENT OF STANDARD'S APPROXIMATE LABOR AND MATERIAL COST IF THE OPTION IS EXERCISED WITHIN THE FIRST YEAR FROM THE DATE OF THIS AGREEMENT; 45 PERCENT IF EXERCISED WITHIN THE SECOND YEAR; 25 PERCENT IF EXERCISED WITHIN THE THIRD YEAR; AND, IF EXERCISED WITHIN THE FOURTH YEAR OR THEREAFTER 10 PERCENT OF SAID APPROXIMATE LABOR AND MATERIAL COST SHALL BE REPAID USER.

YOU DO NOT INDICATE WHETHER OTHER CONCERNS MANUFACTURE CONTINUOUS FORMS WHICH WILL MEET THE MINIMUM REQUIREMENTS OF THE GOVERNMENT OR WHETHER THE DEVICES SAID TO BE PROPRIETARY TO THE STANDARD REGISTER CO. WILL LIKEWISE SERVICE FORMS PRODUCED BY OTHER MANUFACTURERS.

IT IS ASSUMED THAT IT HAS BEEN OR WILL BE DETERMINED BY YOU AS A RESULT OF ADVERTISING FOR BIDS COVERING SUCH EQUIPMENT THAT NO DEVICES ARE MANUFACTURED BY OTHER CONCERNS WHICH WILL MEET THE NEEDS OF THE GOVERNMENT AT A LOWER COST. SEE 7 COMP. GEN. 282; 16 ID. 171; 18 ID. 579. IF THAT BE THE CASE, AND IF THE DEVICES MANUFACTURED BY THE STANDARD REGISTER CO. MAY BE OBTAINED ONLY ON THE TERMS QUOTED ABOVE, THEN THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO THE USE OF APPROPRIATED MONEYS FOR THEIR PURCHASE UNDER SUCH TERMS AS MAY BE AGREED UPON.

HOWEVER, IT WOULD APPEAR TO BE A PURPOSE OF THE ABOVE-QUOTED FORM OF AGREEMENT TO RESTRICT THE USE OF THE MACHINES SOLD BY THE STANDARD REGISTER CO. TO THE SERVICING OF FORMS MANUFACTURED AND SOLD BY THAT COMPANY. ANY SUCH ATTEMPTED RESTRICTION IS OF DOUBTFUL VALIDITY IN VIEW OF THE PROVISIONS OF SECTION 3 OF THE CLAYTON ACT OF OCTOBER 15, 1914, 38 STAT. 731, 15 U.S.C. 14, AS FOLLOWS:

THAT IT SHALL BE UNLAWFUL FOR ANY PERSON ENGAGED IN COMMERCE, IN THE COURSE OF SUCH COMMERCE, TO LEAVE OR MAKE A SALE OR CONTRACT FOR SALE OF GOODS, WARES, MERCHANDISE, MACHINERY, SUPPLIES, OR OTHER COMMODITIES, WHETHER PATENTED OR UNPATENTED, FOR USE, CONSUMPTION, OR RESALE WITHIN THE UNITED STATES OR ANY TERRITORY THEREOF OR THE DISTRICT OF COLUMBIA OR ANY INSULAR POSSESSION OR OTHER PLACE UNDER THE JURISDICTION OF THE UNITED STATES, OR FIX A PRICE CHARGED THEREFOR, OR DISCOUNT FROM, OR REBATE UPON, SUCH PRICE, ON THE CONDITION, AGREEMENT, OR UNDERSTANDING THAT THE LESSEE OR PURCHASER THEREOF SHALL NOT USE OR DEAL IN THE GOODS, WARES, MERCHANDISE, MACHINERY, SUPPLIES, OR OTHER COMMODITIES OF A COMPETITOR OR COMPETITORS OF THE LESSOR OR SELLER, WHERE THE EFFECT OF SUCH LEASE, SALE, OR CONTRACT FOR SALE OR SUCH CONDITION, AGREEMENT, OR UNDERSTANDING MAY BE TO SUBSTANTIALLY LESSEN COMPETITION OR TEND TO CREATE A MONOPOLY IN ANY LINE OF COMMERCE.

SEE ALSO UNITED STATES V. UNITED STATES MACHINERY CORPORATION, 264 F. 138, AFFIRMED 258 U.S. 451, REHEARING DENIED 259 U.S. 575; UNITED STATES V. INTERNATIONAL BUSINESS MACHINES CORPORATION, 13 F.1SUPP. 11, AFFIRMED 298 U.S. 131.

ACCORDINGLY, THE PURCHASE AGREEMENT WITH THE STANDARD REGISTER CO. MAY NOT BE REGARDED AS ELIMINATING THE NECESSITY OF COMPETITION IN THE PURCHASE OF FORMS TO BE USED WITH SUCH EQUIPMENT, IF THERE ARE, OR SHOULD BECOME AVAILABLE, OTHER SOURCES OF SUPPLY OF SUCH FORMS WHICH WILL SATISFACTORILY MEET THE NEEDS OF THE GOVERNMENT. IN THE EVENT THAT THE VENDOR SHOULD ATTEMPT, BECAUSE OF THE USE OF FORMS MANUFACTURED BY OTHER CONCERNS, TO EXERCISE THE OPTION RESERVED BY IT, THE MATTER MAY BE REFERRED TO THE ATTORNEY GENERAL FOR APPROPRIATE ACTION IN ORDER TO DETERMINE THE VALIDITY OF THE "TYING CLAUSE" CONTAINED IN THE SALES AGREEMENT. SEE 36 OP. ATTY. GEN. 524.