Brown Shoe Company v. FTC

• Citation: 339 F.2d 45
• Decision Date: 08 December 1964
• Docket Number: No. 17336.,17336.
• Parties: BROWN SHOE COMPANY, Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

339 F.2d 45 (1964)

BROWN SHOE COMPANY, Inc., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 17336.

United States Court of Appeals Eighth Circuit.

December 8, 1964.

Robert H. McRoberts, Gaylord C. Burke, and Edwin S. Taylor, of Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., for petitioner.

Thomas F. Howder and Gerald J. Thain, Attys., James McI. Henderson, Gen. Counsel, and J. B. Truly, Asst. Gen. Counsel, Federal Trade Commission, Washington, D. C., for respondent.

Before VOGEL, MATTHES and RIDGE, Circuit Judges.

VOGEL, Circuit Judge.

This case arises from a petition to review an order of the Federal Trade Commission directed against Brown Shoe Company, Inc. The case was originally brought by the Commission under § 5 of the Federal Trade Commission Act which provides:

"§ 5(a) (1) Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful." 66 Stat. 632 (1952), 15 U.S.C.A. § 45 (a) (1) (1958).

The Commission's complaint, issued October 13, 1959, alleged that Brown Shoe Company, Inc., a manufacturer and distributor of shoes, violated § 5 through the operation of its franchise stores program and by fixing the retail prices at which its products were sold by dealers.

Count 1 alleged that Brown "entered into contracts or franchises with a substantial number of its independent retail shoe store operator customers which required said customers to restrict their purchases of shoes for resale to the Brown lines and which prohibit them from purchasing, stocking or reselling shoes manufactured by competitors of Brown". It charged that dealers having this relationship with Brown are termed "Brown Franchise Stores" and are afforded special treatment and given certain benefits not granted other customers.

Among the benefits or services listed in the Commission's complaint were "free signs, business forms and accounting assistance participation in lower cost group fire, public liability, robbery, and life insurance policies; and special, below list prices on U. S. Rubber Company canvas and waterproof footwear". In return for these services, the complaint charged that franchise dealers must "concentrate" their purchases of shoes upon "the grades and price lines" of shoes manufactured and sold by Brown. It further charged that such dealers must "refrain from stocking and selling shoes of competitors" and that dealers who violate their franchise agreement by doing so are dropped from the program and are deprived of the benefits available thereunder.

The Commission alleged that the "purpose, intent or effect" of such practices on the part of Brown was "substantially to lessen, hinder, restrain and suppress competition" in the distribution of shoes in interstate commerce and in general to "foreclose" or "exclude" competitors from a "substantial share" of the retail dealer market, thereby further enhancing the already powerful competitive position of Brown in the shoe industry.

Count 2 of the Commission's complaint charged petitioner with resale price fixing in forcing or requiring its retail dealers to "agree to maintain arbitrary, noncompetitive resale consumer prices fixed and promulgated by Brown".

In connection with Count 2, the complaint alleged that petitioner "regularly publishes and distributes" to its customers "price lists or catalog lists" containing "the consumer prices to be observed" by them and that petitioner "frequently publishes" these prices in "full page advertisements in magazines having national circulation".

The complaint charged that through its representatives and officials Brown "maintains continuous pressure" upon its dealers "to insure that they do not depart from or sell below the minimum retail prices" established. It charged that non-adherents to these prices "are immediately contacted by Brown representatives" to insure compliance by "persuasion" if possible but "if that fails, to threaten and inform" such dealers that petitioner "will discontinue doing business" with them.

The acts and practices of petitioner set forth in both counts of the complaint were alleged to constitute unfair methods of competition and unfair acts and practices in commerce within the intent and meaning of § 5 of the Federal Trade Commission Act.

Brown, through its answer, generally denied the charges in the complaint. With reference to Count 1, however, Brown admitted entering into "contracts or franchises" with approximately 259 retail dealers. In addition, it declared that there were approximately 423 dealers operating on a "Brown Franchise Program" who had not executed such written agreements.

