370 U.S. 294 (1962), 4, Brown Shoe Co., Inc. v. United States

Docket Nº:No. 4
Citation:370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510
Party Name:Brown Shoe Co., Inc. v. United States
Case Date:June 25, 1962
Court:United States Supreme Court
 
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Page 294

370 U.S. 294 (1962)

82 S.Ct. 1502, 8 L.Ed.2d 510

Brown Shoe Co., Inc.

v.

United States

No. 4

United States Supreme Court

June 25, 1962

Argued December 6, 1961

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MISSOURI

Syllabus

The Government brought suit to enjoin consummation of a merger of two corporations on the ground that its effect might be substantially to lessen competition or to tend to create a monopoly in the production, distribution and sale of shoes, in violation of § 7 of the Clayton Act, as amended in 1950. The District Court found that the merger would increase concentration in the shoe industry, both in manufacturing and retailing, eliminate one of the corporations as a substantial competitor in the retail field, and establish a manufacturer-retailer relationship which would deprive all but the top firms in the industry of a fair opportunity to compete, and that, therefore, it probably would result in a further substantial lessening of competition and an increased tendency toward monopoly. It enjoined appellant from having or acquiring any further interest in the business, stock, or assets of the other corporation, required full divestiture by appellant of the other corporation's stock and assets, and ordered appellant to propose in the immediate future a plan for carrying into effect the Court's order of divestiture.

Held: The judgment is affirmed. Pp. 296-346.

1. The District Court's judgment was a "final" judgment within the meaning of § 2 of the Expediting Act, and this Court has jurisdiction of this direct appeal under that Act. Pp. 304-311.

2. The legislative history of the 1950 amendments to § 7 of the Clayton Act indicates that Congress provided no definite quantitative or qualitative tests by which enforcement agencies were to gauge the effects of a given merger, but rather that Congress intended that a variety of economic and other factors be considered in determining whether the merger was consistent with maintaining competition in the industry in which the merging companies operated. Pp. 311-323.

3. The record supports the District Court's findings and its conclusion that the shoe industry is being subjected to a cumulative series of vertical mergers which, if left unchecked, may substantially lessen competition within the meaning of § 7, as amended. Pp.323-334.

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(a) The record in this case supports the District Court's finding that the relevant lines of commerce are men's, women's, and children's shoes. Pp. 325-326.

(b) The District Court properly found that the predominantly medium-priced shoes which appellant manufactures do not occupy a product market different from the predominantly low-priced shoes which the other corporation sells. P. 326.

(c) In defining the product market, the District Court was not required to employ finer "price/quality" or "age/sex" distinctions than those recognized by its classifications of "men's," "women's," and "children's" shoes. Pp. 326-328.

(d) Insofar as the vertical aspect of this merger is concerned, the relevant geographic market is the entire Nation, and the anticompetitive effects of the merger are to be measured within that range of distribution. P. 328.

(e) The trend toward vertical integration in the shoe industry, when combined with appellant's avowed policy of forcing its own shoes upon its retail subsidiaries, seems likely to foreclose competition from a substantial share of the markets for men's, women's, and children's shoes, without producing any countervailing competitive, economic, or social advantages. Pp. 328-334.

4. The District Court was correct in concluding that this merger may tend to lessen competition substantially in the retail sale of men's, women's, and children's shoes in the overwhelming majority of the cities and their environs in which both corporations sell through owned or controlled outlets. Pp. 334-346.

(a) The District Court correctly defined men's, women's, and children's shoes as the relevant lines of commerce in which to analyze the horizontal aspects of the merger. P. 336.

(b) The District Court properly defined the relevant geographic markets in which to analyze the horizontal aspects of this merger as those cities with populations exceeding 10,000 and their environs in which both corporations retailed shoes through their own or controlled outlets. Pp. 336-339.

(c) The evidence is adequate to support the finding of the District Court that, as a result of the merger, competition in the retailing of men's, women's, and children's shoes may be lessened substantially in those cities. Pp. 339-346.

179 F.Supp. 721, affirmed.

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WARREN, J., lead opinion

MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.

I

This suit was initiated in November, 1955, when the Government filed a civil action in the United States District Court for the Eastern District of Missouri alleging that a contemplated merger between the G. R. Kinney Company, Inc. (Kinney) and the Brown Shoe Company, Inc. (Brown), through an exchange of Kinney for Brown stock, would violate § 7 of the Clayton Act, 15 U.S.C. § 18. The Act, as amended, provides in pertinent part:

No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.

The complaint sought injunctive relief under § 15 of the Clayton Act, 15 U.S.C. § 25, to restrain consummation of the merger.

A motion by the Government for a preliminary injunction pendente lite was denied, and the companies were permitted to merge provided, however, that their businesses be operated separately and that their assets be kept separately identifiable. The merger was then effected on May 1, 1956.

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In the District Court, the Government contended that the effect of the merger of Brown the third largest seller of shoes by dollar volume in the United States, a leading manufacturer of men's, women's, and children's shoes, and a retailer with over 1,230 owned, operated or controlled retail outlets,1 and Kinney, the eighth largest company, by dollar volume, among those primarily engaged [82 S.Ct. 1509] in selling shoes, itself a large manufacturer of shoes and a retailer with over 350 retail outlets, "may be substantially to lessen competition or to tend to create a monopoly" by eliminating actual or potential competition in the production of shoes for the national wholesale shoe market and in the sale of shoes at retail in the Nation by foreclosing competition from "a market represented by Kinney's retail outlets whose annual sales exceed $42,000,000," and by enhancing Brown's competitive advantage over other producers, distributors and sellers of shoes. The Government argued that the "line of commerce" affected by this merger is "footwear," or alternatively, that the "line[s]" are "men's," "women's," and "children's" shoes, separately considered, and that the "section of the country," within which the anticompetitive effect of the merger is to be judged is the Nation as a whole, or, alternatively, each separate city or city and its

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immediate surrounding area in which the parties sell shoes at retail.

In the District Court, Brown contended that the merger would be shown not to endanger competition if the "line[s] of commerce" and the "section[s] of the country" were properly determined. Brown urged that not only were the age and sex of the intended customers to be considered in determining the relevant line of commerce, but that differences in grade of material, quality of workmanship, price, and customer use of shoes resulted in establishing different lines of commerce. While agreeing with the Government that, with regard to manufacturing, the relevant geographic market for assessing the effect of the merger upon competition is the country as a whole, Brown contended that, with regard to retailing, the market must vary with economic reality from the central business district of a large city to a "standard metropolitan area"2 for a smaller community. Brown further contended that, both at the manufacturing level and at the retail level, the shoe industry enjoyed healthy competition, and that the vigor of this competition would not, in any event, be diminished by the proposed merger, because Kinney manufactured less than 0.5% and retailed less than 2% of the Nation's shoes.

The District Court rejected the broadest contentions of both parties. The District Court found that

there is one group of classifications which is understood and recognized

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by the entire industry and the public the classification into "men's," "women's" and "children's" shoes separately and independently.

On the other hand, "[t]o classify shoes as a whole could be unfair and unjust; to classify them further would be impractical, unwarranted and unrealistic."

Realizing that "the areas of effective competition for retailing purposes cannot be fixed with mathematical precision," the District Court found that,

when determined by economic reality, for retailing, a "section of the country" is a city of 10,000 or more population and its immediate and contiguous surrounding area, regardless of name designation, and in which a Kinney store and a Brown (operated, franchise, or plan)3 store are located.

The District Court rejected the Government's contention that the combining [82 S.Ct. 1510] of the manufacturing facilities of Brown and Kinney would substantially lessen...

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