Walsh, John A.

English

Marquette University Law School

Marquette Law ReviewVolume 14Issue 3 April 1930 Article 6Clayton Acts Combinations: SubstantialReduction in CompetitionJohn A. WalshFollow this and additional works at: http://scholarship.law.marquette.edu/mulrPart of the Law CommonsThis Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion inMarquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contactmegan.obrien@marquette.edu.Repository CitationJohn A. Walsh, Clayton Acts Combinations: Substantial Reduction in Competition, 14 Marq. L. Rev. 175 (1930).Available at: http://scholarship.law.marquette.edu/mulr/vol14/iss3/6NOTES AND COMMENTClayton Acts Combinations: Substantial Reduction in Competition.International Shoe Co., Petitioner, v. Federal Trade Commission(Jan. 6, 1930) 74 L. Ed. 173 (U.-S.)The International Shoe Company, with headquarters in St. Louis,is the largest shoe manufacturer in the United States. In 1921 itowned 32 factories and its capacity was 70,000 pairs of shoes per day.The W. H. McElwain Company was then a Massachusetts Corpora-tion, the largest shoe manufacturers in New England and the fifth orsixth largest in the 'United States. On or about May 11, 1921, theInternational Shoe Company obtained all or practically all of the stockor other share capital of the W. H. McElwain Company. This mergerwas investigated by the Federal Trade Commission and they directedthe petitioner to divest itself of the stock of the McElwain Companybecause it was acquired in violation of Section 7 of the Clayton Act(38 Stat. 730; 15 U.S.C.A. § 18. Section 7 of the Clayton Act provides:"That no corporation engaged in commerce shall acquire, directly orindirectly, the whole or any part of the stock or other share capital ofanother corporation engaged also in commerce, where the effect ofsuch acquisition may be to substantially lessen competition, betweenthe corporation whose stock is so acquired and the corporation makingthe acquisition, or to restrain such commerce in any section or com-munity, or tend to create a monopoly of any line of commerce." Sec.11 (15 U.S.C.A. § 21) provides that the commission after hearing shallstate its findings of fact and order that such violation of the Act cease.It also provides for review by the court but says," the findings of theCommission as to the facts if supported by testimony shall be con-clusive."The International Shoe Company appealed to the Circuit Court ofAppeals (First Circuit) and that court unanimously upheld the find-ings of the commission, that the combine was in violation of the Clay-ton Act (29 F. (2d) 518). The International Company then appealedto the United States Supreme Court and there with Justice "Holmes,Brandeis and Stone dissenting, both the Federal Trade Commissionand the Circuit Court of Appeals were reversed.The reasons given by the Supreme Court for this reversal were:(1) that the McElwain Company was not an actual competitor of theInternational Shoe Company because "the markets reached by the twocompanies within these states, with slight exceptions hereafter men-tioned, were not the same."1 (2) The McElwain Company was uponthe verge of bankruptcy and therefore was no longer a competitor ofthe International Shoe Company.1 Advance Sheets 74 L. Ed. 175.MARQUETTE LAW REVIEWBoth of these questions were considered by the Federal Trade Com-mission and by the Circuit Court of Appeals. In reference to theformer the commission found, "Both companies made and sold mediumpriced dress shoes and sold such shoes to retail dealers in the samestates and in many of the same cities and towns, and in some instances,to the same dealers."'2 On the second point the Commission found theMcElwain Company solvent and the Circuit Court approved that find-ing in the words, "While the McElwain Company had suffered sub-stafitial losses in the tremendous slump in prices in 1920-21, there isno foundation whatever for the petitioners contention that (except forthis purchase) the concern would have gone out of existence, andtherefore out of competition with the petitioner."3Of these findings Justice Stone in his dissenting opinion says, "With-out stating it in detail, there appears to me to be abundant evidencethat the competitive products made by two of the largest shoe manu-facturers in the world reached the same local communities throughdifferent agencies of distribution."4And in regard to the second point, "Nor am I able to say that theMcElwain Company, for the stock of which petitioner gave its ownstock, having a market value of $9,460,000, was then in such financialstraits as to preclude the reasonable inference-that its business-would probably continue to compete with that of petitioner.4 (SeeStandard Fashion Company v. Magrane-Houston Co., 288 U.S. 346,66 L. Ed. 653.) It plainly had large value as a going concern-therewas no evidence that it would have been worth more or as much ifdismantled, and there was evidence that the depression in the shoetrade in 1920-21 was then a passing phase of the business.' 5These are the main reasons opposing the decision of the court. Thecourt itself justifies its decision that there was no substantial competi-tion between the two companies because "An analysis of the sales ofthe International for the twelve months preceding the acquisition ofthe McElwain capital stock discloses that in forty-two states, no men'sdress shoes were sold to customers of the McElwain Company; andthat in the remaining six states, during the same period, a total of only52 5/12 dozen pairs of such shoes had been sold to sixteen retailersand three wholesalers, who were also customers of the McElwain Com-pany. This amounted to less than one fourth of the production of dress2.3 29F. (2d). 