Appendix — Federal Trade Commission v. Brown Shoe Co.
Supreme Court brief1966
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Text
Ocrosprr Term, 1965
No. 118
FEDERAL TRADE COMMISSION,
vs.
BROWN SHOE COMPANY, INC.
SUPREME COURT OF THE UNITED STATES
PETITIONER,
WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
AYPEALS FOR THE EIGHTH CIRCUIT
Volume I
INDEX
Proceedings before the Federal Trade Commission
Complaint ...... Pes ue eas PEE cash acon
Ee eo rg ern E To
Answer of respondent Brown Shoe Company, Ine.
Exhibit A—Franchise Agreement.
Initial decision, Edward Creel, Hearing Examiner,
dated January 22, 1962....._........
Petition for review... .............0055005.
Order granting petition for review, March 15, 1962
Final order, dated February 20, 1963.........._...
Opinion, Paul Rand Dixon, Commissioner, filed Feb-
ruary 20, 1963. . RR Soha tA
Transeript of proceedings ake a,
Opening statement by Mr. Rogal, counsel support-
ing the complaint (excerpts)... ..
Opening statement by Mr. MeRoberts, counsel for
the respondent (excerpts) . paca,
Original
53
91A
91A
91C
il INDEX
Proceedings before the Federal Trade Commission—Con-
tinued Original Print
Transcript of testimony (Narrative Form), March 16,
17; May 3, 4, 5, 6, 1960; March 9, 10, 1961, May 15,
16 ‘and 18, 1961; July 14, 18, 20, ‘and 21, 1961; and
October 30, 31, 1961 Bore ei giclee si tae a ath ye OLR gta vie $2 88
Witnesses for the Commission................. 92 88
Testimony of Aarol C. Fleener—direct...... 92 88
Stipulation as to number of stores, ete... 102 97
Testimony of Aarol C. Fleener—direct...... 103 98
Testimony of Aarol C. Fleener—cross....... 121 105
J. R. Johnston—direct........ 128 106
W. L. H. Griffin—direct....... 148 123
Charles N. Arend—direct..... 152 127
—cross ..... 163 137
—redirect .. 169 142
—recross .... 169 143
Jack Altman—direct ......... 171 144
—cross ......... 181 154
—redirect .... 186 158
—recross ....... 187 159
—redirect ...... 187 160
—recross ........ 188 160
J. R. Johnston (recalied)
—cross ......... 188 161
—redirect ..... ere 173
Yarold J. Laverenz—direct.... 220 183
—eross .... 230 192
—redirect.. 236 197
William Edward Freeman
—direet ......... 238 198
—eross ....... 246 206
—redirect ..... gee 212
—recross ........ 253 213
Testimony of Raymond S. Shannon—direct.. 255 214
—cross . 268 226
—redirect.. 275 233
George E. Friedley—direct.... 276 233
—eross.... 284 241
—redirect.. 289 246
—reeross.. 290 247
Witnesses for the Respondent.................. 291 247
Testimony of Alvin Musgrove—direct....... 291 248
—cross....... 305 259
—redirect..... 321 272
William B. Howard—direct.... 323 274
—eross.... 330 281
—redirect.. 338 289
Lee Vieira—direct .... ..... 338 289
—Cross .. bie ee 345 294
INDEX ili
Proceedings before the Federal Trade Commission—Con-
tinued
Transcript of testimony (Narrative Form), March 16,
17; May 3, 4, 5, 6, 1960; March 9, 10, 1961, May 15,
16 and 18, 1961; July 14, 18, 20, and 21, 1961; and
October 30, 31, 1961—Continued
Witnesses for the Respondent—Continued Original = Print
W. C. MacDonald—direct..... 349 297
—eross..... 354 302
Richard Prater—direct....... 358 306
—cross........ 367 315
William D. Pinnick—direct. .. 369 316
Robert G. Stolz—direct....... 372 319
Testimony of Edward Bomar—direct ....... 379 322
—cross........ 382 323
Hubert C. Rogers—direct .. 589 326
—eruss .... 394 329
Alvie Ray Coleman--direct.... 396 331
—eross.... 400 334
Charles Sherman—direct. .... 402 ~~ 335
-—€TOSS ...... 406 338
—redirect. . 408 339
—examination by Hearing
Beanie’ s33 0-25 30"; 408 340
Raymond Carl Adams, Jr.
—direct ....... 409 341
—cross ......... 412 343
—redirect ....... 413 344
—exainination by Hearing
Examiner... ....... +. 413 344
Aubrey A. Foster—direct...... 413 345
—cross...... 416 347
—examination by Hearing
Examiner ............ 417 347
E. A. Monday—direct........ 417 348
—eross........ 419 350
Allan B. Stephenson, Jr.
—direct.... .... 421 351
—cross ..... 424 354
—redirect ....... 429 357
—recross...... 429 358
Testimony of Samuel Monroe Lewis—direct.. 430 359
—ecross _. 433 361
—redirect 435 363
—recross 436 364
William S. Coleman—direct .. 436 364
—eross.. 440 367
—redirect. 444 370
iv INDEX
Proceedings before the Federal Trade Commission—Con-
tinued
Transeript of testimony (Narrative Form), March 16,
17; May 3, 4, 5, 6, 1960; Mareh 9, 10, 1961, May 15,
16 and 18, 1961; July 14, 18, 20, and 21, 1961; and
October 30, 31, 1961-—Continued
Witnesses for the Respondent—Continued Original =—- Print
Glen Henry Cooper—direct 445 371
—eross . 449 374
—redirect 451 376
—reeross 453 377
Glenn L, Edwards—direet 453 378
—Cross 459 382
—redirect 462 385
Everett MeLain—direct. . 463 385
—eCross __ 465 387
—redirect 468 390
Guy Shipe—direct. 469 390
——OPOSS. 470 391
—redirect 471 393
George H. Croker—direct 483 394
——Oross . 488 395
CONG x 55.86 cactnn cus ere aie 501 396
Testimony of Robert P. Howe—direct 502 397
—Cross .. 507 401
: —redirect , 509 403
Jerome Hotfman—direct 510 404
—€Tross §20 412
William Axline—direct. 524 416
—oross 531 422
—redirect. .. 535 425
William J. Sebastian—direct 536 426
—eross 540 429
Leroy C. Samuels—direct 540 429
—ceross.....— SA 439
~—redirect SA 441
—recross 55S 442
—further redirect 555 443
Edward Fuhrmann, Jr.
—direct . 556 443
—¢TOSs 568 453
—redirect 57 455
Arpad Lazar-—direct 570 455
—eross 475 458
—redirect 577 461
Testimony of John P. Morton—direct 578 462
—«ross 583 465
—redirect 585 468
YE ERO SORELLE NAS EOE EL
INDEX v
Proceedings before the Federal Trade Commission—Con-
tinued
Transeript of testimony (Narrative Form), March 16,
17; May 3, 4, 5, 6, 1960; Mareh 9, 10, 1961, May 15,
16 and 18, 1961; July 14, 18, 20, and 21, 1961; and
October 30, 31, 1961—Continued
Witnesses for the Respondent—Continued Original = Print
Chester Cashion—direct 586 468
-—€ross 590 471
—redirect 592 73
——Preeross 593 473
Stanley A. Tanner—direct 593 474
Poss 599 478
Irving D. Chapman—direct 601 480
—eross 607 485
—redirect 608 486
Don A, Hanson—direct 609 487
—ross 618 495
~-redirect 620 496
Howard B. Michels—direct 620 496
-—ross 626 500
Ray J. Kettman-——direct 626 501
TOSS 632 505
redirect 633 506
David Rietmann-—direet 635 508
——€Tross 645 516
Testimony of Victor V. Vandenburgh
—<direet 645 516
Cross 643 523
—-redirect 643 523
Ernest W. Losberger——direct 656 526
Poss 664 534
—redirect 666 535
—-TeCTOSS 7 536
—redirect 667 537
Colloquy 667 537
Testimony of Clarence W. Nolan-—direet 677 539
~—€1ross 679 540
Orville B. Shugarts—direct 680 541
~—CTOSS 684 ‘45
redirect 686 47
—=PeCTOSS 686 547
-—-further redirect 686 47
Colloquy , 6S7 547
Testimony of Harry W. Astroth—direct — 690 550
—Voir Dire Examination 692 552
(resumed )—direct 696 556
—eross 699 558
“_ —redirect 699 559
\ —reeross 700 560
—further’ redirect 701 560
vi INDEX
Proceedings before the Federal Trade Commission—Con-
tinued
Transcript of testimony (Narrative Form), March 16,
17; May 3, 4, 5, 6, 1960; Mareh 9, 10, 1961, May 15,
16 and 18, 1961; July 14, 18, 20, and 21, 1961; and
October 30, 31, 1961—Continued
Witnesses for the Respondent—Continued Original ~—- Print
Testimony of J. Richard Johnston—direct. . 701 561
—Voir Dire Examination 702 562
i, Se ee ee re 710 569
(recalled)—redirect.... 715 573
Proceedings in the United States Court of cual for the
I NN nse ct N ore v4 oe ew hee Ae nae 717 574
NS Cl a as anne) tev de adv aoe «53 717 574
RE a ices A a aikbane Ban ek nigis WV gow hha, CLR ee o'e8 3 Eee 739 592
Clerk’s certificate (omitted in printing)................ 740
Order extending time to file petition for writ of certiorari 741 593
Order allowing certiorari.................. Oke oe has 742 594
INDEX vii
Volume II
Original Print
Proceedings before the Federal Trade Commission _. 1E 595
CoMMISSION’S EXHIBITS:
No. 2—Net Sales of Brown Shoe Company, Ine.
and Subsidiaries for Fiscal Year Ended October
Way AOE oe RE ea cei ne SES Pxa 1E 595
No. 3—Letter from Brown Shoe Company, W. L.
H. Griffin, Secretary to Federal Trade Commis-
sion, dated June 9, 1958, giving “Net Shipments
Brown Only” and “Net Shipments to Brown
ORE I ON RE ae TRE RS TC eT a Oe
Franchise Stores”, 1955-1957 inclusive ..... 2E 595
No. 4—Deseription of Brown Shoe Company's
Nationally Advertised Brands 3E 596
No, 5—Supplemental Deseription of Brown Shoe
Company's Nationally Advertised Brands __. 4E 597
No. 6—Air Step in Stoek Wall Chart ...... 6E 599
No. 7—Air Step Early Fall Line, 1958—Price
Perr eae eee SE 601
No. 8—Buster Brown Catalog Fall 1958 (excerpt) 1l0E 603
No. 14—Pedwin Catalog, Fall 1958 (excerpt). . 12E 604
No, 22A-X—Brown Franchise Stores Program
3 Pamphlet, “How to Make Money in the Retail
# Shoe Business”. . 22E 605
Nos. 23A-Z24—List of Brows Franchise Stores . 46E 629
Nos. 24A-Z33—List of Brown Franchise Stores
(continued) eee 62E 645
No, 26—Single page statement concerning insur-
ance carried by Brown Franchise Stores S2E 665
No, 27-A-O—Interrogatory Answer Group VII,
No. 1, concerning insurance and rubber foot-
wear purehases of Brown Franchise Stores 83E 667
No. 28-A-M—Interrogatory Answer Group V, No.
5E, Brown Franchise Stores. Reasons for
Separation from Franchise Program. October
31, 1949-October 31, 1955 .. 86E 670
No. 29-A-L— Brown Franchise Stores, “Separated
from the Franchise Program. November 1,
1954-April 1,1958...... Caen. ae 679
No. 30-A- B—Field Representative’s_ Report—
Alexander’s Shoe Store, Cambridge, Chio 107E 691
No. 31-A-B—Field Representative’s Report—-
Nolan’s, Auburn, N.Y., Mareh 14, 1958 109K 693
No. 32—Letter from Tom Curtis, Franchise Divi-
sion to Max Holt, dated September 25, 1958
re Mathien’s Shoe Store, Greenfield, Massachu-
setts 1l1E 695
Ne. 33—Letter from Max Holt to Tom Curtis
dated September 27, 1958 111E 696
viii INDEX
Proceedings before the Federal Trade Commission—Con-
tinued
ComMission’s Exxisits—Continued Original Print
No. 34-A-B—Field Representative’s Report—
Shaddock’s, Canandaigua, N.Y., June 14, 1958 113E 697
No. 35-A-B—Field Representative’s Report—
Whites Shoe Store, Lancaster, N. Hampshire,
SN Ge Bs ie eos a thee A 115E 699
No. 36—Letter from Tom Curtis to George
Croker, dated June 27, 1958 re Shugart’s Shoes,
Clearfield & Philipsburg, Pennsylvania ......_. 117E 701
No. 37-A-B—Field Representative’s Report—
Green’s Department Store, Middletown, N.Y.,
PNG TM AOURE ccs: « HANNE ee seeks 118E 702
No. 38-A-B—Field Representative’s Report—
Ward’s Boctery, Chanute, Kansas, April 26,
BN 5 NG Bad oS ci eae aA RR 120k 704
No. 39-A-B--Field Representative’s Report—
Junior Boot Shop, Springfield, Mo., April 22,
OE os eee Weal ei cde iy « aa 122K 706
No. 40—Letter from Dick Johnston, Franchise
Stores Division to Mr. T. R. Forgan, dated
February 18, 1958 re Lloyd’s Shoes, Wichita,
Kansas, Great Bend, Kansas .............. 124E 708
No. 41-A-B—Field Representative’s Report—
Lloyd’s Shoes, Wichita, Kansas, February 28,
Us ok ee het nies nck oo e-< Cdk eae os 125E 709
No. 42—Letter from Dick Johnston, Franchise
Stores Division to Mr. T. R. Forgan, dated
March 11, 1958 re Bump Shoe — Wichita
and Great Bend, Kansas Cony et aeger °F 711
No. 43-A-B—Field Representative’s Report—
Brungardt Shoes, Pratt, Kansas, November 9,
SO is ci gas ocd wnrek ae ctnd 128E 712
No, 44-A-B—Field Representative’s Report—
Brungardt Shoes, Pratt, Kansas, June 5, 1957 130K 714
No. 45—Letter from McEnaney to Lou Carroll,
dated February 4, 1957 re New London Agree-
WEE i icant. oo Sy ecnts out Rad (WE Wek 132E 716
No. 46—Memo from T. R. Forgan to Dick John-
ston dated May 21, 1957 re MeCrum-Manpin,
WR: Beth: ees ey 132E 716
No. 47—Letter from Dick Johnston, Franchise
Stores Division to Mr. Glen R. Maupin, dated
May 28, 1957 ..... TS FN AY ee Oa 133K 717
No. 48-A-B—Field Representative's Report—
aerate Ft. Scott, caren October 5,
eran .. 135E 719
ameeneemmmmnsnaitemammeanmamasasaeastessessss cece aes
INDEX ix
Proceedings before the Federal Trade Commission—Con-
tinued
Commission’s Exxisits—Continued Original == Print
No. 49—Letter from Tom Curtis, Franchise Divi-
sion to T. R. Forgan, dated October 8, 1957 re
McCrum-Maupin, Ft. Seott, Kansas ......... 137E 721
No. 50-A-B—Letter from Dick Johnston to Me-
Crum-Maupin, Fort Seott, Kansas dated Jan-
We Ti Be eS i irae TR SS 137E 721
No. 51—Memo from Dick Johnston to various
Brown personnel, January 22, 1958 re MeCrum-
| Me I G56 I SERRA OS, 139E 723
No. 83-A-B—Letter from Brown Shoe Company
to Federal Trade Commission, dated April 22,
1958 transmitting and explaining CX 84-A-I.. 164E 724
No. 84-A-I—List of Brown Shoe Company, Inc.,
Brands and Competitive Brands and Manufac-
CONNIE oe RE ie a rewind . 166E 727
No. 85—List of U.S. Production of Footwear
(except rubber) Made on Conventional Ma-
chinery (1950-1959) Source: Bureau of Census 175E 736
No. 86—Copy of page 730 of Leather and Shoes
Blue Book—Shoe Production (Except Rubber)
bey See BON iss cs Sg AG es 176E 737
No. 87—Copy of page 731 of Leather and Shoes
Blue Book—Statistics—Production of Shoes
and Slippers in U.S. by Company Groups.... 177E 738
No. 88—Copy of page 740 of Leather and Shoes
Blue Book—Retail Shoe Outlets in the U.S.... 178E 739
No. 89-A—How the Top 70 Shoe Manufacturing
Firms Rated in 1959 Shoe Production ...... 179E 740
No. 89-B—How the Top 70 Shoe Manufacturing
Firms Rated in 1959 Dollar Sales ........... 180E 741
No. 98—-Form for “Stock Shoe Size-Up Sheet
RR ee GR ard Cate me See Cnt 180E(1) 742
No. 99—Brown Franchise Store Monthly Material
ond Tene TG i Fe RS. 181E 744
No. 111—Monthly Report Form—Brown Shoe
Co. as a Basis for Credit...... LPP e abe A 183E 746
No. 115—Forms for Departmental Pairage Re-
ceipts—Invoice Register.................... 185E 748
No. 118-A-Z—Testimony of Aarol C. Fleener... 187E 751
No. 119—Statement showing “The commission
paid Brown by U.S. Rubber _.. 201F 767
No. 120-A-C—Letter from United States Rubber
* Company re Brown Shoe Company Franchise
Dealers—Waterproof Footwear—1958 Season,
Gated Januaty 1, IOEB. 2 56 IN oS: 202E 768
x INDEX
Proceedings before the Federal Trade Commission—Con-
tinued
Commission’s Exuieits—Continued Origins! =— Print
No. 121—Proposed Stipulations of Fact in Docket
No. 7606 with appendices................ .. 205E 771
Appendix B—Brown Franchise Stores Pro-
gram pamphlet (excerpts)............... 211K 777
Appendix C—Letter from United States
Rubber Company re Brown Shoe Company
—Franchise Dealers—U.S. Keds—1959—
60 Season, dated August 1, 1959 ....... 215K 780
Appendix D—Letter from United States
Rubber Company re Brown Shoe Company
—Franchise Dealers—U. S. Kedettes—1960
Season, dated August 1, 1959°...... 218E 784
Appendix E—Letter from United States
Rubber Company re Brown Shoe Company
—Franchise Dealers—U. S. Royal Sandals
—1960 Season, dated August 1, 1959 .... 219K 785
Appendix F—Letter from United States
Rubber Company re Brown Shoe Company
Franchise Dealers—1960 Waterproof Sea-
son—Rainpals, dated January 1, 1960 ... 220K 786
Appendix G—Letter from United States
Rubber Company re Brown Shoe Company
Franchise Deaiers—1960 Waterproof Sea-
son —U. 8S. Pack-A-Ways, dated January 1,
RS ie ha eh, Re Hae aks 222E 788
Appendix H—Letter fiom United States
Rubber Company re Prown Shoe Company
) Franchise Dealers—Waterproof Footwear
—1960 Season, dated January 1, 1960 ©. 224K 790
Appendix I—Letter from A. C. Ware, Branch
Footwear Sales Manager to J. R. Johnston,
We GN 227K 793
Appendix J—Two page deseription of. pur-
chase terms of United States Rubber foot-
wear by Brown Franchise Dealers 228K 794
No. 122-A-C—Letter from United States Rubber
Company re Brown Shoe Company Franchise
Dealers—U. S. Keds—1958-1959 Season, dated
August 1, 1958... 230K 796
No. 123-A-B—Letter from United States Rubber
Company re Brown Shoe Company Franchise
Dealers—Waterproof Footwear—1955 Season,
dated January 1, 1955 233E 799
No. 124-A-B—Letter from United States Rubber
Company re Brown Shoe Company Franchise
Dealers—Waterproof Footwear-—1956 Season,
dated January 1, 1956 ; .. 236E 801
cee
INDEX xi
Proceedings before the Federal Trade Commission—Con-
tinued
Commission’s Exuipirs—Continued Original = Print
No. 125-A-B—Letter from United States Rubber
Company re Brown Shoe Company Franchise
Dealers—Waterproof Footwear—1957 Season,
Goted Jammaty: 3, WOT. i i ess 237E 803
No. 127-A-C—Letter from United States Rubber
Company re Brown Shoe Company Franchise
Dealers—Waterproof Footwear—1959 Season,
dated January 1, 1000... <2... 600560060055... 239E 805
No, 128-A-B—Letter from United States Rubber
Company re Brown Shoe Company—Franchise
Stores—U. S. Keds—1955-56 Season, dated Au-
NN Bg eos Bex cas CRGGES a coh Cake 242E 808
No, 129-A-C—Letter from United States Rubber
Company re Brown Shoe Company—Franchise
Dealers—U.S. Keds—1957-58 Season, dated
Pee MEL > Seabees ARRON Ta, iz a aaa 244K 810
No. 138-A-B—Two page list of Brown Franchise
Stores sold by Juvenile Shoe Corporation.... 255E 813
No. 139—Statement showing “Shoe sales by
Huth-James, Ine., 1954-1959 inclusive”... .... 257E 815
No. 141-A-T—List of Stores on Brown Franchise
Program as of January 1, 1960 Indicating Those
Stores Which Joined the Program after Jan-
Ltn al eft | ARERR lar PO or Sars ae ae 258E 816
No. 142—Weyenberg Shoe Mfg. Co.—Report of
Sales in Terms of Dollars and Pairs Manufac-
tured by Classes for Years 1948 Thru 1959,
GE BE BIR ERT si 278K 836
No. 143—Weyenberg shipments record for Ray-
mond J. Emerling, Hamburg, New York...... 279E 837
No. 144—Weyenberg shipments record for Blynn’s
Shoe Stores, Ine., Pittsburgh, Pa............. 280K 838
No. 145—Weyenberg shipments record for Gryder
Ci, Bs PIES Fa. ieee eeu cee:s 281E 839
No. 146—Weyenberg memo—Shannon to John
W. Anderson, dated June 19, 1958 and hand-
written reply thereon....................... 282E 840
No. 147—Weyenberg memo—Shannon to Sales-
men, dated April 22, 1960 and handwritten
reply from Anderson thereon............... 283E 841
No. 149——Letter from Weyenberg Shoe Mfg. Co.,
Ken Williams to Ray Shannon, dated May 2,
RRS HR OG. ee ai 284E 842
No. 150 & 151—Weyenberg shipments record for
Blinkinsop Shoe Store, Marengo, Iowa for years
SOONG GE SUR eS ie ee cede eres 285E 843
xii INDEX
Proceedings before the Federal Trade Commission—Con-
tinued
Commission’s Exuisits—Continued
No. 152—Leverenz shipments record for Winona
Bootery (formerly B & D Shoe Store), Winona,
NN he is cae vbn-cuietucvn Ha Che ico
No. 153—Leverenz shipments record for Meyer’s
Shoe Store, Watertown, Wisconsin..........
