Did You Know?
by Ken Carr
May 2009
DID YOU KNOW…
…the first significant antitrust legislation under the Sherman Act embroiled NCR in lawsuits from 1911 to 1916 that endangered the company’s future.
In the first 30 years, NCR was able to gain a majority of the cash register business in the US and was well on its way to doing the same on a global scale. In those 30 years, numerous startup cash register companies came and went. A few failed because of infringement suits won against them by NCR. Others failed because of NCR’s superior products, pricing, salesmanship and marketing. Many failed because they were under capitalized. Some failed, they believed, because of NCR’s practices that those competitors deemed unethical and unlawful. It was this area which led to the lawsuits.
In late 1910, the American Cash Register Company, having lost several patent infringement cases to NCR, filed a complaint against NCR with the US Justice Department. Soon, government agents began to collect evidence against NCR and to line up hostile competitor witnesses. After a year of fact finding, the US Justice Department on December 4, 1911 filed a civil lawsuit against NCR in the Cincinnati Federal Court listing violations of the Sherman Act. If convicted in the civil case, the company would endure heavy finds, numerous regulations and would operate going forward under the watchful eye of the US Justice Department. As the lawyers, retained by the company, began preparing the company case, on February 22, 1912, the Justice Department filed another lawsuit. This time it was a criminal suit indicting Mr. Patterson and 26 of the company executives and listing 32 violations of the Sherman Act. If convicted in the criminal case, the defendants would be given fines and prison time. Three names of interest among the 26 executives indicted were Edward Deeds, Thomas Watson and Robert Patterson. Absent from the list was the name of Hugh Chalmers who had by this time left NCR and had become the Justice Department’s lead witness against NCR.
The justice Department made the decision to move forward with the criminal case instead of the civil case. For the next nine months both sides prepared their cases. On October 21, 1912, NCR filed a motion to move the trial to Dayton. On November 11, 1912, Howard C. Hollister from the Federal Court in Cincinnati and presiding judge for the case denied the motion. The Trial was to begin on November 19, 1912 with the selection of the jury and arguments would begin the next day.
For the duration of the trial Mr. Patterson and the 26 executives traveled by special train to Cincinnati on Monday mornings and back to Dayton on Friday afternoons. A complete floor of the Stinson Hotel in Cincinnati was secured for NCR. The defendants as well as NCR clerks, stenographers, aides and often the lawyers spent Monday through Thursday nights at the Stinson.
The trial lasted about three months and on February 13, 1913 the jury returned its verdict finding all defendants guilty of only 3 of the 32 charges, conspiracy, restraint of trade, and unlawful monopoly. The sentencing date was set for February 17, 1913.
Before sentencing began, Judge Hollister spent a half hour condemning the defendants for their actions. He began by saying, “I have never heard of a legitimate concern having a competition department whose sole duties were not to sell goods but to prevent the sale of goods by the competition. …The pity of it is that such acts would have been unnecessary. The concern made a cash register which was so valued by the business world that such methods would not have been needed. …As head of the business John H. Patterson believed that all cash register business belonged to him and him alone. What ever virtues Mr. Patterson may have had, he set out deliberately to build up his business by stifling competition. …He set out deliberately to build his business not only through the merits of his products and through extraordinary efficiency of his organization, but by harassing, annoying, interfering with, discouraging and pursuing his competitors to the point that they would be compelled to give up the unequal struggle and to go out of business or sell out to his company… You men belong to the walk of life which should set the example. Yet you have lost the opportunity that was given you by the methods which you pursued. …I must make you an example to others who would engage in the same kind of business.” With that said, Judge Hollister began the sentencing process. Mr. Patterson was first to be called before the bench. His fine was $5, 000 and one year in the MiamiCounty jail. One by one the others were called. They were sentenced either to 9 months or a year in the Miami, Montgomery or the Warren County jails.
The NCR attorneys advised the court that NCR would be appealing the case. Judge Hollister then set Mr. Patterson’s bond at $10,000 and the others at $5,000. As the court adjourned, the defendants were taken in custody by the USMarshalls. One by one as they arranged their bonds, they were released.
