Federal Trade Commission v. Brown Shoe Company

• Decision Date: 06 June 1966
• Docket Number: No. 118,118
• Citation: Federal Trade Commission v. Brown Shoe Company, 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966)
• Parties: FEDERAL TRADE COMMISSION, Petitioner, v. BROWN SHOE COMPANY, Inc
• Court: U.S. Supreme Court

384 U.S. 316

86 S.Ct. 1501

16 L.Ed.2d 587

FEDERAL TRADE COMMISSION, Petitioner,

v BROWN SHOE COMPANY, Inc.

No. 118.

Argued April 25, 1966.

Decided June 6, 1966.

Ralph S. Spritzer, Washington, D.C., for petitioner.

Robert H. McRoberts, St. Louis, Mo., for respondent.

Mr. Justice BLACKdelivered 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.'¹Proceeding 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 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 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 effectively foreclosed Brown's competitors from selling to a substantial number of retail shoe dealers.²Based 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 programs such as Brown Shoe engaged in in this case.* * * The custom of giving free service to those who will buy their shoes is widespread, and we cannot agree with the Commission that it is an unfair method of competition in commerce.'339 F.2d 45, 56.

In addition the Court of Appeals held that there was a 'complete failure to prove an exclusive dealing agreement which might be held violative of § 5 of the Act.'We are asked to treat this general conclusion as though the court intended it to be a rejection of the Commission's findings of fact.We cannot do this.Neither this statement of the court nor any other statement in the opinion indicates a purpose to hold that the evidence failed to show an agreement between Brown and more than 650 franchised dealers which restrained the dealers from buying competing lines of shoes from Brown's competitors.Indeed, in view of the crucial admissions in Brown's formal answer to the complaint we cannot attribute to the Court of Appeals a purpose to set aside the Commission's findings that these restrictive agreements existed and that Brown and most of the franchised dealers in varying degrees lived up to their obligations.Thus the question we have for decision is whether the Federal Trade Commission can declare it to be an unfair practice for Brown, the second largest manufacturer of shoes in the Nation, to pay a valuable consideration to hundreds of retail shoe purchasers in order to secure a contractual promise from them that they will deal primarily with Brown and will not purchase conflicting lines of shoes from Brown's competitors.We hold that the Commission has power to find, on the record here, such an anticompetitive practice unfair, subject of course to judicial review.SeeAtlantic Rfg. Co. v. FTC, 381 U.S. 357, 367, 85 S.Ct. 1498, 1505, 14 L.Ed.2d 443.

In holding that the Federal Trade Commission lacked the power to declare Brown's program to be unfair the Court of Appeals was much influenced by and quoted at length from this Court's opinion in Federal Trade Comm'n v. Gratz, 253 U.S. 421, 40 S.Ct. 572, 64 L.Ed. 993.That case, decided shortly after the Federal Trade Commission Act was passed, construed the Act over a strong dissent by Mr. Justice Brandeis as giving the Commission very little...