No. 154—Letter from George A. Friedley, Lev-
erenz Shoe Company to Meyer’s Shoe Store,
ee Ree ap ae ae
No. 155—Letter from G. H. Meyers to Leverenz
Shoe Co., dated March 8, 1956..............
No. 156—Leverenz shipments record for Emerling
Shoe Store, Hamburg, New York............
RESPONDENT'S EXHIBITS:
No. 1—Letter from The Juvenile Shoe Corpora-
tion, J. Wilkinson to Howard’s Shoe Store,
Hillsboro, Illinois, dated May 9, 1960.... ...
No. 6—Stipulation of Facts, Docket No. 7607
with list showing “Population of Cities and
Towns in Which Brown Franchise Stores are
Re i ices. ei aes cee cece am
No. 7—Stipulation of Facts, Docket No. 7607
concerning other franchise store programs, and
benefits and services available from other manu-
GN ove Xidsek = RRS AV i
Appendix A—Memorandum of Merchants’
Service Plan Agreement................
Appendix B—“Friendly Franchise” Store
Service Division of International Shoe Com-
pany Appearing in Footwear News (1959-
1961)—Identifying Caption.................
No. 9—Trade Clearance Card (Sample)...
No. 10-A-E—Credit and Sales Experience of Six
Mannfacturers with Brown Franchise Stores
After Separation from Franchise Program,
October 31, 1949-April 1, 1958..............
Nos. 11-13 (exeerpt)—Outside Line Survey of
Brown Franchise Dealers...... erties hits et
No. 14-A-B—List of Stores Showing Date First
on Brown Franchise Program..............
No. 15—Number of Shoe Outlets in Towns and
Cities of 5,000 to 30,000 Population in Which a
Brown Franchise Store is Located—Summary
of Exhibit and Stipulation thereto...
Original
287K
287E
288K
289E
290E
291E
293E
315E
319K
321K
321K (1)
322E
324E
329K
849
888
901
[fols. 1-3]
BEFORE FEDERAL TRADE COMMISSION
Docket No. 7606
In the Matter of Brown Suor Company, a CorPoraTION
Comp.iaint—lIssued by the Federal Trade Commission on
October 13, 1959
Pursuant to the provisions of the Federal Trade Com-
mission Act and by virtue of the authority vested in it by
said Act, the Federal Trade Commission, having reason to
believe that the party respondent named in the caption here-
of, and hereinafter more particularly designated and de-
scribed has violated the provisions of Section 5 of said Act
(U. S. C., Title 15, Section 45), and it appearing to the
Commission that a proceeding by it in respect thereof
would be in the public interest, the Commission hereby is-
sues its complaint, stating its charges as follows:
Count I
Paragraph One: Respondent, Brown Shoe Company,
sometimes hereinafter referred to as “Brown”, is a corpo-
ration organized under the laws of the State of New York
with its office and principal place of business located at
8300 Maryland Avenue, St. Louis, Missouri.
Paragraph Two: Brown is an integrated compary oper-
ating at all levels of the shoe industry. Prior to 1950, it was
primarily engaged in the manufacture and distribution of
shoes at the wholesale level. Since 1951, through the acqui-
sition of retail shoe stores Brown has become a substantial
and large retailer of shoes. Brown owns and operates 48
factories and warehouses in 41 different cities located in
seven states. Brown’s total sales of $236,946,078 for its fis-
cal year ending October 31, 1957, make it the world’s second
largest manufacturer and seller of shoes.
Brown’s shoes are marketed by three separate methods
or plans: (1) through independent retail shoe stores which
have entered a franchise agreement with Brown or one of
[fol. 4] its divisions or subsidiaries; (2) through wholesale
sales to independent shoe stores, chains and mail order
2
houses; and (3) through approximately one thousand com-
pany-owned retail stores.
Brown’s shoes are sold under a wide variety of trade
names. The Kinney and Regal brands are sold only through
Brown owned retail stores bearing those names. Brown
shoes for men are trade named Educator, Pedwin, Roblee,
Stuart Holmes, and Style-Craft. Brown shoes for women
are marketed under the trade names Air Step, Connie,
Educator, Glamour Debs, Jacqueline, Life Stride, Mar-
quise, Naturalizer, Natural Poise, Paris Fashior, Revette,
and Risque. The Brown manufactured children’s shoes bear
the names Buster Brown, Educator, Official Boy Scout,
Official Girl Scout, Propr-bilt, and Robin Hood. All of the
Brown shoes retail in the medium price field. In addition,
shoes are sold to retail chain and mail order houses for
resale under the private brand names of the customers.
Paragraph Three: The shoes manufactured or distrib-
uted by Brown have been, and are being, sold by Brown
through its divisions and subsidiaries to purchasers located
throughout the several States of the United States, the ter-
ritories thereof, and in the District of Columbia. The re-
spondent causes said shoes to be transported and shipped
from the various places of manufacture to purchasers there-
of who are located in states other than the state where
said shoes were manufactured, and there has been and is
now a constant and continuous current and flow of said
shoes in interstate commerce. Respondent, therefore, is
engaged in commerce, as “comm rce” is defined in the Fed-
eral Trade Commission Act.
Paragraph Four: Except to the extent that competition
has been hindered, frustrated, and lessened as set forth in
this complaint, respondent has been and is now in substan-
tial competition with other corporations, individuals and
partnerships engaged in the manufacture, sale und distri-
bution of shoes in “commerce” as that term is defined in the
Federal Trade Commission Act.
Paragraph Five: In the course and conduct of its busi-
ness in commerce, Brown, through its Brown Franchise
Stores division, has been and is now engaged in unfair
[fol. 5] methods of competition and unfair acts or prac-
tices in that it has entered into contracts or franchises with
a substantial number of its independent retail shoe store
ei eee
ee EEE
3
operator customers which require said customers to re-
strict their purchases of shoes for resale to the Brown lines
and which prohibit them from purchasing, stocking or re-
selling shoes manufactured by competitors of Brown. Cus-
tomers who have entered into such agreements or fran-
chises with Brown are termed “Brown Franchise Stores”,
and are afforded special treatment and given certain ben-
efits, hereinafter described, which are not granted to the
Brown customers who do not enter into such agreements or
franchises.
Paragraph Six: At the present time, there are approxi-
mately 650 Brown Franchise Stores located in forty-seven
of the states of the United States. Total sales by Brown to
the Brown Fran:hise Stores in Brown’s fiscal year ending
October 31, 1957, were $21,724,564.00.
Brown Franchise Stores are, for the most part, “family
type” stores selling a complete line of shoes to fit every
member of the family. They are mostly located in the towns
and smaller cities and only one Franchise Store is appoint-
ed in each town or small city.
Paragraph Seven: Among the valuable benefits or serv-
ices received by Brown Franchise Stores from, or
through, Brown are free signs, business forms and account-
ing assistance participation in lower cost group fire, public
liability, robbery, and life insurance policies; and special,
below list prices on U. 8S. Rubber Company canvas and wa-
terproof footwear.
As consideration for the above-enumerated services, the
Brown Franchise Store is required to concentrate its pur-
chasing to the grades and price lines of shoes sold by
Brown and to refrain from stocking and selling the shoes
of competitors of Brown. The Standard Brown Franchise
agreement provides that the franchisees will:
“1. Concentrate my business within the grades and
price lines of shoes representing Brown Shoe Com-
pany Franchises of the Brown Division and will have
no lines conflicting with Brown Division Brands of the
Brown Shoe Company.”
[fol. 6] Paragraph Eight: Dealers who violate the above-
described agreement, by buying and stocking shoes manu-
factured and sold by competitors of Brown, are dropped
a
4
from the Franchise program and are deprived of the here-
inbefore-described valuable benefits attendant thereto.
Acting on instruction from Brown, the insurance companies
which write the Brown-sponsored, term group fire, pub-
lic liability, robbery and life insurance policies covering
Brown Franchise Stores, refuse to renew the policies of re-
calcitrant dealers. Also acting on instructions from Brown,
the United States Rubber Company charges recalcitrant
dealers higher prices for canvas and waterproof footwear.
Furthermore, Brown itself withdraws and refuses to grant
to dealers dropped from the Franchise program, the free
signs, business forms, accounting assistance and other serv-
ices and benefits granted to dealers under the Franchise
program.
Paragraph Nine: The purpose, intent or effect of the
aforesaid methods, acts and practices of the respondent has
been, is, or may be, substantially to lessen, hinder, restrain
and suppress competition in the purchase and sale of shoes
in interstate comraerce; to cause a substantial number of
retail shoe dealers to refrain from, or discontinue, buying
and handling shoes of competitors of Brown; to exclude, or
to tend to exclude, competitors of Brown from selling shoes
to a substantial number of retail shoe dealers; to foreclose
competitors of Brown from a substantial share of the retail
dealer market in many trade areas; to appropriate to
Brown the exclusive right to supply substantially the entire
purchased shoe requirements of a substantial number of
retail shoe dealers; and to enhance further the dominant
position of Brown in the shoe industry and thereby to tend
to create a monopoly in Brown in the purchase and sale of
shoes in interstate commerce.
Count IT
Paragraph Ten: Paragraphs One through Four of Count
I are hereby incorporated by reference and made a part of
this charge as fully and with the same effect as though here
again set forth verbatim.
Paragraph Eleven: Through its sales divisions and sub-
sidiaries, Brown sells its branded shoes to more than
[fol. 7] fifteen thousand independent retail shoe stores lo-
cated in each of the states of the United States and in the
District of Columbia.
\'
5
Tn many trade areas throughout the country, the inde-
pendent retail shoe store customers of Brown compete with
each other or with Brown owned retail stores in the resale
to the public of Brown manufactured shoes.
Paragraph Twelve: In the course and conduct of its busi-
ness of selling branded shoes to independent retail shoe
stores, Brown has been, and is now, engaged in unfair
methods of competition and unfair acts or practices in com-
merce, in that it forces and requires or attempts to force
and require its retail shoe store operator customers to
agree to maintain arbitrary, non-competitive resale con-
sumer prices fixed and promulgated by Brown.
Paragraph Thirteen: Brown regularly publishes and dis-
tributes to its retail shoe store operator customers price
lists or catalog sheets which contain the consumer prices to
be observed by said customers.
Frequently Brown publishes said consumer prices in full
page advertisements in magazines having national circula-
tion.
Through its representatives and officials, Brown main-
tains continuous pressure upon its retail shoe store opera-
tor customers to insure that they do not depart from or sell
below the minimum resale prices fixed by Brown. Cus-
tomers who do advertise or sell at prices below the agreed
minimum are immediately contacted by a Brown represent-
ative, who is instructed to secure the operator’s adherence
to the fixed minimum prices by persuasion, but if that fails,
to threaten and inform the customer that Brown will dis-
continue deing business with it.
Paragraph Fourteen: By means of the aforesaid unlaw-_
ful agreements, which respondent enforces or attempts to
enforce by coercion and threats, plus the distributior of the
aforesaid price lists and the publication of prices in nation-
al magazines, Brown has illegally fixed, controlled and
maintained, or attempted to fix, control and maintain, the
prices at which shoes manufactured and distributed by it
are resold to consumers.
[fol. 8] Paragraph Fifteen: The acts and practices of
Brown as alleged in Counts I and II of this complaint are
all to the prejudice of competitors of Brown and to the
public; have a tendency to hinder and prevent, and have
actually hindered and prevented, competition in the pur-
6
chase and sale of shoes in commerce; have a tendency to
obstruct and restrain, and have actually obstructed and
restrained such commerce in shoes; and constitute unfair
methods of competition and unfair acts and practices in
commerce within the intent and meaning and in violation of
Section 5 of the Federal Trade Commission Act.
Wherefore, the Premises Considered, the Federal Trade
Commission, on this 13th day of October, A. D., 1959, issues
its complaint against said respondent.
Notice
Notice is hereby given to the respondent hereinbefore
named that the 15th day of December, A. D., 1959, at 10
o’clock is hereby fixed as the time and St. Louis, Missouri,
as the place when and where a hearing will be had before a
hearing examiner of the Federal Trade Commission, on the
charges set forth in this complaint, at which time and place
you will have the right under said Act to appear and show
cause why an order should not be entered requiring you to
cease and desist from the violations of law charged in this
complaint.
You are notified that the opportunity is afforded you to
file with the Commission an answer to this complaint on or
before the thirtieth (30th) day after service of it upon you.
