International Shoe Co. v. Federal Trade Commission

• Decision Date: 27 November 1928
• Docket Number: No. 2225.,2225.
• Parties: INTERNATIONAL SHOE CO. v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — First Circuit

29 F.2d 518 (1928)

INTERNATIONAL SHOE CO. v. FEDERAL TRADE COMMISSION.

No. 2225.

Circuit Court of Appeals, First Circuit.

November 27, 1928.

Frank Y. Gladney and R. E. Blake, both of St. Louis, Mo. (J. D. Williamson, of St. Louis, Mo., of counsel; Clifford P. Warren, of Boston, Mass., on the brief), for petitioner.

Adrien F. Busick, Baldwin B. Bane, and A. R. Brindley, all of Washington, D. C. (Robert E. Healy, of Washington, D. C., on the brief), for the Commission.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

ANDERSON, Circuit Judge.

This is a proceeding to review an order of the Federal Trade Commission directing the petitioner to divest itself of the stock of the W. H. McElwain Company, found to have been acquired in violation of section 7 of the Clayton Act (15 USCA § 18), and of the properties of said company taken over through such stock acquisition after the Commission had issued its complaint. Section 7 of the Clayton Act (38 Stat. 730, 15 USCA § 18) provides:

"That 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."

By section 11 (15 USCA § 21), it is provided that, after hearing, the Commission shall state its findings of fact and cause an order to be served requiring the respondent to cease and desist from the violation charged and found. This section also provides for a review by a court of appeals and that "the findings of the Commission * * * as to the facts, if supported by testimony, shall be conclusive."

The scope of this statute and of the reviewing proceeding have been clearly defined in recent authoritative decisions.

In United Shoe Machinery Co. v. United States, 258 U. S. 451, 459, 42 S. Ct. 363, 366 (66 L. Ed. 708), Mr. Justice Day says:

"The Sherman Act 15 USCA §§ 1-7, 15 and the Clayton Act 38 Stat. 730 provide different tests of liability. This was determined in the recent case of Standard Fashion Co. v. Magrane-Houston Co., ante 258 U. S. 346, 42 S. Ct. 360, 66 L. Ed. 653. In that case we pointed out that the Clayton Act was intended to supplement the Sherman Act, and within its limited sphere established its own rule."

And in Standard Fashion Co. v. Magrane-Houston Co., 258 U. S. 346, 42 S. Ct. 360, 66 L. Ed. 653, the phrase "may be to substantially lessen competition" found in both sections 3 and 7, was dealt with as follows:

"Section 3 condemns sales or agreements where the effect of such sale or contract of sale `may' be to substantially lessen competition or tend to create monopoly. It thus deals with consequences to follow the making of the restrictive covenant limiting the right of the purchaser to deal in the goods of the seller only. But we do not think that the purpose in using the word `may' was to prohibit the mere possibility of the consequences described. It was intended to prevent such agreements as would under the circumstances disclosed probably lessen competition, or create an actual tendency to monopoly. That it was not intended to reach every remote lessening of competition is shown in the requirement that such lessening must be substantial."

Otherwise stated, contracts dealt with by section 3 (15 USCA § 14) and stock acquisitions referred to in section 7, are condemned where the effect creates a reasonable probability — not a mere possibility — that competition will be substantially lessened or a monopoly created. Compare Swift v. Federal Trade Commission (C. C. A.) 8 F.(2d) 595, 597; Federal Trade Commission v. Gratz, 253 U. S. 421, 40 S. Ct. 572, 64 L. Ed. 993, and footnotes to Mr. Justice Brandeis' dissenting opinion, page 431 et seq. (40 S. Ct. 576 et seq.), quoting from the committee reports, etc., when the Clayton Act was under discussion in Congress. Federal Trade Commission v. Eastman Kodak Co., 274 U. S. 619, 47 S. Ct. 688, 71 L. Ed. 1238.

A recent and closely applicable decision is Federal Trade Commission v. Pacific Paper Association, 273 U. S. 52, 47 S. Ct. 255, 71 L. Ed. 534. In that case, the Circuit Court of Appeals for the Ninth Circuit 4 F.(2d) 457 had reversed paragraphs (b) and (c) of the order of the Commission, made on stipulated facts, from which the Commission found that the respondents had acted in violation of section 5 of the Federal Trade Commission Act. 38 Stat. 717 (15 USCA § 45).

