Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20 (1912), also known as the Bathtub Trust case, was a United States Supreme Court decision in which the Court held unanimously that ownership of patent rights does not immunize the owner from the antitrust laws prohibiting combinations in unreasonable restraint of trade. The Court famously said that the Sherman Act "is its own measure of right and wrong, of what it permits or forbids, and the judgment of the courts cannot be set up against it in a supposed accommodation of its policy with the good intention of parties, and, it may be, of some good results." A 1917 commentary said, "This decision has become the leading case on the subject of the relation of the patent law and Sherman law to each other."
Background
Formation of the Bathtub Trust
Prior to 1909, the enameled bathroom ware industry was subject to rampant price cutting. "Competition had been fierce. It had not always been either wise or honest. A badly made article may look well enough to deceive the average householder. Many such had been put on the market."
Edwin L. Wayman acquired ownership of patents on tools for use in enameling unpatented bathtubs, toilets, sinks, and similar unpatented products. Three patents covered automatic "dredging" tools. The automatic dredger is a device somewhat like a kitchen flour–sifter that sprinkles enameling power (ground glass) on red–hot (1200 °F to 1500 °F) iron fixtures. It is more efficient than dredging by hand, in that it uses less powder, spreads the powder more evenly, is faster, and requires less labor. "[W]hile it is conceded that merchantable ware can be made without its use, still the advantages of using it are so great that as a commercial proposition the ware cannot be made without it."
As Wayman stated the facts: The manufacturers using the process in use prior to Arrott's invention were unable to successfully compete with those using the Arrott invention, and, moreover, produced a disproportionate number of defective, unsightly, and substantially unsalable articles. The consumer was deceived and defrauded, and the use of sanitary enameled ironware lessened and its reputation depreciated by defective articles being palmed off on the consumer as not defective.
Wayman formed a scheme to use the patents as a vehicle for fixing prices. "That scheme was his. Th[e] purpose was merely to make money for himself by selling to the corporate defendants indulgences to sin against the Sherman act." Wayman organized what came to be known as the "Bathtub Trust." He licensed sixteen corporations, which became defendants in this suit along with officers of the corporate defendants. The license agreements provided for a running royalty, 80% of which would be rebated in three months if the licensee obeyed the terms of the agreement; if it did not, that 80% would be forfeited. As the lower court explained: "Each corporate defendant in this manner gave security that he would keep his bargain, or be good, as one of the licensees expressed it."
Each corporate defendant promised to do three things:
(1) It would not sell any "seconds" or "B's" (inferior products, such as bathtubs with defective enameling). (2) "It would not sell any ware to any jobber who did not sign the jobber's resale agreement to be presently described." (3) "It would not sell anybody any ware at a lower price or upon more attractive terms than those named in the agreement or in a schedule attached to it. This schedule named standard prices for each article of the ware and for each size, shape, and grade of that article."
The "jobber resale agreements," which each authorized jobber was required to sign, provided: (1) "He could not buy any ware from anyone other than the corporate defendants." (2) "He could not sell ware to anybody at a lower price or on more attractive terms than those named in the resale price lists."