Such answer shall contain a concise statement of the facts
constituting the ground of defense and a specific admission,
denial or explanation of each fact alleged in the complaint
or, if respondent is without knowledge thereof, a statement
to that effect.
If respondent elects not to contest the allegations of fact
set forth in the complaint, the answer shall consist of a
statement that respondent admits all material allegations
to be true. Such an answer shall constitute a waiver of
hearing as to facts so alleged, and an initiai decision con-
taining appropriate findings and conclusions and an appro-
priate order disposing of the proceeding shall be
{fol. 9] issued by the hearing examiner. In such answer
respondent may, however, reserve the right to submit pro-
posed findings and conclusions and the right to appeal under
Section 3.22 of the Commission’s Rules of Practice for Ad-
judicative Proceedings.
7
If any respondent elects to negotiate a consent order, it
shall be done in accordance with Section 3.25 of the Com-
mission’s Rules of Practice.
Failure to file answer within the time above provided,
and failure to appear at the time and place fixed for hear-
ing, shall be deemed to authorize a hearing examiner, with-
out further notice to respondent, to find the facts to be as
alleged in the complaint, to conduct a hearing to determine
the form of order, and, thereafter, to enter an initial deci-
sion containing such fizdings and order.
In Witness Whereof, the Federal Trade Commission has
caused this, its complaint, to be signed by its Secretary and
its official seal to be hereto affixed at Washington, D. C.,
this 13th day of October, A. D. 1959.
By the Commission.
Robert M. Parrish, Secretary.
(Seal)
Berore Tue Feperat Traps Commission
Answer oF Responpent Brown Suor Company, Inc.—
Filed November 20, 1959.
Comes now the Respondent, Brown Shoe Company, Ine.
(designated in the Complaint as Brown Shoe Company),
by its undersigned attorneys, and, reserving specifically all
objections it may have to the jurisdiction of the Federal
Trade Commission over the subject matter of the Com-
plaint, states as follows:
Answering the first unnumbered paragraph of the Com-
plaint, it Denies that the Federal Trade Commission has
reason to believe that the Respondent has violated the pro-
visions of Section 5 of the Federal Trade Commission
[fol. 10] Act (U.S. C., Title 15, Section 45), and Denies that
a proceeding by it in respect thereof would be in the public
interest.
Answer to Count I
One: It Adinits the allegations in Paragraph One of
Count I of the Complaint, except that it States that its cor-
porate name is Brown Shoe Company, Inc., and that its
office and principal place of business is in St. Louis County,
Missouri.
Two: It Denies each and every allegation in the first sub-
paiagraph of Paragraph Two of Count I of the Complaint
contained, except that it Admits that prior to 1950 it was
primarily engaged in the manufacture and distribution of
shoes at the wholesale level, and States that since 1950 it
has been and now is primarily engaged in the manufacture
and distribution of shoes at the wholesale level; that it has
not been and is not now engaged in the retailing of shoes,
although certain of its wholly owned subsidiary corpora-
tions are retailers of shoes; that it owns and operates
thirty-four (34) factories and four (4) warehouses and
supply plants in thirty-five (35) different cities located in
six (6) States; its wholly owned subsidiary corporations
owning and operating five (5) factories and three (3) ware-
houses; and that the total sales figure of $236,946,078 for
the fiscal year ended October 31, 1957, as set forth in the
Complaint, is, in fact, a consolidated figure representing to-
tal sales of Brown and all of its subsidiary corporations,
both at wholesale and at retail, not only of shoes but also of
other articles, for the said fiscal year.
It Denies each and every allegation in the second subpara-
graph of Paragraph Two contained, except that it Ad-
mits that its shoes are marketed (1) by sales at wholesale
to independent retail shoe stores, the owners of which have
entered into a franchise agreement with it, or which are
operating on the so-called “Brown Franchise Program”
without the execution of a franchise agreement; (2) by
sales at wholesale to independent shoe stores, chains and
mail order houses, and States that, in addition, its shoes
are marketed by sales at wholesale to other types of cus-
tomers.
[fol. 11] It Denies each and every allegation in the third
subparagraph of Paragraph Two contained, except that it
Admits that certain of the men’s shoes manufactured by it
and marketed under its brand or trade names are
marketed under the brand or trade names “Pedwin”
9
and “Roblee”; that certain of the women’s shoes manufac-
tured by it and marketed under its brand or trade names
are marketed under the brand or trade names “Air Step”,
“Life Stride”, “Naturalizer” and “Risque”; that certain of
the children’s shoes manufactured by it and murketed
under its brand or trade names are marketed under the
brand or trade names of “Buster Brown”, “Robin Hood”
and “Propr-Bilt”; that certain of the boys’ shoes manufac-
tured by it and marketed under its brand or trade names
are marketed under the brand or trade name of “Buster
Brown”; that certain of the girls’ shoes manufactured by it
and marketed under its brand or trade names are marketed
under the brand or trade names of “Glamor Debs”, “Rob-
inettes” and “Robin Hood”; that it has a non-exciusive li-
cense to manufacture and sell, and does manufacture and
sell, children’s, boys’ and men’s shoes bearing the name
“Official Boy Scout” and girls’ shoes bearing the name
“Official Girl Scout”; that all of the shoes so manufactured
and marketed by Brown under said brand or trade names
retail in the medium price field, and that it also manufac-
tures shoes which are sold to certain retail stores, chain
stores, mail order houses and wholesalers for resale under
the private brand names of such customers.
Three: It Admits the allegations in Paragraph Three of
Count I of the Complaint, except that it Denies that it
causes any shoes manufactured or sold by its subsidiaries
to be transported and shipped as therein alleged.
Four: It Admits the allegations in Paragraph Four of
Count I of the Complaint, except that it Denies that compe-
tition has been hindered, frustrated and lessened, as set
forth in the Complaint, and that it is engaged in the distri-
bution of shoes at retail.
Five: It Denies each and every allegation in Paragraph
Five of Count I contained, except that it Admits it has en-
tered inte contracts or franchises with approximately two
(fol. 12] hundred fifty-nine (259) of its independent retail
store operator customers, which stores are termed “Brown
Franchise Stores”, a copy of which contract or franchise,
identified as Exhibit “A”, is attached hereto and made a
part hereof, to which reference is hereby made for informa-
tion with respect to the rights, privileges and obligations of
the parties thereto; and that approximately four hundred
10
twenty-three (423) of its independent retail shoe store
operator customers are operating stores termed “Brown
Franchise Stores” on the so-called “Brown Franchise Pro-
gram”, but have signed no such contract, and States that
such independent retail shoe store operator customers
operating such Brown Franchise Stores in individually
varying degrees accept the different rights and privileges
and perform the different obligations set forth in such con-
tracts or franchises or implicit in such Program.
Six: It Admits each and every allegation in Paragraph
Six of Count I of the Complaint contained, except that it
States that there are approximately six hundred eighty-
two (682) Brown Franchise Stores, that the line of shoes
sold by such stores 1s only approximately “complete”, that
such stores are mostly located in towns or cities with popu-
lations of from 5,000 to 30,000, and that there are some in-
stances in which more than one franchise store has been
located in such communities.
Seven: It Denies each and every allegation in Paragraph
Seven of Count I of the Complaint contained, except that it
refers to Exhibit “A” hereto for an accurate description of
the services which the owners of Brown Franchise Stores
are entitled to receive from or through it; it Admiis that
the said Agreement contains the provision quoted in the
second subparagraph of said Paragraph Seven of the Com-
plaint; and it States 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.
Eight: It Admits that it refuses to grant to dealers who
are dropped or voluntarily withdraw from the Brown
Franchise Program additional merchandising records, the
[fol. 13] services of a field representative, and the right to
participate in group insurance purchasing, national and
regional meetings, and group purchasing (of rubber foot-
wear), as in said Exhibit “A” provided, and that, having
been advised by it that the operator of a Brown Franchise
Store has voluntarily withdrawn or been dropped from the
Program, the insurance companies which write the group
fire, public liability, robbery, safe burglary, business inter-
ruption and life insurance policies covering the owners of
Brown Franchise Stores refuse to renew the policies of
EE
11
such dealer; States that it is without knowledge as to
whether or not the United States Rubber Company charges
dealers who voluntarily withdraw or are dropped from the
franchise program higher prices for canvas or waterproof
footwear, and hence Denies the allegation with respect
thereto, and Denies each and every other allegation in Par-
agraph Eight of Count I of the Complaint contained.
Nine: It Denies each and every allegation, conclusion and
assumption in Paragraph Nine of said Count I of the Com-
plaint contained.
It Denies each and every allegation and conclusion in
Paragraph Fifteen of the Complaint contained.
Wherefore, Respondent respectfully prays that Count I
of the Complaint be dismissed.
Answer to Count IT
Ten: For answer to Paragraph Ten of Count II of the
Complaint, it repeats the admissions, denials and allega-
tions contained in Paragraphs One through Four of its
foregoing Answer to Count I of said Complaint, and incor-
porates the same by reference in this Answer to Count II
as if set forth herein in haec verba.
Eleven: It Admits that through its sales divisions it sells
its branded shoes to approximately 6,000 independent
retail shoe customers located in each of the States of the
United States and in the District of Columbia, and that
some of such independent retail shoe customers may com-
pete with each other in the resale to the public of shoes
manufactured and so sold by it, but Denies each and every
[fol. 14] other allegation in Paragraph Eleven of Count IT
of the Complaint contained.
Twelve: It Denies each and every allegation in Para-
graph Twelve of Count IT of the Complaint contained.
Thirteen: It Admits that it regularly distributes to its
retail shoe customers price lists or catalog sheets, certain
of which contain suggested retail selling prices; that on oc-
casions it publishes suggested retail selling prices in full
page advertisements in magazines having national circula-
tion, but Denies each and every other allegation in Para-
graph Thirteen of Count II of the Complaint contained.
12
Fourteen: It Denies each and every allegation in Para-
graph Fourteen of Count II of the Complaint contained.
Fifteen: It Denies each and every allegation and conclu-
sion in Paragraph Fifteen of the Complaint contained.
Wherefore, Respondent respectfully prays that Count IT
of the Complaint be dismissed.
Brown Shoe Company, Inc., By /s/ R. H. McRob-
erts, /s/ Gaylord C. Burke, /s/ Edwin S. Taylor,
Its Attorneys, 1630 Boatmen’s Bank Building, St.
Louis 2, Missouri.
Bryan, Cave, McPheeters & McRoberts, Of Counsel.
Exursit A to ANSWER
Franchise Agreement
BFS
I desire to affiliate my business with the Brown Fran-
chise Stores’ Program. Upon acceptance, as indicated by
your signature affixed hereto, [ will expect the company to
provide the following:
[fol. 15] A Franchise for my retail shoe business for
the following nationally advertised Brown Division
Brands of Brown Shoe Company:
eee eee eee eee eeereeeeeeeeeee i see eeeeeereeeeeeeeeeeeee ene
ee eee ee eeeeeeeeeeeeeeeeeee se ®®eeeeeeeeeeeeeee eer eeeens
see eee eee eee eee eee ee ee eee es 0 HH hee eee eee eee eee eee’
oO. CS CEO 610 2:8 O'R 88OS: 6 8'O BOS § RODS OSCE TD VO. n.d 2 OHS See
In addition, any or all of the following services which my
business may require:
A. Architectural Plans.
An efficient and attractive arrangement and design
drawn expressly for the location, complete with specifica-
tions as prepared by your Store Planning Department.
13
B. Service of a Field Representative.
The Brown Franchise Stores Division’s Field Represent-
ative will call on my store and advise on merchandising,
sales promotion, personnel, accounting, record systems and
other matters pertinent to a profitable shoe business.
C. Merchandising Records.
This includes; a Kardex-type Merchandise Record Sys-
tem (a charge for binders only); a Perpetual Size Sheet
System for men’s, women’s and children’s shoes; and an
Open-To-Buy and Sales Plan System.
D. Retail Sales Training Program.
This program will be conducted by the Field Representa-
tive in the store.
KE. Accounting System.
The system divised by Brown Shoe Company for a retail
shoe business which gives complete information concern-
ing the status of my business at all times.
F. Group Insurance Purchasing.
Participation in Fire, Public Liability, Robbery, Safe
Burglary, Business Interruption and Life Insurance Group
Insurance Policies.
[fol.16] G. National and Regional Meetings.
Provided for the exchange of information on operation
techniques and current economic conditions related to the
retail shoe business.
H. Group Purchasing.
Participation in purchasing of rubber footwear and
display material.
In return I will:
1. Concentrate my business within the grades and
price lines of sho»s representing Brown Shoe Com-
pany Franchises of the Brown Division and will have
14
no lines conflicting with Brown Division Brands of the
Brown Shoe Company.
2. Operate a modern, attractive store at all times,
staffed by efficient personnel and backed by adequate
capital. Provide for local advertising budget based on
the minimum of 3% of my annual anticipated sales and
will promote and merchandise aggressively to secure
maximum volume.
3. Carry full insurance on the stock and fixtures,
preferably through Brown Shoe Company. If insur-
ance is purchased locally, Brown Shoe Company will
be notified.
4. Maintain and use Merchandise Record System.
5. Use and keep current the complete accounting and
bookkeeping system as provided by Brown Shoe Com-
pany, make regular Monthly Reports and permit rec-
ords to be audited at the discretion of Brown Shoe
Company. Copies of Monthly Reports will be sent to
the Field Representative and the Brown Franchise
Stores Division in St. Louis for the information, anal-
ysis and sugg¢stions.
6. Not encumber the stock or fixtures by chattel
mortgage or otherwise, nor enter into any lease with-
out previously advising the Franchise Stores Division
of Brown Shoe Company.
7. Upon termination of this Agreement for any rea-
son, not thereafter use or have the right to use any
[fols. 17-18] Brown Franchise Store identification or
the trade marks or trade names of those Franchise
lines which were revoked upon such termination. In
addition, the Franchise Stores Accounting and Mer-
chandising Systems and forms, as well as all other
supplies and services mentioned above, will no longer
be supplied.
15
I further understand that this relationship may be can-
celled by either party upon its giving 30 days written notice
to that effect to the other party.
FF OR EE ORO EE CROC CPR OE BOX CS 6 Oe EEY 68 be Ee CES
(Date) (Name of Firm or Corporation)
Field Representative: Doing Business as:
ara AGERE Py BCR eh oat rk ek Ae eae eer iakeaniyts
uated ins 5 AAD OAC cea ene PUREE S ORG BL enL Rey gga
Brown Shoe Company (Street Address)
By: SE CRE NS CO Rae CE CREME RRR PEER R EOLA H
(Signature of Member of
Firm or Corp.)
[fol.19] Brrore Tue Feperat Trape Commission
Initia Decitsion—January 22, 1962
Edward Creel, Hearing Examiner.
James P. Timony, Counsel Supporting the Complaint.
Bryan, Cave, McPheeters & McRoberts, St. Louis, Mis-
souri, by R. H. McRoberts, Gaylord C. Burke and Edwin S.
Taylor, for the Respondent.
The Federal Trade Commission issued its complaint
against the respondent on October 13, 1959, charging that it
has entered into contracts or franchises with a substantial
number of its independent retail shoe store operator cus-
tomers which require these customers to restrict their pur-
chases of shoes for resale to the respondent’s lines and
which prohibit them from purchasing, stocking or reselling
shoes manufactured by competitors of respondent; and in a
separate count, charging that it forces and requires, or at-
16
tempts to force and require, its retail shoe store operator
customers to agree to maintain arbitrary, non-competitive
resale consumer prices fixed and promulgated by respond-
ent. The complaint charged that these practices, alleged in
[fol. 20] both counts of the complaint, constituted unfair
methods of competition and unfair acts and practices in
violation of Section 5 of the Federal Trade Commission
Act. Respondent’s answer denied generally the allegations
of the complaint, although minor factual allegations were
admitted.
This proceeding is before the hearing examiner for final
consideration upon the complaint, answer, testimony and
other evidence, and proposed findings of fact and conclu-
sions filed by counse! for respondent and by counsel sup-
porting the complaint and oral argument thereon. At the
close of the presentation of the Commission’s case, respond-
ent moved for dismissal of the charges on the grounds
that a prima facie case had not been established. The hear-
ing examiner elected to defer ruling upon this motion until
the close of all the evidence in the case. The hearing exam-
iner now hereby denies the motion to dismiss the com-
plaint. Consideration has been given to the proposed find-
ings of fact and conclusions submitted by both parties, and
all proposed findings of fact and conclusions not herein-
after specifically found or concluded are rejected, and the
hearing examiner, having considered the entire record here-
in, makes the following findings as to the facts, conclu-
sions drawn therefrom, and issues the following order:
Findings as to the Facts
Count I
1. Brown Shoe Company, Inc., (referred to in the com-
plaint as Brown Shoe Company; hereinafter sometimes
referred to as “respondent” and as “Brown”) is a New
York corporation with its office and principal place of busi-
ness at 8300 Maryland Avenue, St. Louis County, Missouri.
2. Respondent has among its wholly owned subsidiaries
G. R. Kinney Corp., Regal Shoe Company, Wohl Shoe
;
Company, Bourbeuse Shoe Cunipany, and Moench Tanning
Company, Inc.
Respondent is primarily engaged in the manufacture and
distribution of a broad line of medium-priced, nationally
advertised shoes for men, women, and children. These shoes
- [fol. 21] are marketed principally by sales at wholesale to
independent retail shoe store customers. In 1959, respond-
ent was actively selling to approximately 6,000 independ-
ent retail shoe stores.
Respondent and its subsidiaries have over fifty manufac-
turing plants, tanneries and warehouses in ten states of the
United States and in Canada.
