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.
Ralph S. Spritzer argued the cause for petitioner. On the brief were Solicitor General Marshall, Assistant Attorney General Turner, Robert S. Rifkind, Howard E. [384 U.S. 316, 317] Shapiro, Milton J. Grossman, James McI. Henderson, Thomas F. Howder and Gerald J. Thain.
Robert H. McRoberts argued the cause for respondent. With him on the brief were Gaylord C. Burke and Edwin S. Taylor.
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 [384 U.S. 316, 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:
On review the Court of Appeals set aside the Commission's order. In doing so the court said:
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 . 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 power to declare any trade practice unfair. Later cases of this Court, however, have rejected the Gratz view and it is now recognized in line with the dissent of Mr. Justice Brandeis in Gratz that the Commission has [384 U.S. 316, 321] broad powers to declare trade practices unfair. 3 This broad power of the Commission is particularly well established with regard to trade practices which conflict with the basic policies of the Sherman and Clayton Acts even though such practices may not actually violate these laws. 4 The record in this case shows beyond doubt that Brown, the country's second largest manufacturer of shoes, has a program, which requires shoe retailers, unless faithless to their contractual obligations with Brown, substantially to limit their trade with Brown's competitors. This program obviously conflicts with the central policy of both 1 of the Sherman Act and 3 of the Clayton Act against contracts which take away freedom of purchasers to buy in an open market. 5 Brown nevertheless contends that the Commission had no power to declare the franchise program unfair without proof that its effect "may be to substantially lessen competition or tend to create a monopoly" [384 U.S. 316, 322] which of course would have to be proved if the Government were proceeding against Brown under 3 of the Clayton Act rather than 5 of the Federal Trade Commission Act. We reject the argument that proof of this 3 element must be made for as we pointed out above our cases 6 hold that the Commission has power under 5 to arrest trade restraints in their incipiency without proof that they amount to an outright violation of 3 of the Clayton Act or other provisions of the antitrust laws. This power of the Commission was emphatically stated in F. T. C. v. Motion Picture Adv. Co., 344 U.S. 392 , at pp. 394-395:
Section 5 (a) (1) of the Federal Trade Commission Act provides that "Unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce, are declared unlawful."
[ Footnote 2 ] In its opinion the Commission found that the services provided by Brown in its franchise program were the "prime motivation" for dealers to join and remain in the program; that the program resulted in franchised stores purchasing 75% of their total shoe requirements from Brown - the remainder being for the most part shoes which were not "conflicting" lines, as provided by the agreement; that the effect of the plan was to foreclose retail outlets to Brown's competitors, particularly small manufacturers; and that enforcement of the plan was effected by teams of field men who called upon the shoe stores, urged the elimination of other manufacturers' conflicting lines and reported deviations to Brown who then cancelled under a provision of the agreement. Compare Brown Shoe Co. v. United States, 370 U.S. 294 .
[ Footnote 3 ] See, e. g., Federal Trade Comm'n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 ; Trade Comm'n v. Cement Institute, 333 U.S. 683, 693 ; Atlantic Rfg. Co. v. FTC, 381 U.S. 357, 367 .
[ Footnote 4 ] See, e. g., Fashion Guild v. Trade Comm'n, 312 U.S. 457, 463 ; Atlantic Rfg. Co. v. FTC, 381 U.S. 357, 369 .
[ Footnote 5 ] Section 1 of the Sherman Act, 26 Stat. 209, 15 U.S.C. 1 (1964 ed.), declares illegal "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations . . . ."
Section 3 of the Clayton Act, 38 Stat. 731, 15 U.S.C. 14 (1964 ed.), provides in relevant part: