International Shoe Co v. Federal Trade Commission

• Decision Date: 06 January 1930
• Docket Number: No. 42,42
• Citation: 50 S.Ct. 89,74 L.Ed. 431,280 U.S. 291
• Parties: INTERNATIONAL SHOE CO. v. FEDERAL TRADE COMMISSION
• Court: U.S. Supreme Court

280 U.S. 291

50 S.Ct. 89

74 L.Ed. 431

INTERNATIONAL SHOE CO.

v FEDERAL TRADE COMMISSION.

No. 42.

Argued Dec. 2, 3, 1929.

Decided Jan. 6, 1930.

[Syllabus from pages 291-293 intentionally omitted] Messrs. Charles Nagel, J. D. Williamson, and Frank Y. Gladney, all of St. Louis, Mo., for petitioner.

Mr. John Lord O'Brian, Asst. to Atty. Gen., for respondent.

Mr. Justice SUTHERLAND delivered the opinion of the Court.

This was a proceeding instituted by complaint of the Federal Trade Commission against petitioner charging a violation of section 7 of the Clayton Act, 38 Stat. 730, 731, c. 323 (U. S. Code, title 15, § 18 (15 USCA § 18)), which provides:

'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 the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce. * * *

'This section shall not apply to corporations purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition.'

The complaint charges that in May, 1921, while petitioner and the W. H. McElwain Company were engaged in commerce in competition with each other, petitioner acquired all, or substantially all, of the capital stock of the McElwain Company and still owns and controls the same; that the effect of such acquisition was to substantially lessen competition between the two companies; to restrain commerce in the shoe business in the localities where both were engaged in business in interstate commerce; and to tend to create a monopoly in interstate commerce in such business. The last-named charge has not been pressed and may be put aside. Upon a hearing before the Commission evidence was introduced from which the Commission found: (a) That the capital stock of the McElwain Company had been acquired by the petitioner at the time charged in the complaint; (b) that the two companies were at the time in substantial competition with one another; and (c) that the effect of the acquisition was to substantially lessen competition between them and to restrain commerce. Thereupon the Commission put down an order directing petitioner to divest itself of all capital stock of the McElwain Company then held or owned, directly or indirectly, by petitioner, and to cease and desist from the ownership, operation, management, and control of all assets acquired from the McElwain Company subsequent to the acquisition of the capital stock, etc., and to divest itself of all such assets, etc. Upon appeal by petitioner to the court below, the order of the Commission was affirmed. 29 F.(2d) 518.

The principal grounds upon which the order here is assailed are: (1) That there never was substantial competition between the two corporations, and therefore no foundation for the charge of substantial lessening of competition; (2) that at the time of the acquisition the financial condition of the McElwain Company was such as to necessitate liquidation or sale, and therefore the prospect for future competition or restraint was entirely eliminated. Since, in our opinion, these grounds are determinative, we find it unnecessary to consider the challenge to the sufficiency of the complaint and other contentions. First. Prior to the acquisition of the capital stock in question, the International Shoe Company was engaged in manufacturing leather shoes of various kinds. It had a large number of tanneries and factories and sales houses located in several states. Its business was extensive, and its products were shipped and sold to purchasers practically throughout the United States. The McElwain Company, a Massachusetts corporation with its principal office in Boston, also manufactured shoes and sold and distributed them in several states of the Union. Principally, it made and sold dress shoes for men and boys. The International made and sold a line of men's dress shoes of various styles, which, although comparable in price, and to some degree in quality, with the men's dress shoes produced by the McElwain Company, differed from them in important particulars. Such competition as there was between the two companies related alone to men's dress shoes.

The findings of the Commission that this competition between the two companies was substantial and, by the acquisition of the stock of the McElwain Company, had been substantially lessened, the Court of Appeals affirmed, holding that they were fully supported by the evidence. Upon a careful review of the record we think the evidence requires a contrary conclusion.