3. Wohl Shoe Company (hereinafter referred to as
“Wohl”) is a wholly owned subsidiary of respondent, and
is a Missouri corporation with its principal office at 1601
Washington Avenue, St. Louis, Missouri. Wohl sells shoes
at wholesale to independent retail customers and also at
retail to consumers.
Wohl sells women’s shoes at wholesale to approximately
3,200 customers located throughout the United States and
the District of Columbia. In 1958 there were 208 of these
customers operating on the “Wohl Plan”. A Wohl plan ac-
count is an independent retail outlet which is partially fi-
nanced by Wohl and generally buys most of its women’s
shoes from Wohl. In addition, Wohl retails primarily wom-
ens’ shoes, but also some children’s and men’s shoes. In
1958 Wohl was selling at retail through 457 leased depart-
ments in 243 stores.
Regal Shoe Company, a wholly owned subsidiary of re-
spondent, is a manufacturer and retailer of men’s medium-
priced shoes. In 1958 Regal had a chain of 92 retail outlets
in which its shoes were sold.
The G. R. Kinney Corporation is a wholly owned subsid-
iary of respondent. It operates a chain of family shoe
stores and manufactures and sells men’s, women’s, and chil-
dren’s popular-priced shoes. In 1959 it owned and operated
488 retail stores.
4, Respondent has separate selling divisions through
which it markets its brands of shoes. The principal brands
and the divisions selling them are:
SERRA a a oars eecsedsaerinet
18
{fol. 22] Division Brand
Air Step Air Step
Buster Brown Buster Brown
Glamour Debs
Official Boy Scout
Official Girl Scout
Propr-Bilt
Life Stride Life Stride
Naturalizer Naturalizer
Risque Risque
Robin Hood Robin Hood
Robinettes
Roblee Roblee
Buster Brown
Official Boy Scout
Pedwin
United Men’s
Each of these sales divisions has its own sales manager and
its own sales force. A retailer who sells respondent’s shoes
will be called on by a salesman from each division whose
brand he carries. Each of the sales managers of the sales
divisions is responsible to the vice-president in charge of
sales.
5. In 1957, Brown conducted the largest consumer adver-
tising campaign in the shoe industry, spearheaded by 52
color pages in Life Magazine and 58 additional pages in
other leading national magazines.
6. Respondent’s sales for the fiscal year ending October
31, 1959, including the sales of its subsidiaries at wholesale
and at retail, were $276,549,164. Respondent is second in
dollar sales and third in pairage production among shoe
manufacturers in the United States.
7. Respondent has been, and is now, in competition with
other corporations, individuals, and partnerships engaged
in the manufacture, sale, and distribution of shoes in in-
terstate commerce.
8. Respondent manufactures shoes in six states of the
United States. Respondent causes its shoes to be transport-
ed and shipped from these places of manufacture to retail
[fol. 23] shoe customers who are located in each of the
states of the United States and the District of Columbia.
19
There has been, and is now, a constant and continuous cur-
rent and flow of said shoes in interstate commerce.
9. Another division of respondent is the Brown Fran-
chise Stores Division, The personnel of this division in-
cludes the headquarters staff comprised of three men, one
of whom is the manager of the division, and sixteen sala-
ried fieldmen who visit the franchise stores. The franchise
stores division is responsible to the vice-president in
charge of sales.
10. During a recent five year period, 200 stores entered
‘the program. In November 1959, there were 682 stores on
the program, and in October 1961, the total had risen to
766.
11, Of the retailers operating on the franchise program,
about 259 have entered into written Franchise Agreements
with respondent. In recent years written agreements have
not been made with newcomers to the program. There is no
difference in respondent’s policy toward those franchise
holders who have signed the agreement and those who have
not, and the rights and obligations of both jroups are the
same. The total sales of respondent to retail stores on the
franchise program for the fiscal year encing October 31,
1959, was $24,675,617.
12. For the benefits and services which dealers on the
franchise program who entered into written agreements
will receive, they agreed that:
“In return I will:
1, Concentrate my business within the grades and
price lines of shoes representing Brown Shoe Com-
pany Franchises of the Brown Division and will have
no lines conflicting with Brown Division Brands of the
Brown Shoe Company.”
This provision has been in effect since 1949 or 1950. The
preceding Brown Franchise Contract provided that the
Franchise Agreement terminated if the franchise dealer
purchased shoes from any manufacturer other than Brown.
(fol. 24] 13. Among the benefits and services which a
dealer will receive by being on the franchise plan are: ar-
chitectural plans, service of a field representative, mer-
chandising records, retail sales training program, account-
20
ing system, national and regional meetings, and group
purchasing of insurance, rubber footwear, and display ma-
terial.
14. The retailer on the franchise program obtains the
service and assistance of field representatives who give ad-
vice and suggestions on merchandising, sales promotion, —
personnel, accounting and record keeping, and on other —
matters. In addition, these fieldmen will conduct a sales 4
clinic or a salesmanship lecture for store personnel, and |
counsel a prospective franchise holder on the location of —
his store and terms of the lease.
15. Fieldmen call on the franchise holders from two to |
ten times a year and work exclusively with dealers on the
franchise program; except when calling on other dealers to
persuade them to go on the program, and during the “con-
version” period when a dealer is about to go on the pro-
gram.
16. Fieldmen assist in filling out monthly reports by the
franchise holders. This report is sent to the respondent and
shows the performance of each line for that month and the
ending inventory. Fieldmen also help fill out the buying |
guide for the franchise holders. This buying guide is used |
in restocking a store, and helps the dealers determine the —
amount of shoes he will buy for the season. The buying —
guide contains statistics taken from the monthly reports, so |
that the franchise holder knows tho performance of all his |
lines at the end of each season. The buying guide is
prepared prior to the two buying seasons, which are spring |
and fall.
17. The accounting and record keeping system furnished |
through the franchise program is a complete record system
for a shoe store. Franchise holders are given a continuing
supply of these forms. One of the forms supplied is the
monthly report, which the Franchise Agreement requires
to be made regularly, but which many dealers make less
frequently.
{fol. 25} 18. Respondent has an arthitectural department
that will completely design a new store or draw plans to
remodel an existing store in its entirety. As many as half
of the franchise holders have used this service. Although
the service is available to other retailers who concentrate
21
on respondent’s shoes, 70-75 percent of the architects’ time
is devoted to working on plans for franchise stores.
19. Under an arrangement with U. S. Rubber Company,
respondent receives a commission on purchases of U. S.
Rubber Company footwear by dealers on the franchise pro-
gram. For the fiscal year ending October 31, 1959, respond-
ent received commissions totaling $171,417.00. Respondent
pays U. S. Rubber Company for the canvas and waterproof
footwear purchased by the franchise dealers. U. S. Rubber
Company ships the footwear directly to the dealers and re-
spondent bills the franchise dealers. During 1959 there
were 473 franchise dealers purchasing rubber or canvas
footwear under this arrangement. From 1950 to October 21,
1955, respondent represented to franchise dealers that they
would receive the following additional discounts on pur-
chases through respondent, over and above the discounts
available if purchased directly from U. S. Rubber Com-
pany:
Storm Footwear
Advance orders of more than 144 pairs and less than
480 pairs—3 percent.
Fill-in orders if bought in 12 pair runs and if mer-
chants ordered more than 144 pairs on advance orders
—8 percent.
Keds
Fill-in orders if bought in 12 pair runs and if mer-
chants ordered at least 480 pairs on advance orders—8
percent.
These additional discounts were not made available by re-
spondent to customers other than franchise dealers.
20. From 1956 up to 1959 respondent represented to
franchise dealers that on this storm footwear and Kedettes
they would get the 8 percent discount and 2 percent cash
discount by purchasing 144 pairs, instead of having to
(fol. 26] purchase 480 pairs to get those discounts if they
were not on the franchise program. Respondent represented
that on fill-in orders on these shoes the franchise dealers
would get.an 8 percent discount for buying 12 or more pairs
which was not available to dealers not on the franchise pro-
22
gram. On Keds, the discount on fill-in orders is still in effect,
and this discount is available only to respondent’s franchise
dealers.
21. Respondent represents to franchise dealers that they |
will be participating in group purchasing of fire, public lia-
bility, robbery, safe burglary, business interruption, and
life insurance. From November 1, 1949, to October 31, 1955,
respondent represented that nierchants on the franchise
program would receive a discount in price on fire insurance
not available to individual outlets and represented to them:
“Because of the favorable experience the insurance
company has had with our Franchise Store operators
during the past 25 years, we are in a position to save —
the retailer approximately 25% on his fire insurance
premium compared to his local rate.”
Respondent has continued to represent that there would be |
considerable savings on insurance purchased through the
franchise program. Respondent supplies the average inven- |
tory of the franchise holders to the insurance company, and
for this service is compensated by the insurance company.
22. In addition to the benefits and services which dealers
receive under the Franchise Agreement, many Brown
Franchise Dealers have received loans from respondent. |
These ioans are as high as $30,000. On October 31, 1957, the |
total amount of loans to all dealers, including those under
the franchise program, was $844,886.83.
23. Large outside illuminated Roblee and Buster Brown 7
signs and neon Naturalizer signs are given to dealers who |
aggressivel; push those lines and sell them effectively, and |
are not handling conflicting lines. The dealer pays $1.00 for |
the outside sign, and he pays the maintenance cost, and the
sign is given to the dealer until he stops handling the shoes,
in which case, respondent takes the sign down. Brown Fran-
[fol. 27] chise Dealers have 30 of the 51 Roblee signs which
respondent has given out, and they have 53 of the 115 Buster |
Brown signs given out.
24. Window decoration service for which there is a
charge and the architectural service are offered to other
dealers who concentrate on respondent’s lines, as well as to
Brown Franchise dealers. Respondent also gives dealers
23
window decoration without charge, such as neon signs and
cards.
25. The forms upon which the Brown franchise fieldmen
submitted their reports state: “Encourage Concentration
on B.S. C. Lines and Elimination of Conflicting Lines”. A
newer form has eliminated this statement, but the omission
did not change the practice.
26. The following written instructions to fieldmen by the
manager and the assistant manager of the Brown Fran-
chise Program show the policy of encouraging the concen-
tration on Brown lines and the elimination of conflicting
lines:
“This week our Buster Brown sales representative,
Frank Mirra, called me and among various things dis-
cussed, he advised that he had just learned that Orville
Shugart plans to buy American Girl line for Fall.
“George, let’s get into this immediately and head
this off before the shoes are received in the store. As
you know, if the American Girl line is purchased, this
will not be in keeping with our Franchise Program.”
“I think it is time for a forthright discussion with
Mr. Bump on what we attempt to accomplish with
dealers who operate their business on our Franchise
Program. If he does not see the wisdom of going along
with the thought of operating these stores more pro-
gressively, avoid directly conflicting purchases, then I
think we have no other alternative then to ask him to
withdraw from the program.”
“The one very important point that concerns me, T.
R., is that you say he can get a better mark up on
men’s Great Northern shoes and that his customers
(fol. 28] want leather soles. If this be the case and he
is determined to continue to carry Great Northern in-
stead of Pedwin, then we have no other alternative
than to ask him to withdraw from the Franchise Pro-
gram.”
27. Such evidence as there is relating to action taken by
the fieldmen in following these instructions indicates that
they sometimes failed to achieve the desired results, and it
appears that respondent’s home office was sometimes lax in
enforcing its policies, although, as hereinafter found, some
24
dealers were dropped from the program for failing to
comply with this policy. The manager of Brown Franchise
Stores Division testified that there was a point at which a
dealer would be dropped from the program for carrying
conflicting lines.
28. The manner in which the fieldmen encourage concen-
tration on Brown lines and the elimination of conflicting
lines is shown in the following excerpts from their reports:
“Outside lines were analyzed, and the unprofitable
performance of these lines pointed out to the manage-
ment. One line of ladies shoes that was bought in 8 pat-
terns last spring, was cut to 4 patterns for the Fall
buy, and will be reduced even further for next Spring’s
buy.”
The only problem in this store, in-so-far as we are
concerned, is the presence of an outside line of shoes.
Tom and I talked with Clarence about this and he
agreed to give the Life Stride serious consideration be-
fore buying next season. Apparently he was not aware
of the strength of Life Strides and the strong position
it holds in the stores.”
“T will do everything possible to get this other line
out of the store.”
“A good portion of Jack’s inventory represents spot
shoes from outside lines and in talking with Jack he
admits that these represent a small percentage of his
sales and are not needed. In most cases they amount to
overlapping patterns. Three lines of shoes will be elim-
inated this coming season.”
“Outside lines were discussed and she also agrees
that most are not necessary and will be discontinued.”
{fol. 29] “Concentration on fewer lines and less pat-
terns was discussed and will be applied more this fall.
Debs are to be discontinued and Shelby Arch type
shoes are to be replaced with Propr-Bilt.”
“Concentration on fewer lines was discussed and it
was decided to discontinue Golo dress flats and Grin-
nell sports.”
29. During the fiscal years 1949 through 1955, respond-
ent dropped 22 stores because of a failure to comply gen-
erally with the conditions of the Brown Franchise Agree-
25
ment, one of the conditions being the prohibition against
handling conflicting lines. Respondent, in that period,
dropped 19 stores for handling conflicting lines which was
“completely contrary to the franchise agreement”. From
November 1, 1954, through April 1, 1958, a dozen or more
dealers were dropped from the Brown Franchise Program
primarily because they handled conflicting lines.
30. The Brown Franchise Dealers probably buy on an
average about 75 percent of their total volume of shoes
from respondent.
31. Shoe manufacturers try to have only one account
earry each of their lines in a town or trading area. U. S.
Shoe Corporation gives May Company Department Stores
a 10-mile radius “protection”. Freeman Shoe Corporation
sells to only one account in a small town. So does respond-
ent. Most Brown Franchise Dealers are found in towns of
from 5,000 to 30,000 population, and in almost all instances
there is only one franchise store in each community. Some
manufacturers will put their line of shoes in two outlets in
a town if one is a shoe store and the other is a department
store.
32. Price is a factor in determining which outlets are
available to a manufacturer. Not all retail shoe outlets are
desirable customers for this reason. The outlet may stock
shoes ranging too far below or too far above the manufac-
turer’s suggested resale price to be a suitable outlet.
33. There are nearly 100,000 retail outiets in the United
States which sel] shoes. Many of these sell only a particular
[fol. 30] style of shoe, such as cowboy boots in a western
store, or baby shoes in a baby store. Many also have few
shoes in relation to their total inventory, their shoes being
carried as a side line. Among the outlets which sell shoes
are the following types:
Grocery store Drug store Dollar store
Dry Goods Surplus store Health store
Variety store 5 & 10 Pawn shop
Shoe repair shop Western store Curio shop
Hardware store Supermarket Indian Post
Sporting goods Army Surplus Cafe
store store
26
Saddle shop Leather goods Glass
store manufacturer
Work clothes Zink smelter Commissary
store
Oil company Gun store Baby store
Specialty store
34. Brown Franchise Stores are choice retail shoe out-
lets. Because these stores are family shoe stores they are
considered a prime market by respondent’s competitors.
They are considered most desirable from a volume as well
as a credit standpoint. The average volume of sales in 1960
for stores on the Brown Franchise Program was $97,000.
The average return on investment for these stores has been
16 percent as against 11.8 percent for all independent shoe
stores. Respondent characterizes its franchise dealars as
the “most prosperous group of shoe retailers in America”
and states that the Brown chise Program is not avail-
able ‘9 any shoe store but T8 best fitted for the “outstand-
ing dealars” in each community,
35. Representatives from six of respondent’s competi-
tors testified that they were foreclosed from selling Brown
Franchis® Dealers generally. They testified that their sales
volume was reduced or lost entirely to customers who be-
came Brown Franchise Dealers. Most of them gave specific
examples, some of which were erroneous, but it is clear that
they lost volume to these accounts and some of them lost
accounts completely, By the very nature of the transition
of Jealers to the Brown Franchise Program it would be
(fol. SL} expected that many competitors would lose ac-
counts completely to Brown and that others who did not
lose the accounts would lose sales volume to these accounts.
The question to be resolved is whether they, and as a conse-
quence competition, were likely to be adversely affected by
the restriction the Brown Franchise Program placed on the
dealers to refrain from dealing in conflicting lines. The
terms of the agreement are clear and the dealers undoubt-
edly knew what they had agreed to do, and when the writ-
ten agreements were replaced with oral agreements, with
the newer accounts in recent years, the terms were the
same, The dealers couid not know positively how rigidly
they would be required to adhere to their agreements, but it
27
must be inferred that many of them would abide by their
agreements to the letter, Over the years most of these
dealers have learned that respondent will condone some dup-
lication cf lines, particularly if the outside line is a short
line or a specialty line or if the real volume is in respon-
dent’s lines, because five out of six of them carry at least
one line that competes to some extent with a Brown line.
There is a point beyond which outside lines will not be tol-
erated by Brown, and it is believed that generally the
dealers know what it is.
36. It is therefore found that the restrictive provision of
the agreements between respondent and its Brown Fran-
chise Stores Division dealers was a major factor in fore-
closing markets to the competitors who testified herein, as
well as to other competitors of respondent, and as a conse-
quence competition has been adversely affected as will be
hereinafter more specifically found,
37. Respondent contends that the contract requirement
has been abandoned and that most of the present franchise
holders have not signed a written agreement containing the
restrictive provision. It also contends that it was not en-
forced and that the restrictive contract could not have had
adverse effects, The evidence does not support these con-
tentions, except that in recent years the written contract
has not been used in bringing stores under the franchise
plan, and many of the franchise holders testified that the
restrictive provision was not called to their attention or en-
foreed,
[fol. 32] 38. The evidence shows that the restrictive pro-
vision against handling conflicting lines has been enforced
and will continue to be enforced and that it necessarily in-
hibits franchise holders from buying other brands which
they would buy if they were not restricted,
39. It may be, as respondent contends, that for some
retailers it would be an unwise business practice for them
to carry conflicting lines, but the law protects the buyer’s
freedom of choice, even if the choice is uneconomic for him.
