Lexis Nexis - Case Brief

Not a Lexis Advance subscriber? Try it out for free.

Law School Case Brief

Int'l Shoe Co. v. FTC - 280 U.S. 291, 50 S. Ct. 89 (1930)

Rule:

Where a case discloses a corporation with resources so depleted and the prospect of rehabilitation so remote that it faced the grave probability of a business failure with resulting loss to its stockholders and injury to the communities where its plants were operated, the purchase of its capital stock by a competitor (there being no other prospective purchaser), not with a purpose to lessen competition, but to facilitate the accumulated business of the purchaser and with the effect of mitigating seriously injurious consequences otherwise probable, is not in contemplation of law prejudicial to the public and does not substantially lessen competition or restrain commerce within the intent of the Clayton Act. To regard such a transaction as a violation of law would seem a distempered view of purchase and result.

Facts:

The complaint charges that in May 1921, while International Shoe Company (International Shoe) and the W. H. McElwain Company (McElwain) were engaged in commerce in competition with each other, International Shoe acquired all, or substantially all, of the capital stock of the McElwain and still owns and controls the same; that the effect of such acquisition was to substantially lessen competition between the two companies; to restrain commerce in the shoe business in the localities where both were engaged in business in interstate commerce; and to tend to create a monopoly in interstate commerce in such business. The last named charge has not been pressed and may be put aside. Upon a hearing before the Federal Trade Commission (FTC), evidence was introduced from which the FTC found, (a) that the capital stock of the McElwain had been acquired by International Shoe at the time charged in the complaint, (b) that the two companies were at the time in substantial competition with one another, and (c) that the effect of the acquisition was to substantially lessen competition between them and to restrain commerce. The FTC then issued an order directing International Shoe to divest itself of all capital stock of the McElwain then held or owned, directly or indirectly, by petitioner, and to cease and desist from the ownership, operation, management and control of all assets acquired from the McElwain subsequent to the acquisition of the capital stock, and to divest itself of all such assets. Upon appeal by International Shoe, the intermediate appellate court the order from the FTC. International Shoe sought further review in the United State Supreme Court.

Issue:

Did International Shoe violate the Clayton Act by acquiring the stock of McElwain?

Answer:

No

Conclusion:

The Court reversed the judgment of the appellate court and held that International Shoe had not violated § 7 of the Clayton Act, 15 U.S.C.S. § 18, by acquiring the stock of another corporation. The Court found that although both companies were engaged in the business of manufacturing dress shoes, the companies were not substantially in competition with each other. The Court based its finding on evidence that showed that 95 percent of McElwain's product was sold in the large centers of population, while International Shoe's product was primarily sold in the rural sections and the small towns to meet a wholly different demand. The Court stated that the mere acquisition by one corporation of the stock of a competitor, even though it may have resulted in some lessening of competition, was not forbidden, for the Clayton Act dealt only with such acquisitions as probably would result in lessening competition to a substantial degree. Second, the Court found that at the time of the acquisition, the financial condition of the acquired company was such as to necessitate liquidation or sale, and, therefore, the prospect for future competition or restraint had been entirely eliminated.

Access the full text case Not a Lexis Advance subscriber? Try it out for free.
Be Sure You're Prepared for Class