Five weeks after the trial an event occurred that would be historic for both the city of Dayton and NCR, the Flood of 1913. Swollen by days of rain, on Easter Sunday, March 26th, the rivers swept over the levees flooding Dayton and the surrounding area. The stories of Mr. Patterson leadership and NCR’s respond during this time are legendary. Mr. Patterson’s rescue efforts made him a national figure and the tide of public opinion turned in his favor. Hundreds of petitions were sent to President Woodrow Wilson asking him to pardon Mr. Patterson and his officers. Before Wilson had an opportunity to do anything, Mr. Patterson publicly responded by saying,” Our case is still in the courts. I do not ask for, nor would I accept, a pardon. All I want is simple justice.”
Shortly after the case landed on the docket of the US Circuit Court of Appeals in Cincinnati, all three sitting judges on that court removed themselves from the case. William Day, a sitting judge on US Supreme Courts, who was from Ohio, was chosen to head the panel of appeal judges. To fill out the panel, Judge Day chose W. T. Sanford, a Federal District Judge in Tennessee and A. M. Cochran, a Federal District Judge in Kentucky.
Arguments were to be submitted to the Court on October 6, 7 and 8, 1914. The panel of judges studied the case for just over six months. Finally on March 13, 1915, over 4 years after the first indictments were rendered all parties were convened in Cincinnati for the reading of the opinion. When the court was called to order, Judge Cochhran speaking for the Court of Appeals began reading their judgment. It took nearly two hours for the reading but it was evident long before he finished that the opinion would be in favor of NCR. When it was evident the case would be reversed, reporters left the room and rushed to find available telephones. It was very evident there was national interest in the case as papers all over the country were waiting for the story.
Based on the findings of the three Court of Appeal Judges, some evidence presented by the prosecution should have never reached the jury but was permitted to do so by Judge Hollister. Also, evidence to be presented by the defense that the jury should have heard was disallowed. With regard to the first count, the Court of Appeals ruled that conspiracy was never proven by the prosecution. With regard to the second and third counts, they ruled that “actually doing business, no matter how large, is not a monopoly.” Judge Cochran ended by saying. “We are constrained, therefore, to reverse the judgment of the lower court and to remand the case for a new trial and further proceeding consistent herewith.”
At this point, the civil case was still pending, the retrial of the criminal case was still an option and there was a possibility the Justice Department might appeal the criminal case to the US Supreme Court.
On May 18, 1915, the Justice Department did appeal the criminal case. On June 14, 1915, Chief Justice White of the US Supreme Court announced that the court had denied the appeal application and that the Court would not review action taken by the Cincinnati Appeals Court. NCR was over another hurdle. Those present were told there would be no announcement by the Justice Department concerning the retrial or the civil case.
That retrial never happened nor was the civil suit against ever brought to trial. In early 1916, the Justice Department and NCR met to discuss the cases and to determine where the litigation was headed. Coming to an agreement, NCR evidently made some concessions to Justice and Justice agreed to not pursue the civil case and not to retry the criminal case.
Estimated cost of the original criminal trial, the appeal, and the settlement with the Justice Department was $500,000. NCR spent $400,000 defending Mr. Patterson and his officers while the US government spent $100,000 prosecuting the case.
Mr. Patterson and his officers had received the simple justice he had sought. They were now free to pursue the business of manufacturing and selling cash registers.
The question will always be asked, did Mr. Patterson’s actions during and after the flood influence the outcome of the case? Who knows? After all Judge Day was from Ohio. However, when you look at the Court of Appeals opinion and their rational for over turning the lower court, chances are they would have reached the same opinion even if the floor had never happened. However, we all will agree, the flood did wonders for Mr. Patterson’s image and it did bring national admiration for him and the company at a time they could use it.
I want to thank Dr. Paul Morman, Professor of History at the University of Dayton for his help. He truly is the acknowledged expert on this subject. The hour and a half of his time that he gave allowed me to establish the timeline of events and to flesh out the article with more that just dates and names.
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