40. Respondent also contends that most franchise
holders carry other lines, some of which are conflicting, and
that this shows a lack of effectiveness of any restrictions if
any there be. Most of the important conflicting lines car-
ried by the franchise holders are short lines of specialty
28
shoes, such as Clinics (primarily for nurses) and Hush
Puppies (loafers), which are condoned, but it is clear that
respondent will remove customers from the plan when it
considers the restrictive provision has been seriously
breached. It will continue to sell these customers, but will
not continue the benefits which accrue to Brown Franchise
Plan customers.
41. The question remaining is whether the adverse
effects of the practice may be substantial.
Although respondent is the second largest shoe manufac-
turer in the country, its sales through the Brown Franchise
Plan are less than 1 percent of all shoes sold in the United
States. It confines its production to medium-priced shoes
which limits the area of effective competition to some inde-
terminate extent, but since most of these Brown Franchise
Plan customers are in cities of 5,000 to 30,000 population, it
would appear that the greatest effect of the restrictive pro-
vision would be felt in these localities. The substantiality of
the effect is distorted by attempting to compare the market
share sold through the franchise plan to the total United
States market. It appears that each trading area where a
Brown Franchise Pian account is located would be the ap-
propriate geographical market in which to appraise the
effects of the restrictive provision because the retail shoe
[fol. 33] market is not a national market except to the
slight extent that shoes ere bought by mail. Because of
custom, convenience, necessity, or perhaps other reasons,
consumers usually purchise shoes in their local communi-
ties and it is the aim of most shoe retailers to give their
customers such service and value as will retain their pa-
tronage. Considering the ‘mportance of fitting shoes, it is
believed that purchases o* shoes by mail constitute only a
small part of the total sale of shoes and that the retail shoe
market is essentially a series of local markets. In these
trading areas the market share of the stores under the
Brown Franchise Plan is, of course, much higher, and the
number of retail competitors varies from about 5 to about
26.
42. Since there are about 600 such trading areas, in most
of which the effect of the restrictive provision is substan-
tial, it is concluded that the total effect on competition is
substantial. The benefits of unrestricted competition should
29
be permitted to flow to competitors of respondeut, to cus-
tomers of respondent and their competitors, and to con-
sumers. In many trading areas tlhe benefits of competition
are hindered by respondent’s restrictive provision.
43. At ‘least two other shoe manufacturers, which sell
men’s, women’s, and children’s shoes in direct competition
with Brown , have franchise stores programs somewhat sim-
ilar to respondent’s program.
International Shoe Company, the nation’s largest shoe
manufacturer, sells men’s, women’s, and children’s shoes
under a variety of brand names which compete directly
with Brown brand shoes. International has a franchise
stores program under the direction of its Merchants Serv-
ice Division, and the independent shoe retailers which
operate on that program are known as Merchants Service
Stores. In order to obtain the benefits and services avail-
able under the program, a Merchant Service Dealer agrees
to feature the shoes of a division of International, in each
type of shoes (men’s, womeu’s, and children’s) he carries,
and at all times to handle such shoes in a representative
manner.
[fol. 34] General Shoe Company sells men’s, women’s,
and children’s shoes under a variety of brand names which
compete directly with Brown brand shoes, General has a
franchise stores program under the direction of its Genesco
Retailers Service Agency, and the independent shoe
retailers which operate on that program are known as
Friendly Franchise Stores. In order to obtain the benefits
and services available under the program, a Friendly
Franchise Dealer agrees to purchase sufficient quantities of
footwear from General, in each type of shoes (men’s wom-
en’s, and children’s) he carries, as are necessary to as-
sure the presence of an adequate and representative stock
of merchandise in the Friendly Franchise Store at all
times.
This record does not show whether the requirements of
these contracts of International and General are construed
to require the dealers to refrain from buying competitive
shoes, but to the extent they are so construed, or to the
extent they tend to create captive customers, the market
open to the many sellers of shoes would be further restrict-
ed.
30
44. It is found and concluded that the effect of the meth-
ods, acts, and practices of the respondent, as hereinbefore
found, has been, is, or may be, substantially to lessen,
hinder, restrain, and suppress competition in the purchase
and sale of shoes in interstate commerce; to cause a sub-
stantial number of retail shoe dealers to refrain from, or
discontinue, buying and dealing in shoes of competitors of
respondent; to exclude, or attempt to exclude, competitors
of respondent from selling shoes to a substantial number of
retail shoe dealers; to foreclose competitors of respondent
from a substantial share of the retail dealer market in
many trade areas; and to enhance the dominant position of
the respondent in the shoe industry.
Count IT
45. The foregoing findings numbered 1 through 10, 22,
34, and 38 relate to the charges in Count II of the com-
plaint and it is so found. They are incorporated herein at
this point by reference.
[fol. 35] 46. Respondent contends it does not require or
attempt to require its dealers to adhere to its suggested
resale prices. The evidence shows that respondent has a
definite policy of seeking adherence to its announced or ad-
vertised resale prices and shows instances where, on two
different occasions each, attempts were made to secure the
adherence of two price cutters to suggested resale prices. It
is not clear whether these attempts resulted in agreements
with the customers each time, but they appear to have ulti-
mately come into line with respondent’s policy. In any
event, respondent resorted to several means in an effort to
bring this about, which included sending salesmen to advise
the dealers of Brown’s policies, telephoning one of them
from the central office urging adherence, instructing sales-
men to advise the dealer that continued lack of conform-
ance would result in his being disenfranchised, arranging
a meeting between its price-cutting dealer and a non-price-
cutting dealer, urging that they agree upon adhering to
suggested resale prices, attempting to suppress advertising
of discount prices, and checking these dealers at a later
time to determine whether they were conforming.
47. Each of the respondent’s selling divisions publishes
wholesale price lists for the brand or brands of shoes sold
31
by it. The Buster Brown and Robin Hood lists contain
“suggested” retail prices. The United Men’s and Roblee
lists contain a schedule showing the retail price to be
charged for each different wholesale price category. The
women’s and girl’s shoe price lists do not contain a “sug-
gested” retail price, but a suggested markup of “44 or 45
percent” is commuricated to the customers orally by the
salesmen. Because dealers know what the recommended
markup is, they know automatically the suggested resale
price. In addition, most of the respondent’s selling divi-
sions send out suggested retail price lists each season.
Respondent publishes suggested resale prices for some
of its shoes in full page advertisements in magazines hav-
ing national circulation. These ads often give a specific
price for the shoe illustrated, as well as a price range for
the line.
(fol. 36] 48. Respondent’s director of marketing testified
concerning customers of respondent who do not abide by
the suggested resale price:
“Now, once in a while a fellow will get an idea that
he is going to have an advantage, and we will try to get
him turned around to where he wants to sell his shoes
at the regular markup which other merchants are do-
”
ing.
In response to a question as to the instruction given to
salesmen who are sent to see pric¢e-cutting merchants, he
said:
“... we have to go over and see this fellow and try to
dissuade him from that practice ... you have got to
make your peace over in that area or you will lose sev-
eral customers. So you have got to straighten it out.
“So the way to straighten it out is to try to show him
the error of his ways and get him on the right basis
because this practice of selling shoes at a discount
price level is an almost inflexible thing with our brand
of shoes. And when he is doing that he is in trouble.”
When respondent first establishes a sales relationship
with a retailer, the program of adherence to retail prices is
discussed. Respondent’s director of marketing was asked:
“When you take a new outlet that hasn’t been in the
shoe business you wouldn’t know whether he is going
to be a price cutter or not?”
He responded :
“Oh yes. You talk to him quite a while before you
sell him, telling him what is expected of him.”
The result of these conversations is that price-cutting
dealers rarely get on the respondent’s books.
49. During the summer of 1956, Fraver’s Shoe Store of
Chambersburg, Pennsylvania, a Brown franchise store, cut
the price on certain patterns $1.00 below the recommended
price. Paul Dutrey, another Brown franchise holder with
{fol. 37] stores in Waynesboro and Carlisle, Pennsylvania
complained of this price cutting and he received help from ;
respondent, George Croker, the Brown Franchise Stores
Division field representative, was sent to see Fraver and he
got Fraver and Dutrey to “have a cup of coffee together
and talk it over” so that they could “have an agreemen’ on
the prices on their shoes.” Croker reported back to J. R.
Johnston, manager of the Brown Franchise Stores Divi-
sion, that “Mr. Fraver has assured me he will maintain the
prices on our shoes so ther ewill be no confliction in the
future.” Croker’s purpose in writing to Johnston was “To
indicate to the St. Louis office that these two parties has—
was going to get together and iron out any differences that
they had in their thinking.” Croker did get Fraver to agree
to the “proper mark-up.” Johnston wrote to Croker and
stated that: “We certainly appreciate Fraver's willingness |
to cooperate”.
50. Fraver apparently resumed price cutting because
Johnston called him concerning his price cutting in June of
1957. On October 5, 1957, Dutrey directed a letter to John-
ston complaining that Fraver was “* * * still underselling
vour shoes in every line.” This letter was answered by T.
R. Curtis, the assistant manager of the Brown Franchise
Stores Division, who assured Dutrey that the field repre-
sentative, George Croker, had been ordered to “* * * con-
tact Fraver for the purpose of having a thorough under-
standing that he must discontinue this practice.” In his
letter to Croker, Curtis instructed:
33
«“e * * we want you to again, personally, contact
Fraver for the purpose of discussing the necessity of
his selling our lines at our recommended retail prices
and if he does not agree to this, then it will be neces-
sary for us to discontinue selling him. He will, per-
haps, agree to our recommended prices and if so, be
sure to have a very thorough understanding that if he
does under-price the lines in the future, it will be nec-
essary for us to discontinue our business relation-
ship.”
In addition, the fieldman was told to contact Dutrey after
= visiting Fraver “* * * so he will know this is being taken
care of.”
On October 14, 1957, Dutrey again complained about
Fraver’s cutting prices, and this time threatened to discon-
[fol. 38] tinue purchasing Brown shoes “* * * unless we
get satisfactory guarantees from you that this practice will
stop * * *”. Upon receiving this complaint, Johnston again
telephoned Fraver, with the result that he was able to tele-
graph Dutrey that Fraver “* * * agrees to abide by sug-
gested retail prices all patterns of Brown Shoe Company
@ lines he carries.” And Johnston followed the telegram with
a letter which read:
“This letter will follow up my telegram regarding
the discussion I had with Mr. Fraver over at Cham-
bersburg regarding the pricing of certain Brown Shoe
Company patterns. i talked with him at considerable
length on why it was necessary that we ask him to
abide by our sugge..ed retail prices and he agreed to
do just that.
“He will remark any patterns that are necessary, at
once, and T am cunfident that we will not have a recur-
rence of this situation. I have much respect for Mr.
Fraver’s integrity and with the long association we
have enjoyed I know we can count on him to keep his
word.”
The manager of the Brown Franchise Stores Division
also wrote to all the selling divisions of Brown telling them
of Fraver’s price cutting and recommending “* * * that
when you call on Mr. Fraver from time to time that you
34
check the retail prices for your particular line of shoes and
make sure he is abiding by your suggested prices other
than during clearance sale periods.”
51. On June 15, 1956, Pomeroy’s, a department store in
Harrisburg, Pennsylvania, advertised Roblee shoes which
normally sell for $10.95 to $16.95 at a sale price of $6.99.
Mr. Dutrey of Carlisle, Pennsylvania, complained to
Brown that this action by Pomeroy’s breached an agree-/@
ment between Brown Franchise Dealers and the respond-
ent as to when a clearance sale, with attendant reduced
prices, was to be held.
Stanley Bozaich, manager of the Roblee Division, imme.
diately contacted his salesman, John Mirra, and,asked: “I
want to know how come Pomeroy’s ran this ad on June 15
showing these two shoes, as we have discussed previously ”
{fol. 39] that this would not happen and our program on
Roblee sales was definitely pointed out to them.” And, he
later wrote to the salesman and said:
“Regarding your conversation with Al Schwarz rela-
tive to the ad of June 15 in which they advertised Rob-
lee shoes on sale, I believe you know the policy of the
Compary and this is definitely not allowed.
“Roblee shoes go on sale twice a year in July and
January. Any other sale promotion on Roblee shoes is
not to be adveitised as such,
“T want you to straighten this out with Al Schwarz
so that in the future regardless of whether we give him
close-outs or he is running out his regular stock, this is
not to happen.”
The manager of the Brown Franchise Stores Division
wrote to Dutrey and said that he had been taking care of
the price cutting by Pomeroy’s by “* * * telephone conver- |
sations with the salesman, with the merchandising manager
of Pomeroy’s, correspondence, etc.” He said that in con-
tacting the Roblee salesman and the sales manager about
the price cutting, they “* * * have authorized me to give
you their assurance that there will not be a recurrence of
this.”
52. In September of 1956 Pomeroy’s again advertised
_ Brown shoes velow the suggested list prices and this time
both Buster Brown and Roblee brands were involved.
wo CO 4
4532
re
35
Dutrey complained to the president of Brown and he ad-
vised Dutrey that the matter was “* * * being given thor-
ough attention * * *”. The “attention” consisted, in part,
of the issuance by the Roblee Division sales manager Bo-
zaich to his salesman, Mirra, the following instruction:
“Before I took any actual action with Pomeroy’s I
wanted to write and inform you of this situation. At
this time I am going on record and telling you if this
happens once again we will be forced to withdraw Rob-
lee shoes from the Pomeroy store in Harrisburg.
“TI understand a change in merchandise men is going
on at the present time at Pomeroy’s, however, putting
a sale on Brown Shoe Company products and advertis-
[fol. 40] ing them at this particular time of the year is
definitely against Company policy and we will not ad-
here to these principles.
“You will probably have to make a trip to Harris-
burg to get this thing straightened out. The above
facts will definitely have to be given to Pomeroy’s
since we do not want a repetition of this in the future.”
53. Mirra made the trip to Harrisburg and went to see
Moskowitz, who had succeeded Schwarz as merchandising
manager at Pomeroy’s. Mirra testified concerning his con-
versation with Moskowitz:
“* * * T said to Mr. Moskowitz, I realize that cleaning
stock was very important and adjusting the inventory
was very important but if he would just not advertise
—put these shoes in the newspaper, just sell them, put
them on the table and sell them so I could get Mr. Dut-
rey off my back.”
54. The sales manager of the Buster Brown Division
reported:
“Our salesman Tufshinsky has contacted these
people and has their assurance that there will be no
further cut-price promotions on our shoes at any time
other than our Semi-Annual Sale periods.”
55. That the above action by the sales managers of the
Roblee and Buster Brown Divisions was taken at the be-
36
hest of the president, Clark Gamble, is shown by a letter
from the Brown Franchise Stores Division manager,
Johnston, to his field representative, Croker, in which |
letter he stated: “Mr. Gamble has insisted that the Sales
Managezs of these divisions get this situation straightened |
out. I am sure it will be.” That rigid price maintenance is ©
the official policy of Brown, endorsed and supervised by its
highest official, is indicated by a memo to Gamble from
Tom Curtis, assistant manager of the Brown Franchise |
Stores Division, which reads as follows:
“Dick Dutrey, son of Paul Dutrey who wrote you the
attached letter, telephoned us about this situation on
Monday of this week, I, personally, talked to Paul Dut-
rey this morning prior to having learned that he had @
written you and had sent in copies of the ads. In my ©
[fol. 41] conversation, I assured him that this will be ™
properly taken care of with Pomeroy’s, in keeping with
our pricing policies.
“I have discussed the Roblee under-pricing with
Stan Bozaich and understand we uad this same diffi-
culty with Pomeroy’s earlier this year. Stan is writing |
John Mirra, the Roblee Sales Representative selling |
Pomeroy’s, instructing him to contact the account for
the purpose of getting this straightened out so there ©
will be no reoccurrence of under-pricing.”
56. Some of respondent’s dealers occasionally vary their |
resale prices from respondent’s suggested prices by 50
cents or a dollar on some styles without complaint from
respondent or any competitor, but there is no evidence that
their competitors or respondent were aware of these devia-
tions.
57. Respondent has required, and attempted to require,
certain of its customers to agree to maintain resale prices J
established by respondent, and through the use of such pol-
icy and practice has suppressed and eliminated price com-
petition between customers.
Conclusion
The acts and practices of respondent as herein found are
all to the prejudice of competitors and customers of the
respondent and of the public, have a tendency to hinder,
37
prevent and restrain, and have actually hindered, prevent-
ed and restrained, competition in the purchase and sale of
shoes in interstate commerce, and constitute unfair meth-
ods of competition and unfair acts and practices in viola-
tion of Section 5 of the Federal Trade Commission Act.
Order
It Is Ordered that respondent Brown Shoe Company,
Inc., its officers, representatives, agents, employees, subsid-
iaries, successors, and assigns, directly or through any
corporate or other device, in or in connection with the
offering for sale, sale and disiribution of shoes, in inter-
state commerce, do forthwith cease and desist from:
[fol. 42] 1. Entering into, continuing in operation or
effect, or enforcing any agreement or understanding
with any customer or prospective customer or impos-
ing any condition upon any customer or prospective
customer, which has the purpose or effect of preclud-
ing such customer or prospective customer from inde-
pendently determining whether shoes will be pur-
chased by such customer or prospective customer from
any competitor of respondent or from independently
determining the volume of such shoes to be purchased.
2. Obtaining or attempting to obtain from any cus-
tomer or prospective customer any agreement, under-
standing or assurance coricerning the price at which
any shoes are to be resold.
3. Entering into, continuing, or enforcing any agree-
ment or understanding with any customer or prospec-
tive customer concerning the price at which any shoes
are to be resold.
Edward Creel, Hearing Examiner.
January 22, 1962.
Berore Feperau TrapE ComMMISSION
Petrrion ror Review—Filed February 19, 1962
Comes now petitioner, Brown Shoe Company, Inc., and ~
respectfully requests the Federal Trade Commission to re- *
view the findings of fact, conclusions and order made and |
issued by Hearing Examiner Edward Creel in his initial
decision in the above matter filed January 25, 1962 and 4
served upon petitioner February 2, 1962.
Questions Presented for Review
In arriving at an ultimate determination of whether peti-
tioner has engaged in unfair methods of competition and
unfair acts or practices in commerce in violation of Section |
5 of the Federal Trade Commission Act, two basic ques- 7
tions are presented for review by this Commission. 4
(fol. 43] The basic question which arises under Count I |
of the complaint is :
Whether, on the basis of the record evidence, the ©
Hearing Examiner erred in finding and concluding ©
that the effect of the methods, acts, and practices of ©
the petitioner, in connection with its franchise pro-
gram, has been, is, or may be, substantially to lessen, =
hinder, restrain, and suppress competition in the pur- |
chase and sale of shoes in interstate commerce; to »
cause a substantial number of retail shoe dealers to re-
frain from, or discontinue, buying and dealing in shoes
of competitors of petitioner; to exclude, or attempt to
exclude, competitors of petitioner from selling shoes to |
a substantial number of retail shoe dealers; to fore-
close competitors of petitioner from a substantial
share of the retail dealer market in many trade areas;
and to enhance the domiuant position of the petitioner |
in the shoe industry.
The basic question presented under Count II of the com-
plaint is
Whether, on the basis of the record evidence, peti-
tioner has required, or attempted to require, its cus-
tomers to maintain resale prices established by peti-
39
tioner and, through the use of such policy and practice,
has suppressed and eliminated price competition be-
tween customers.
The consideration and determination of these basic
questions must also include a review of the following ques-
tions of law and fact.
As to Count I:
(a) Whether the Hearing Examiner erred in finding
and concluding that petitioner’s franchise program,
under which it grants benefits and services of the type
and character in evidence to retailer customers who
concentrate on buying the lines of shoes manufactured
by petitioner, is unlawful, in view of the fact that the
reliable, probative and substantial evidence in the rec-
ord showed, among other things, that
[fol. 44] (1) Competitors of petitioner are not
foreclosed from selling their shoes to shoe retailers
operating on petitioner’s franchise program;
(2) Shoe retailers operating on petitioner’s fran-
chise program are free to withdraw at any time from
the program ; and
(3) The amount of commerce affected by peti-
tioner’s franchise program is not substantial.
(b) Whether the Hearing Examiner erred in finding
and concluding that Brown franchise stores are fore-
closed to competitors of petitioner and that said fran-
chise stores are prevented by petitioner from buying
other brands or lines of shoes, in view of the fact,
among other things, that
(1) The testimony of the franchise dealers called
as witnesses showed conclusively that they were free
to buy from any shoe manufacturer they desired;
(2) The testimony of the six manufacturers called
as witnesses herein was so filled with hearsay, specu-
lation, conjecture and error as to render it unaccept-
able as a basis for findings of fact and conclusions;
(3) The record evidence clearly showed that com-
petitors of Brown can and do sell shoes to Brown
franchise stores; and
(4), Such finding was arbitrary and capricious and
not supported by the reliable, probative and substan.
tial evidence in the record.
(c) Whether the Hearing Examiner erred in deter.
mining that the individual trade areas in which Brown
franchise stores are located was the appropriate geo.
graphical market in which to appraise ond determine
the effect of petitioner’s franchise program upon com-
petitors of petitioner, in view of the fact that the evi.
dence affirmatively showed, among other things, that
shoe manufacturers sell and ship shoes to retailer cus.
[fol. 45] tomers throughout the entire United States,
and that the proper geographical market area in which
to appraise and determine the effects of petitioner’s
franchise program on its competitors is the nation asa
whole.
(d) Whether the Hearing Examiner erred in finding
the amount of commerce affected by petitioner’s fran-
chise program is substantial, in view of the fact that
the evidence showed, among other things, that sales
through petitioner’s franchise program are consider.
ably less than 1 per cent of all shoes sold by shoe man-
ufacturers in the United States.
(e) Whether the Hearing Examiner erred in finding
that the effect of petitioner’s franchise program is
substantial, and that competition is hindered by peti-
tioner’s franchise program, in many of the trading
areas in which Brown franchise stores are located, for
the reasons, among others, that such finding was arbi-
trary, speculative and not based upon reliable, proba.
tive or substantial evidence in the record.
(f) Whether the Hearing Examiner erred in ruling,
on July 20-21, 1961, over the objection of petitioner,
that petitioner could not call as witnesses any more
franchise dealers to testify to the saime or similar
matters testified to by franchise dealers previously
called as witnesses, for the reason, among others, that
he did, by such action and ruling, deprive petitioner of
its right to a defense, constituting a denial of due proe-
ess of law.
As to Count IT:
Whether the Hearing Examiner erred in finding and
concluding that petitioner has an official policy of rigid
price mairitenance, and a definite policy of seeking ad-
herence to its announced or advertised resale prices, in
view of the fact that the reliable, probative and sub-
stantial evidence in the record showed, among other
things, that
(1) There were only two instances out of the en-
tire dealings of petitioner with its thousands of cus-
[fol. 46] tomers over the years in which it could be
alleged that attempts at adherence to petitioner’s
suggested resale prices were even considered ;
(2) No agreements or arrangements concerning
the price at which petitioner’s shoes were to be re-
sold were ever made or entered into in either of the
two instances ;
(3) Petitioner's customers independently deter-
mined the prices of the shoes they sold; and
(4) There was no evidence in the record that any
act by petitioner had ever prevented or in any way
hindered the independent or voluntary determina-
tion by petitioner’s customers of the prices at which
any shoes were sold by them.
As to Counts I and IT generally:
Whether the Hearing Examiner erred in making cer-
tain other findings of fact and conclusions, too numer-
ous to mention specifically, for the reasons that such
findings and conclusions are arbitrary, speculative, in-
complete, contradictory and misleading, and not sup-
ported by the reliable, probative and substantial evi-
dence in the record.
Finally, the following question is presented for review, in
connection with the order made and issued by the Hearing
Examiner in this matter.
Whether the Hearing Examiner erred in making and
issuing his order against petitioner in this matter for
the reasons, among others, that
42
(1) Said order is too vague and indefinite to be
enforceable ;
(2) Said order is too vague and indefinite to prop-
erly inform petitioner of its duties and obligations
thereunder; and
(3) Said order is excessively broad in scope and
does not properly conform to the complaint or the
evidence in this matter.
[fol. 47] Statement of Facts
Petitioner, Brown Shoe Company, Inc. is a New York
corporation with principal offices located in St. Louis
County, Missouri. It is primarily engaged in the manufac-
ture and distribution of shoes at the wholesale level. Peti-
tioner manufactures a broad line of medium priced
branded shoes for men, women and children. It also manu-
factures shoes which are sold to certain retail stores, chain
stores and mail order houses for resale under the private
brand names of such customers.
Shoes manufactured by petitioner are principally mar-
keted by sales at wholesale to independent retail shoe cus-
tomers, including individual shoe stores, chains of shoe ™@
stores, specialty stores, department stores and various |
other types of retail outlets. At the time the complaint in
this matter was issued, petitioner was actively selling to |
approximately 6000 independent retail shoe customers lo-
cated throughout the United States. Total sales of peti-
tioner to these 6000 customers for the fiscal year 1959 were
$111,292,872.
Petitioner’s total sales for the fiscal year 1959 of shoes
and all other articles, at wholesale and retail, including the
sales of all subsidiaries, were $276,549,164. Its sales for the
same period, not including sales of or to its subsidiaries,
were $113,359,505. According to published industry figures,
petitioner with its subsidiaries was second in dollar sales
and third in pairage production in the shoe industry in
1958 and 1959.
The record in this matter shows there were between 900
and 1000 separate manufacturers of leather shoes in the
country in 1959. Leather shoe manufacturers produced
522.5 million pairs of shoes in 1950 and they produced over
632 million pairs in 1959. It is estimated that total dollar
sales by manufacturers of shoes in the industry as a whole
43
in 1959 were approximately 31% billion dollars. The record
also shows that there were nearly 100,000 retail outlets sell-
ing shoes in the United States in 1959.
Petitioner has a franchise stores program which was
started in 1921. The purpose of the program was and is
[fol. 48] to help the independent retailer who wishes to
carry petitioner’s branded lines become a better and more
successful merchant. Fieldmen who service the franchise
accounts offer guidance to them with retailing and mer-
chandising problems, help them with record keeping and
accounting, and encourage the dealer to concentrate on a
few lines so that he can do a more profitable job.
It was stipulated in this proceeding that as of November
20, 1959, a total of 682 independent retailer customers of
petitioner were operating on its franchise program. Total
sales by petitioner to these 682 retailers for the fiscal year
1959 were $24,675,617. This was less than 1 per cent of all
shoes sold in the United States during that same year.
The franchise stores are, for the most part, located in
towns or cities having populations of from 5000 to 30,000
3) persons and in almost all instances there is only one fran-
' chise store located in a community.
Count I of the complaint issued herein on October 13,
1959, alleged in substance that petitioner was guilty of un-
lawful exclusive dealing practices in connection with its
franchise program. The complaint charged that valuable
benefits or services were received by Brown franchise
stores from or through petitioner, and that as considera-
tion for these benefits or services the franchise stores were
required to concentrate their purchasing in the grades and
price lines of shoes sold by petitioner and were prohibited
from purchasing, stocking, or reselling shoes manufactured
by competitors.
Counsel for the complaint, to support the charges, relied
primarily upon a written franchise agreement which peti-
tioner had with approximately one-third of the franchise
dealers, excerpts from fieldmen’s reports and testimony by
six shoe manufacturers who claimed they were foreclosed
from selling their lines of shoes to Brown franchise stores.
Petitioner introduced evidence through exhibits and wit-
nesses, which showed that in fact its competitors could
[fol. 49] and did sell their lines of shoes to Brown fran-
chise stores, and that this was true as to the six manufac-
44
turers whose representatives testified they were foreclosed.
Petitioner called as witnesses 34 franchise dealers and two
former franchise dealers, who testified to their understand-
ing of the Brown franchise program and their experiences
as participants in it. They testified that they were free to
leave the Brown franchise program immediately at any
time they so desired, and that they, like other shoe retailers
generally, were guided in their selection of shoes by consid-
erations of profit and performance. They further testified
to their individual freedom to buy whatever lines of shoes
they wished. Petitioner was precluded from calling addi- %
tional franchise dealers to testify as to the same or similar |
matters by a ruling of the Hearing Examiner made July
20-21, 1961, to which petitioner took exception.
Count IT of the complaint charged that Brown forces and
requires, or attempts to force and require, its retail shoe &
store customers to agree to maintain arbitrary, non-compet-
itive resale prices fixed and promulgated by Brown.
In support of this contention, counsel for the complaint J
relied upon documentary evidence of two instances of al-
leged attempts by petitioner to secure adherence to its sug-
gested resale prices, and upon his construction of testi-
mony given by petitioner’s employees. .
Petitioner denied such charges and introduced evidence
which directly refuted the alleged instances of adherence to
its suggested retail prices, and petitioner pointed out that G
the evidence relied upon by counsel for the complaint was %
limited to two instances out of the myriad of business con-
tacts and communications petitioner had with its 6,000 cus.
tomers throughout the country. It showed that its retailer
customers are completely free to independently and volun-
tarily determine the prices at which any shoes are resold by
them.
The hearings in this matter were concluded on October j
31, 1961. Proposed findings of fact and conclusions were
filed by both sides, oral argument was had thereon, and;
[fol. 50] on January 25, 1962 the Hearing Examiner filed
his initial decision, which was thereafter served on Feb-
ruary 2, 1962. In his decision the Hearing Examiner found
against petitioner on both counts of the complaint. Peti-
tioner now seeks to have this decision and the accompany-
ing order reviewed by this honorable Commission,
TOT aT eae sd
45
Review Is in the Public Interest
Review by the Commission of the questions presented for
review by petitioner is in the public interest for several
reascns.
A review of the substantial questions of fact and law pre-
sented by the petitioner is necessary and appropriate in
order to insure to petitioner a just and proper disposition
of this matter and to protect its rights herein.
The quesions presented for review involve matters of
importance, not only to petitioner but to the business com-
: munity generally.
This case raises a question of first impression. Insofar as
petitioner is aware, there are no reported cases in which
the granting of benefits and services of the type and char-
acter in evidence to customers who concentrate their busi-
ness with petitioners so long as they choose to do so, and
who can withdraw from the program at any time, has been
held to foreclose competitors and thereby constitute an un-
2 fair method of competition.
Petitioner believes that the findings and conclusions of
the Hearing Examiner as to the substantiality of the effect
of the Brown franchise program are in error and complete-
ly contrary to the existing case law in this area (See, for
example, Tampe Electric Co. v. Nashville Coal Co., 365 U.
m S. 320 (1961)).
Other important questions of law and fact are raised by
® the findings and conclusions of the Hearing Examiner
under Count II of the complaint by virtue of the fact that
such findings and conclusions are not supported by the
substantial evidence in the record as set forth more particu-
larly in the questions presented for review above.
[fol. 51] Wherefore, for the reasons stated above, peti-
tioner requests that its petition for review be granted by
this honorable Commission.
Respectfully submitted, Gaylord C. Burke, Edwin S.
Taylor, Counsel for Respondent, Brown Shoe Com-
pany, Ine.
Bryan, Cave, McPheeters & McRoberts, Of Counsel.
February 17, 1962.
= 7 =
Berore FeperaL TraDE CoMMISSION
Orver GRANTING PetiTION FoR Revriew—March 15, 1962
Respondent having filed on February 19, 1962, a petition
for review of the initial decision of the hearing examiner in
this proceeding pursuant to §4.20 of the Commission’s
Rules of Practice, and counsel supporting the complaint
having filed an answer in opposition thereto ; and
The Commission having determined that said petition
should be granted:
It Is Ordered that respondent’s petition for review of the
hearing examiner’s initial decision be, and it hereby is,
granted.
By the Commission.
Joseph W. Shea, Secretary.
Issued: March 15, 1962.
Berore FEepeRAL TRADE ComMMISSION
Final Order—February 20, 1963
This matter having come on to be heard upon respond-
ent’s exceptions to the initial decision of the hearing ex-
[fol. 52] aminer and upon briefs and oral argument in sup-
port of said exceptions and in opposition thereto, and coun-
sel for both parties having filed on September 4, 1962, a
“Joint Motion for Correction of Record” ; and
The Commission having rendered its decision denying
the exceptions of respondent and having determined that
the aforesaid “Joint Motion for Correction of Record”
should be granted:
It Is Ordered that the hearing exam:ner’s initial decision
be modified by striking therefrom paragraphs 41 and 42 of
the findings and substitute therefor the findings em-
bodied in the accompanying opinion beginning on page 21
*with the words “In short, from our review of the record,”
and ending on page 27 *with the words “interfering with
* Record pages 73 and 79 respectively.
47
the latter’s independent judgment in making purchasing
decisions.”
It Is Further Ordered that the hearing examiner’s initial
decision, as modified and supplemented by the accompany-
ing opinion be, and it hereby is, adopted as the decision of
the Commission.
It Is Further Ordered that the “Joint Motion for Correc-
tion of Record” filed September 4, 1962, be, and it hereby is,
granted.
It Is Further Ordered that respondent, Brown Shoe
Company, Inc., a corporation, shall, within sixty (60) days
after service upon it of this order, file with the Commission
a report in writing, setting forth in detail the manner and
form in which it has complied with this order.
By the Commission, Commissioners Anderson and Hig- -
ginbotham not participating.
(Seal. ) Joseph W. Shea, Secretary.
Issued: February 20, 1963.
BerorE Feperat TrapE CoMMISSION
Docket No. 7606.
In the Matter of Brown Shoe Company, a Corporation.
Commissioners:
Paul Rand Dixon, Chairman,
Sigurd Anderson,
Philip Elman,
Everette MacIntyre,
A. Leon Higginbotham, Jr.
SC etree © GO 6 Rm rt
Oprnion or THE Commission—Filed February 20, 1963
a a =)
By Dixon, Commissioner :
I
Complaint, Initial Decision, and Respondent’s Exceptions
This matter is before us on the exceptions of respondent,
Brown Shoe Company, Inc. (Brown), to the initial decision
and order of the hearing examiner holding that respondent
violated Section 5 of the Federal Trade Commission Act by
virtue of its franchise agreements with independent shoe
retailers as well as by its activities in connection with re-
sale price maintenance.
Specifically, Count I of the complaint charges that re-
spondent, through its Brown Franchise Stores Division,
has been and is now engaged in unfair acts and practices by
entering into contracts or franchises with a substantial
number of independent shoe retailers, requiring such cus-
tomers to restrict their purchases of shoes for resale to
respondent’s lines and precluding such retailers from pur-
chasing the products of Brown’s competitors. The com-
plaint alleges further in this connection that franchisees
under the plan receive valuable benefits and services and
that in consideration therefor they were required to con-
[fol. 54] centrate their purchases on the grades and price
lines of shoes sold by Brown and to refrain from selling the
shoes of competitors. The complaint charges that dealers
who violate the agreement to concentrate on respondent’s
shoes and to refrain from handling lines conflicting with
49
those of respondent are dropped from the Brown franchise
plan and deprived of its attendant benefits. The complaint
states that the purpose, intent or effect of respondent’s
franchise plan may be substantially to lessen and restrain
vompetition in the purchase and sale of shoes in interstate
commerce, to foreclose a substantial share of the retail
dealer market in many trade areas to Brown’s competitors,
as well as to further enhance the dominant position of
Brown in the industry and tend to create a monopoly in
Brown in the purchase and sale of shoes in interstate com-
» merce,
Count II of the complaint charges that respondent’s re-
quirement or its attempt to require that its retailer cus-
tomers adhere to arbitrary and noncompetitive prices
promulgated by Brown is an unfair method of competition.
The hearing examiner, in the initial decision, found that
counsel supporting the complaint had sustained the burden
of proof under both counts of the complaint and ordered
respondent to cease and desist from entering into or con-
tinuing agreements or understandings with the purpose or
effect of precluding its customers from independently de-
ciding whether shoes should be purchased from Brown’s
competitors, as well as the volume of such purchases. The
order entered by the initial decision further prohibits re-
» spondent from obtaining or attempting to obtain agree-
é ments, understandings or assurances from its customers on
the resale price of its shoes.
Although respondent takes numerous exceptions to the
= examiner’s findings, the thrust of its argument on appeal
= may be briefly summarized. With respect to the allegations
under Count I of the complaint, respondent contends there
is no substantial evidence to support the finding that the
restrictive provision in the franchise agreement requiring
= concentration on Brown’s products and prohibiting pur-
chase of lines conflicting with respondent’s had been en-
(fol. 55] forced or that the restrictive provision necessari-
ly inhibited stores under the franchise plan from buying
@ other brands which they would have purchased if not so
restricted. Respondent further denies that the record jus-
tifies the inference that the restrictive provision in the
written franchise agreement had been agreed to by the ma-
50
jority of franchise dealers who had not signed such an in-
strument. Respondent takes the position that the hearing
examiner, in making the finding that the restrictive provi-
sion jn issue here was enforced, erred in relying on the
memoranda of Brown’s employees and officials, when the in-
ferences which could be drawn from these documents were
rebutted by the testimony of respondent’s witnesses. Respon-
dent argues that accordingly such inferences were contrary
to the weight of the evidence. Respondent contends further
that its Brown franchise plan is lawful and that the serv-
ices furnished under the program give Brown no leverage
whereunder the franchisees can be forced to buy Brown
brand shoes, Respondent further maintains that member-
ship in the franchise program does not affect a retailer’s
ability to purchase the respondent’s shoes under the same
terms and conditions as all customers.
Respondent argues that there has been no showing that
its competitors are foreclosed from selling to franchise
stores or that the adverse effect of the franchise plan on
competition has been substantial. In this connection the re-
spondent also claims that the examiner erred in delineating
the relevant geographic market as the trading areas where
a Brown franchise plan account is located. Brown states
that the proper geographic market is the nation as a whole,
since this is the area of effective competition between
Brown and other shoe manufacturers. Respondent, in
effect, claims that had the examiner correctly defined the
relevant market he would have been forced to find that
Brown’s sales to its franchise stores were not substantial.
In the case of the charges under Count II of the com-
plaint, respondent argues that there is no substantial evi-
dence to support the finding that it required or attempted
to require its customers to maintain the resale prices which
it established. Respondent argues that the record shows
only that Brown encouraged its customers to obtain an
[fol. 56] adequate markup to cover their expenses. As in
the case of its exceptions to the examiner’s findings under
Count I, respondent urges that the hearing examiner erron-
eously relied on inferences drawn from documentary evi-
dence which the testimony of its customers, employees and
officials had rebutted. In this connection respondent argues
em Be naka eae
51
that such inferences were therefore necessarily contrary to
the weight of the evidence.
Brown also objects to the order entered below on the
ground that it is vague and indefinite, excessively broad,
and not in conformity with the complaint or the evidence in
the record.
II
The Operation of the Brown Franchise Program.
The threshold question presented by respondent’s ex-
ceptions to the examiner’s findings under Count I is
whether he correctly found that the restrictive provision
against the handling of conflicting lines had been, and will
continue to be, enforced, and that it necessarily inhibits
franchise holders from buying other brands which they
would buy if not so restricted.’
Respondent argues, in effect, that the restrictive provi-
sion is not enforced insofar as the signers of writte.. fran-
chise agreements are concerned and is not even a part of
the agreement or understanding between respondent and
those franchise holders who did not sign such an instru-
ment. Upon a review of the evidence we are persuaded the.
finding in question is clearly supported by substantial evi-
dence.
The franchise agreement states:
“Tn return I will:
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.”
[fol. 57] The proviso on its face restricts franchisees as
to the purchases they may make from competitors of
Brown. Further, the manager of the Brown Franchise
Stores Division, in the course of his testimony in this pro-
ceeding, expressly admitted that the restrictive provision
was equally applicable to signer and nonsigner franchise
* Initial Decision, Paragraph 38.
52
holders alike,? It is therefore difficult to understand respon-
dent’s bald assertion that there is no evidence demonstrat-
ing that the restrictive proviso was part of the agreement
and undersianding between respondent and those fran-
chisees not signing the agreement.
The documentary evidence in the record on which the
hearing examiner relied, namely, the instructions to field
men from the manager and assistant manager of the fran-
chise program as well as the field men’s reports to their
superiors, clearly support the finding that respondent’s
field mcn were expected to, and did their utmost to, encour-
age concentration on Brown lines and elimination of con-
flicting lines.* The following declarations by Brown field
men or their superiors support the hearing examiner’s find-
ing on this point:
. . . He has been urging us to allow him to carry
‘Town and Country’ which are profitable for him in
Willimantic and has been refused. I am leaving Risque
in as a cushion for this problem. Time will have to
settle that problem.” (Brown Franchise Division
Inter-Company Correspondence—McEmery to Lon
*“Q. With respect to paragraph 1 of Exhibit 25-C [the
restrictive provision] and its interpretation, do you make
any distinction between the Brown franchisees who have
signed one of these contracts and those who have not
signed a contract?
“A. No, sir.
“Q. Would that be true of the provisions of the Brown
franchises program as a whole? In other words, the services
that a man can get and the Tequirements and obligations
that he is supposed to live up ‘o.
“A. Yes, that is correct. There would be no variation of
service or items whether he signed the agreement or not.”
If this statement is not to be taken as an express admis-
sion that the terms of the restrictive proviso are applied to
both signers and non-signers of the agreement alike, then
the utility of the English language as a suitable means of
communication is indeed subject to question.
* Initial Decision, Paragraphs 26 and 28.
53
Carrol, dated February 4, 1957, re Prague Shoe Com-
pany, New London, Conn.)
[fol. 58] ‘‘Outside lines were discussed and she
also agrees that most are not necessary and will be dis-
continued. This will eliminate many over-lapping pat-
terns and types that she does not need in this low-
volume store.” (Report of field man Bob Taylor to Tom
Curtis re White’s Shoe Store, Lancaster, New Hamp-
shire, July 19, 1958.)
“He has already discontinued Heydays and will drop
Jolene, Wiliams and Show Offs for fall. He is concen-
trating more on our lines each season.” (Report of
field man T. R. Forgan to Franchise Division, dated
April 26, 1958, re Ward’s Bootery, Chanute, Kansas. )
“T think it is time for a forthright discussion with
Mr. Bump on what we attempt to accomplish with
dealers who operate their business on our Franchise
Program. If he does not see the wisdom of going along
with the thought of operating these stores more pro-
gressively, avoid directly conflicting purchases, then I
think we have no other alternative than to ask him to
withdraw from the program.” (Letter to field man T.
R. Forgan from Dick Johnston, Manager of the Brown
Franchise Stores Division, dated February 18, 1958,
re Lloyd’s Shoes, Wichita and Great Bend, Kansas. )
“The one very important point that concerns me, T.
R., is that you say he can get a better mark up on
men’s Great Northern shoes and that his customers
want leather soles. If this be the case and he is deter-
mined to continue to carry Great Northern instead of
Pedwin, then we have no other alternative than to ask
him to withdraw from the Franchise Program.”
(Letter to Brown field man T. R. Forgan, from Dick
Johnston, March 11, 1958, re Bump Shoe Stores, Wi-
chita and Great Bend, Kansas.)
These statements and others in a similar vein are contained
in memoranda pertaining to retailers who had signed the
agreement as well as to nonsigners. They clearly demon-
strate that Brown field men, pursuant to the instructions of
their superiors, followed a policy of discouraging the pur-
54
chases of competitors’ lines conflicting with Brown and
[fol. 59] urging the elimination of conflicting lines.
These actions were obviously pursuant to the restrictive
policy expressed in the written franchise agreement appli-
cable to signers and nonsigners alike.
Another persuasive fact compelling the same conclusion
is the legend “Encourage concentration on B. S. C. lines
and elimination of conflicting lines” borne for some time on
the field men’s reports. This slogan also supports the infer-
ence that the basic purpose of the program as far as Brown
is concerned is to serve as a medium to persuade a selected
group of stores, namely, its franchise dealers, to restrict
their purchases of shoe lines conflicting with those of re-
spondent.
Brown’s argument that the restrictive provision is not
enforced or a part of respondent’s arrangement with all of
the franchise stores, namely, the nonsigners, is not reconcil-
able with the admission in respondent’s brief, obviously
applicable to the franchise program as a whole, that:
“The record shows that Brown franchise dealers are
offered and given the benefits and services of the kind
and character in evidence, in return for concentrating
on Brown’s lines, and carrying them in a representa-
tive manner. If and when a dealer decides to cease con-
centrating on Brown lines and to purchase the major
portion of his requirements elsewhere, he may be
asked to leave the franchise program (CX 28, 29). This
is Brown’s relationship to its Brown franchise dealers,
both with and without written agreements.” ‘
Even in the light of this rather euphemistic statement,
the assertion that the restrictive provision was not a part
of the understanding between respondent and all its fran-
chise holders strains credulity. A more realistic appraisal
of the actual situation as disclosed by the record is, of
course, that the program requires respondent’s franchisees
to purchase the majority of their shoes from Brown and
consequently they are sharply restricted in the purchases
they may make from Brown’s competitors.
[fol. 60] The true nature of the relationship between
* Respondent’s Brief, page 19.
55
Brown and its franchisees, however, is explicitly set forth
in the answer by respondent to interrogatories in United
States v. Brown Shoe Company et al.’ There respondent
expressly stated that the handling of conflicting lines is one
of the factors considered as a failure generally to comply
with the conditions of the franchise program. In this con-
nection, Brown’s reply further stated: “This [conflicting
lines] covers the situation where the franchise account
sold shoes of another company which directly conflicted
with a line or lines of shoes manufactured by Brown Shoe
Company. This was completely contrary to the franchise
agreement.” °
Aarol C. Fleener, vice-president of respondent, testified.
in United States v. Brown Shoe Company et al.," that:
“Q. Do you ever drop a dealer because he carries
conflicting lines?
“A. We will drop them from the franchise plan, yes,
if they persist in carrying conflicting lines.” *
Moreover, the record demonstrates specific instances
where retailers have been separated from the franchise
program in the course of enforcing the restrictive terms of
the agreement pursuarit to the policy enunciated by Mr.
Fleener. For example, Samuels Shoe Store, Compton, Cali-
fornia, Richards Shoes, Norwalk, California, Seymours
Shoes, Evansville, Indiana, and Revell and McCall Store,
Emporia, Kansas, among others, were all separated from
the program at various times in the period November 1954
to April 1958 for carrying shoes conflicting with those of
respondent’s.
*179 F. Supp. 721 (E. D. Mo. 1959), aff’d 370 U. S. 294
(1962).
* This material is incorporated into the record as CX 28.
It may be noted that respondent’s definition of its policy on
its franchiseholders’ purchases from competitors (note 4,
supra), which is based in part on this exhibit clearly
glosses over the admission that purchases of conflicting
lines are completely contrary to the franchise agreement.
* Supra, note 5.
* Included in this record as CX 118.
56
The memoranda of respondent’s personnel demonstrat-
ing Brown’s efforts to eliminate or restrict the franchise
[fol. 61] holders’ purchases of conflicting lines, coupled
with the language of the restrictive proviso in the written
agreement, as well as the actual enforcement of that provi-
sion, shown by the separation of noncomplying retailers,
evidence respondent’s intent to restrict the access of other
shoe manufacturers to retailers under the franchise plan.
It is inconceivable that respondent, which obviously invested
considerable time and effort and expense in the program,
would permit a retailer to enter or enjoy the benefits of the
plan unless he assented to what was clearly Brown’s pur-
pose in establishing the program. Our conclusion on this
point is confirmed by the following testimony of Mr.
Fleener also given during the course of the trial in United
States v. Brown Shoe Company et al.:
“Q. During the past five or six years, have any fran-
chises been discontinued because the franchisee didn’t
concentrate on Brown branded merchandise?
“A. Yes, I would say there have been some.
“Q. Before you dropped the franchisee, did you
warn him that you’re going to drop him?
“A. Naturally, in dealing with our customers, we try
to get them to follow the program and if we find they
persist in not doing it, why, then there’s no point in
continuing this plan.
“Q. You point out the various benefits of the plan
and try to get them to concentrate on your lines?
“A. Yes, we do.
“Q. Do you feel that there’s no point in continuing
the plan if the firm won’t concentrate on your lines?
“A. As a franchise man, yes. We'll still sell them
shoes, branded shoes.” ®
In the light of these considerations, we must concur with
the hearing examiner’s reliance on the documentary evi-
dence in preference to the testimony of respondent’s dealer
witnesses, Respondent’s accusation, that in not taking the
testimony of its dealer witnesses at face value the hearing
examiner arbitrarily and unjustly ignored the only sub-
stantial evidence in the record, is without merit. Documen-
* Id.
57
tary evidence subsequently contradicted or explained by
[fol. 62] participants to the events related therein or quali-
fied by the authors or other witnesses is, of course, not by
virtue of that fact inherently insubstantial or necessarily
outweighed by such testimony.”
The fact is that the hearing examiner, in making the dis-
puted findings, performed precisely the function for which
he was appointed, that is, to evaluate and weigh the proba-
tive worth of conflicting evidence; this is a task which he is
uniquely equipped to perform since he observed the de-
meanor and bearing of the witnesses during the course of
their testimony. Respondent, in effect, would strip both the
examiner and the Commission of the fact-finding function
imposed upon them by statute. It is, of course, well settled
that, even in those instances where substantial evidence
supports inconsistent inferences, an administrative agency
is not precluded from drawing one of them.”
We now turn to respondent’s related procedural argu-
ment that the examiner erred in refusing permission to ad-
duce additional testimony from franchise deriers on their
understanding of and experiences with the Brown fran-
chise program. Respondent contends inat this testimony
should not have been curtailed until the examiner could
make a finding that the remaining Brown franchise dealers,
if called to testify, would testify along the same or similar
lines as the thirty-six dealer witnesses whom respondent
had already called to the stand.
Section 4.14 (b) of the Commissioner’s Rules of Practice,
which respondent cites in this connection, although provid-
ing that every party shall have the right to present
evidence,” does not confer a license to present cumula-
tive or unduly repetitive evidence.
”° Of, United States v. United States Gypsum Co. et al.,
333 U. S. 364, 396 (1948).
" National Labor Relations Board v. Nevada Consolidat-
ed Copper Corp., 316 U. S. 105, 106 (1942); Carter Prod-
ucts, Inc. v. Federal Trade Commission, 268 F. 2d 461, 491
(9th Cir. 1959), cert. denied 361 U. S. 884 (1959).
2“Bvery party ... shall have the right of due notice,
cross-examination, presentation of evidence, objection,
motion, argument and all other rights essential to a fair
hearing.”
58
[{fol. 63] In making the disputed ruling, the hearing exam-
iner stated:
“,.. Iam not going to permit you to call any further
dealer witnesses to testify in the same manner as the
past dealers have testified.”
“.. It seems to me that I have heard all of that kind
of testimony that I need to hear. In fact, a lot of the
testimony that we have heard has been cumulative. I
certainly don’t want to listen to any more of the same
kind of testimony... .”
It is obvious from the ruling complained of that the hear-
ing examiner took into consideration the probability that
respondent could well call a great many more retailers who
would testify along lines substantially similar to the testi-
mony of previous dealer witnesses, but that this particular
line of testimony would not gain in probative worth as far
as he was concerned by virtue of repetition. An examina-
tion of the testimony of respondent’s thirty-six dealer wit-
nesses convinces us that the examiner had ample opportu-
nity to properly evaluate this evidence and that he rightly
concluded that pyramiding additional testimony of this na-
ture would not aid him in resolving the issues presented.
The examiner who has heard the witnesses must have the
discretion to prohibit cumulative testimony on those points
where he is satisfied that the issues have bee thoroughly
presented and that additional evidence of a cumulative na-
ture would not assist him in arriving at the truth. More-
over, “... It has never been supposed that a party has an
absolute right to force upon an unwilling tribunal an un-
ending and superfluous mass of testimony limited only by
his own judgment or whim. . . .”* The principle that the
extent to which cumulative evidence will be received rests
within the sound discretion of the trial court is well
% VI. Wigmore, “A Treatise on the Anglo-American
System of Evidence in Trials at Common Law”, Section
1907, 3rd Edition, 1940.