It is true that both companies were engaged in selling dress shoes to customers for resale within the limits of several of the same states; but the markets reached by the two companies within these states, with slight exceptions hereafter mentioned, were not the same. Certain substitutes for leather were used to some extent in the making of the McElwain dress shoes; and they were better finished, more attractive and modern in appearance, and appealed especially to city trade. The dress shoes of the International were made wholly of leather and were of a better wearing quality; but among the retailers who catered to city or fashionable wear, the McElwain shoes were preferred. The trade policies of the two companies so differed that the McElwain Company generally secured the trade of wholesalers and large retailers; while the International obtained the trade of dealers in the small communities. When requested, the McElwain Company stamped the name of the customer (that is the dealer) upon the shoes, which the International refused to do; and this operated to aid the former company to get, as generally it did get, the trade of the retailers in the larger cities. As an important result of the foregoing circumstances, witnesses estimated that about 95 per cent. of the McElwain sales were in towns and cities having a population of 10,000 or over; while about 95 per cent. of the sales of the International were in towns having a population of 6,000 or less. The bulk of the trade of each company was in different sections of the country, that of the McElwain Company being north of the Ohio river and east of the state of Illinois, while that of the International was in the south and west. An analysis of the sales of the International for the twelve months preceding the acquisition of the McElwain capital stock discloses that in 42 states no men's dress shoes were sold to customers of the McElwain Company; and that in the remaining six states during the same period a total of only 52 5/12 dozen pairs of such shoes had been sold to sixteen retailers and three wholesalers who were also customers of the McElwain Company. This amounted to less than one-fourth of the production of dress shoes by the International for a single day, the daily production being about 250 dozen pairs.

It is plain from the foregoing that the product of the two companies here in question, because of the difference in appearance and workmanship, appealed to the tastes of entirely different classes of consumers; that while a portion of the product of both companies went into the same states, in the main the product of each was in fact sold to a different class of dealers and found its way into distinctly separate markets. Thus it appears that in respect of 95 per cent. of the business there was no competition in fact and no contest, or observed tendency to contest, in the market for the same purchasers; and it is manifest that, when this is eliminated, what remains is of such slight consequence as to deprive the finding that there was substantial competition between the two corporations of any real support in the evidence. The rule to be followed is stated in Federal Trade Comm. v. Curtis Co., 260 U. S. 568, 580, 43 S. Ct. 210, 213, 67 L. Ed. 408:

'Manifestly, the court must inquire whether the commission's findings of fact are supported by evidence. If so supported, they are conclusive. But as the statute grants jurisdiction to make and enter, upon the pleadings, testimony and proceedings, a decree affirming, modifying or setting aside an order, the court must also have power to examine the whole record and ascertain for itself the issues presented and whether there are material facts not reported by the commission. If there be substantial evidence relating to such facts from which different conclusions reasonably may be drawn, the matter may be and ordinarily, we think, should be remanded to the commission-the primary fact-finding body-with direction to make additional findings, but if from all the circumstances it clearly appears, that in the interest of justice the controversy should be decided without further delay, the court has full power under the statute so to do. The language of the statute is broad and confers power of review not found in the Interstate Commerce Act. (49 USCA § 1 et seq.)'

Section 7 of the Clayton Act, as its terms and the nature of the remedy prescribed plainly suggest, was intended for the protection of the public against the evils which were supposed to flow from the undue lessening of competition. In Standard Oil Co. v. Federal Trade Commission, 282 F. 81, 87, the Court of Appeals for the Third Circuit applied the test to the Clayton Act which had therefore been held applicable to the Sherman Act (15 USCA § 1 et seq.), namely, that the standard of legality was the absence or presence of prejudice to the public interest by unduly restricting competition or unduly obstructing the due course of trade. In Federal Trade Comm. v. Sinclair Co., 261 U. S. 463, 476, 43 S. Ct. 450, 454, 67 L. Ed. 746, referring to the ...