Wm. Filene's Sons Co. v. FASHION ORIGINATORS'GUILD

• Decision Date: 24 March 1936
• Docket Number: No. 4293.,4293.
• Citation: 14 F. Supp. 353
• Parties: WM. FILENE'S SONS CO. v. FASHION ORIGINATORS' GUILD OF AMERICA, Inc., et al.
• Court: U.S. District Court — District of Massachusetts

14 F. Supp. 353

WM. FILENE'S SONS CO. v. FASHION ORIGINATORS' GUILD OF AMERICA, Inc., et al.

No. 4293.

District Court, D. Massachusetts.

March 24, 1936.

Jacob J. Kaplan and Nutter, McClennen & Fish, all of Boston, Mass., for plaintiff.

Ropes, Gray, Boyden & Perkins and Charles B. Rugg, all of Boston, Mass., for defendants.

BREWSTER, District Judge.

This bill in equity is brought under section 16 of the Clayton Act (title 15 U. S.C.A. § 26), the plaintiff seeking injunctive relief against threatened loss and damage by violation of the anti-trust laws. The matter is before the court upon plaintiff's prayer for a preliminary injunction. It has been heard upon affidavits, filed on behalf of both plaintiff and defendants, upon which I base the following

Statement of Facts.

1. The defendant Fashion Originators' Guild of America, Inc. (hereinafter referred to as the Guild), is a New York corporation. A copy of the certificate of incorporation which issued March 7, 1932, together with a copy of its constitution and by-laws and certain rules and regulations adopted by the Guild, are attached to the affidavit of James M. Golby, its executive secretary. (These exhibits and all exhibits hereinafter referred to are by reference incorporated in this statement of facts.) The other defendants are members of the Guild, manufacturers of ladies' garments.

The purpose of the corporation, as shown in its certificate of incorporation and its by-laws, is to "protect the originators of fashions and styles against copying and piracy of styles of any trade or industry; to promote co-operation and friendly intercourse in the wearing apparel industries; to establish and maintain uniformity and certainty in the customs and commercial usages of trade; * * * to advance the trade and commercial interests of its members and to foster the industries of its members throughout the Americas and to promote the sale, identification and recognition of original style and merchandise of the industries of its members."

2. Prior to the organization of the Guild, the manufacturers of ladies' garments, particularly in the higher priced lines, had been confronted with a demoralizing and destructive practice in the trade, known as "style piracy." Manufacturers who produced original designs, oftentimes at considerable expense, were liable to have the value of the accepted style seriously impaired by pirating manufacturers or retailers who obtained copies of the garment and manufactured, or caused to be manufactured, replicas made of cheaper material and of inferior workmanship which were sold in the market at a price much less than the originator was entitled to command for the original creation. This piracy was sometimes accomplished by means that could be said to violate no legal rights of the creator, but in many instances reprehensible methods were adopted by the pirating manufacturer. In either event, the piracy worked a substantial injury to the manufacturer who created the style. During 1930 and 1931 it was not unusual to find that a dress, sold by the originator for $89, or thereabouts, would be copied and sold by the pirating manufacturer for as little as $15.75. It is said that this pernicious practice of piracy contributed substantially to the demoralized condition of the industry in 1931 and 1932, resulting in the bankruptcy of many concerns engaged in original style creation.

This practice of pirating styles was especially detrimental to the dress industry by reason of the fact that the style life of a dress is relatively short. If a pirating manufacturer were able to place copies on the market at reduced prices at approximately the same time as the original creator, obviously the latter would be deprived wholly, or partially, of any opportunity to make an advantageous sale of the pirated article.

The chief value of a "quality" dress lies, not so much in the quality of the material, as in the smartness and originality of the design.

The ladies' ready-to-wear garment industry is divided into various classes according to the price ranges of the articles produced. For some years prior to the formation of the Guild, a more or less arbitrary line had been drawn dividing the manufacturers of garments selling at wholesale for $16.75 and up from those manufacturers who sold for less. Since the formation of the Guild, however, this line of division, by common usage and custom, has been constantly lowered, so that since the summer of 1935 the definition of "original creators" has been held to include those who produced merchandise selling for as low as $6.75.