59
established.** Were it otherwise, neither the Commis-
(fol. 64] sion nor the hearing examiner would be able to
dispatch the business before thera.
Respondent further argues that the examiner wrongly
construed the documentary evidence as proof of enforce-
ment of the restrictive provision when in fact many of the
statements therein reflected only the concern of Brown’s
manager or field man for inventory situations wherein a
retailer had too many overlapping patterns or styles or
was carrying too many lines of shoes. Respondent argues
that the principle of lien concentration, viz., concentrating
on one brand line of shoes in a given price range and thus
avoiding conflicting lines, which increase inventory and dup-
licate patterns without bringing in additional sales, is a
principle of good shoe retailing.
An examination of the field men’s reports and the mem-
oranda of their superiors convinces us that while respon-
dent’s employees may well have been concerned about the
inventory situation of certain franchise stores, their al-
truism in this respect was not unalloyed and that the over-
riding concern was the elimination of competitor’s conflict-
ing lines and concomitantly promoting an increase in the
volume of purchases from Brown.
We need not concern ourselves here with the arguments
of respondent and counsel supporting the complaint about
the intrinsic economic merits of line concentration against
the advantages of selecting only the best items from sever-
al lines in the same price and style ranges. We suspect that
the validity of the principle may vary with the individual
situation of the particular retailer.
The economic justification, if any, of line concentration is
irrelevant to the issues presented to us here. While line
concentration itself may or may not be economically jus-
tifiable, there is no economic justification for making the
adherence to this doctrine the subject of agreement between
buyer and seller and enforcing the agreement to the latter’s
advantage.
We are here concerned with the question of whether the
*See Suhay et al. v. United States, 95 F. 2d 890, 894
(10th Cir. 1938), cert. denied 304 U. S. 580 (1938) ; Hauge
v. United States, 276 Fed. 111, 113 (9th Cir. 1921).
60
franchise plan operates to foreclose Brown’s competitors
from a segment of the market. If the operation of the fran-
{fol. 65] chise plan is, in fact, an illegal restraint of trade,
its reasonableness may not be justified on economic or
other grounds.** The short run advantage, if any, to re-
spondent’s franchise dealers of systematic application of
the principle at the urging of respondent because of their
membership in the franchise program cannot outweigh the
long range interest of the community in the removal of re-
straints on competition.”
Respondent, by incorporating its insistence on line con-
centration (on Brown products) as a basic tenet of its fran-
chise program, has achieved a measure of control over the
purchasing operations of the dealers under that program.
Respondent’s basic mechanism for achieving such control
and influencing the purchasing decisions of its franchise
stores are the detailed reports on inventory, purchases,
ete., to be submitted to respondent’s franchise division or
field men for their information, analysis, and suggestions,
as well as the conferences between the retailers and field
men on the inventory situation and future purchases.
The record demonstrates that the retailer’s prime moti-
vation for joining and staying in the franchise program
was the benefits and services available to him as a fran-
chise dealer. These benefits have been fully described in the
initial decision and that task need not be duplicated here.”
Not every dealer utilized all of the benefits or services avail-
able, but it is apparent that the services collectively
achieved the effect desired by Brown, namely, attracting
** See Sandura Company, Docket 7042 (1962).
* See Standard Oil Co. of California et al. v. United
States, 337 U. S. 293, 309 (1949).
7“ Among the benefits and services which a dealer will
receive by being on the franchise plan are: architectural
plans, service of a field representative, merchandising rec-
ords, retail sales training program, accounting system, na-
tional and regional meetings, and group purchasing of in-
surance, rubber footwear, and display material.” (Initial
Decision, Paragraph 13.) See also paragraphs 14-21 of the
examiner’s findings.
61
retailers to the program and inducing them to comply with
its requirements.
Respondent apparently contends that the franchise pro-
is inherently lawful and in support of that contention
[fol. 66] cites Federal Trade Commission v. Sinclair Rejin-
ing Company," and The Timken Roller Bearing Company
v. Federal Trade Commission.” In our view, however,
neither precedent supports the position of respondent.
Both the Timken and Sinclair cases turned on factors not
applicable to the instant proceeding. While it is true that in
Sinclair the gasoline dealer could purchase respondent’s
products with or without the equipment subject to the re-
strictive lease and that in the instant case a retailer may
purchase Brown’s products irrespective of his membership
in the franchise plan, the restrictions attendant on the
franchise program are considerably more far-reaching
than the arrangements upheld in Sinclair. In Sinclair, the
agreement only purported to limit the gasoline which could
be dispensed through the pumps leased by respondent, the
dealer being free to secure additional equipment through
which he might dispense whatever gasoline he desired. On
these facts, the Court held that Sinclair’s leases did not un-
dertake to limit the lessee’s right to use or deal in the goods
of a competitor of Sinclair.
In this case, Brown’s franchise dealers are expressly
prohibited from purchasing lines of shoes conflicting with
those of respondent and are required to concentrate on re-
spondent’s products; the prohibition extending to the fran-
chisee’s entire business as long as he is under the program.
Under the terms of the restrictive provision under consid-
eration here, the dealer, unlike the gasoline dealer in Sin-
clair, is forecloseed from exercising his own judgment as to
the purchases he may make from his suppliers’ competi-
itors.”” In Sinclair, the Court further found that limiting
8 261 U.S. 463 (1923).
19 299 F’. 2d 839 (6th Cir. 1962), cert. denied 371 U.S. 861
(1962).
* The Supreme Court in subsequently analyzing the im-
port of Sinclair held:
“ .. there is marked difference between a contract
which confines an entire retail outlet to the sale of a
single brand and a contract which merely confines the
use of a dispensing mechanism to a single brand... .”
Standard Oil Co. of California et al. v. United States,
supra, note 16, at p. 304, n. 6.
the leased equipment to the sale of Sinclair fuel protected
the integrity of the Sinclair brand from possible debase-
[fol. 67] ment through the sale of inferior fuels. The fran-
chise program cannot be justified on such grounds. The
analogy advanced by respondent is neither relevant nor
appropriate and does not support the conclusion that some-
how the Brown franchise program is inherently lawful.
Respondent cites the Timken case” in support of the as-
sertion that “its program of giving benefits and services to
shoe retailer customers who concentrate on Brown brand
lines is entirely lawful.” Specifically, respondent relies
upon the holding by the court that a manufacturer is not
prohibited from selecting dealers who will devote their en-
ergies to his products nor compelled to retain dealers with
divided loyalties and that the seller has the right to select
his own customers. The rule in Timken, on which respond-
ent relies, predicated on the finding that no agreement
between respondent and its dealers had been shown is not
applicable to the circumstances of this record. In the in-
stant case, as heretofore noted, the evidence demonstrates
agreements and understandings between Brown and its
franchise holders expressly prohibiting the latter from
purchasing lines conflicting with those of respondent.
The examiner’s holding that the franchise plan was a ma-
jor factor in foreclosing markets to competitors of re-
spondent is supported by the record. In disputing this find-
ing, respondent directs our attention to fragments of the
testimony of representatives of its competitors and to the
statements of its retailer witnesses in order to rebut the
inferences which must be drawn from the operation of the
plan as a whole. We have already noted that the terms of
the restrictive proviso prohibiting the purchase of conflict-
ing lines and demanding concentration on Brown products
was part of the understanding between respondent and the
retailers of the franchise plan, which by October 1961,
21 Supra, note 19.
-
63
numbered 766 stores, whether they had signed a written
agreement or not. We have also noted the activity of re-
spondent’s officials and employees in enforcing this under-
{fol. 68] standing. The record is indisputable that fran-
chisees have been expelled fromm the program for handling
lines conflicting with those of respondent. In short, the rec-
ord demonstrates that the restrictive proviso under consid-
eration here has been enforced. The fact that the restrictive
understanding between Brown and its franchisees.has been
effectively enforced is documented by the testimony of Aa-
rol C. Fleener, Brown’s vice-president, in United States v.
Brown Shoe Company, et al.,* that on an over-all basis
Brown franchise dealers’ sales of shoes purchased from re-
spondent would constitute 75% of their total sales. This
percentage, according to the witness, in the case of individ-
ual stores may vary from 60 to a high of 95%. Moreover,
the extent to which competitors’ conflicting lines are ex-
cluded from the franchise dealers’ shelves is undoubtedly
higher than these figures indicate, for this witness also
stated that purchases from respondent’s competitors in in-
dividual instances would be dictated by a need for either
higher or lower price shoes than those made by respondent.
The foregoing summary of the facts establishing that
conflicting lines of competitors are excluded by virtue of
the enforcement of the terms of the restrictive proviso in
the franchise agreement, and that such enforcement of the
proviso was substantially effective, is sufficient to support
the examiner’s finding that respondent’s competitors are
foreclosed from selling to the market represented by the
franchise dealers. Respondent’s further contention that its
competitors are not foreclosed because franchise holders
are free to leave the plan without restriction is without
merit; this proceeding, of course, is concerned with the
foreclosure arising with respect to those retailers under the
plan. While the record does indicate some attrition in the
membership of the plan, we are satisfied that, on the whole,
the relationship between Brown and its franchisees is a
reasonably stable one.
The examiner, in making this finding, also properly re-
= Supra, note 5 (This testimony is incorporated in the
record as CX 118.)
64
lied on the testimony of six representatives of respondent’s
[fol. 69] competitors who corroborated the necessary in-
ference from the very nature of the Brown franchise pro-
gram and its operation that the inevitable occurred, namely,
that for practical purposes they were foreclosed from
selling to the Brown franchise holders. Respondent attacks
the testimony of these six representatives as hearsay and
speculation on the part of obviously biased witensses. The
question of bias on the part of these witnesses is, of course,
best resolved by the examiner who heard them and ob-
served their demeanor. The record does not suggest that he
abused his discretion in this respect. Further, the fact that
the witnesses’ knowledge as to loss of sales or difficulty of
making sales to retailc.s under respondent’s franchise plan
was largely derived from reports of their salesmen does
not rob the evidence of probative value.” Obviously, this is
the type of knowledge upon which businessmen must rely if
they are to conduct their business. In fact, the record shows
that Brown’s competitors utilized this knowledge in formu-
lating sales policy, namely, the determination on the part
of some not to actively solicit Brown franchise stores be-
cause they were convinced this constituted a waste of sales
effort. Since it is apparent that the witnesses themselves
relied on this knowledge in their conduct of the business, it
is sufficiently trustworthy for consideration by the examiner
and the Commission in resolving the issues presented.
The record, moreover, demonstrates specific losses of
sales by other shoe manufacturers traceable to the opera-
tion of the franchise plan, as shown by the following ex-
amples documented by sales data from Brown’s competi-
tors:
** Certain of the witnesses who experienced personal re-
buffs from franchise dealers were, of course, also testifying
from first hand knowledge.
{fol. 70}
Com rs’
Franchise Shoe Date It Wame of to Total Pairs
Store Joined Plan Competitor Franchise Store of Shoes
Fisher Shoe 12/17/52 Juvenile 1951 1,224
Store, Plymouth, Shoe Co. 1952 1,530
Mich.™ 1953 246
1954 240
1955 252
1956 381
1957 228
1958 188
1959 314"
Com; rs’
Franchise Date It Name of Seles to Dollar
Store Joined Plan Competitor Franchise Store Volume
Blynn’s Shoe 2/27/59 Weyenberg 1957
Stores, Inc., Shoe Co. 1958 2,782
Pittsburgh, Pa. 1959 376
Fi UN ee bee's
Gryder Co., 5/11/55 Weyenberg 1951 1,581
Biloxi, *, Shoe Co. 1952 5,803
Miss. 1953 8,388
1954 3,219
1955 428
1956 186
Meyers Shoe 8/ 2/56 Leverenz Shoe 1953 397 .30
Store, Company 1954 1316.10
Watertown, 1955 2399.12
Wisc. eos 886 25
“The Vice-President of the Juvenile Shoe Co. testified that the owner of
this store advised him that — would be curtailed because of Fisher’s
participation in the franchise pro;
yay with 1953, The al majorit of sales were of the “short’’ Clinic
line. E. g. Ou of 246 pairs sold in 1953, were Clinic.
* New vee November 1957.
The fact that some representatives of Brown’s competi-
tors erred in their testimony relating to certain accounts to
whom they allegedly lost sales because of the operation of
the franchise plan, or that certain of Brown’s dealers may
have withheld purchases from Brown’s competitors for
reasons other than the existence of the franchise agree-
ment, does not significantly detract from the force of this
evidence. The record, as we have noted, does show concrete
examples of such losses, but more significant is the testi-
mony of these witnesses on the over-all impact of respond-
ent’s program and similar programs of other manufacturers
on their sales opportunities generally.
Respondent, conceding that its franchisees concentrated
on its lines, directs our attention to the testimony of
—
66
[{fol. 71] certain dealers to the effect that their choice to
enter the franchise program was governed by the quality
and performance of respondent’s product, and contends
further, in effect, that the decision to concentrate was,
therefore, a voluntary choice, quiet unlike the situation
where the manufacturer prohibits the purchase of competi-
tor’s goods. We are not persuaded. Respondent glosses
over the fact that whatever a dealer’s reasons may have
been for entering the program, once he became a partici-
pant he was subject to the agreement or understanding re-
quiring him to refrain from purchasing a competitor’s con-
flicting lines and to concentrate on respondent’s products.
The record is plain that whatever the merit of its products,
respondent added to its competitive arsenal the franchise
plan embodying restrictions, which necessarily foreclosed
competitors from effectively selling to the select group of
retailers under that program.
Respondent also directs our attention to its “Outside
Line Survey” as conclusive proof of the fact that Brown’s
competitors are not foreclosed from selling tc retailers on
the franchise plan. The survey, according to respondent,
demonstrates that approximately five out of six franchise
stores carried at least one conflicting line, while many car-
ried two or more. The hearing eaxminer’s analysis of this
evidence agrees with respondent’s contention to the extent
of finding that five out of six of respondent’s franchisees
did carry at least one line competing to some extent with a
Brown line. However, the examiner’s other findings perti-
n*at to the survey data puts this evidence in its proper con-
text and precludes the inference which respondent urges on
us on the basis of the “Outside Line Survey”. The following
findings of the examiner are crucial on this point:
“Respondent also contends that most franchise
holders carry other lines, some of which are conflict-
ing, and that this shows a lack of effectiveness of any
restrictions if any there be. Most of the important con-
flicting lines carried by the franchise holders are short
lines of specialty shoes, such as Clinics (primarily for
nurses) and Hush Puppies (loafers), which are con-
doned, .. .” (Initial Decision, Paragraph 40).
67
[fol. 72] and
“... Over the years most of these dealers have learned
that respondent will condone some duplication of lines,
particularly if the outside line is a short line or a spe-
cialty line or if the real volume is in respondent’s lines,
because five out of six of them carry at least one line
that competes to some extent with a Brown line. There
is a point beyond which outside lines will not be toler-
ated by Brown, and it is believed that generally the
dealers know what it is” (Initial Decision, Paragraph
35).
Significantly, respondent, although taking exception to
other findings in paragraphs 35 and 40 of the initial deci-
sion, has not taken exception to the excerpts quoted above.
We may take these findings as undisputed, therefore. Our
own review of the evidence, moreover, persuades us that
the findings of the examiner are amply supported by the
record. For example, J. R. Johnston, the manager of
Brown’s franchise program, under whose direction and su-
pervision the survey was made, testified that a franchisee
might simply be carrying a few patterns of a conflicting
line and yet be listed by the survey as carrying a conflicting
line. This witness further stated that even in those in-
stances where only certain patterns in a competitor’s line
conflicted with respondent’s shoes, if the reporting retailer
carried any pattern in the line, he would be recorded as
carrying a conflicting line. This witness conceded that the
overlap in the Brown line and the competitor’s line might
extend only over a small part of either line, that is, the
higher price shoes of one and the lower price shoes of the
other, and yet still be considered as conflicting lines for the
purposes of the survey. Of particular significance in evalu-
ating the probative worth of this data is the further fact
that the survey does not disclose the volume either in pairs
or dollars of purchases of conflicting lines by the reporting
franchisees ; yet the record shows that the sales of competi-
tors, whose representatives testified in this proceeding, to
certain franchisees were minimal.
In the light of the examiner’s findings, therefore, the
“Outside Line Survey” does not demonstrate, conclusively
or otherwise, that Brown’s competitors were not fore-
68
[fol. 73] closed, as a practical matter, from selling to re-
tailers under the Brown franchise plan; nor does it rebut
the other evidence of record clearly indicating that respond-
ent has effectively restricted access to the market repre-
sented by its franchisees tc vendors of conflicting lines.
In short, from our review of the record, we find that re-
spondent’s operation of the franchise plan, which has effec-
tively foreclosed its competitors from selling to a signifi-
cant number of retail shoe stores, constitutes an unfair
trade practice under Section 5 of the Federal Trade Com-
mission Act. Respondent’s practice of cunditioning the ben-
efits of membership in the plan to adherence to the restric-
tive terms of the franchise agreement for the purpose of
foreclosing other manufacturers from selling to its fran-
chisees is akin to the operation of tying clauses generally
held as inherently anticompetitive.
Brown, on the other hand, contends that the legality or
illegality of its franchise plan may be determined only
after an examination of the competitive impact of the plan
throughout the nation. Brown further argues that the fran-
chise plan involves only an insubstantial share of the na-
tional market either in terms of shoes sold
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