384 U.S. 316 (1966), 11, Federal Trade Commission v. Brown Shoe Co., Inc.

Docket NºNo. 11
Citation384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587
Party NameFederal Trade Commission v. Brown Shoe Co., Inc.
Case DateJune 06, 1966
CourtUnited States Supreme Court

Page 316

384 U.S. 316 (1966)

86 S.Ct. 1501, 16 L.Ed.2d 587

Federal Trade Commission

v.

Brown Shoe Co., Inc.

No. 11

United States Supreme Court

June 6, 1966

Argued April 25, 1966

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Syllabus

The FTC filed a complaint against respondent, the country's second largest shoe manufacturer, under § 5 of the Federal Trade Commission Act, charging unfair trade practices by the use of a "Franchise Stores Program" through which respondent sells its shoes to more than 650 retail stores. In return for special benefits from Brown Shoe Company, the franchise stores agree to buy Brown shoe lines and to refrain from buying competitive lines. After hearings the FTC concluded that the restrictive contract program was an unfair method of competition and ordered respondent to cease and desist from its use. The Court of Appeals set aside the FTC's order, holding that there was "complete failure to prove an exclusive dealing agreement" violative of § 5 of the Act.

Held: the FTC acted well within its authority under the Act in declaring respondent's franchise program an unfair trade practice. Pp. 319-322.

(a) On this record, the FTC has power to find such anticompetitive practice unfair. Federal Trade Comm'n v. Gratz, 253 U.S. 421, relied on by the Court of Appeals, has been rejected by this Court. Pp. 320-321.

(b) The franchise program conflicts with the policy of §1 of the Sherman Act and § 3 of the Clayton Act against contracts which remove freedom of purchasers to buy in an open market. P. 321.

(c) Under § 5 of the Federal Trade Commission Act, the FTC has power to arrest restraints of trade in their incipiency without proof that they are outright violations of § 3 of the Clayton Act or other antitrust provisions. FTC v. Motion Picture Adv. Co., 344 U.S. 392, 394-395. Pp. 321-322.

339 F.2d 45, reversed.

Page 317

BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

Section 5(a)(6) of the Federal Trade Commission Act empowers and directs the Commission

to prevent persons, partnerships, or corporations . . . from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.1

Proceeding under the authority of § 5, the Federal Trade Commission filed a complaint against the Brown Shoe Co., Inc., one of the world's largest manufacturers of shoes, with total sales of $236,946,078 for the year ending October 31, 1957. The unfair practices charged against Brown revolve around the "Brown Franchise Stores' Program" through which Brown sells its shoes to some 650 retail stores. The complaint alleged that, under this plan, Brown, a corporation engaged in interstate commerce, had

entered into contracts or franchises with a substantial number of its independent retail shoe store operator customers which require 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.

Brown's customers who entered into these restrictive franchise agreements, so the complaint charged, were given in return special treatment and valuable benefits which were not granted to Brown's customers who

Page 318

did not enter into the agreements. In its answer to the Commission's complaint, Brown admitted that approximately 259 of its retail customers had executed written franchise agreements, and that over 400 others had entered into its franchise program without execution of the franchise agreement. Also, in its answer, Brown attached as an exhibit an unexecuted copy of the "Franchise Agreement" which, when executed by Brown's representative and a retail shoe dealer, obligates Brown to give to the dealer but not to other customers certain valuable services, including, among others architectural plans, costly merchandising records, services of a Brown field representative, and a right to participate in group insurance at lower rates than the dealer could obtain individually. In return, according to the franchise agreement set out in Brown's answer, the retailer must make this promise:

In return, I will:

1. Concentrate my business within the grades and price lines of shoes [86 S.Ct. 1503] representing Brown Shoe Company Franchises of the Brown Division and will have no lines conflicting with Brown Division Brands of the Brown Shoe Company.

Brown's answer further admitted that the operators of

such Brown Franchise Stores in individually varying degrees accept the benefits and perform the obligations contained in such franchise agreements or implicit in such Program,

and that Brown refuses to grant these benefits "to dealers who are dropped or voluntarily withdraw from the Brown Franchise Program. . . ." The foregoing admissions of Brown as to the existence and operation of the franchise program were buttressed by many separate detailed fact findings of a trial examiner, one of which findings was that the franchise program

Page 319

effectively foreclosed Brown's competitors from selling to a substantial number of retail shoe dealers.2 Based on these findings and on Brown's admissions, the Commission concluded that the restrictive contract program was an unfair method of competition within the meaning of § 5, and ordered Brown to cease and desist from its use.

On review, the Court of Appeals set aside the Commission's order. In doing so, the court said:

By passage of the Federal Trade Commission Act, particularly § 5 thereof, we do not believe that Congress meant to prohibit or limit sales...

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