518, 521.4 74 L. Ed. 179, 180.5 74 L. Ed. 173, 180.NOTES AND COMMENTshoes by the International for a single day, the daily production beingabout 250 dozen pair."6And in the second place, the court felt that the McElwain Co. wasvirtually insolvent. Mr. Justice Sutherland says, "Shortly stated, theevidence established the case of a corporation in failing circumstances,the recovery of which to a normal condition was, to say, the least ingravest doubt, selling its capital to the only available purchaser inorder to avoid what its officers fairly concluded was a more disas-trous fate."'7Thus we see that the United States Supreme Court reviewing theevidence which was presented before the Federal Trade Commissionand the Circuit Court of Appeals came to the conclusion that the factsfound by the commission were not supported by testimony. The com-mission and the judges of the Circuit Court of Appeals, who unani-mously affirmed the commission's order, mfist have found some testi-mony to support it. The Congress of the United States said, "thefindings of the commission as to the facts if supported by testimonyshall be conclusive." (15 U.S.C.A. § 21.) It is also worthy of note thatthe court says in Federal Trade Commission v. Pacific States PaperTrade Association, 273 U.S. 52, 71 L. Ed. 534, 47 Sup. Ct. Rep. 255,"The weight to be given to the facts and circumstances admitted, sowell as the inferences reasonably drawn from them is for the com-mission."In spite of the direct legislative enactment that the findings of factof the commission should be final and in opposition to their own viewson this subject, as expressed in a very recent case, the court reversedthe commission and the Circuit Court of Appeals on a question offact. The sole question was the McElwain Company in substantial com-petition and likely to remain as such competitor with the InternationalShoe Company, seems to me to be a question of fact. It is often ex-tremely difficult to distinguish questions of law from questions of fact,but I feel that the great mass of mankind and probably most of themembers of the bar would call this a question of fact.Moreover, it is worthy of note that in this case Justices Stone,Brandeis and Holmes dissented. In both Thatcher Manufacturing Co.v. Federal Trade Commission and in Swift & Company v. Same, 272U.S. 554, 47 Sup. Ct. 175, 71 L. Ed. 405, the Court held, "we are ofthe opinion that under Sections 7 and 11 of the Clayton Act the com-mission is without authority to require one who has secured actualtitle and possession of physical property before proceedings were begun6 74 L. Ed. 173, 178.7 74 L. Ed. 173, 178.MARQUETTE LAW REVIEWagainst it to dispose of the same, although secured through an unlawfulpurchase of stock." Again, in this case, Justices Brandeis, Holmes &Stone dissented and here they were joined by Chief Justice Taft.The Clayton Act (passed Oct. 15, 1914), attempted to effect in anarrow field what the Sherman Anti Trust Act (July 2, 1890) wasunable to do. Is this act more effective than its predecessor? It seemsthat it is not. We are living in an age of big business, of consolidation,of merger. It seems useless for the Congress or the Courts to attemptto stem the tide. It seems that we can only hope that these consolida-tions and mergers are for the common good and general welfare, fortoday they carry on.JOHN A. WALSHInfants: Misrepresentation: Liability for Torts.The case of the Wisconsin Loan & Finance Corp. v. Goodnough,228 N.W. 484, was an action on a note signed by defendant. The de-fendant set up in his answer that he was at that time a minor and couldnot be held on an action for payment of the note. The plaintiff de-manded recovery on the grounds that the defendant misrepresented hisage, maintaining that he was legally capable of executing a note.The Wisconsin Supreme Court enforced the minor's transaction withthe plaintiff, holding that a minor can be held on a tort liability formisrepresentation and deceit.The question which seems to divide courts in consideration of thismatter is whether or not the fraudulent representations enter into thecontract. In. Fitts v. Hail, 9 N.H. 411, after referring to the leadingEnglish case of Johnson v. Pie, 1st Keb. 913, it was held: "The rep-resentation in Johnson v. Pie, and in the present case, that the defend-antwas of full age, was not part of the contract, nor did it grow outof the contract, or in any way result from it. It is not any part of itsterms, nor was it _he consideration upon which the contract wasfounded. No contract was made about the defendant's age. The saleof the goods was not a consideration for this affirmation or representa-tion. The representation was not a foundation for an action of assump-sit. The matter arises purely ex delicto. The fraud was intended toinduce, and did induce, the plaintiff to make a contract for the sale ofthe hats, but that by no means makes it part and parcel of the contract.It was antecedent to the contract; and if an infant is liable for a posi-tive wrong connected with a contract, but arising after the contracthas been' made, he may well be answerable for one committed beforethe contract was entered into, although it may have led to the contract.8 71 Cd. 405 at 411.

Clayton Acts Combinations: Substantial Reduction in Competition

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Clayton Acts Combinations: Substantial Reduction in Competition

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