The franchise agreement in question admittedly contained a provision stating that in return for the services and benefits described, the franchise dealers must "concentrate" their business upon products manufactured by Brown. Brown admitted that the operators of such Brown franchise stores "in individually varying degrees" accepted benefits and performed the obligations contained in such franchise agreements implicit in such program. It further admitted that in general the enumerated services and benefits are not available to those dealers "who are dropped or voluntarily withdraw" from the program.

In answer to Count 2, petitioner admitted only that it "regularly distributes to its retail shoe customers price lists or catalog sheets, certain of which contain suggested retail selling prices" and that "on occasions it publishes suggested retail selling prices in full page advertisements in magazines having national circulation".

Following extensive hearings in St. Louis, Missouri; Milwaukee, Wisconsin; Dallas, Texas; Washington, D. C.; Los Angeles and San Francisco, California; and Portland, Oregon, the Hearing Examiner issued an initial decision in which he found that the charges set forth in both counts of the complaint were sustained by the evidence, and entered an order requiring Brown to cease and desist from these practices. Brown took exception to the Examiner's findings and petitioned the Commission for a review. Its petition was granted. After hearing the matter on briefs and oral arguments, the Commission modified a portion of the Examiner's decision to conform to its own views. As thus modified and as supplemented by its own opinion, the initial decision of the Hearing Examiner was adopted.

In modifying the initial decision, the Commission deleted therefrom the Examiner's findings as to the substantial effect of the Brown franchise program on competition and substituted therefor its own findings. It held that it was not necessary to examine the probable effect of petitioner's program upon competition in order to find that the program was an unfair trade practice violative of § 5 of the Federal Trade Commission Act, but that in any event, on the authority of Brown Shoe Co., Inc. v. United States, 1962, 370 U.S. 294,¹ 82 S.Ct. 1502, 8 L.Ed.2d 510, the prospective competitive impact of the program was such as to render it unlawful. The Commission stated:

"We have found that Brown\'s operation of the franchise plan constitutes an unfair trade practice violative of Section 5 of the Federal Trade Commission Act. We conclude, therefore, that Count 1 of the complaint has been sustained. Moreover, an examination of the market facts of the shoe industry, as developed in this record in the light of the Brown Shoe decision, persuades us that the prospective competitive impact of the franchise program is such that the standards of illegality under Section 3 and Section 7 of the Clayton Act, as amended, have been met."

On May 1, 1963, Brown filed its petition to review the order of the Commission on the grounds that such order and the findings and opinion upon which it was based are arbitrary and capricious, not supported by any substantial evidence, not in accordance with law, and lacking in due process. Petitioner has asked to have the order set aside and the complaint dismissed. The findings of the Commission and the Examiner may be summarized as follows:

Petitioner, Brown Shoe Company, Inc., is a New York corporation with its office and principal place of business in St. Louis County, Missouri. It is primarily engaged in the manufacture and distribution of nationally advertised medium-priced men's, women's and children's shoes. Brown and its subsidiaries operate over 50 manufacturing, supply and service plants located throughout the United States and Canada. In 1959, this complex ranked third in shoe pairage production among the country's approximately 900 to 1,000 shoe manufacturers. These manufacturers produced 632 million pairs of leather shoes in 1959.

The shoes manufactured by Brown and its subsidiaries are marketed on a nation-wide basis, primarily through sales at wholesale to independent retail customers, including individual shoe stores, chain stores, department stores and specialty stores. Apart from its subsidiaries, Brown was selling to approximately 6,000 retail customers at the time the complaint was issued.

Brown was second in dollar sales and third in pairage production in the shoe industry in 1958 and 1959.² Although total dollar sales for the fiscal year ending October 31, 1959, were $276,549,164,³ this figure included sales at wholesale and at retail by Brown and its subsidiaries and included inter-company sales as well. Brown's sales at wholesale for the same period to its 6,000 independent retail shoe store customers were $111,292,872. That same year (1959) the top 70 shoe manufacturing firms in the industry had total dollar sales of 1.8 billion dollars.

Brown maintains an extensive distribution system. It is organized into separate selling divisions through which it markets its various brands of shoes to its retail customers.

The division of Brown which is of paramount importance under Count 1 of the complaint is the franchise stores division. The personnel of this division include a manager, two...