The manufacturers of low priced dresses, generally speaking, do not create original styles but adapt or change existing styles. Some years ago the cheaper market copied most of its styles, but this predatory practice was decreased so that to-day, in proportion to the total production, relatively few garments are copied. The bulk of the copying now existing is found largely in the low priced field.

Pirating not only caused loss to the manufacturer and to the retailer who had been compelled to meet competition of retailers who bought from pirating manufacturers, but it caused resentment against the retailing store among the customers who had purchased the original garment at the higher price.

3. In order to remove, or at least mitigate, this evil, the Guild was organized to the end that the manufacturers of original styles could better protect the fruits of their labor.

The methods adopted by the Guild and its members to meet this situation may be summarized as follows:

In order to secure the necessary co-operation of the retail trade, though they were not admitted to membership in the organization, the retailers were asked to sign a so-called "declaration of co-operation" against style piracy. A copy of the original declaration is attached to the affidavit of Golby as Exhibit D. Retailers are not obliged to subscribe to this declaration, but if they do they agree to recognize the property rights of the manufacturer in styles created by it and to exact from the seller a warranty that the goods covered by the order are not copies of dresses originated by members of the Guild. The retailer further agrees that he will not knowingly or intentionally sell copies of Guild merchandise, and upon notification by the Guild he will exercise his right to return the garment to the manufacturer pursuant to the warranty above noted.

If a retailer declined to subscribe to this declaration of co-operation, or failed to comply with its provisions, the members of the Guild were so advised. The rules provide that members shall neither show nor sell their garments to retailers who have not signed or agreed to the declaration of co-operation, or, having signed, have breached its terms, and any member who willfully sells to a retailer after such member has been duly notified that such dealer has violated the "fair and reasonable standards and ethics of the Guild" is liable to an assessment of $100 for the first offense; $500 for the second, or expulsion or both; and for the third offense the member is liable to expulsion.

There were provisions in the by-laws for arbitration of disputes arising among members and, by an amendment to the bylaws, members, after eight weeks' notice in writing, were free to resign, in which event the member was required to state, before the board of governors, the reasons for his resignation.

4. To facilitate the operation of the program adopted by the Guild, it created a Style Registration Bureau and required each member, in order to secure the benefits of protection, to register each design with the bureau prior to releasing his dress for sale to the general public. A label was issued to him bearing the following legend, "This dress is a registered style of the Fashion Originators' Guild of America, Inc.," which label was attached to dresses manufactured by the original creators in accordance with the registered design. In the course of time, this label came to have a definite significance as indicating that the dresses bearing the label represented quality merchandise manufactured according to original designs by skilled workers. The Guild, in order to protect original designs of manufacturers who were not members, refused to register and issue labels to a member for any dress which was shown to be a copy of a dress created by a nonmember. Only original designs were eligible for registration.

Under the by-laws, the regulations, and practice of the Guild, so-called piracy committees have been set up composed of conforming retailers and, if any question is raised whether a dress is a copy of an original style, the dispute is referred to this committee who, after hearing and full investigation, determines whether the alleged copy is, in fact, a copy.

There is nothing in the affidavits to indicate that this administrative system of arbitration before the piracy committee has worked arbitrarily or unfairly to co-operating retailers. If the board of arbitration has determined that the article is a copy, the retailer is advised of the fact and requested to return the pirated copy to the manufacturer pursuant to the provisions of its warranty. If the retailer declines to comply, the members of the Guild are advised by means of a "red card," so called, of this violation on the part of the retailer. The member, after receipt of such information, then must refuse to sell any original registered design to the nonco-operating retailer or be subjected to the penalties above described.

5. At the outset approximately 2,500 retailers signed declarations of co-operation. Up to July 1, 1935, a total of approximately 6,000 retailers had signed and, as the influence of the Guild was extended to lower priced lines, the number of retailers joining increased to approximately 11,000 stores which are now acting in conformity with the spirit and purpose of the Guild.

6. In addition to style...