But the Supreme Court reversed the Circuit Court of Appeals, holding (273 U. S. 63, 47 S. Ct. 258 71 L. Ed. 534) that "the weight to be given to the facts and circumstances admitted, as well as the inferences reasonably to be drawn from them, is for the Commission. Its conclusion that the habitual use of the established list lessens competition and fixes prices in interstate territory cannot be said to be without sufficient support."

The jurisdiction of this court to review is not broad and general; it is limited, somewhat narrowly, to the grounds prescribed in the statute.

Petitioner's learned counsel states, near the beginning of his brief, that there is no dispute about the facts, not a single conflict in the testimony of the witnesses, and that "the issue is nothing more than conflicting inferences, conclusions or opinions from the undisputed facts shown on the record."

This essentially accurate characterization of the bulky record of over 700 pages would, under the doctrine above stated in the Pacific Paper Association Case, warrant this court in dismissing the petition without substantial discussion of petitioner's contention — elaborated in a brief of over 100 pages — that the Commission's inferences were wrong. It is not seriously contended that any of the findings of fact of the Commission are unsupported by the testimony. Petitioner merely seeks to induce this court to hold the Commission wrong in its inferences from the facts, and on that ground alone to reverse the order.

Nevertheless, we have carefully examined the record and the petitioner's two briefs, with the result that we find that the inferences of the Commission are not only reasonably drawn from undisputed facts, but that no other inferences could reasonably, be so drawn.

In brief outline the facts are as follows:

The International Shoe Company, with headquarters in St. Louis, grew out of a consolidation, some years ago, of three shoe-manufacturing concerns. In 1921 it owned and operated at least 32 shoe factories in Missouri, Illinois, and Kentucky, with a daily capacity of more than 70,000 pairs of shoes. It also owned tanneries. It manufactured a general line of leather shoes for men, women, boys, girls, and infants, and sold them in interstate commerce in practically all the states of the United States. The W. H. McElwain Company was then a Massachusetts corporation, with headquarters in Boston, owning and operating tanneries and shoe factories having a daily capacity of about 40,000 pairs, where it manufactured leather shoes for men, boys, and misses, which it sold in at least 35 states of the United States. It also owned, in whole or in part, several branches or distributing houses. Its main output were dress shoes for men, thus distinguished from work shoes. The petitioner was the largest shoe manufacturer in the United States, and the McElwain Company the largest in New England, and the fourth or fifth in the United States.

Both concerns started from small beginnings, had been well and aggressively managed, and had for over 20 years been expanding their output, both in varieties of shoes manufactured and in the territory in which they marketed their shoes. Both companies showed marked tendencies towards what has come to be called the "integration of the industry"; i. e., covering the field, from raw material (mainly hides) to actual wearer.

Paragraph 3 of the complaint reads: "On or about May 11, 1921, while the International Shoe Company and the W. H. McElwain Company were engaged in commerce in competition with each other as aforesaid, the International Shoe Company acquired the whole, or substantially all, of the stock or other share capital of said W. H. McElwain Company, and still owns and controls such stock or share capital so acquired. Such acquisition of such stock or share capital of the W. H. McElwain Company was contrary to law and violative of said Act of Congress approved October 15, 1914 (the Clayton Act), and especially section 7 thereof. The effect of the acquisition by the respondent of such stock or other share capital of the W. H. McElwain Company was, to wit:

"(a) To substantially lessen competition between the W. H. McElwain Company, the corporation whose stock was so acquired, and the International Shoe Company, the corporation making the acquisition;

"(b) To restrain commerce in the shoe business in the several sections and communities of the United States in which the respondent and the said W. H. McElwain Company were engaged in business in interstate commerce, as aforesaid;

"(c) To tend to create in the respondent a monopoly in interstate commerce in the shoe business."

After hearing, the Commission on November 25, 1925, made a long report of its findings of fact, paragraphs 5 and 6 of which are as follows:

"Paragraph 5. The shoes produced by W. H. McElwain Company in 1921 and for some time prior thereto were sold to retail dealers at about six to nine dollars per pair. At the same time the International Shoe Company produced a line of men's dress shoes known as the `Patriot' brand, and of that brand ten styles of low shoes and twenty-two styles of high shoes were similar in style, comparable in price, and equal or superior in quality to the men's high and low dress shoes produced by the W. H....